Management Process
Learning Objectives
By the end of this chapter, you should be able to: • Describe three methods of selecting projects. • List ten skills necessary to be a successful project
manager.
• Define project management.
• List the differences between a project and rou-tine repetitive work.
• Describe the project management process.
In well-managed organizations, programs and projects to be funded are selected thoughtfully. There is usually a clear link between strategic management, operations management, and project management. Projects are often chosen because they represent the best use of the organization's resources. When projects are closed down, they can then be evaluated against this selection criteria.
Although most project managers and project leaders are not responsible for choosing projects, they make better project decisions when they understand the selection process.
If programs and projects were easy to accomplish, there would be little need for detailed planning and control. Anyone could be a successful project manager. However, beyond 25 or 30 tasks, projects can become complex and difficult to plan and manage for a variety of reasons, including the following: • Defining and refining the scope of a project is often an ongoing process that
continues until the project is complete.
• Newly formed project teams, committees, and task forces are often made up of many people who have never worked together before.
• Using new materials, such as fiber optics, ceramics, or a new alloy, is bound to have unforeseen results.
• Moving a group of people from one location to another without having a negative impact on operations requires careful coordination and control. • The needs of many clients or users must be coordinated simultaneously. • Conformance to organizational policies, procedures, and standards may add
hurdles or red tape.
• Organizational boundaries may add operational and political problems. This is a general list. Your project will have additional challenges. If you take the time to complete this course, you will be well prepared to become a successful project manager.
PROJECT SELECTION AND EVALUATION
Successful organizations tend to choose projects and make other investment decisions based on their compatibility with organizational strategy. Although project managers are rarely responsible for investment decisions, you must have enough familiarity with the general concepts to prepare a proposal that has a fair chance of being approved. Automated spreadsheets are now in common use to forecast future revenues, costs, and expenses. Project management software, estimating software, and computer spreadsheets aid today's project leader and project manager. Increasingly, expert systems make use of sophisticated projec-tions and calculaprojec-tions based on a variety of future scenarios.
Few decision makers rely on intuition for betting the organization's re-sources. Virtually all methods for selecting projects are based on assumptions and predictions of the future. Some of the more common methods used in evaluating projects include:
• Cost avoidance • Cost-benefit analysis • Break-even analysis • Net present value
In the following sections, you will explore these financial methods for compar-ing, selectcompar-ing, and evaluating projects.
Cost Avoidance
Cost avoidance, particularly during a period of slow economic growth or downturn, is a common selection method. Cost avoidance compares two
scenarios: the proposed reengineered system and the current system. The first scenario assumes that a project was implemented and completed; the other does
not. (In Exhibit 1-1, the vertical line where the current and proposed systems split is the point in time at which the proposed system would be implemented. In this case, the question: How much money will the organization save as a direct result of this project? can be answered by using dollars as a yardstick.
In performing cost calculations and cost-benefit calculations, you will need to determine recurring costs or savings, one-time development costs, and intangible benefits. Each is discussed below.
Recurring Costs or Savings
Recurring costs or savings include factors associated with the operation or continued creation of the new product, such as a newly renovated facility. Recurring costs and savings affect the annual operating expenses of the orga-nization after the project is completed. In fact, they affect bottom-line profit and
loss statements for months, even years, after the project is finished. Some examples of recurring costs are increased or reduced personnel, maintenance, depreciation on additional equipment, allocation of equipment costs, space, supplies, and training. Note that any of these categories can be classified as a cost or a saving.
Several factors must be considered when you determine what your recur-ring costs or savings will be. First, find out if potential savings will be allocated
or out of pocket. Out-of-pocket savings will actually save the company money and improve the bottom line. Allocated savings, on the other hand, reflect only that a factor has been reallocated from one cost category to another. For
example, moving from a large mainframe onto a PC network might allow the user to decrease charge-out dollars substantially. From the organization's point of view, however, the mainframe still exists and, in fact, still represents an expense. Therefore, although the user realizes an allocated savings, the project might not be approved because the company would not realize out-of-pocket savings. The lesson is this: Determine whether your savings will be allocated
or out of pocket. Then find out whether your allocated savings (if any) are acceptable to management.
One-tune Development Costs
One-time development costs include expenditures that make up the budget of the project. One-time development costs, or initial outlays, provide funding for the project to begin and evolve to its conclusion. After being spent, these costs will not recur. They include such items as labor; temporary space; supplies; training (pre-project and prior to installation); travel and expenses; conversion, or one-time tooling costs; equipment (purchase or lease); contracted services; and research (new technology). These items should be considered carefully. Labor is usually the most substantial project cost and the most difficult to determine-largely because of the inexact nature of time estimating.
Intangible Benefits
Intangibles are items, such as customer goodwill, that cannot be measured in dollars. Although they are important to the project's progress, they do not really lend themselves to quantification. Other intangible benefits are improved image, better competitive position, reduced risk, increased customer service, and im-proved growth potential. Many more items could be added to this list and, in fact, a monetary value could be affixed to almost any of these intangibles. Increased customer service could be quantified by the following reasoning: Fewer complaints mean less adjustment time. Therefore, manpower could possibly be reduced. Fewer complaints can also improve the organization's repu-tation and, in the private sector, can lead to increased sales. Intangible benefits of the project can have a significant influence on project selection decisions. Cost-benefit Analysis
Every organization that wishes to survive bad times and thrive in good times must develop the skills and techniques necessary to get the most from every dollar spent. Cost-benefit analysis is a technique for doing this that can be applied to projects.
Exhibit 1-2 is a diagram that depicts the ideal relationship of costs to benefits over the life of a product. Notice that costs, although high initially, plummet after installation because only the remaining operating and mainte-nance costs must be covered. Although costs decline, benefits increase, eventu-ally resulting in many years of profits. Exhibit 1-3 presents a less favorable scenario. It shows a new product that has a limited life span. Over time, the profits fall to zero, at which time the system should probably be replaced. While that product or system is maturing, the cycle for newer products must start again or a loss for the organization will result. If the company waits until after the "system replacement point," the result is a negative cash flow for the product or system. Because every product you create will have a limited life cycle, one or more replacement products will be needed to maintain a positive cash flow.
Some guidelines for creating a cost-benefit comparison are:
• Include the same items when comparing the old approach with the new one. • Calculate the break-even point (discussed later in this chapter).
• Represent items graphically whenever possible.
• Consider several scenarios with differing interest rates and inflation rates. In addition to cost-benefit charts, there are many other formats to consider in comparing project costs and benefits. We will examine the graphic; tabular, free-form; and preprinted formats. Of course, your project circumstances may require you to modify these forms, creating your own custom format. The tabular, free-form format illustrated in Exhibit 1-4 indicates that the one-time development costs are $92,215; the annual operating savings are $398,270; the annual operating costs are $306,585; and the break-even period is 3.3 months. In many cases, this time period is determined by dividing the net savings by the initial outlay. In other cases, savings do not necessarily begin immediately after the project is completed nor are savings generated in a consistent pattern.
The preprinted format shown in Exhibit 1-5 is useful if you can isolate all the pertinent categories beforehand. The Effect on Annual Operating Expenses section shows how the current system compares with the proposed system. This is important information for management. For example, if a current system that costs $100,000 to operate could, with the recommended changes, be operated for $95,000, the savings would be $5,000. On the other hand, that same savings for a system that now costs $8,000 to operate would be proportionately much higher because that system could then be run for almost two-thirds less.
In the Initial Outlay section, the days of effort are broken down into development effort and implementation effort. Of course, items such as Key-punch-Testing are probably not appropriate for your own projects. The form begins with Effect on Annual Operating Expenses, to compare the costs of the current system with those of the proposed system. The resulting dollar benefit appears under Annual Expense Decrease. Near the bottom of the form is space for evaluation at project completion.
xhibit 1-3
Break-even Analysis
Break-even analysis is a calculation commonly used in selecting new products for development. Although not illustrated here, it can include numbers of units, such as gallons or products, in its calculation. A break-even analysis for a systems project is shown in Exhibit 1-6, in which the break-even point occurs near the
end of 1995. The break-even point is the point at which the cash outflow for a new product or other project equals the related cash inflow. After that point, the company has recovered its development costs for the product and begins to make a profit. In other words, management "loans" so much money on the condition that there will be sufficient revenue to offset the expenditure. Man-agement's questions to you will be: How long will it take after the project is completed before we begin making a profit? How much will we make?
Developing the break-even point, therefore, may take a few more calcu-lations. Whatever the mathematical approach, the final break-even figure will provide another factor that helps you to select a project and evaluate it when it is complete. For example, if the organization won't break even until two years after the project is completed, upper management might not approve the project unless there are compelling reasons to do so, such as survival in the marketplace or an opportunity to exploit a new market niche.
xhibit 1-5
Net Present Value
A more sophisticated model for determining a project's financial feasibility is net present value. It can be used for capital projects, new products, or any project spanning a number of years. Although this course focuses on planning, manag-ing, and coordinating small projects, a general understanding of net present value is useful in understanding why and how longer-term selection decisions are made. In addition, in many cases a small project may be part of a program spanning five or more years.
Net present value takes into account the following factors:
• Cash outflows early in the life of the project, without any corresponding cash inflows
• The expected rate of inflation • An expected rate of return
• (In most cases) positive caster flow over the life of the project and beyond Net present value of a project is the current value of future earnings discounted by a predetermined rate. The required rate of return, also known as a hurdle rate, for a project is the rate at which future cash flows are discounted, comparing the cost of the investment to its present value.
There are many instances in which an organization may go ahead with a project even though it has determined that the net present value does not exceed the necessary rate of return. Like many other models, the net present value can
be calculated with any number of rates of return or number of years. Fortu-nately, spreadsheet programs are capable of quickly making these and other calculations.
These methods of selecting projects are rarely the responsibility of project leaders or project managers. You will usually be asked to manage a project after the selection decision is made.
WHAT DOES IT TAKE TO BE A SUCCESSFUL PROJECT MANAGER?
If there were an opening in your organization for a new project manager or leader, would you apply for the job? Before throwing your hat into the ring, you would probably want to know what you would be getting yourself into. Depending on the nature of the project, both specialists and generalists can be successful. As a project leader in some organizations, you need only a minimal level of technical knowledge to understand the project; in others, it may be necessary for you to be a specialist. Few people have all the skills listed here, but if are you willing to develop the necessary skills and keep learning, you're probably a good candidate. The following are the skills needed:
• Planning • Organizing • Integrating • Scheduling • Coordinating • Managing • Communicating • Selling • Placating • Politicking • Negotiating • Administering • Managing conflict
People with these skills are in great demand. They move up quickly and are motivated by the challenge. To be a successful project manager requires the development of a flexible but methodical process for planning and management and the cultivation of diverse skills. You must be able to manage tasks and relationships. You must be able to juggle quality, cost, and schedule. Proficiency with project management software and computer literacy must be developed. Fortunately, many easy-to-learn-and-use software packages are available in every price range. Today, software exists that can effectively coordinate major programs made up of dozens of projects and thousands of tasks!
In this course, you will learn a step-by-step process for planning and managing a project of approximately six months or less. This process can also be applied to much larger projects. Concrete examples from new product development, facilities management, and other fields will illustrate the process.
Project management is the process of leading a team of people in planning and managing a number of related tasks that must be accomplished by a specific date. Because it involves coordinating the efforts of others, it is a team process.
Program management is the coordination of funding, planning, manage-ment, and support of a strategic initiative. A program of design, developmanage-ment, production, and support of an aircraft engine can include more than one hundred related projects. "Program" usually refers to large efforts that can take years to complete. Program management typically involves many more people and the management of many related projects over several years. Programs are often the responsibility of an entire organization.
Because projects take on unexplored territory, assumptions about the project must be listed, risks assessed, and contingency plans developed. The needs of all stakeholders, including required documentation, must be identified. Stakeholders are all groups and individuals who are somehow affiliated with the project. They include the customer or client, project sponsor, project manager or leader, project team, program manager if the project is part of a larger program, and team members from parallel, or sister, projects. Learning curves should be examined and training and development planned. The project plan,
detailed in Chapter 2, will chart the path.
Projects undertaken by project teams can vary widely in the amount of new territory they cover. A project with a large amount of unexplored territory that crosses functional boundaries is likely to be more challenging to plan and manage. For some projects, 75 percent or more of the tasks that need to be accomplished may be similar or identical to another project; for others, 75 percent may be untried. An example of this might be a start-up company planning to exhibit at a trade show for the first time. Because the project has never been done before, defining the work, clarifying responsibilities, establish-ing boundaries, and estimatestablish-ing the amount of time needed to perform project tasks will be challenging.
In addition to planning and exhibiting at trade shows, the project manage-ment process can be applied to installing computers, establishing a procedure to measure the effectiveness of training, reengineering work processes, benchmark-ing, running a political campaign, planning a comedy show, and just about any other nonroutine collection of tasks.
Certain characteristics must be present for you to benefit from the project management process. Your project must:
• Be unique. At least part of the project must involve new tasks. • Be intended to achieve a specific goal
• Be made up of tasks, many of which have uncertain time and cost estimates • Be completed within a certain time period
A routine and repetitive production job would not profit from the use of the project management process, nor would routine monthly billing. These efforts tend to be identical with each occurrence, and are not projects.
THE PROJECT MANAGEMENT PROCESS
The Japanese are noted for their success in meticulously planning and managing complex high-technology programs. They plan until everyone involved feels all the requirements are defined and all the work activities are rigorously plotted. Because even small projects can be complex, the Japanese approach may not be a bad one to emulate. By investing time in planning, you will be able to concentrate less on rework and putting out fires and more on coping with the inevitable changes in staff and scope. The choice is either detailed planning or frantic rework. Rework is usually significantly more costly.
The project management process discussed in this course promotes thor-ough investigation and documentation of each phase. Because of the exacting methodology, important tasks and related details are not likely to be omitted. Subcontracted segments of the project can be scheduled more easily. Potential problems can, in most instances, be spotted in time to prevent them. After status reviews, the project leader, team, and client jointly decide on possible trade-offs of funds, manpower, and time, as well as on revisions to product specifications.
The project management process includes reports and tools to keep the project team, management, and clients informed of progress. Quality is ensured by establishing explicit completion criteria and a precise measurement of per-centage complete. There may be other measurements. Through ongoing track-ing and review of status, the decision to cancel a misguided project can be made early. The funds remaining in the project budget may then be reallocated to more worthy projects.
Project Phases
The project management process is a systematic approach consisting of four phases: concept, planning, implementation, and closedown. In most cases, the project's concept needs to be substantially formulated to make a valid selection decision. At or near the end of each phase, a decision must be made whether to continue funding the project. Each phase includes several steps. Although these steps are sequential, they often overlap. For example, while the project plan is being composed, some project work can probably begin.
Phases or stages vary widely among projects. Most organizations have at least one set of phases so that you can begin categorizing types of project work. Of course, phases vary even within a single organization, depending on the type of project. Software development projects, for example, tend to have as many as eight or more phases.
We refer to a more general system of phases that can be applied to a variety of projects. You can adopt or modify this system of concept, planning, imple-mentation, and closedown to suit your project.
Concept Phase
Kicking off the concept phase, an idea emerges, perhaps from a self-managing team, a customer, or from an engineer. If the idea seems feasible and meets selection criteria, it is more closely scrutinized by developing a preliminary project plan or proposal that includes the approximate scope of the project. A
that spawned the project, a description, skills required to do the work, amount of time it will take, expected cost, profit, assumptions, and risks and benefits of completing the project. A high-level schedule, usually on a Gantt chart, is usually attached.
In many environments, projects that clear this hurdle are then handed to a project leader, self-directed team, or manager. You may or may not have advance notice. In some environments, particularly if you have a lot of expe-rience, you may be part of the concept discussion.
Planning Phase
If the concept is approved, a full-blown project plan is developed. The planning phase includes a series of meetings with members of the project team, the customer, client, or owner and other stakeholders to refine the preliminary project plan, which was developed in the concept phase. Time and cost estimates are detailed. In too many cases, the project planning style is ready-fire-aim. With this approach, there is small wonder why new trade shows are badly equipped and why renovation and construction projects sometimes demolish early cost estimates. Some reasons why projects are not successful include:
• Lack of completion criteria for all levels of project work • Delayed and lengthy development of a prototype
• Exclusion of customers or key suppliers until late in the process . • Lack of regularly scheduled and disciplined status meetings • Lack of long-term forecasting of trends in related technologies
• Lack of ongoing measurement and refinement of the new product develop-ment process
In new product development, in which many simultaneous related projects are being planned, it is likely that a business plan and a preliminary project plan will be developed during the concept phase. After approval, a more detailed project plan will be composed. When a project is a certainty, such as a project to repair flood damage, work will often begin while the project plan is being developed. For example, evacuating people from flooded areas wouldn't wait until the project plan was completed.
If the preliminary project plan is seen as rough work, the project plan is closer to finish work. To refine a project plan, each section of the preliminary project plan is closely examined. The following nine steps are required to convert a preliminary project plan into a project plan:
1. Recruit and assign human resources. Seek out skilled team members. For small projects, you may be working alone for the most part, relying on others for reports and materials. On larger projects, you may have a number of full-time people assigned to the project.
2. Compose the first five sections of the project plan. These are explained in Chapter 2.
a. Project definition
b. Project goal and purpose c. Project phases
d. Major milestones e. Team requirements
As the plan evolves, reevaluate and revise estimates by using the preliminary project plan, Gantt charts, work breakdown structure, task network, and resource leveling charts.
3. Construct the work breakdown structure (WBS). A work breakdown struc-ture is a hierarchy of project work (see Chapter 4). It usually breaks all project work into an outline. As a rule of thumb, if any of your activities or tasks are estimated to take more than a month to accomplish, they should probably be decomposed, or broken into a finer granularity. This will make it easier to estimate costs and identify opportunities to reduce project time. This step may not be necessary for small projects of 25 or fewer tasks. On projects of that size, a simple Gantt chart, discussed in Chapter 6, may be enough to plan and track.
In larger projects, the work breakdown structure takes major milestones and breaks them down vertically into progressively smaller pieces until time and cost can be estimated. Most organizations refer to the components at this level of work as tasks, work packages, or cost accounts. This is likely to be the point at which the WBS and related project information is entered into an automated project management software package.
4. Estimate the time required. The amount of expended time and elapsed time for each project component must be estimated. Expended time is the amount of effort, expressed in time, it would take to complete a task if a person never left the desk or workstation. Elapsed time is the actual calendar time needed to accomplish a task.
5. Create a task network. A task network is a chart that displays the sequence of project tasks on nodes and lines (see Chapter 5). It is made up of a collection of paths that begin at a start node and show the flow of the project from left to right. It charts the relationships between and among all prede-cessors and sucprede-cessors and converges on the finish, or end, of the project. If your project is made up of only 25 tasks, a task network may not be necessary.
6. Produce a Gantt chart. A Gantt chart is a bar chart depicting the relationship of activities to a calendar displayed at the top of the chart (see Chapter 6). If you are planning a small project, with 25 or 30 tasks, a simple Gantt chart
may suffice as a stand-alone chart to aid in project planning and management. If you have project management software, use it. Updating project results and
making changes is much quicker. All the popular PC- and Macintosh-based project management software applications are capable of providing a variety of data columns for costs, schedules, and resources.
7. Generate a resource loading chart and a resource leveling chart. A resource loading chart is a histogram that displays the number of resources assigned during each time period (see Chapter 7). A resource leveling chart reassigns resources from the peaks of the resource loading chart to time periods with lower numbers of resources assigned.
sources, and the project budget. Later, when the first project reports are generated, differences between the baseline and the actual schedule and costs can be compared and corrective action taken.
9. Consult stakeholders for status reporting needs. Virtually all stakeholders will be interested in getting periodic reports about project progress. Check with the customer, project champion, sponsor, team members, functional management, managers of sister projects, and program management if the project is part of a program.
Implementation Phase
During the implementation phase, the plan is executed. The project manager and team attempt to keep the project on schedule, under budget, and in conformance with quality standards. An integral part of the implementation phase is the project control cycle (see Chapter 8). During the implementation phase, regular status meetings facilitate communications among the project team, the customer, and other project stakeholders.
Too often projects are implemented before detailed planning. They result in wasted dollars and resources because of needed rework. In the implementa-tion phase, the project manager and team use the control cycle to try to meet the project objectives. The six steps of the implementation phase are:
1. Begin project work. Ensure that all stakeholders are comfortable with the status reporting system to gather and report project data on a regular basis. 2. Gather. status information. Obtain update information on the schedule,
budget, and performance.
3. Update project files. Update your project management software or use a manual system to combine data inputs and report status.
4. Analyze results. As work progresses, compare the actual budget and schedule to plan. Calculate earned value, cost, and schedule variances and try to determine why there are discrepancies.
5. Take corrective action. Make changes in the plan. After analyzing variances, discuss and set in motion ideas and trade-offs for correcting the direction of
the project team.
6. Report results. Inform team members and other stakeholders of your progress and corrective actions.
Steps 2, 3, 4, 5, and 6 of the implementation phase make up the project control cycle, which is usually repeated on a weekly or biweekly basis.
Closedown Phase
The closedown, or closeout, phase begins during project implementation. In this phase, the project is terminated and life after the project is planned in earnest. During the closedown phase, some types o£ meetings may occur daily. For a small project, such as exhibiting at a trade show, the closedown phase may be complete when all prospects identified at the trade show have been qualified and the qualified leads contacted. Reassignment of team members to other projects
can occur at any point in the project after the members' tasks are complete. For example, some people, such as technical specialists, may return to their jobs after the trade show (see Chapter 9). Five steps of the closedown phase are recommended:
1. Reassignment. Reassign or release project team members to new projects as their tasks are completed.
2. Perform a post-project evaluation or audit. Examine the project plan and its details, including risks, time, and cost estimates. Document the lessons you learned.
3. Hold a transition meeting with the customer or client. For any type of project, ensure clarity with the sponsor, client, or customer by listing re-sponsibilities and timing for project completion and follow up.
4. Hold a post-project meeting with the project team and management. Ter-minate the project. Ensure that all project work is stopped. Determine the project's costs and expenses. Recognize and reward team member achievements.
5. Prepare a final report for management. The report should include the final schedule, cost, and quality results, as well as comparisons to the baseline, variances, explanations, and implications for the future.
These phases, shown in Exhibit 1-7, ensure a methodical approach that is flexible enough to be used for virtually any project.
SUMMARY
Organizations that align strategies, operations, and projects use their resources well. To select projects and then evaluate them after they are complete, people commonly use financial measurements, such as cost avoidance, cost-benefit analysis, and break-even analysis.
Project management is a specialized field of management that is useful for planning and managing complex work efforts. The successful project manager
must lead a team of people, some of whom have not worked together before, through uncharted territory. The manager must be skilled in managing tasks and
relationships and must wear many hats.
Successful project management demands that the project manager and team members spend sufficient time up front in identifying all the work that needs to be done, the sequence and schedule for the tasks, and the resources needed. The manager and members must continually juggle quality, schedule, and cost. Projects are made up of four phases: concept, planning, implementa-tion, and closedown. Each phase contains several steps.
The control cycle, an iterative and often weekly cycle, ensures that prob-lems are identified early, often allowing time for preventive or corrective action.
1. As a project selection and evaluation method, cost avoidance com- 1. (c) pares:
(a) past and present.
(b) one-time development costs and recurring costs or savings. (c) costs of implementation and non-implementation.
(d) all of the above
2. One-time development costs include: 2. (d)
(a) labor.
(b) temporary space. (c) purchase of equipment. (d) all of the above.
3. The break-even point is the point at which the cash outflow for a new 3. (b) product or other project equals:
(a) profit. (b) cash inflows. (c) intangible benefits. (d) units produced.
4. Project management is: 4. (c)
(a) the management of any work effort. (b) a repetitive routine work effort.
(c) the process of leading a team of people in planning and managing a number of related tasks that must be accomplished by a specific date.
(a) schedule. (b) costs. (c) quality.
(d) all of the above
6. The project management process, as described in the chapter, is made 6. (b) up of how many phases?
(a) Three (b) Four (c) Five (d) Six
7. The project plan should be composed by: 7. (c)
(a) the department manager. (b) the project leader or manager.
(c) the project team and the customer or client. (d) the customer and suppliers.
8. A work breakdown structure (WBS) is constructed to: 8. (d)
(a) include everything not shown in the project plan. (b) mirror the organizational structure.
(c) show dependency relationships.
(d) break down the project into progressively smaller pieces.
9. On small projects of 25 tasks or fewer, the can often be 9. (d)
used as a stand-alone tool to plan and manage a project. (a) work breakdown structure
(b) task network (c) project plan (d) Gantt chart
10. A(n) is normally made up of a number of projects. 10. (b)
(a) task .
(b) program (c) milestone (d) activity