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Book extracts
Book title Project management: achieving competitive advantage.

Book author Pinto, Jeffrey K.

Citation details pages 47-49, 83, 85-86, 120, 182-184, 187-190, 225, 227-
228, 253-258, 288, 360-361, 455, 490-491, 500-501.

Extract title Extracts from Project management: achieving competitive

advantage.

Extract author Pinto, Jeffrey K.

Publication details Harlow, Essex : Pearson Education, ©2013.

Edition Third edition, global edition.

Reproduced with permission Textbook, 3013 edition, Out of print, 4th Edition to be
published.

ISBN 9780273767428 Total pages in book 528 pages :


Key Terms
Benchmarking (p. 38) Deliverables (p. 25)
Client acceptance (p. 36) Performance (p . 35)
Clients (p. 33) Process (p. 25)
Budget (p. 35) Project (p. 25)
Discussion Questions
1. What are some of the principal reasons why project manage-
ment has become such a popular business tool in recent years?
2. What do you see as being the primary challenges to introduc-
ing a project management philosophy in most organizations?
That is, why is it difficult to shift to a project-based approach in
many companies?
3. What are the advantages and disadvantages of using project
management?
4. What key characteristics do all projects possess?
5. Describe the basic elements of a project life cycle. Why is an
understanding of the life cycle relevant for our understanding
of projects?
6. Think of a successful project and an unsuccessful project with
which you are familiar. What distinguishes the two, both in
terms of the process used to develop them and their outcomes?
7. Consider the Expedition Everest case: What elements in
Disney's approach to developing its theme rides do you find
Case Study 1.1
MegaTech, Inc.
MegaTech, Inc., designs and manufactures automotive
components. For years, the company enjoyed a stable
marketplace, a small but loyal group of customers, and
a relatively predictable environment. Though slowly,
annual sales continued to grow until recently hitting $300
million. MegaTech products were popular because they
required little major updating or yearly redesign. The
stability of its market, coupled with the consistency of its
product, allowed MegaTech to forecast annual demand
accurately, to rely on production runs with long lead
times, and to concentrate on internal efficiency.
Then, with the advent of the North American Free
Trade Agreement (NAFT A) and other international trade
agreements, MegaTech found itself competing with auto
parts suppliers headquartered in countries around the
world. The company was thrust into an unfamiliar position:
It had to become customer-focused and quicker to market
with innovative products. Facing these tremendous com-
mercial challenges, top management at MegaTech decided
to recreate the company as a project-based organization.
The transition, though not smooth, has nonethe-
less paid big dividends. Top managers determined, for
Case Study 1.1 47
Project life cycle (p. 32) Project success (p. 35)
Project management (p. 28) Stakeholders (p. 32)
Project management Time (p. 35)
maturity models (p. 38) Triple constraint (p. 35)
particularly impressive? How can a firm like Disney balance
the need for efficiency and smooth development of proj-
ects with the desire to be innovative and creative? Based on
this case, what principles appear to guide its development
process?
8. Consider the six criteria for successful IT projects. Why is IT
project success often so difficult to assess? Make a case for some
factors being more important than others.
9. As organizations seek to become better at managing projects,
they often engage in benchmarking with other companies in
similar industries. Discuss the concept of benchmarking. What
are its goals? How does benchmarking work?
10. Explain the concept of a project management maturity model.
What purpose does it serve?
11. Compare and contrast the four project management maturity
models shown in Table 1.3. What strengths and weaknesses do
you perceive in each of the models?
instance, that product updates had to be much more fre-
quent. Achieving this goal meant yearly redesigns and
new technologies, which, in turn, meant making innova-
tive changes in the firm's operations. In order to make
these adjustments, special project teams were formed
around each of the company's product lines and given a
mandate to maintain market competitiveness.
At the same time, however, MegaTech wanted to
maintain its internal operating efficiencies. Thus all proj-
ect teams were given strict cost and schedule guidelines
for new product introductions. Finally, the company
created a sophisticated research and development team,
which is responsible for locating likely new avenues for
technological change 5 to 10 years down the road. Today,
MegaTech operates project teams not only for managing
current product lines but also for seeking longer-term
payoffs through applied research.
MegaTech has found the move to project manage-
ment challenging. For one thing, employees are still rethink-
ing the ways in which they allocate their time and resources.
In addition, the firm's success rate with new projects is still less
than management had hoped. Nevertheless, top managers
(continued)
48 Chapter 1 • Introduction
feel that, on balance, the shift to project management has
given the company the operating advantage that it needed
to maintain its lead over rivals in its globally competitive
industry. "Project management," admits one MegaTech
executive, "is certainly not a magic pill for success, but it has
started us thinking about how we operate. As a result, we are
doing smarter things in a faster way around here."
Case Study 1.2
Continuing Education Center at TOBB University of Economics and Technology
TOBB University of Economics and Technology (TOBB
ETU), the largest private sector institution in Turkey,
was founded by the Union of Chambers and Commodity
Exchanges of Turkey (TOBB) for educating entrepre-
neurial and qualified community leaders. In conjunc-
tion with TOBB ETU's mission of maintaining university
and industry cooperation, and enhancing productivity
through helping the workforce to acquire the relevant
skill sets, the Continuing Education Center at TOBB
ETU (ETU CEC) offers project management and consult-
ing services. They also offer a wide range of educational
programs to individuals and to organizations of all sizes,
especially small and medium enterprises (SMEs), which
constitute the backbone of the Turkish economy.
At the Continuing Education Center, courses are
taught by TOBB ETU instructors as well as by industry
professionals. Some of highly demanded courses include
Project Management, Human Resources Development
and Management, Performance Evaluation, Foreign Trade,
Training the Trainer, and Access to EU Funding. The
Continuing Education Center also utilizes the academic staff
of TOBB ETU in its projects and for consulting services.
Since 2006, ETU CEC has reached 13,000 people with
280 professional events including workshops, certificate
courses, and customized training programs for various
organizations, and has provided consulting and project
management services to 40 institutions.
The administrative board of ETU CEC includes
three professors, and the center employs a project man-
ager, a business analyst, and two administrative staff
Case Study 1.3
Disney's Expedition Everest
The newest thrill ride to open in the Walt Disney World
Resort may just be the most impressive. As Disney
approached its SOth anniversary, the company wanted to
celebrate in a truly special way. What was its idea? Create a
Questions
1. What is it about project management that offers
Mega Tech a competitive advantage in its industry?
2. What elements of the marketplace in which Mega Tech
operates led the firm to believe that project manage-
ment would improve its operations?
members. Also, each semester two or three TOBB ETU
students join the Continuing Education Center as interns
through the university's cooperative education program.
Interns mainly help administrative staff; however, after they
become familiar with ETU CEC activities, they are allowed
to participate in projects. The project manager oversees
multiple projects with full responsibility, and team members
are assigned to several projects at the same time.
Dr. Ramazan Akta~, a finance professor at TOBB
ETU and the manager of ETU CEC, says that the proj-
ect teams at ETU CEC achieve their missions with small
teams because of their strict adherence to solid project
management practices. He also states that ETU CEC
places a great emphasis on customer satisfaction. By
means of its project management system, ETU CEC has
obtained an advantage over its competitors, formed long-
term partnerships with other organizations, promoted
collaboration, acquired new projects, achieved high
customer satisfaction, and therefore sustained continuous
increases in its customer base and profits.34
Questions
1. What are the benefits and drawbacks of allowing
interns participate in ETU CEC projects?
2. What are the potential problems with requiring proj-
ect team members to be involved in multiple projects
at the same time? What are the potential advantages?
3. What benefits has ETU CEC obtained from its project
management system?
park attraction that would, in many ways, serve as the link
between Disney's amazing past and its promising future .
Disney showed that it was ready to pull out all stops in
order to get everything just right.

In 2006, The Walt Disney Company introduced
Expedition Everest in Disney's Animal Kingdom Park
at Lake Buena Vista, Florida. Expedition Everest is more
than just a roller coaster. It is the embodiment of the
Disney spirit: a ride that combines Disney's trademark
thrills, unexpected twists and turns, incredible attention
to detail, and impressive project management skills.
First, let's consider some of the technical details of
Expedition Everest:
• With a peak of just under 200 feet, the ride is con-
tained within the tallest of 18 mountains created by
Disney's Imagineers at Disney parks worldwide.
• The ride contains nearly a mile of track, with twists,
tight turns, and sudden drops.
• The Disney team created a Yeti: an enormous, fur-
covered, Audio-Animatronics monster powered
by a set of hydraulic cylinders whose combined
thrust equals that of a Boeing 747 airliner. Through
a series of sketches, computer-animated draw-
ings, sculptures, and tests that took more than two
years to perfect, Disney created and programmed its
Abominable Snowman to stand over 10 feet tall and
serve as the focal point of the ride.
• More than 900 bamboo plants, 10 species of trees,
and 110 species of shrubs were planted to re-create
the feeling of the Himalayan lowlands surrounding
Mount Everest.
• More than 1,800 tons of steel were used to construct
the mountain. The covering of the framework was
done using more than 3,000 prefabricated "chips"
created from 25 ,000 individual computer-molded
pieces of steel.
• To create the proper color schemes, 2,000 gal-
lons of stain and paint were used on rockwork and
throughout the village Disney designed to serve as a
backdrop for the ride.
• More than 2,000 handcrafted items from Asia are used
as props, cabinetry, and architectural ornamentation.
Building an attraction does not come easily or quickly
for Disney's Imagineers. Expedition Everest was several
years in development as Disney sent teams, including
Walt Disney Imagineering's Creative Executive Joe Rohde,
on repeated trips to the Himalayas in Nepal to study the
lands, architecture, colors, ecology, and culture in order
to create the most authentic setting for the new attraction.
Disney's efforts reflect a desire to do much more than pro-
vide a world-class ride experience; they demonstrate the
Imagineers' eagerness to tell a story-a story that combines
the mythology of the Yeti figure with the unique history
of the Nepalese living in the shadow of the world's tallest
mountain. Ultimately, the attraction, with all its background
and thematic elements, took nearly five years to complete.
Riders on Expedition Everest gain a real feel for the
atmosphere that Disney has worked so hard to create. The
Case Study 1.3 49
guests' adventure starts by entering the building of the
"Himalayan Escape" tour company, complete with Norbu
and Bob's booking office to obtain permits for their trip.
Overhead flutter authentic prayer flags from monasteries
in Nepal. Next, guests pass through Tashi's General Store
and Bar to stock up on supplies for their journey to the
peak of the mountain. Finally, guests pass through an old
tea warehouse that contains a remarkable museum of arti-
facts reflecting Nepal's culture, a history of the Himalayas,
and tales of the Yeti, which is said to inhabit the slopes of
Mount Everest. It is only now that guests are permitted
to board the Anandapur Rail Service for their trip to the
peak. Each train is modeled after an aging, steam-engine
train, seating 34 guests per train.
Over the next several minutes, guests are trans-
ported up the roller coaster track, through a series of
winding turns, until their encounter with the Yeti. At this
point another unique feature of the attraction emerges:
The train begins rushing backward down the track, as
though it were out of control. Through the balance of the
ride, guests experience a landscape of sights and sounds
culminating in a 50 mph final dash down the mountain
and back to the safety of the Nepalese village.
Disney's approach to the management of projects
such as Expedition Everest is to combine careful planning,
including schedule and budget preparation, with the imagi-
nation and vision for which the company is so well known.
Creativity is a critical element in the development of new
projects at Disney. The company's Imagineers include
some of the most skilled artists and computer-animation
experts in the world. Although it is easy to be impressed by
the technical knowledge of Disney's personnel, it is impor-
tant to remember that each new project is approached with
an understanding of the company's underlying business
and attention to market projections, cost control, and care-
ful project management discipline. New attraction pro-
posals are carefully screened and researched. The result is
the creation of some of the most innovative and enjoyable
rides in the world. Disney does not add new attractions to
its theme parks frequently, but when it does so, it does so
with style!
Questions
1. Suppose you were a project manager for Disney.
Based on the information in this case, what critical
success metrics do you think the company uses when
designing a new ride; that is, how would you priori-
tize the needs for addressing project cost, schedule,
quality, and client acceptance? What evidence sup-
ports your answer?
2. Why is Disney's attention to detail in its rides unique?
How does the company use the "atmosphere" discussed
in the case to maxin1ize the experience while minimiz-
ing complaints about length of wait for the ride?

Discussion Questions
1. The chapter suggests that a definition of strategic management
includes four components:
a. Developing a strategic vision and sense of mission
b. Formulating, implementing, and evaluating
c. Making cross-functional decisions
d. Achieving objectives
Discuss how each of these four elements is important in under-
standing the challenge of strategic project management. How
do projects serve to allow an organization to realize each of
these four components of strategic management?
2. Discuss the difference between organizational objectives and
strategies.
3. Your company is planning to construct a nuclear power plant in
Oregon. Why is stakeholder analysis important as a precondi-
tion of the decision whether or not to follow through with such
a plan? Conduct a stakeholder analysis for a planned upgrade to
a successful software product. Who are the key stakeholders?
4. Consider a medium-sized company that has decided to begin
using project management in a wide variety of its operations. As
part of its operational shift, it is going to adopt a project man-
agement office somewhere within the organization. Make an
argument for the type of PMO it should be adopting (weather
station, control tower, or resource pool). What are some key
decision criteria that will help it determine which model makes
the most sense?
5. What are some of the key organizational elements that can
affect the development and maintenance of a supportive orga-
nizational culture? As a consultant, what advice would you give
Case Study 2.1
Rolls-Royce Corporation
Although the name Rolls-Royce is inextricably linked with
its ultra-luxurious automobiles, the modern Rolls-Royce
operates in an entirely different competitive environment.
A leading manufacturer of power systems for aerospace,
marine, and power companies, Rolls's market is focused
on developing jet engines for a variety of uses, both com-
mercial and defense-related. In this market, the company
has two principal competitors, General Electric and Pratt
& Whitney (owned by United Technologies). There are a
limited number of smaller, niche players in the jet engine
market, but their impact from a technical and commer-
cial perspective is minor. Rolls, GE, and Pratt & Whitney
routinely engage in fierce competition for sales to defense
contractors and the commercial aviation industry. The
two main airframe manufacturers, Boeing and Airbus,
make continual multimillion-dollar purchase decisions
that are vital for the ongoing success of the engine makers.
Airbus, a private consortium of several European partner
Case Study 2.1 83
to a functional organization that was seeking to move from an
old, adversarial culture, where the various departments actively
resisted helping one another, to one that encourages "project
thinking" and cross-functional cooperation?
6. You are a member of the senior management staff at XYZ
Corporation. You have historically been using a functional
structure setup with five departments: finance, human resources,
marketing, production, and engineering.
a. Create a drawing of your simplified functional structure,
identifying the five departments.
b. Assume you have decided to move to a project structure.
What might be some of the environmental pressures that
would contribute to your belief that it is necessary to alter
the structure?
c. With the project structure, you have four ongoing projects:
stereo equipment, instrumentation and testing equipment,
optical scanners, and defense communications. Draw the
new structure that creates these four projects as part of the
organizational chart.
7. Suppose you now want to convert the structure from that in
Question 6 to a matrix structure, emphasizing dual commit-
ments to function and project.
a. Re-create the structural design to show how the matrix
would look.
b. What behavioral problems could you begin to anticipate
through this design? That is, do you see any potential
points of friction in the dual hierarchy setup?
companies, has drawn level with Boeing in sales in recent
years. Because the cost of a single jet engine, including
spare parts, can run to several million dollars, winning
large orders from either defense or commercial aircraft
builders represents an ongoing challenge for each of the
"big three" jet engine manufacturers.
Airlines in developing countries can often be a lucra-
tive but risky market for these firms. Because the coun-
tries do not maintain high levels of foreign exchange, it is
not unknown, for example, for Rolls (or its competitors)
to take partial payment in cash with assorted commodi-
ties to pay the balance. Hence, a contract with Turkey's
national airline may lead to some monetary payment for
Rolls, along with several tons of pistachios or other trade
goods! To maintain their sales and service targets, these
jet engine makers routinely resort to creative financ-
ing, long-term contracts, or asset-based trading deals.
Overall, however, the market for jet engines is projected
(continued)

Alto a one-of-a-kind technology, and the company quietly
shelved any plans for its commercial introduction.
Perhaps the ultimate irony is this: Here was a com-
pany that had made its name through the phenomenal
success of a highly innovative product, the Model 914
photocopier, but it did not know how to handle the
opportunities presented by the next phenomenon. The
Alto was so advanced that the company seemed unable
to comprehend its possibilities. Executives did not have a
strategic focus that emphasized a continual progression of
innovation. Instead, they were directed toward remaining
neck-and-neck with the competition in an incremental
approach. When competitor IBM released a new electric
typewriter, Xerox responded in the same incremental
way. The organizational structure at Xerox did not allow
any one division or key manager to become the champion
for new technologies like the Alto.
In 1979 Steven Jobs, president of Apple Computer,
was given a tour of the PARC complex and saw an Alto
in use. He was so impressed with the machine's features
Case Study 2.3
Project Task Estimation and the Culture of "Gotcha!"
I recently worked with an organization that adopted a
mind-set in which it was assumed that the best way to keep
project team members working hard was to unilaterally
trim their task duration estimates by 20%. Suppose that
you were asked to estimate the length of time necessary
to write computer code for a particular software product
and you determined that it should take about 80 hours.
Knowing you were about to present this information to
your supervisor and that she was going to immediately cut
the estimate by 20%, what would be your course of action?
You would probably first add a "fudge factor" to the esti-
mate in order to protect yourself. The conversation with
the boss might go something like this:
Boss "Have you had a chance to estimate that
coding sequence yet?"
You "Yes, it should take me 100 hours."
Case Study 2.4
Widgets 'R Us
Widgets 'R Us (WRU) is a medium-sized firm specializ-
ing in the design and manufacturing of quality widgets.
The market for widgets has been stable. Historically,
WRU has had a functional organization design with four
Case Study 2.4 85
and operating capabilities that he asked when it was due
to be commercially launched. When told that much of
this technology had been developed in 1973, Jobs became
"physically sick," he later recounted, at the thought of the
opportunity Xerox had forgone.
Questions
1. Do you see a logical contradiction in Xerox's will-
ingness to devote millions of dollars to support pure
research sites like PARC and its refusal to commer-
cially introduce the products developed?
2. How did Xerox's strategic vision work in favor of or
against the development of radical new technologies
such as the Alto?
3. What other unforeseeable events contributed to mak-
ing Xerox's executives unwilling to take any new risks
precisely at the time the Alto was ready to be released?
4. "Radical innovation cannot be too radical if we want
it to be commercially successful." Argue either in
favor of or against this statement.
Boss "That's too long. I can only give you 80
hours, tops."
You (THEATRICAL SIGH) "Well, if you say SO, but
I really don't know how
I can pull this off."
Once you leave the office and shut the door, you
turn with a smile and whisper, "Gotcha!"
Questions
1. How does the organization's culture support this sort
of behavior? What pressures does the manager face?
What pressures does the subordinate face?
2. Discuss the statement, "If you don't take my estimates
seriously, I'm not going to give you serious estimates!"
How does this statement apply to this example?
departments: accounting, sales, production, and engi-
neering. This design has served the company well, and it
has been able to compete by being the low-priced com-
pany in the industry.
(continued)
86 Chapter 2 • The Organizational Context
In the past three years, the demand for widgets has
exploded. New widgets are constantly being developed to
feed the public's seemingly insatiable demand. The aver-
age life cycle of a newly released widget is 12- 15 months.
Unfortunately, WRU is finding itself unable to compete
successfully in this new, dynamic market. The CEO has
noted a number of problems. Products are slow to market.
Many new innovations have passed right by WRU because
the company was slow to pick up signs from the market-
place that they were coming. Internal communication is
very poor. Lots of information gets kicked "upstairs," and
Internet Exercises
I. Wegmans has been consistently voted one of the 100 best com-
panies to work for in the United States by Fortune magazine. In
fact, in 2005 it was ranked number l, and in 2012 it was ranked
number 4. Go to its Web site, www.wegmans.com, and click on
"About Us." What messages, formal and informal, are being
conveyed about Wegmans through its Web site? What does the
Web site imply about the culture of the organization?
2. Go to the Web site www.projectstakeholder.com and analyze
some of the case studies found on the Web site. What do these
cases suggest about the importance of assessing stakeholder
expectations for a project before it has begun its development
process? In other words, what are the risks of waiting to address
stakeholder concerns until after a project has begun?
3. Go to a corporate Web site of your choice and access the orga-
nizational chart. What form of organization does this chart rep-
resent: functional, project, matrix, or some other form? Based
on our discussion in this chapter, what would be the likely
strengths and weaknesses of this organization's project man-
agement activities?
4. Access the corporate Web site for Fluor-Daniel Corporation
and examine its "Compliance and Ethics" section at www.fluor.
com/sustainabilityI ethics_ compliance/Pages/ default. as px.
What does the "Fluor Code of Business Conduct and Ethics"
suggest about the way the company does business? What are the
strategic goals and directions that naturally flow from the ethi-
cal code? In your opinion, how would the ethics statement in-
fluence the manner in which the company manages its projects?
PMP Certification Sample Questions
I. What is the main role of the functional manager?
a. To control resources
b. To manage the project when the project manager
isn't available
c. To define business processes
d. To manage the project manager
2. What is the typical role of senior management on a
project?
a. Support the project
b. Pay for it
c. Support the project and resolve resource and other
conflicts
d. Resolve resource and other conflicts
no one seems to know what happens to it. Department
heads constantly blame other department heads for the
problems.
Questions
1. You have been called in as a consultant to analyze the
operations at WRU. What would you advise?
2. What structural design changes might be undertaken
to improve the operations at the company?
3. What are the strengths and weaknesses of the alterna-
tive solutions the company could employ?
3. What is an organization that controls project managers,
documentation, and policies called?
a. Project Management Office
b. Strong matrix
c. Functional
d. Pure project
4. A business analyst has a career path that has been very im-
portant to her throughout the 10 years of her career. She is
put on a project with a strong matrix organizational struc-
ture. Which of the following is likely viewed as a negative
of being on the project?
a. Being away from the group and on a project that
might make it more difficult to get promoted
b. Working with people who have similar skills
c. Working long hours because the project is a high
priority
d. Not being able to take her own certification tests be-
cause she is so busy
5. The functional manager is planning the billing system re-
placement project with the newest project manager at the
company. In discussing this project, the functional man-
ager focuses on the cost associated with running the sys-
tem after it is created and the number of years the system
will last before it must be replaced. What best describes
what the functional manager is focusing on?
a. Project life cycle
b. Product life cycle
c. Project management life cycle
d. Program management life cycle
Answers: 1 a-The functional manager runs the day-to-day
operations of his department and controls the resources; 2 c-
Because senior managers usually outrank the project manager,
they can help with resolving any resource or other conflicts as
they arise; 3 a-The Project Management Office (PMO) typi-
cally has all of these responsibilities; 4 a-Being away from her
functional group may cause her to feel that her efforts on behalf
of the project are not being recognized by her functional man-
ager, since the project employs a strong matrix structure; 5 b-
The functional manager is focusing on the product life cycle,
which is developed based on an example of a successful project
and encompasses the range of use for the product.
120 Chapter 3 • Project Selection and Portfolio Management

SOLUTION SOLUTION
To answer this question, it is helpful to organize the information into Step One: Try 10%.
a table. Remember that:
Total outflow= $75,000 Discount Factor
Required rate of return = 10%
Year Inflows at 10% NPV
Discount factor= 1/(1 + .10) 1
$10,000 .909 $ 9,090
Discount Net 2 10,000 .826 8,260
Year Cash Flow Factor Inflows 3 10,000 .751 7,510

0 ($75,000) 1.00 ($75,000) Present value of inflows 24,860

30,000 .91 27,300 Cash investment - 24,000
2 30,000 .83 24,900 Difference $ 860
3 25,000 .75 18,750
4 20,000 .68 13,600 Decision: Present value difference at 10% is $860, which is too high .
Try a higher discount rate .
5 20,000 .62 12,400
Payback Step Two: Try 12%.
= 3.3 years
Discount Factor
3.3 Internal Rate of Return Year Inflows at 12% NPV
Suppose that a project required an initial cash investment of $24,000 .893 $ 8,930
$10,000
and was expected to generate inflows of $10,000, $10,000, and
2 10,000 .797 7,970
$10,000 for the next three years. Further, assume that our company's
required rate of return for new projects is 12%. Is this project worth 3 10,000 .712 7, 120
funding? Would it be a good investment if the company's required Present value of inflows 24,020
rate of return were 15%? Use the following figures to determine the Cash investment - 24,000
answers to these questions: Difference $ 20
Cash investment = $24,000
Year 1 inflow= $10,000 Decision: Present value difference at 12% is $20, which suggests that
Year 2 inflow= $10,000 12% is a close approximation of the IRR. This project would be a
Year 3 inflow= $10,000 good investment at 12%, but it would not be acceptable if the firm's
Required rate of return = 12% required rate ofreturn were 15%.

Discussion Questions

I. If you were to prioritize the criteria for a successful screening
model, which criteria would you rank at the top of your priority
list? Why?
2. What are the benefits and drawbacks of checklists as a method
for screening project alternatives?
3. How does use of the Analytical Hierarchy Process (AHP) aid
in project selection? In particular, what aspects of the screen-
ing process does the AHP seem to address and improve
directly?
4. What are the benefits and drawbacks of the profile model for
project screening? Be specific about the problems that may arise
in identifying the efficient frontier.
5. How are financial models superior to other screening models?
How are they inferior?
6. How does the options model address the problem of nonrecov-
erable investment in a project?
7. What advantages do you see in the GE Tollgate screening
approach? What disadvantages do you see? How would you
alter it?
8. Why is project portfolio management particularly challenging
in the pharmaceutical industry?
9. What are the keys to successful project portfolio management?
10. What are some of the key difficulties in successfully implement-
ing project portfolio management practices?

Problems

1. Checklist. Suppose that you are trying to choose which of two One option, Project Demeter, is evaluated as:
IT projects to accept. Your company employs three primary Technology high
selection criteria for evaluating all IT projects: (1) proven tech- Ease of transition low
nology, (2) ease of transition, and (3) projected cost savings. Projected cost savings high
182 Chapter 5 • Scope Management
The WBS serves six main purposes: (1) it
echoes project objectives; (2) it is the organization
chart for the project; (3) it creates the logic for track-
ing costs, schedule, and performance specifications
for each element in the project; (4) it may be used
to communicate project status; (5) it may be used to
improve overall project communication; and (6) it
demonstrates how the project will be controlled. The
logic of the WBS is to subdivide project deliverables
into increasingly more specific sublevels to identify
all significant activities. The common terminology
is to first identify the overall project, then the major
deliverables for that project, and finally the work pack-
ages that must be accomplished to complete each
deliverable.
Closely related to the WBS is the Organization
Breakdown Structure (OBS), which allows companies
to define the work to be accomplished and assign it to
the owners of the work packages. The budgets for these
activities are then directly assigned to the departmental
accounts responsible for the project work.
4. Develop a Responsibility Assignment Matrix for
a project. The Responsibility Assignment Matrix
(RAM), sometimes referred to as a linear responsibility
chart, identifies project team personnel who are directly
responsible for each task in the project's development.
The RAM identifies where responsible team members
Key Terms
Baseline (p. 178) Cost-plus contracts
Conceptual development (p. 175)
(p. 160) Deliverables (p. 164)
Configuration management Milestone (p. 174)
(p. 178) Organization Breakdown
Control systems Structure (OBS)
(p. 178) (p. 171)
Cost control accounts Project closeout (p. 180)
(p. 171) Project scope (p. 159)
Discussion Questions
1. What are the principal benefits of developing a comprehensive
project scope analysis?
2. What are the key characteristics of a work package?
3. Create a Work Breakdown Structure for a term paper project or
another school-related project you are working on. What are the
steps in the WBS? Can you identify any substeps for each step?
4. What are the benefits of developing a Responsibility Assignment
Matrix (RAM) for a project?
can go for task support, who should next be notified
of the task completion status, and any sign-off require-
ments. The goal of the RAM is to facilitate communi-
cation between project team personnel to minimize
transition disruptions as the project moves toward
completion. An additional benefit of the RAM is to
make the coordination between project managers and
functional department heads easier as they work to make
best use of personnel who may be assigned to the project
for only temporary periods.
5. Describe the roles of changes and configuration
management in assessing project scope. Significant
project changes occur for a number of reasons,
including (1) initial planning errors, either technological
or human; (2) additional knowledge of project or envi-
ronmental conditions; (3) uncontrollable mandates; and
(4) client requests.
The four stages of configuration management
are (1) configuration identification- breaking
down the project and identifying the specifications
of its components; (2) configuration reviews-meeting
with stakeholders to agree to project definition;
(3) configuration control-following agreement
with stakeholders, developing the breakdown and
specifications further; and (4) status accounting-
maintaining memory of all current and previous con-
figurations for reference.
Responsibility Assignment Turnkey contracts
Matrix (RAM) (p. 172) (p. 175)
Scope baseline (p. 165) WBS codes (p. 168)
Scope management (p. 159) Work authorization
Scope reporting (p. 175) (p. 174)
Scope statement Work Breakdown Structure
(p. 164) (WBS) (p. 164)
Statement of Work Work packages
(SOW) (p. 162) (p. 167)
5. Develop an argument for scope reporting mechanisms. At a
minimum, what types of reports do you consider necessary for
document control of a project? Why?
6. What is the chief purpose of configuration management? In
your opinion, why has it become increasingly popular in recent
years as a part of the project management process?
7. What is the logic behind developing a plan for project closeout
prior to even beginning the project?

Problems
I. Prepare a group project for the classroom. Use as your model
one of the following:
a. Construction project
b. Software development project
c. Events management project (e.g., an awards banquet)
d. New product development project
Develop a Statement of Work (SOW) for the project, using the
format of (1) background, (2) task, (3) objectives, (4) approach,
(5) input source. Next, create a Work Breakdown Structure
Case Study 5.1
Boeing's Virtual Fence
On January 14, 2011, Secretary of Homeland Security Janet
Napolitano made it official: The Virtual Fence Project
was to be officially canceled. In her statement explaining
the decision, Napolitano cited the difficulty in creating a
unified, fully integrated security system and promised to
"pursue a new path forward." What was left unsaid were
the reasons that led to the final decision-principally,
struggling with a too-complicated technical system that
did not work but was leading to ballooning costs.
Illegal crossing into the United States along the
Mexican border has reached epidemic proportions in
recent years. Fear of drug smuggling, illegal aliens, and
possible terrorist incursions have made the issue of home-
land security one of the major "hot buttons" in the political
arena, both in Washington, DC, and within states located
along the southern border as well as those in proximity to
Canada. The problem is compounded by the sheer sizes
of the borders involved. The Mexican/U.S. border runs
for nearly 2,000 miles, much of it across desert wastelands
and inhospitable and remote areas. Establishing any sort
of border security, in the wake of the 9/11 attacks, is a
national necessity but a daunting and difficult task.
The Department of Homeland Security (DHS),
organized following the attacks on the World Trade Center
towers, is charged with the responsibility of securing all
borders and points of illegal entry into the United States,
in cooperation with Customs and Border Protection. As
part of its mandate, it has developed plans for creating a
more secure and stable border with Mexico to prevent the
continuous flow of undocumented immigrants, drugs,
and potential terrorists. For the first stage in this process,
DHS proposed a project to physically and electronically
seal the stretch of the desert between the United States
and Mexico under a multibillion-dollar contract named
the Secure Border Initiative Net (SBinet). President Bush
in May 2006 called SBinet "the most technologically
Case Study 5.1 183
(WBS) for the project. What are the key steps, including work
packages, tasks, and any related subtasks for the project?
2. Using the project you have identified in Problem 1, create a
Responsibility Assignment Matrix (RAM) for it, identifying at
least six fictitious project team members.
3. Research a real project through library resources or the
Internet and develop a brief scope statement for the project,
a general WBS, and any other information pertaining to the
scope management for that project.
advanced border security initiative in American history."
A 28-mile stretch of desert, centered on Nogales, Texas,
was to be the pilot stage in a project that eventually would
be used to monitor and control some 6,000 miles of border
with both Mexico and Canada.
In late 2006, Boeing was selected as the major
contractor for the SBinet project. Although better known
for their military weapon systems, Boeing's Integrated
Defense Systems Unit was made responsible for over-
all coordination of a massive system of towers as well as
listening devices, motion sensors, cameras, and radar to
be used to detect and help apprehend illegals crossing the
border. In fact, the U.S. government chose to outsource
the entire project to private firms. The government's only
role was to be as the force responsible for apprehending
the people first detected by the SBinet. "Virtually every
detail is being outsourced from the government to private
contractors," said California Democratic Congressman
Henry Waxman. "The government is relying on private
contractors to design the programs, build them, and even
conduct oversight of them."
In a nutshell, the system used a chain of 100-foot-tall
towers that each scanned a 360-degree radius for a
distance of 10 miles. Ground radar sensors also attempted
to detect footsteps, bicycles, and vehicles. The first
$20 million pilot phase, named Project 28 after the length
of the part of the desert that it was supposed to cover, was
to be completed by mid-June 2007. Boeing selected more
than 100 subcontractors to build various components of
the system, with its project managers maintaining overall
control of the development process. Unfortunately, their
structure was unwieldy, and the project was further com-
promised by the sheer number of distinct elements and
technical systems Boeing was attempting to integrate.
The technical challenge of integrating systems including
watch towers, sensors, radar, and specialized cameras was
(continued)
184 Chapter 5 • Scope Management
beyond anything Boeing had attempted before. As one
article noted, "Successfully integrating complex compo-
nents is a substantial risk in any project containing mul-
tiple, complicated subsystems. Integration risks become
especially pronounced in situations where integration
essentially defines the project, such as this case. The risk
increases further when the subsystems themselves consist
of new, or unproven, technology." So complicated was the
challenge, in fact, that the virtual fence failed a series of
initial tests, significantly delaying the full deployment of
Project 28.
Unfortunately, these technical and coordination
problems were never resolved. In the nearly three years
after original testing was done on one section of the fence,
SBinet had cost the government $672 million dollars, with
the end nowhere in sight. Although the total project cost
was anticipated at $1.1 billion, congressional watchdog
groups argued that the final cost of the project could soar
to over $30 billion. Costs, in fact, were a sore point with the
project from the time it was bid. Originally promising to
complete SBinet for $1.1 billion, Boeing's revised estimates
went to $2.5 billion and then, just a few months later, to
$8 billion. This rapid escalation of projected costs finally
prompted a congressional oversight committee hearing, in
which Congressman William Lacy Clay, a Missouri demo-
crat, demanded information about the ballooning costs
and the extension of the contract period from a Boeing
executive, saying, "You bid on these contracts and then
you come back and say, 'Oh we need more time. It costs
more than twice as much.' Are you gaming the taxpayers
here? Or gaming DHS?" In the meantime, beset by con-
tilrning problems, Boeing had also revised its estimates for
the completion date to 2016, more than seven years after
the date in the original plan.
A major concern was the pyramid-like management
structure that critics said led to cost overruns and poor
quality in other major projects. The critics noted that the
multiple subcontracting tiers allowed Boeing to exact a cut
at every turn, and created a conflict of interest because the
company was also in charge of oversight. "The last time I saw
this type of model for managing a project was 'the Big Dig'
in Boston," said Massachusetts Democratic Congressman
Steven Lynch, referring to the highway rerouting mega
project that included a 3.5-mile-long tunnel under Boston.
"This is exactly what they did. They fused the oversight
function with the engineering and construction function.
Everybody was in the same tent. Nobody was watching out
for the owner, who in this case is the U.S. taxpayer. This is
a terrible model and I see a lot of it. Generally when this
model is in place, we see colossal failures and huge cost
overruns."
Admittedly, the problems that sank the SBinet
project were complicated and came from multiple
sources. Besides the technical challenges of managing
100 subcontractors, all required to provide critical com-
ponents that Boeing would integrate, the project had
effectively shut out most federal agencies and oversight
groups. It was difficult to get accurate project status
information given the government's decision to "farm
out" border security to private contractors. As a result,
congressional investigators found that Homeland
Security officials were simply standing by while Boeing
provided information that was "replete with unexplained
anomalies, thus rendering the data unfit for effective con-
tractor management and oversight." Furthermore, many
critics questioned the feasibility of the original intent of
the project itself, wondering about the likelihood of ever
effectively sealing a border that runs through some of the
most inhospitable terrain in North America.
Senator Joe Lieberman, chair of the Senate
Homeland Security and Governmental Affairs Committee,
offered a scathing critique of the project during testimony
by Janet Napolitano, Secretary for Homeland Security,
stating: "U.S. Customs and Border Protection seems to
have effectively told Boeing-the contractor-'Go ahead
and do what you can do as quickly as you can."' He added,
"Without clear goals and expectations, both Customs and
Border Protection and Boeing underestimated the com-
plexity of building the system. And the Border Patrol
agents themselves-the people who would be imple-
menting and relying on the system every day-were not
consulted on what their actual needs were." Lieberman
concluded, "By any measure, SBinet has been a failure-
a classic example of a program that was grossly oversold
and has badly under-delivered."23
Questions
1. What problems do you see emerging from a project
such as SBinet where the government allows the
contractor to determine scope, manage all contractor
relations, and decide how to share project status
information with oversight bodies?
2. Consider the following two arguments: "The failure
of SB In et was due to poor scope management" versus
"SBinet failed because of poor oversight and project
controls." Take one side or the other in this argument,
and justify your response.

the original design. This had been approved by the cus-
tomer, who failed to communicate the new changes and
approvals to Reynolds electrical team. The solution required
changing the location of the projector by a meter and mov-
ing the screens forward by several centimeters. Reynolds
revised the plans and issued new electrical drawings to the
customer, which were subjected to the approval process
again.
The site had been handed over from the civil and
construction teams complete with decoration. As a result
of this vital communication error regarding the electrical
work, the solution required reworking of parts of the
site, such as opening the ceilings to access the electrical
Case Study 5.4
London's Millennium Dome
Few major projects in the UK's capital have polarized public
opinion more than the construction of the Millennium
Dome. The project was conceived in the mid-1990s and
extensively enlarged by the new UK government in 1997.
Then Prime Minister Tony Blair described it as confi-
dent, bold, and a symbol of excellence. The idea was that
the structure would be a showcase to celebrate the third
millennium and would house a must-see exhibition called
the Millennium Experience. In the longer term, after show-
casing the exhibition over the course of the year 2000, the
site would be transformed into a soccer stadium or perhaps
a major arena facility for concerts, conventions, and other
events.
Construction
The building was conceived as a large white marquee.
Symbolically, it would have twelve 100-meter support
towers that would represent the twelve months of the
year and a clock face. The dome was to be 365 meters in
diameter, symbolizing the days of the year. The dome was
designed by the architect Richard Rogers, and the con-
tractors were MacApline and Laing, who had created a
joint venture company for the project. The engineering
Case Study 5.4 187
panels, in order to make the new changes. The impact was
a time delay of 8 to 10 days and rework costs of opening,
adjusting, and redecorating the site.
Questions
1. What was the impact of scope changes to the project
stakeholders?
2. What planning, monitoring, and control actions could
the project manager have taken to avoid the situation?
3. How would you redesign the communications
management processes to minimize the problems
experienced by the project manager?
consultancy business Buro Happold designed the struc-
ture of the dome. The canopy itself was made from a
coated glass-fiber fabric that was designed to be both
durable and resistant to weather. The dome was com-
pleted on time and within budget.
Controversies
The site of the Millennium Dome was the meridian line
in north Greenwich, and the structure was designed to be
the largest dome in the world. The site sprawled across
a vast contaminated and derelict gasworks that had been
left undeveloped for two decades. In 1993, a Millennium
Commission was established to raise the necessary funds
to celebrate the new millennium. In the following year, the
idea of a national exhibition was suggested, and in 1996, it
was decided to go ahead with this concept and base it on
the site in Greenwich.
The project singularly failed to attract private
investment, the first clear warning sign that the long-term
prospects for the site were not encouraging. The UK gov-
ernment undertook raising the necessary funds from the
UK National Lottery. Work began on the dome in June
1997, and the majority of the construction was completed
(continued)
188 Chapter 5 • Scope Management
by June 1998. It took another year before the content,
style, and purpose of the exhibition was unveiled. After a
private opening of the exhibition on December 31, 1999,
the dome would open to the public for the whole of 2000.
The dome was, undoubtedly, one of the most con -
troversial publicly funded works project ever undertaken
in the UK. Significant issues existed from the beginning,
the first being the estimate of the number of visitors the
exhibition would attract. It was originally estimated that
12 million visitors would be attracted to the dome in 2000,
and broadly one million per year thereafter. In May 2000,
the estimate was scaled down to about 7 million. In the
end, the dome actually attracted 6.5 million.
The estimate regarding visitors was only the first
of many project aspects that brought accusations that the
whole project was financially mismanaged. Pressure on the
project budget began to emerge as early as 1998, which was
14 months before the dome actually opened. Technically, the
dome was insolvent by February 2000. Access was another
major failing of the project. The London Underground was
to be extended with additional stations on the Jubilee Line,
and this transport network was vital in being able to bring
sufficient visitors into the north Greenwich area. The exten-
sion work, however, was delayed by 14 months, and when
the new station opened in May 1999, it was still unfinished
and had no facilities for disabled people.
From the outset, the dome was a political project,
or at least it was perceived as one by the media. The dome
acquired a reputation of being a hugely expensive and
financially out-of-control "white elephant." It was perceived
by the media as symbolizing the prestige of Tony Blair and
the government. Labelled as an expensive vanity project,
the dome's reputation plummeted in the eyes of the public
before the structure was even completed. When the con-
tents of the exhibition were made public, the floodgates to
criticism were opened. The public perception had been that
the exhibition would focus on UK history and the country's
contribution to civilization. In reality, the exhibition was
modernist, thematic, and "politically correct."
On the ground, as visitors headed for the dome, the
organizational frailties of the project surfaced. Thousands
of people had to queue unnecessarily in cold weather
because of ticketing issues. Nonetheless, opinion polls
suggested an 85% satisfaction rate for visitors to the venue.
CEO Jennifer Page ofthe New Millennium Experience
Company, which was overseeing the exhibition, was fired
just a week before the dome was opened. Despite this, poor
attendance figures and other setbacks, the dome became
the most popular London attraction in 2000, beating the
London Eye into second place.
According to the UK National Audit Office, when
the New Millennium Experience Company was liquidated
in 2002, the dome had cost a total of $1.24 billion. Of this
total, the National Lottery had provided $988 million.
The figures were disappointing, but the shortfall from
ticket sales had been covered by a larger-than-estimated
National Lottery grant.
After the Experience
The Millennium Experience closed at the end of 2000, and
in the following year, the UK government agency English
Partnerships took control of the dome, which paved the
way for the liquidation of the New Millennium Experience
Company. Finding a potential buyer for the dome and the
site proved to be problematic. The idea of turning it into a
soccer stadium had long since collapsed, as the local team,
Charlton Athletic, had too small a fan base to justify the
move and the expense.
Meanwhile, the dome was costing $1.6 million
per month to maintain. The specially commissioned art
exhibits were auctioned off at cut prices, and many of the
other exhibits were dispersed to other attractions around
the UK. The dome opened temporarily as a fun fair and
ice rink in December 2003 and hosted some free music
festivals . Over the Christmas period of 2004, the dome
was used to shelter the homeless.
Finally, in 2004, the dome itself and the surround-
ing land were sold to Meridan Delta Ltd., which planned
to create a 26,000-capacity area, providing 24,000 jobs
and 10,000 homes. English Partnerships and Meridan
Deltawould share the proceeds of the development,
earning $786 million in the period up to 2018.
A New Lease on Life
In May 2005, the dome was renamed the 02. This was
part of the rebranding of the site as a major London arena
venue. The 02 opened in June 2007 and was earmarked to
host the gymnastics and basketball finals for the London
2012 Olympics.
Even the deal with Meridan Delta attracted criti-
cism. It was suggested that the financial arrangements
did not represent good value for money for the UK. In
the summer of 2005, Anschutz Entertainment Group
(AEG), part of the Meridan Delta business consortium,
announced plans to establish a super-casino in part of the
dome. This was at a time when the UK government was
considering giving permission to one site in the UK to
become the country's first super-casino. The UK city of
Manchester was given the go-ahead, but later the super-
casino idea was scrapped. There would be no Las Vegas-
style gambling in the UK after all.
Turning the Dome Around
There was a sense of rebirth for the dome when Meridan
Delta acquired the 999-year lease in 2001. The dome had

been beset with problems and criticism, and it had acquired
the undeserved notoriety for cost overruns. It was also seen
as a project without purpose. Government ministers, com-
munity groups, and business leaders had fought over the
project and what to do with the dome after the exhibition.
From the time it opened on New Year's Eve 1999,
six years elapsed before AEG announced its ambitious
plans to create a multipurpose entertainment center.
Undaunted by the failure to create the super-casino, AEG
began a $700 million investment in the site. AEG, fronted
by the U.S. billionaire Philip Anschutz, also owned the
Los Angeles Staples Center. The dome would remain
at the heart of the complex with a 20,000-seat stadium
that would host music concerts, spectacular events from
Disney, U.S. National Basketball Association games, and
the ATP Tennis Masters Cup.
Transforming the dome into a multipurpose com-
plex was not without its difficulties. AEG created an
11-screen multiplex cinema, restaurants, and a host of
other attractions. The British telecommunications giant
02 had agreed to pay $12 million per year for naming
rights. When the first music concert was presented in
June 2007, even the sternest critics of the dome were
forced to eat their words. AEG was determined to estab-
lish the venue as the prime site for events in London and
announced forthcoming features including the Rolling
Stones, Prince and Andrea Bocelli, and many other attrac-
tions. In the first six months, AEG was able to announce
84 events and sold a staggering 1.2 million tickets. This was
an incredible turnaround from the woeful ticket sales for
the Millennium Experience. The company also was able to
establish a rolling program that would see as many as 150
events per year. In the first six months of the new manage-
ment of the site, 70% of the retail space had been leased.
Making the Dome a Long-Term Success
The primary challenge for AEG was to ensure that the
02 (as it was now called) would be a resounding success
into the future . Light years away from the bland thematic
nature of the original exhibition, the new-look venue
would focus on quality of product, brands, and events that
had widespread appeal.
AEG had already established itself as a major force
in the leisure and entertainment business. Not only was
the company running the highly successful Staples Center
and the Kings Hockey Club in Los Angeles, but it also
was having great success with the Nokia Theater in Times
Square, New York. Plans were already well advanced to
create a major entertainment center in Berlin, Germany,
which opened in 2008.
AEG's relaunching of the dome as a major venue
for live events came at precisely the right time for the UK.
Case Study 5.4 189
There had been a huge increase in demand for live events,
and the 02 was able to deliver the very best.
From Liability to Loved
Even before the foundations were laid for the dome, the
media had dubbed the site a failure-a doomed, expensive,
vanity-based disaster. As the scope of the project became
extended, the cost overruns reached some $400 million.
The dome was a political soccer ball, bounced backward
and forward from government to government, agency
to agency, and finally into the hands of private investors.
No one ever really knew what the dome was for or what
it could become. In real terms, AEG did not have to do a
great deal to improve the image of the site; in fact, the com-
pany said that the poor public image of the dome actually
helped them, as any change and a clear direction for the
site would be met with almost universal relief and hope.
AEG had hoped to use part of the dome to host a
Las Vegas-style casino complex. The company had esti-
mated that it could generate some $206 million in revenue
per year and attract around 1.7 million customers. The
UK government's change of heart about the super-casino
was a blow to AEG, but the company still harbors hope
that a super-casino can come to the site in the future.
In the meantime, AEG will focus on attracting
overnight visitors to the site. The hope is that it can attract
cruise ships and conferences and, in this way, make
maximum use of the exhibition and conference space,
restaurants, and hotel accommodations. The second
development stage of the site was due for completion in
time for the London 2012 Olympic Games.
Not the Millennium Dome
The huge naming rights deal with 02 was put under threat
as a result of the Olympics. British Telecom (BT) is a
"domestic tier one" sponsor of the Olympics, and to prevent
a conflict of interest, for the duration of the Olympics, the
02 was rebranded as the NGAl (North Greenwich Arena
1). The Olympic organizers had suggested a temporary
return of the name Millennium Dome, but AEG was ada-
mant that the negative connotations associated with this
name were not acceptable. It would seem that although
the dome could readily become the 02, reversing the
name, even for a short time, was seen as the kiss of death.
Obviously BT's one-off $126 million Olympic sponsorship
payment far outweighed the $9.4 million AEG was receiv-
ing each year from 02 for the arena sponsorship deal. In
light of this disagreement over the name of the arena for the
duration of the Olympics, and given the prior name change,
it became apparent that an awareness campaign would be
necessary to explain to visitors that the Millennium Dome,
the 02, and the NGAl were, in fact, the same place. 25
190 Chapter 5 • Scope Management
Questions
1. What does the story of the Millennium Dome suggest
3. AEG as a commercial company managed to visual-
about the importance of considering both technical
and commercial performance for project success?
2. In 1998, the then UK Prime Minister Tony Blair said
that the Dome would be a beacon of the world. In
Internet Exercises
1. Go to www.4pm.com/articles/work_breakdown_structure.
htm and view a short tutorial on developing an effective Work
Breakdown Structure. Why does this site specifically warn
against creating a laundry list of project activities? What are
some of the dangers in creating poor work breakdown struc-
tures and the advantages of doing them effectively?
2. Go to www.oet.state.mn.us/mastercontract/statements/1863.pdf
to see a process for describing and creating a Statement of Work
for the Minnesota Job Bank Upgrade project. In your opinion,
what are some of the critical elements in this Statement of Work?
Why? The site also contains an "IT Professional Services Master
Contract Work Order." Why is this work order so detailed?
3. Access www.nccommunitycolleges.edu/IT _Projects/ docs/
Data%20W arehouse/Phase%20I/ dw_project_scope_statement.
pdf. Analyzing the comprehensive Scope Statement for the data
warehousing project, what problem is this project seeking to
address? What is the proposed solution?
PMP Certification Sample Questions
1. What is the lowest level of decomposition in the Work
Breakdown Structure called?
a. Work package
b. Deliverable
c. Subdeliverable
d. Project
2. All of the following define a work package EXCEPT:
a. A work package has a deliverable result
b. It may be considered by its owner as a project in itself
c. A work package may include several milestones
d. A work package can be created and addressed regard-
less of other organizational procedures of cultural
considerations
3. George has been assigned to be the new project manager
for our project. He is eager to get off to a good start and
wants to identify what activities he should first engage in.
How would you advise him to start?
a. Begin with the Work Breakdown Structure (WBS)
b. Begin with a clear scope statement
the light of this comment, why was the Millennium
Experience a comparative failure?
ize the future of the dome in a way that no politician
could conceive. Do you agree or disagree with this
view? Why?
c. Begin with a problem statement and Statement of
Work(SOW)
d. Begin with clear work authorization
4. The project manager wants to make sure that he is
proceeding in the right order as he moves to develop a
clear scope for his project. During scope definition, what
should he be doing?
a. Involving stakeholders and verifying that they have
all provided their input to the process
b. Developing his WBS and OBS
c. Moving as quickly as possible to the determination of
scope reporting methods
d. Identifying all necessary vendors for any outsourcing
that must be done
5. A hospital expansion is being planned for a community.
As part of the scope of this project, it will be necessary to
close down the access routes into the emergency room for
major remodeling; however, because this is the only hos-
pital for trauma cases within 50 miles, it is not possible to
completely shut down the emergency room. The project
team will have to find a means to remodel the emergency
room while allowing for continuous operations of the unit.
This is an example of what?
a. Negotiation points with the owner
b. Constraints
c. Initial assumptions
d. Milestone development
Answers: 1. a-The work package is the lowest level in the
Work Breakdown Structure (WBS); 2. d-A work package
should fit organizational procedures and culture; 3. c-The
project should initiate with a clear problem statement and
understood SOW supporting it; 4. a-It is critical that all
stakeholders have the opportunity to contribute their input
to the project during the scope definition phase; 5. b-The
need to keep the emergency room open during the remod-
eling is an example of working around existing project
constraints.

Discussion Questions
I. This chapter discussed the characteristics of high-performing
project teams. List the factors that characterize these teams and
give examples of each one.
2. "Trust can actually encourage disagreement and conflict among
team members." Explain why this could be the case.
3. Identify the stages of group development. Why is it necessary
for project teams to move through these stages in order to be
productive?
4. Gersick's model of punctuated equilibrium offers an alterna-
tive view of group development. Why does she suggest that
some defining moment (such as an explosion of emotion) often
occurs about midpoint in the project? What does this defining
event accomplish for the team?
5. Explain the concepts of "task" and "psychosocial" outcomes
for a project. Why are psychosocial outcomes so important for
project team members?
Case Study 6.1
Columbus Instruments
Problems have been building at Columbus Instruments,
Inc. (CIC) (not its real name) for several years now with
the new product development process. The last six high-
visibility projects were either scrapped outright after
excessive cost and schedule overruns or, once released to
the marketplace, were commercial disasters. The com-
pany estimates that in the past two years, it has squan-
dered more than $15 million on poorly developed or
failed projects. Every time a new project venture failed,
the company conducted extensive postproject review
meetings, documentation analysis, and market research to
try to determine the underlying cause. To date, all CIC has
been able to determine is that the problems appear to lie
with the project management and development process.
Something somewhere is going very wrong.
You have been called into the organization as a con-
sultant to try to understand the source of the problems
that are leading to widespread demoralization across the
firm. After spending hours interviewing the senior project
management staff and technical personnel, you are con-
vinced that the problem does not lie with their processes,
which are up-to-date and logical. On the other hand, you
have some questions about project team productivity. It
seems that every project has run late, has been over bud-
get, and has had suboptimal functionality, regardless of
the skills of the project manager in charge. This informa-
tion suggests to you that there may be some problems in
how the project teams are operating.
As you analyze CI C's project development process,
you note several items of interest. First, the company is
Case Study 6.1 225
6. Distinguish between the traditional, behavioral, and interac-
tionist views of team conflict. How might each explain and treat
a project team conflict episode?
7. Identify the five major methods for resolving conflict. Give an
example of how each might be applied in a hypothetical project
team conflict episode.
8. What are some of the guidelines for adopting a strategy of
"principled negotiation"?
9. Explain the idea that we should "focus on interests, not posi-
tions." Can you think of an example in which you successfully
negotiated with someone else using this principle?
organized along strictly functional lines. Projects are
staffed from the departments following negotiations
between the project manager and the department heads.
Second, the culture of CIC seems to place little status or
authority on the project managers. As evidence of this fact,
you note that they are not even permitted to write a per-
formance evaluation on project team members: That right
applies only to the functional department heads. Third,
many projects require that team members be assigned to
them on an exclusive basis; that is, once personnel have
been assigned to a project, they typically remain with the
project team on a full-time basis for the term of the proj-
ect. The average project lasts about 14 months.
One morning, as you are walking the hallways, you
notice a project team "war room" set up for the latest new
product development initiative within the company. The
war room concept requires that project team members be
grouped together at a central location, away from their
functional departments, for the life of the project. What
intrigues you is a hand-lettered sign you see taped to the
door of the project war room: "Leper Colony." When you
ask around about the sign, some members of the firm
say with a chuckle, "Oh, we like to play jokes on the folks
assigned to new projects."
Further investigation of project team members
suggests they are not amused by the sign. One engineer
shrugs and says, "That's just their way of making sure we
understand what we have been assigned to. Last week they
put up another one that said 'Purgatory."' When you ask
the project manager about the signs later in the day, he
(continued)

As everyone files out, you lean back in your seat and
consider how you are going to handle this problem.
Questions
1. Was the argument today between Neil and Susan the
true conflict or a symptom? What evidence do you
have to suggest it is merely a symptom of a larger
problem?
Case Study 6.3
Johnson & Rogers Software Engineering, Inc.
Kate Thomas, a project manager with Johnson & Rogers
Software Engineering, was looking forward to her first
project team "meeting." She applied quotes to the term
"meeting" in this case, because she would not actually be
sitting down at a table with any of the other members of
the project team. She had been assigned responsibility for
a large software development project that would be using
team members from both inside and outside the organiza-
tion, none of whom were currently employed at the same
Redlands, California, office where she worked. In fact, as
she ticked off the names on the legal pad in front of her,
she did not know whether to be impressed or apprehen-
sive with the project she was about to kick off.
Vignish Ramanujam (senior programmer)-New
Delhi, India
Anders Blomquist (systems designer)-Uppsala,
Sweden
Sally Dowd (systems engineer)-Atlanta, Georgia
Penny Jones (junior programmer)-Bristol, England
Patrick Flynn (junior programmer)-San Antonio,
Texas
Erik Westerveldt (subcontractor)-Pretoria, South
Africa
Toshiro Akame (customer representative)-Kyoto,
Japan
The challenge with this team, Kate quickly realized,
was going to involve figuring out how to create an inte-
grated project team with these people, most of whom she
had never dealt with before. Although Sally and Patrick
worked for Johnson & Rogers at other plant locations,
the rest of the "team" were strangers. Erik, from South
Africa, was critical for the project because his company
had developed some of the specialized processes the proj-
ect required and was to be treated as an industrial part-
ner. The other members of the team had been assembled
Case Study 6.3 227
2. Explain how differentiation plays a large role in the
problems that exist between Susan and Neil.
3. Develop a conflict management procedure for your
meeting in 30 minutes. Create a simple script to help
you anticipate the comments you are likely to hear
from both parties.
4. Which conflict resolution style is warranted in this
case? Why? How might some of the other resolution
approaches be inadequate in this situation?
either by Erik or through contacts with senior members of
her own firm. She did not know, but would soon discover,
how they felt about the project and their level of commit-
ment to it.
The first virtual project meeting was scheduled to
start promptly at 9 AM Pacific Standard Time. That led to
the first problem. As Kate stared at the camera mounted
above the video monitor, she kept glancing down at the
screen for signs that other members of the team had logged
on. Finally, at 9:15, she was joined by Sally, with Toshiro
logging in shortly afterward. As they chatted and contin-
ued to wait for other members to log on, time continued
to pass. When, at 9:30, no one else had signed on, Kate
asked the secretary to start making phone calls to verify
that other members of the team were trying to access the
system. Eventually, by 10:25, the team consisted of five
members: Anders, Sally, Penny, Patrick, and Toshiro. It
was decided that for the sake of getting something accom-
plished, those who were logged on would get started. The
agenda that Kate had prepared and e-mailed out the day
before was produced and the meeting began. Within ten
minutes, the video link to Penny was suddenly lost. The
other team members waited for five minutes, shuffling in
various states of impatience for Penny to rejoin the meet-
ing. There was still no sign ofVignish or Erik.
The meeting quickly bogged down on technical
details as those in attendance realized that several techni-
cal issues could not be resolved without input from the
missing team members. Though he tried his best to hide
it, it became apparent that Toshiro, in particular, was frus-
trated with the lack of progress in this meeting. Kate sug-
gested that they adjourn until 11, while she made another
attempt to contact the missing members, but Toshiro
objected, saying, "That is 3 AM in my country. It is now
past midnight here. I have been here today for 15 hours
and I would like to get home." It was finally agreed to
(continued)
228 Chapter 6 • Project Team Building, Conflict, and Negotiation
reconvene tomorrow at the same time. Toshiro agreed,
but with bad grace: "Can we not find a time that is more
accommodating to my schedule?" Kate promised to look
into the matter.
The next day's meeting was a mixed success.
Although everyone managed to log on to the system
within a reasonable period, Penny's connection kept going
down, to the exasperation ofVignish, the senior program-
mer. Although the meeting was conducted with great
politeness by all parties, it was equally clear that no one
was willing to offer their candid opinions of the project,
the goals, and how the team was expected to execute their
assignments. After asking members of the team for hon-
est feedback and getting little response, Kate eventually
dropped the point. In addition, she had a nagging feeling
that there was some unspoken animosity in the manner in
which Patrick and Sally interacted with each other.
After some general goal setting and a discussion of
team responsibilities, Kate asked if there was a time when
they could next meet. In the general silence that followed,
Anders spoke up, asking, "Well, how often do you hope to
meet like this? To be honest, it is inconvenient for me to
attend these sessions regularly, as our telecom equipment
is in Stockholm and I have to drive an hour each way."
Toshiro then spoke up as well. "I am sorry to
repeat this point," he said, "but these meeting times are
extremely inconvenient for me. Could we not find a time
that is more generally acceptable?"
Kate replied, "Well, how about 5 PM my time.
That's ...," Kate paused and quickly consulted her per-
sonal planner, "9 in the morning for you."
This suggestion was met by a wave of objections,
with the first from Penny who stated, "Uh, Kate, that
would be 1 AM here in England."
No sooner had she spoken than Anders, Erik, and
Vignish chimed in, "Kate, that's 2 AM in Stockholm and
Pretoria," and "Kate, are you aware that that is 6 AM here
in New Delhi?"
Back and forth the team members argued, trying to
find a reasonable time they could all meet. Finally, after
Exercise in Negotiation
The following is a negotiation scenario between two firms: Steel-
Fabrik, Inc. (SFI) and Building Contractors of Toledo (BCT) . You
are asked to take either SFI's or BCT's side of the negotiation. How
would you prepare for this negotiation? How would you attempt to
create a win-win outcome for both parties?
SteelFabrik's Perspective
You are the project manager for a new steel fabrication plant con-
struction project being built by Building Contractors of Toledo
going around the group several times to work out a mutu-
ally agreeable time for these teleconferences, Erik spoke
up: "Maybe we don't all need to meet at the same time,
anyway. Kate, why don't you just schedule meetings with
each of us as you need to talk?"
Kate objected by saying, "Erik, the whole point of
these teleconferences is to get the team together, not to
hold one-on-one meetings with each of you."
Erik responded, "Well, all I know is that this is only
the first videoconference and already it is becoming a
burden."
Penny spoke up, "You're lucky. At least your system
works. Mine keeps going up and down at this end."
"Okay, how about just using e-mails?" suggested
Erik. "That way it does not matter what the time is at our
location."
The other team members agreed that this idea
made sense and seemed on the verge of endorsing the
use of e-mails for communications. At this point, Kate
stepped back into the discussion and stated firmly, "Look,
that won't do. We need the opportunity to talk together.
E-mails won't do that."
More arguing ensued. Eventually, the team mem-
bers signed off, agreeing that they needed to "talk further"
about these issues. Kate's reaction was one of disappoint-
ment and frustration. She sensed reluctance among the
other members of the team to talk about these issues and
to use the videoconferencing system in the manner she
had envisioned. As Kate sat down to lunch that noon, she
pondered how she should proceed from here.
Questions
I. How would you advise Kate to proceed? Analyze the
conversation she had this morning. What went right?
What went wrong?
2. What should Kate's next steps be?
3. How can she use the technology of the Internet and
teleconferencing to enhance team development and
performance?
(BCT) . Your client is SteelFabrik, Inc. (SFI), a multinational steel
products manufacturer. Your timetable calls for completion of the
project in 18 months and you have a budget of$6 million. During the
last few weeks, it has been increasingly difficult to deal with on-site
demands from your client. SFI has insisted on a list of change orders
to suit their immediate needs for the plant layout and design. Your
counterpart says that because SFI is paying millions for the plant,
they are entitled to make appropriate changes to the project for as
long as is necessary to "get it right:' You are concerned that every
day spent in processing change orders adds further delay to your
252 Chapter 7 • Risk Management

Summary
I. Define project risk. Project risk is defined as any
possible event that can negatively affect the viabil-
ity of a project. We frequently use the equation:
Risk= (Probability of event)(Consequences of event).
Effective risk management goes a long way toward
influencing project development. To be effective,
however, project risk management needs to be done
early in the project's life. To quote Shakespeare's
Macbeth: "If it were done, when 'tis done; then 'twere
well it were done quickly." As an important element
in overall project planning, risk management identi-
fies specific risks that can have a detrimental effect on
project performance and quantifies the impact each
risk may have. The impact of any one risk factor is
defined as the product of the likelihood of the event's
occurrence and the adverse consequences that would
result. The tremendous number of unknowns in the
early phases of a project makes this the time when
risk is highest. As the project moves forward, the team
continues to address risk with technical, administra-
tive, and budgetary strategies.
2. Recognize four key stages in project risk manage-
ment and the steps necessary to manage risk. There
are four distinct phases of project risk management:
(1) risk identification, (2) analysis of probability and
consequences, (3) risk mitigation strategies, and (4)
control and documentation. Risk identification focuses
on determining a realistic set of risk factors that a proj -
ect faces. In analysis of probability and consequences,
the project team prioritizes its responses to these vari-
ous risk factors by assessing the "impact factor" of each
one. Impact factors are determined either in a quali-
tative manner, using a matrix approach and consen-
sus decision making, or in more quantitative ways, in
which all relevant probability and consequence param-
eters are laid out and used to assess overall project risk.
The project team begins the process of developing risk
mitigation strategies once a clear vision of risk factors
is determined. The last step in the risk management
process, control and documentation, is based on the
knowledge that risk management strategies are most
effective when they have been codified and introduced
as part of standard operating procedures. The goal is to
create systematic and repeatable strategies for project
risk management.
3. Understand five primary causes of project risk and
four major approaches to risk identification. The
five primary causes of project risk are (1) financial risk,
(2) technical risk, (3) commercial risk, (4) execution
risk, and (5) contractual or legal risk. Among the
most common methods for risk identification are
(1) brainstorming meetings, (2) expert opinion, (3) past
history, and (4) multiple or team-based assessments.
4. Recognize four primary risk mitigation strate-
gies. Risks can be mitigated through four primary
approaches. First, we can simply accept the risk. We
may choose to do this in a situation in which we either
have no alternative or we consider the risk small
enough to be acceptable. Second, we can seek to mini-
mize risk, perhaps through entering partnerships or
joint ventures in order to lower our company's expo-
sure to the risk. Third, we can share risk with other
organizations or project stakeholders. Finally, when
appropriate, we may seek to transfer risk to other proj-
ect stakeholders.
5. Explain the Project Risk Analysis and Management
(PRAM) process. PRAM is a generic project risk
management approach that offers a model for the life
cycle steps a project team might adopt in developing
a risk management methodology. Nine distinct steps
in the PRAM model present each phase of the process
and its associated deliverables.

Key Terms
Analysis of probability and
consequences (p. 239)
Change management
(p. 248)
Commercial risk (p. 239)
Contingency reserves
(p. 245)
Contractual or legal risk
(p. 239)
Control and documenta-
tion (p. 239)
Cross-training (p. 246)
Execution risk (p. 239)
Financial risk (p. 239)
Fixed-price contact
(p. 245)
Liquidated damages
(p. 245)
Managerial contingency Risk mitigation strategies
(p. 246) (p . 239)
Mentoring (p. 246) Task contingency
Project risk (p. 236) (p. 245)
Project Risk Analysis and Technical risk (p. 239)
Management (PRAM)
(p. 250)
Risk identification (p. 239)
Risk management (p. 236)

Solved Problem
7.1 Quantitative Risk Assessment
Refer to the risk factors shown in Table 7.2. Assume your project
team has decided upon the following risk values:
Pm = .l Cc=.7
Pc=.5 C5 = .5
Pd= .9 C,=.3
Cp=.l
You wish to determine the overall project risk using a quantitative
method. Following the formulas shown in Table 7.3, we can calculate
Discussion Questions
1. Do you agree with the following statement: "With proper plan-
ning it is possible to eliminate most/all risks from a project"?
Why or why not?
2. In evaluating projects across industries, it is sometimes possible
to detect patterns in terms of the more common types of risks
they routinely face. Consider the development of a new soft-
ware product and compare it to coordinating an event, such as
a school dance. What likely forms of risk would your project
team face in either of these circumstances?
3. Analyze Figure 7.2 (degree of risk over the project life cycle).
What is the practical significance of this model? What implica-
tions does it suggest for managing risk?
4. What are the benefits and drawbacks of using the various forms
of risk identification mentioned in the chapter (e.g., brain-
storming meetings, expert opinion, etc.)?
5. What are the benefits and drawbacks of using a qualitative risk
impact matrix for classifying the types of project risk?
Problems
1. Assessing Risk Factors. Consider the planned construction
of a new office building in downtown Houston at a time when
office space is in surplus demand (more office space than users).
Construct a risk analysis that examines the various forms of risk
(technical, commercial, financial, etc.) related to the creation of
this office building. How would your analysis change if office
space were in high demand?
2. Qualitative Risk Assessment. Imagine that you are a member
of a project team that has been charged to develop a new prod-
uct for the residential building industry. Using a qualitative risk
analysis matrix, develop a risk assessment for a project based on
the following information:
Identified Risk Factors Likelihood
1. Key team members pulled off project 1. High
2. Chance of economic downturn 2. Low
3. Project funding cut 3. Medium
4. Project scope changes 4. High
5. Poor spec. performance 5. Low
Problems 253
both the probability of project risk score and the consequences of
project risk score, as follows:
P1= (.1 + .5 + .9)/3 = .5
C1= (.7 + .5 + .3 + .1)/4 = .4
RF= .5 + .4- (.5)(.4) = .70
Conclusion: Medium risk to overall project.
6. What are the benefits and drawbacks of using a quantitative risk
assessment tool such as the one shown in the chapter?
7. Give some examples of projects using each of the risk miti-
gation strategies (accept, minimize, share, or transfer). How
successful were these strategies? In hindsight, would another
approach have been better?
8. Explain the difference between managerial contingency and
task contingency.
9. What are the advantages of developing and using a systematic
risk management approach such as the PRAM methodology?
Do you perceive any disadvantages of the approach?
10. Consider the following observation: "The problem with risk
analysis is that it is possible to imagine virtually anything going
wrong on a project. Where do you draw the line? In other
words, how far do you take risk analysis before it becomes over-
kill?" How would you respond?
Based on this information, how would you rate the conse-
quences of each of the identified risk factors? Why? Construct
the risk matrix and classify each of the risk factors in the matrix.
3. Developing Risk Mitigation Strategies. Develop a preliminary
risk mitigation strategy for each of the risk factors identified
in Problem 2. If you were to prioritize your efforts, which risk
factors would you address first? Why?
4. Quantitative Risk Assessment. Assume the following
information:
Probability of Failure Consequences of Failure
Maturity= .3 Cost= .1
Complexity= .3 Schedule= .7
Dependency= .5 Performance= .5
Calculate the overall risk factor for this project. Would you
assess this level of risk as low, moderate, or high? Why?
5. Developing Risk Mitigation Strategies. Assume that you are
a project team member for a highly complex project based on
a new technology that has never been directly proven in the
254 Chapter 7 • Risk Management
marketplace. Further, you require the services of a number of
subcontractors to complete the design and development of this
project. Because you are facing severe penalties in the event
the project is late to market, your boss has asked you and your
project team to develop risk mitigation strategies to minimize
your company's exposure. Discuss the types of risk that you are
likely to encounter. How should your company deal with them
(accept them, share them, transfer them, or minimize them)?
Justify your answers.
Case Study 7.1
Classic Case: de Havilland's Falling Comet
The Development of the Comet
The de Havilland Aircraft Company of Great Britain had
long been respected in the aircraft manufacturing indus-
try for its innovative and high-performance designs.
Coming off their performance work during World War II,
the company believed that they stood poised on the brink
of success in the commercial airframe industry. The de
Havilland designers and executives accurately perceived
that the next generation of airplane would be jet-powered.
Consequently, they decreed that their newest commercial
airframe, tentatively called the Comet, would employ jet
power and other leading-edge technology.
Jets offered a number of advantages over propeller-
driven airplanes, the most obvious of which was speed.
Jets could cruise at nearly 450 miles per hour compared
FIGURE 7.9 The de Havilland Comet
6. Assessing Risk and Benefits. Suppose you are a member of a
project team that is evaluating the bids of potential contractors
for developing some subassemblies for your project. Your boss
makes it clear that any successful bid must demonstrate a bal-
ance between risk and price. Explain how this is so; specifically,
why are price and risk seen as equally important but opposite
issues in determining the winner of the contract? Is a low-price/
high-risk bid acceptable? Is a high-price/low-risk bid accept-
able? Why or why not?
with the 300 miles per hour a propeller could gener-
ate. For overseas flight, in particular, this advantage
was important. It could reduce the length of long flights
from a mind-numbing two to three days to mere hours,
encouraging more and more businesspeople and tour-
ists to use airplanes as their primary method for travel.
Further, jets tended to be quieter than propeller-driven
aircraft, giving a more comfortable interior sound level
and ride to passengers.
De Havilland engineers sought to create a stream-
lined airplane that could simultaneously carry up to
50 passengers in comfort, while maintaining aerodynamics
and high speed. After working with a number of design
alternatives, the Comet began to take shape. Its design was,
indeed, distinctive: The four jet engines were embedded

in pairs in the wing roots, at the point where they joined
the fuselage. From the front, the aircraft looked as though
its wings were literally held in place by the engines. The
result of these innovative engineering designs was an air-
craft that had remarkable stability in flight, was sleek in
appearance, and was very fast.
Another distinctive feature of the aircraft was the
pressurized cabin, intended to maintain passenger com-
fort at cruising altitudes of up to 30,000 feet. In its original
testing for safety, de Havilland engineers had pressurized
the airframe to more than five times the recommended air
density to ensure that there was a clean seal. Consequently,
they were confident that the pressurization system would
perform well at its lower, standardized settings. Finally,
in an effort to add some flair to the design, each window
in the passenger cabin was square, rather than the small,
round or oval shapes so commonly used.
Knowing that they were facing competition from
Boeing Corporation to be first to market with a com-
mercial jet, de Havilland's goal was to introduce its new
aircraft as quickly as possible, in order to establish the
standard for the commercial airline industry. At first,
it appeared that they had succeeded: BOAC (British
Overseas Airways Corporation) ordered several Comets,
as did Air France and the British military. De Havilland
also received some queries from interested American air-
line companies, notably Pan American Airlines. It looked
as though de Havilland's strategy was working; the com-
pany was first to market with a radical new design, using
a number of state-of-the-art technologies. BOAC's first
nine Comet ls entered service with the airline on May 2,
1952. The future looked bright.
Troubles
In early May of 1953, a brand new Comet operated by
BOAC left Calcutta, India, and flew off into the afternoon
sky. Six minutes later and only 22 miles from Calcutta's
Dum Dum Airport, the aircraft exploded and plunged to
earth, killing all 43 passengers and crew on board. There
had been no indication of problems and no warning from
the pilots of technical difficulties. Investigators from
Great Britain and India tended to believe the crash came
about due to pilot error coupled with weather conditions.
Evidence from the wreckage, including the tail section,
seemed to indicate that the aircraft had been struck by
something heavy, but without any additional information
forthcoming, both the authorities and de Havilland engi-
neers laid the blame to external causes.
January 10, 1954, was a mild, clear day in Rome
as passengers boarded their BOAC aircraft for the final
leg of their flight from Singapore to London. When the
airplane had reached its cruising altitude and speed, it
Case Study 7.1 255
disintegrated over the Mediterranean Sea, near the island
of Elba. Most of the airplane was lost at the bottom of the
sea, but amid the flotsam were recovered 15 bodies of pas-
sengers and crew. A local physician who examined the
remains noted: "They showed no look of terror. Death
must have come without warning." As a safety precaution,
BOAC instituted a ban on the use of Comets until the air-
planes had been thoroughly checked over. Technicians
could find nothing wrong with the new aircraft and, fol-
lowing recertification, the airplanes were again brought
back into service.
Alas, it was too soon. On the 8th day of April,
only 16 days after the Comet was reintroduced into ser-
vice, a third aircraft, operated by South African Airways,
departed from Rome's Ciampino airport for Cairo, one of
the legs of its regular flight from London to Johannesburg.
Under perfect flying weather, the airplane rapidly gained
its cruising altitude of 26,000 feet and its airspeed of
almost 500 miles an hour. Suddenly, the flight radio went
silent and failed to answer repeated calls. A search of the
ocean off the island of Stromboli, Italy, turned up an oil
slick and some debris. Because of the depth of the water
and the time necessary to arrive at the crash site, there was
little to be found by search crews. Five bodies were all that
were recovered this time, though with an eerie similarity
to the victims of the second disaster: Facial expressions
showed no fear, as though death had come upon them
suddenly.
\Vhat"\Vent"\Vrong?
Investigators swarmed over the recovered wreckage of
the aircraft and reexamined the pieces of the first from
the Calcutta accident while also conducting underwater
searches at the sight of the second crash near the island of
Elba. Guided by underwater cameras, investigators were
able to collect sufficient aircraft fragments (in fact, they
finally recovered nearly 70% of the airframe) to make
some startling discoveries. The foremost finding, from the
recovery of the entire, intact tail section, was that the fuse-
lage of the aircraft had exploded. Second, it appeared that
engine failure was not the cause of the accidents. Another
finding was equally important: The wings and fuselage
showed unmistakable signs of metal fatigue, later shown
to be the cause of failure in all three aircraft. This point
was important because it advanced the theory that the
problem was one of structural design rather than simple
part failure.
Britain's Civil Aviation Board immediately
grounded the entire Comet fleet pending extensive
reviews and airworthiness certification. For the next five
months, the CAB set out on an extensive series of tests to
isolate the exact causes of the mysterious crashes. Before
(continued)
256 Chapter 7 • Risk Management
testing was complete, one Comet had been tested liter-
ally to destruction, another had its fuel tanks ruptured,
more than 70 complete test flights were made in a third,
and between 50 and 100 test models were broken up. The
results of the extensive tests indicated a number of struc-
tural and design flaws.
Although the aircraft's designers were convinced
that the structure would remain sound for 10,000 flight
hours before requiring major structural overhauling, sim-
ulations showed unmistakable signs of metal fatigue after
the equivalent of only 3,000 flight hours. Experts argued
that even when fatigue levels were revised downward to
less than 3,000 hours, Comets would not be safe beyond
1,000 flying hours, a ludicrously low figure in terms of the
amount of use a commercial airliner is expected to receive.
In addition, testing of the fuselage offered disturbing indi-
cations of the cause of failure. Specifically, cracks began
developing in the corners of the cabin windows, and these
cracks were exacerbated by repeated pressurization and
depressurization of the cabin. The investigators noted that
this result was most pronounced along the rivet lines near
the fuselage windows.
Testing also demonstrated that the wings had a low
resistance to fatigue. At a number of stages in the tests,
serious cracks appeared, starting at the rivet holes near the
wheel wells and finally resulting in rivet heads in the top
wing surface actually shearing off. Engineers and inves-
tigators were finding incontrovertible evidence in the
pieces of recovered wreckage that the cause of the sudden
disintegration of the aircraft could only have been due
Case Study 7.2
Nicoll Highway Collapse
On April 20, 2004, part of the Nicoll Highway in Singapore
collapsed. Six lanes of the highway disappeared into a
100-foot hole when a tunnel being constructed underneath
the highway collapsed. Incredibly, no one was driving on
the usually congested highway. The tunnel was part of the
underground Circle MRT (Mass Rapid Transport) Line, and
the supporting structure for the excavation work had failed.
Four workers were killed in the incident and three
others were injured. Rescuers hunted in vain for survivors
for three days before efforts were called off. By this stage,
it was clear that the danger to the rescue teams far out-
weighed the likelihood of finding any survivors. The other
concern was the fact that the ground around the collapse
had to be stabilized in order to ensure that no further col-
lapses would occur.
The immediate reason for the collapse was that the
retaining wall holding up the evacuation work was insuf-
ficient to hold up the tunnel. Two construction cranes had
to cabin pressure blowout. Engineers suspected that the
critical failure of the aircraft occurred following sudden
depressurization, when one or more windows were liter-
ally blown out of the aircraft. This led to a sudden "gyro-
scopic moment" as the aircraft nosed down and began its
plunge to earth.
Although at the time no one would admit it, the
handwriting was on the wall. After two years, in which
Comets carried more than 55,000 passengers over 7 mil-
lion air miles, the Comet 1 was never to fly again. De
Havilland had indeed won the race to be first to market
with a commercial jet: a race that it would have been bet-
ter to have never run at all. 13
Questions
1. How could risk management have aided in the devel-
opment of the Comet?
2. Discuss the various types of risk (technical, financial,
commercial, etc.) in relation to the Comet. Develop a
qualitative risk matrix for these risk factors and assess
them in terms of probability and consequences.
3. Given that a modified version of the Comet (the Comet
IV) was used until recently by the British government
as an antisubmarine warfare aircraft, it is clear that the
design flaws could have been corrected given enough
time. What, then, do you see as de Havilland's critical
error in the development of the Comet?
4. Comment on this statement: "Failure is the price we
pay for technological advancement."
fallen into the hole and there was evidence of twisted steel
support beams.
Initial Response
Authorities in Singapore instituted an inquiry into the
incident. They also suspended 20 other excavation proj-
ects that were ongoing at the time. These were shut down
at great expense and delay as new best-practice codes were
put in place. Meanwhile, experts from across the world
were brought in to investigate the accident and determine
exactly what had happened.
It became clear that a number of factors had con-
tributed to the collapse. Most significant was the fact
that the geological findings had been misinterpreted.
The structure of the tunnel had been under-designed as
a direct result of the fact that the engineers had assumed
that the soil's shear strength was greater than it actually
was. There were also issues with the structural bracing

system being used. The collapse had taken place at a point
where the bracing was overloaded, and the system lacked
the capacity to redistribute the load between the other
supports if this part of the bracing failed. The engineers
had underestimated the strut loads.
Apportioning Blame
A Committee of Inquiry in May 2005 was told that the
disaster was caused by a failure of a connection between
horizontal struts and waling beams. The struts and beams
supported the diaphragm walls. The general causes of
the collapse had already been agreed upon by the Land
Transport Authority (LTA) and Nishimatsu-Lum Chang
(NLC), who were the main contractors in the joint venture;
the NLC lead designer Maunsell Asia; the project engineer
Paul Broome; and L&M and Kori (subcontractors).
LTA's View
It had been found that Nishimatsu-Lum Chang (NLC) was
negligentful, reckless, and dishonest during design and con-
struction, according to the LTA. LTA cited that the design
errors had begun with the soil analysis at the earliest stages
of the project. According to K.Shanmugam, LTA's counsel:
• Analysis of the ground conditions had been based
on the use of Method A, which looked at the
mechanical properties of drained soil.
• The soil encountered in the deep excavation was
in fact highly plastic marine clay, and NLC should
have used data for undrained soils.
• In using the wrong method, NLC under predicted the
forces that would act on the works being carried out.
• This led to an under-design in the temporary works.
• As a result of this, the system being installed did not
have the capacity required.
• The incorrect soil analysis also meant that as the
excavations got deeper, the errors and potential
failures became more acute.
• The strut connections were under-strength by a
factor of two.
• NLC also substituted C channel shaped steel sections
for plate stiffeners in an attempt to strengthen the
connections.
• However, NLC had tried to cut costs by using scrap
material to replace the stiffener plates when they
had run out of supplies.
LT A went on to claim that NLC had ignored its own
risk assessments. Some of the stiffener plates were already
buckling, but NLC had hidden this from LTA in order to
keep them from insisting on additional works. NLC was
already behind schedule in April 2004 and had incurred
late penalties of some $25 million. LTA would have
undoubtedly ordered NLC to cease work had it known
Case Study 7.2 257
about the problems, and NLC would have had to bear the
cost of the extra delays to the work schedule. Similar struts
had failed on two other NLC sites, but NLC had insisted
that the problem was in hand and pressured the LTA to
allow works to continue. It was therefore LTA's conten-
tion that NLC had failed to reveal sufficient information
for LT A to make an informed judgment.
NLC'sView
NLC was certain that the reason for the collapse was
unforeseen downward movement of the diaphragm walls.
According to NLC:
• There was a sudden drop in the height of the
wall relative to the posts that were supporting the
temporary struts.
• This changed the angle at which the struts were
connected.
• In turn, this caused the walls to deform and fail.
NLC called this "sway failure," which occurs when
violent forces act on the diaphragm walls. The phenom-
enon had been seen in other parts of the Circle Line, but
not at the Nicoll Highway.
NLC maintained that the collapse of the tunnel was
not inevitable, but was probably caused because the forced
sway mechanism accelerated the failure. NLC admitted
that the struts were close to the limit of their performance,
but maintained that the loads did not exceed the capacity
of the temporary works they had carried out.
Furthermore, NLC expressly countered LTA's sug-
gestion that the soil analysis was the root cause of the
disaster, contending:
• It was appropriate to use drained soil data, as it
provides a more conservative analysis.
• Although Method A had not been used for deeper
excavations in Singapore before, LT A was aware of
the method being used and generally agreed with
the findings.
• LT A had been specifically briefed about the soil
analysis as early as May 2002.
• At that time, LT A's own engineer had stated that
other soil analysis types were too conservative.
NLC Admissions
The failure took place at the ninth-level strut connections,
which was around 30 meters below the ground and just
3 meters above formation level. As the connections failed,
the diaphragm wall deformed. This overloaded the struts
which caused them to buckle. In turn, this triggered a
gradual and progressive collapse of the tunnel walls. In
the event, just one hour elapsed between the failure of the
first strut connection and the complete collapse, which
triggered devastating damage to the highway.
(continued)
258 Chapter 7 • Risk Management
NLC admitted that there had been a failure in the
temporary works. They put this down to under-design
and inappropriate detail of the connections. They also
admitted that their own engineers had misinterpreted the
relevant building code, which had resulted in the use of
smaller steels than were actually needed for the struts.
The Greatest Engineering Disaster of the Past Decade?
Although the general causes for the collapse of the high-
way were agreed upon between all parties in 2005, as of
May 2012, just one person had been prosecuted for their
part in the disaster. Nonetheless, many lessons had been
learned. Work on the MRT has commenced once more,
but this time far more heavy-duty temporary works are
being demanded. Additional robustness in design is now
demanded of contractors.
From the outset, braced excavations were used for
transport construction projects in Singapore, and each
of the MRT stations were constructed using the "bottom-
up" method. This meant excavating and propping up the
excavations with steel struts. These were supported at their
mid-span by king posts and beams across the face of the
diaphragm walls. The struts were placed at 3-meter intervals.
Today, the "top-down" method is preferred. This
involves constructing the station with a permanent rein-
forced concrete roof slab. The slab operates rather like
a huge strut, which means that struts are not necessary.
At a stroke, the time-consuming installation of struts has
been eliminated, and the safety risks are far lower.
Government Response
In the immediate aftermath of the inquiry, the Singapore
government accepted the findings in full and was quick to
announce a series of new legislation that would improve
safety standards in the construction industry. The
Joint Review Committee (JRC), made up from various
government departments, announced that there would be
far stiffer penalties for professionals who had shown dere-
liction of duty and care. A new licensing scheme was intro-
duced for specialist contractors; additional training and
Internet Exercises
1. Go to http: // www.informationweek.com / whitepaper /
Management/ROI-TCO/managing-risk-an-integrated-approac-
wp l 229549889607?article1D=54000027 and access the article on
"Managing Risk: An Integrated Approach." Consider the impor-
tance of proactive risk management in light of one of the cases
at the end of this chapter. How were these guidelines violated by
de Havilland or the Tacoma Narrows construction project orga-
nization? Support your arguments with information either from
the case or from other Web sites.
2. FEMA, the Federal Emergency Management Agency, is
responsible for mitigating or responding to natural disasters
the development of a code of practice for deep excavation
work were all part of a raft of new legislation.
The Singapore government was convinced that the
failures that led to the collapse of the highway and the
deaths had been entirely avoidable and were unacceptable.
From this point, all major construction projects would
be audited in terms of their safety. The government was
determined to point out that small, incremental improve-
ments would not bring about the level of safety that is
expected of such projects. As a result, it was necessary for
several government departments to prioritize the safety
issues and bring in sweeping reforms.
Today, with the reforms in place, the pace of work to
extend the MRT system is as rapid as before, but far safer.
The Downtown Line is seen as the key to the development
of the Marina Bay area. The Bayfront Station will be under-
neath the leisure and entertainment complex, the Integrated
Resort. Here the excavations will be at 24 meters. In order
to counter the weak soil, thick diaphragm walls have been
used, and these have been stiffened by cross walls and slabs.
Even the cut and cover tunnels (just like the one that caused
the collapse at Nicholl Highway) have up to seven levels
of strutting to support them. Lessons were learned, and
legislation has been enacted to back them up. 14
Questions
1. In what ways were the project's planning and scope
management appropriate? When did the planners
begin knowingly taking unnecessary risks? Discuss the
issue of project constraints and other unique aspects of
the tunnel in the risk management process. Were these
issues taken into consideration? Why or why not?
2. Conduct either a qualitative or quantitative risk
assessment on this project. Identify the risk factors
that you consider most important for underground
tunnel construction. How would you assess the
riskiness of this project? Why?
3. What forms of risk mitigation would you consider
appropriate for this project?
within the United States. Go to www.fema.gov/about/divisions/
mitigation.shtm. Look around the site and scroll down to see
examples of projects in which the agency is involved. How does
FEMA apply the various mitigation strategies (e.g., accept, min-
imize, share, and transfer) in its approach to risk management?
3. Go to www.mindtools.com/pages/article/newTMC_07.htm
and read the article on managing risks. What does the article
say about creating a systematic methodology for managing
project risks? How does this methodology compare with the
qualitative risk assessment approach taken in this chapter? How
does it diverge from our approach?
288 Chapter 8 • Cost Estimation and Budgeting

Complexity Weighting

Function Low Medium High Total

Number of Inputs 3X 6X 9X
Number of Outputs 2X 6X 10 X
Number of Interfaces 1X 3X sx
Number of Queries 4X 8X 12 X
Number of Files 4X 6X 8X

SOLUTION a table as shown below, in which the relative complexity of the five
Once we know the number of requirements for each of the five programming functions is multiplied by the number of screen re-
programmer functions and the complexity weighting for the activi- quirements. The table shows that the total number of function
ties, the calculation of total function points requires that we create points for this project is 370.

Complexity Weighting

Function Low Medium High Total

Number of Inputs 3X4= 12

Number of Outputs 6X7= 42
Number of Interfaces 5 x 12 = 60
Number of Queries 8X20= 160
Number of Files 6X 16 = 96

3. Calculating Budget Estimates Using the Learning Curve where

Assume you have a software project that will require the cod- Yx = the time required for the steady state, x, unit of output
ing services of a senior programmer to complete 14 coding a = the time required for the initial unit of output
sequences that are relatively similar. We know that the program- X =the number of units to be produced to reach the steady state
mer's learning rate is .90 and that the first coding sequence is b = the slope of the learning curve, represented as: log decimal
likely to take her 15 hours to complete. Using the learning curve learning rate/log 2
formula, calculate the steady state time to code these sequences.
b = log0.90/log2
SOLUTION -0.4576/0.301
Recall that the learning curve formula for calculating the time -0.1521
required to produce the steady state unit of output is represented as: Yx = 15(14) - 0.1521
¥,. = aXb Yx = 10.04hours

Discussion Questions
1. Describe an environment in which it would be common to bid
for contracts with low profit margins. What does this environ-
ment suggest about the competition levels?
2. How has the global economy affected the importance of cost
estimation and cost control for many project organizations?
3. Why is cost estimation such an important component of proj-
ect planning? Discuss how it links together with the Work
Breakdown Structure and the project schedule.
4. Imagine you are developing a software package for your com-
pany's intranet. Give examples of the various types of costs
(labor, materials, equipment and facilities, subcontractors, etc.)
and how they would apply to your project.
5. Give reasons both in favor of and against the use of a personal
time charge as a cost estimate for a project activity.
6. Think of an example of parametric estimating in your personal
experience, such as the use of a cost multiplier based on a simi-
lar, past cost. Did parametric estimating work or not? Discuss
the reasons why.
7. Suppose your organization used function point analysis to esti-
mate costs for software projects. How would the expertise level
of a recently hired programmer affect your calculation of their
function points on a monthly basis when compared to an older,
more experienced programmer?
8. Put yourself in the position of a project customer. Would you
insist on the cost adjustments associated with learning curve
effects or not? Under what circumstances would learning curve
costs be appropriately budgeted into a project?
360 Chapter 10 • Project Scheduling

4. When deciding on whether or not to crash project activities,

Activity Duration ES EF LS LF Slack
a project manager was faced with the following information.
A 3 0 3 0 3 Activities on the critical path are highlighted with an asterisk:
B 5 3 8 5 10 2
c 7 3 10 3 10 Normal Crashed
D 3 10 13 10 13 Activity Cost Duration Extra Cost Duration
E 5 8 13 12 17 4
A $ 5,000 4 weeks $4,000 3 weeks
F 4 13 17 13 17
B* 10,000 5 weeks 3,000 4 weeks
G 2 10 12 15 17 5
H 5 17 22 17 22
c 3,500 2 weeks 3,500 1 week
D* 4,500 6 weeks 4,000 4 weeks
E* 1,500 3 weeks 2,500 2 weeks
3. You are considering the decision of whether or not to crash your F 7,500 8 weeks 5,000 7 weeks
project. After asking your operations manager to conduct an G* 3,000 7 weeks 2,500 6 weeks
analysis, you have determined the "precrash" and "postcrash"
H 2,500 6 weeks 3,000 5 weeks
activity durations and costs, shown in the table below (assume
all activities are on the critical path): a. Identify the sequencing of the activities to be crashed in the
first four steps. Which of the critical activities should be
crashed first? Why?
Normal Crashed
b. What is the project's critical path? After four iterations
Activity Duration Cost Duration Cost involving crashing project activities, what has the critical
path shrunk to? (Assume all noncritical paths are ~ a fully
A 4 days $1,000 3 days $2,000
crashed critical path.)
B 5 days 2,500 3 days 5,000
c. Suppose project overhead costs accrued at a fixed rate of
c 3 days 750 2 days 1,200 $500 per week. Chart the decline in direct costs over the
D 7 days 3,500 5 days 5,000 project life relative to the increase in overhead expenses.
E 2 days 500 1 day 2,000 d. Assume that a project penalty clause kicks in after 19 weeks.
F 5 days 2,000 4 days 3,000 The penalty charged is $5,000 per week. When the penalty
G 9 days 4,500 7 days 6,300 charges are added, what does the total project cost curve
look like? Develop a table listing the costs accruing on a per-
week basis.
a. Calculate the per day costs for crashing each activity. e. If there were no penalty payments accruing to the project,
b. Which are the most attractive candidates for crashing? would it make sense to crash any project activities? Show
Why? your work.

Case Study 10.1

Project Scheduling at Blanque Cheque Construction (A)
Joe has worked for Blanque Cheque Construction (BCC)
for five years, mainly in administrative positions. Three
months ago, he was informed that he was being trans-
ferred to the firm's project management group. Joe was
excited because he realized that project management was
typically the career path to the top in BCC, and everyone
had to demonstrate the ability to "get their feet wet" by
successfully running projects.
Joe has just left a meeting with his superior, Jill,
who has assigned him project management responsibili-
ties for a new construction project the company has suc-
cessfully bid. The project consists of developing a small
commercial property that the owners hope to turn into
a strip mall, directly across the street from a suburban
college campus. The size of the property and building
costs make it prudent to develop the property for four
stores of roughly equal size. Beyond that desire, the
owners have made it clear to BCC that all project man-
agement associated with developing the site is BCC's
responsibility.
Joe is sitting in his office at BCC trying to develop a
reasonable project plan, including laying out some of the
important project activities. At this point, he is content to
stick with general levels of activities; that is, he does not
want to get too specific yet regarding the various con-
struction steps for developing the site.

Questions
1. Develop a project network consisting of at least 20
steps that should be done to complete the project.
As the case suggests, keep the level of detail for these
activities general, rather than specific. Be sure to indi-
cate some degree of precedence relationship among
the activities.
2. Suppose you now wanted to calculate duration esti-
mates for these activities. How would you make use of
Case Study 10.2
Project Scheduling at Blanque Cheque Construction (B)
Joe has been managing his project now for more than
12 months and is becoming concerned with how far
behind the schedule it is slipping. Through a series of
mishaps, late supplier deliveries, bad weather, and other
unforeseen circumstances, the project has experienced
one delay after another. Although the original plan called
for the project to be completed within the next four
months, Joe's site supervisor is confident that BCC can-
not possibly make that completion date. Late completion
of the project has some severe consequences, both for
BCC and for Joe. For the company, a series of penalty
clauses kicks in for every week the project is late past the
contracted completion date. For Joe personally, a late
completion to his first project assignment can be very
damaging to his career.
Joe has just finished a meeting with his direct
supervisor to determine what options he has at this point.
The good news is that the BCC bid for the construction
project came with some additional profit margin above what
is common in the industry, so Joe's boss has given him some
"wiggle room'' in the form of$30,000 in discretionary budget
money if needed. The bad news is that the delivery date for
MS Project Exercises
Exercise 10.1
Suppose we have a complete activity predecessor table (shown on the
next page) and we wish to create a network diagram highlighting the
activity sequence for this project. Using MS Project, enter activities
MS Project Exercises 361
the following approaches? Are some more useful than
others?
a. Expert opinion
b. Past history
c. Mathematical derivation
3. Joe is trying to decide which scheduling format to
employ for his planning: AON or AOA. What are
some of the issues that Joe should first consider prior
to choosing between these methods?
the project is fixed and cannot be altered without incur-
ring substantial penalties, something BCC is not prepared
to accept. The message to Joe is clear: You can spend some
additional money but you cannot have any extra time.
Joe has just called a meeting with the site supervi-
sor and other key project team members to discuss the
possibility of crashing the remaining project activities.
He calculates that crashing most of the final activities will
bring them in close to the original contracted completion
date but at a substantial cost. He needs to weigh these
options carefully with his team members to determine if
crashing makes sense.
Questions
1. What are some of the issues that weigh in favor of and
against crashing the project?
2. Suppose you were the site supervisor for this project.
How would you advise Joe to proceed? Before
deciding whether or not to crash the project, what
questions should you consider and how should you
evaluate your options?
A through E, their durations, and their predecessors. Note that all
duration times are in days.
 Problems 455

expenditures, is not related to the work that was accomplished.
Table 13.13 shows a simple comparison of planned and actual
spending, which is unrelated to work performed and therefore not a
useful comparison. The fact that the total amount spent was $9 less
than planned for this period is not useful without the comparisons
with work accomplished.
Use of Earned Value Data . The benefits to project manage-
ment of the earned value approach come from the disciplined
planning conducted and the availability of metrics that show real
variances from the plan in order to generate necessary corrective
actions. 14

TABLE 13.13 Spend Comparison Approach Work Units

A B c D E F Total
Planned spend 10 15 10 25 20 20 100
Actual spend 9 22 8 30 22 91
Variance -7 2 -5 -2 20 9, or 9%

Discussion Questions
1. Why is the generic four-stage control cycle useful for under-
standing how to monitor and control projects?
2. Why was one of the earliest project tracking devices referred to
as an S-curve? Do you see value in the desire to link budget and
schedule to view project performance?
3. What are some of the key drawbacks with S-curve analysis?
4. What are the benefits and drawbacks with the use of milestone
analysis as a monitoring device?
5. It has been said that Earned Value Management (EVM) came
about because the federal government often used "cost-plus"
contractors with project organizations. Cost-plus contracting
allows the contractor to recover full project development costs
plus accumulate profit from these contracts. Why would requir-
ing contractor firms to employ Earned Value Management help
the government hold the line against project cost overruns?
6. What are the major advantages of using EVM as a project con-
trol mechanism? What do you perceive as its disadvantages?
7. Consider the major findings of the research on human factors
in project implementation. What common themes seem to
emerge from the research on behavioral issues as a critical ele-
ment in determining project status?
8. The 10 critical success factors have been applied in a variety of
settings and project types. Consider a project with which you
have been involved. Did any of these factors emerge clearly as
being the most important for the project's success? Why?
9. Identify the following terms: PV, EV, and AC. Why are these
terms important? How do they relate to one another?
10. What do the Schedule Performance Index and the Cost
Performance Index demonstrate? How can a project manager
use this information to estimate future project performance?
11. Suppose the SPI is calculated as less than 1.0. Is this good news
or bad news for the project? Why?

Problems
1. Using the following information, develop a simple S-curve Draw this S-curve. What does the new S-curve diagram rep-
representation of the expected cumulative budget expenditures resent? How would you explain the reason for the different,
for this project (figures are in thousands) . non-S-shape of the curve?
3. Assume the following information (figures are in thousands):
Duration (in days)

10 20 30 40 50 60 70 80 Budgeted Costs for Sample Project

Activities 4 8 12 20 10 8 6 2 Duration (in weeks)
Cumulative 4 12 24 44 54 62 68 70
5 10 15 20 25 30 35 40 45 Total
2. Suppose the expenditure figures in Problem 1 were modified as Design 4 4 2
follows (figures are in thousands).
Engineer 3 6 12 8
Insta ll 4 12 24 6
Duration (in days)
Test 2 6 6 4 2
10 20 30 40 50 60 70 80 Total
Activities 4 8 10 14 20 24 28 8 Monthly
Cumulative 4 12 22 36 56 80 108 116 Cu mu I.
490 Chapter 14 • Project Closeout and Termination

2. Recognize the seven key steps in formal project
closeout. The seven steps of the formal project
closeout are:
Finishing the work
Handing over the project
4. Know the challenges and components of a final project
Gaining acceptance for the project
Harvesting the benefits
Reviewing how it all went
Putting it all to bed
Disbanding the team
3. Understand key reasons for early termination of
projects. A project may become a candidate for
early termination for a number of reasons, including
the recognition of significant changes in the follow-
ing critical factors: (a) static factors, (b) task-team fac-
tors, (c) sponsorship, (d) economics, (e) environment,
and (f) user requirements. Research has determined a
number of early warning signs of pending problems
with projects that can signal fatal errors or irrecover-
able problems. This chapter also examined some of
the decision rules that allow us to make reasonable
choices about whether to cancel an ongoing project.
Specifically, we may choose to terminate ongoing proj-
ects when:
• Costs exceed business benefits.
• The project no longer meets strategic fit criteria.
• Deadlines continue to be missed.
• Technology evolves beyond the project's scope.
report. The components of the final project report
include evaluations of project performance, administrative
performance, organizational structure, team performance,
techniques of project management, and benefits of the
project to the organization and the customer. Two
challenges are involved in developing effective final
reports: first, being willing to take a candid and honest
look at how the project progressed, highlighting both
its strengths and weaknesses; and second, developing
reports in such a manner that they contain a combination
of descriptive analysis and prescriptive material for
future projects. The goal in requiring a final project
report is to lay the groundwork for successful future
projects. Although the final report is used to reflect on
what went right and wrong with the current project,
it is fundamentally a forward-looking document used
to improve organizational processes in order to make
future projects more effective, project activities more
productive, and project personnel more knowledgeable.

Key Terms
Arbitration (p. 487)
Build, Operate, Transfer
(BOT) (p. 473)
Build, Own, Operate,
Transfer (BOOT) (p. 473)
Default claims (p. 487)
Disputes (p. 487)
Early termination (p. 480) Termination by addition Termination by starvation
Ex-gratia claims (p. 487) (p. 470) (p. 470)
Lessons learned (p. 474) Termination by extinction Unnatural termination
Natural termination (p. 469) (p. 470) (p. 469)
Private Finance Initiatives Termination by integration
(PFis) (p. 472) (p. 470)
Project termination (p. 469)

Discussion Questions
1. Why is the decision to terminate a project often as much an
emotional one as an intellectual one?
2. Comment on the different methods for project termination.
How have you seen an example of one of these methods,
through either your school or work experience?
3. Why do so many projects end up terminated as a result of
termination through starvation? Discuss the role of ego, power,
and politics in this form of project termination.
4. Refer back to Chapter 2. How does the concept of escalation of
commitment factor into decisions of whether to terminate projects?
5. Of the seven elements in project closeout management, which
do you view as being most important? Why?
6. Why do lessons learned programs often fail to capture mean-
ingful information that could help guide future projects?
7. Comment on the following statement: "In deciding on whether
or not to kill a project, it is critical to continually monitor the
environment for signs it may no longer be viable."
8. Refer to the Project Management Research in Brief box in
this chapter. In your opinion, why is it so difficult to bring
IT projects to successful completion? In other words, iden-
tify some reasons why the cancellation rate for IT projects
is 40%.
9. Imagine you are a team member on a project that has missed
deadlines, has not produced the hoped-for technological results,
and has been a source of problems between your team and the
customer. You have just been informed that the project is being
canceled. In what ways is this good news? How would you view it
as bad news?

Case Study 14.1
Project Libra: To Terminate or Not to Terminate
The headline in an issue of ITWeek e-magazine confirmed
what many people had known for a long time about the
status of a high-profile IT project initiated by the British
government: "Government Refuses to Bail Out Libra-
Troubled Project Still Delayed." After significant delays of
more than two years, the UK government finally deter-
mined that it would spend no more money on the trou-
bled Libra project at the Lord Chancellor's department.
Libra combined office infrastructure and a new
casework system linking magistrates' courts, but the soft-
ware application was not delivered in July 2001 as planned
and continued to be delayed. A spokesperson for the Lord
Chancellor's office claimed that the project was in place
at 70% of the magistrates' courts. However, he explained
that the contract with Fujitsu Services (formerly ICL) was
currently under renegotiation and that "it is not yet pos-
sible to indicate the outcome."
The department said that it had so far paid £33m
to Fujitsu Services. The cost of the contract had already
increased from £183m to £319m due to additional work
that the Lord Chancellor's department requested. Fujitsu
had been under heavy pressure from both the government
and opposition parties, but by then it had been recognized
that the project's final costs and completion date could
not be reasonably determined, suggesting that Project
Libra could continue well into the future.
Unfortunately, Libra continues a long tradition
of poorly managed government IT projects within the
United Kingdom. Recently it was estimated that the cost
Case Study 14.2
The Project That Wouldn't Die
Ben walked into his boss's office Tuesday morning in a
foul mood. Without wasting any time on pleasantries,
he confronted Alice. "How on earth did I get roped into
working on the Regency Project?" he asked, holding the
memo that announced his immediate transfer. Alice had
been expecting such a reaction and sat back a moment to
collect her thoughts on how to proceed.
The Regency Project was a minor legend around
the office. Begun as an internal audit of business practices
20 months earlier, the project never seemed to get any-
thing accomplished, was not taken seriously within the
company, and had yet to make one concrete proposal for
improving working practices. In fact, as far as Ben and
many other members of the company were concerned, it
Case Study 14.2 491
of canceled or overbudget government IT projects had
topped £1.Sbn in the past six years. The latest Computing
survey into government IT spending showed a 50%
increase in the amount of money squandered on misman-
aged projects since its previous study nearly two years
before that.
Treasury minister Paul Boateng recently admitted
that his department does not know how much has been
wasted since the Labour government came to power.
High-profile disasters taken into account in Computing's
research include the £698m wasted on the canceled
Pathway project to develop smart cards for benefits pay-
ments, and the £260m overspent on the magistrates'
courts Libra system identified by the National Audit
Office in 2008.
"In business no group of shareholders would stom-
ach the losses, overruns, and even pretty poor software that
successive governments have made," said Derek Wyatt,
a Member of Parliament. "The opportunity cost value is
hundreds of small new hospitals and schools. Perhaps civil
servants who fail frequently should lose their jobs." 26
Questions
1. Do a Google search for "UK's Project Libra" to see the
string of news stories related to Project Libra. Identify
some of the sources of the problems the project faced.
2. If you were the one to decide whether to terminate
this project, what would your decision have been?
Justify your position.
appeared to be a complete waste of time. And now here
Ben was, assigned to join the project!
Ben continued, "Alice, you know this assignment is
misusing my abilities. Nothing has come from Regency; in
fact, I'd love to know how top management, who are usu-
ally so cost conscious, have allowed this project to con-
tinue. I mean, the thing just won't die!"
Alice laughed. "Ben, the answer to your question
can be easily found. Have you bothered taking a look at
any of the early work coming out of Regency during its
first three months?" When Ben shook his head, she con-
tinued, "The early Statement of Work and other scope
development was overseen by Harry Shapiro. He was the
original project manager for Regency."
(continued)
500 Appendix B • Tutorial for MS Project 2010

3. ASSIGN AND LEVEL RESOURCES

We then can add resources to the project based on the information given below:

Activity Resource Responsible

A Todd
B Rose
c Rose
D Mike
E Josh
F Todd
G Mary
H Todd

Click on the "Resource" tab and then click on "Assign Resources." This will open up a new window for enter-
ing all the resource names for the project. Once the name "Todd" has been assigned to Activity A, the screen
should look like Figure A.7.

A. Contract Approv•I Sdays- 1·

8. Site Survey Sd•ys II
C. Permit Appli~tfon 4 days II
o. GradinJ Sdays 11
E. sewer Lines 7 days v
F. Bue Pavlnc 3days v
G. City Approv.il 6days
H. Final Paving Sdays

Auign Rnources

NrotastsdKttd
(±) Rt$N"«:JistOPOotw
Rplu'c:a from ProjKt2

a..,,

~:~,r-----,~-~-+- ..
_.-+:""'-·--~ll .:·
~ ~--·-+·---+--+---- ~
----
FIGURE A .7 Assigning Resources

Task Name ... ,:>uration ,.. Nov7 "10 Nov21 '10 HOY 28. '10 0.C 5 '10 O.C 12 '10 DK 19 '10
s M w F S M W F 5 T T S M W F S T T S M W F
A. Contract Approval 5 days I
B. Sit e Survey 5 days II
C. Permit Application 4 days V
D. Grading 5 days II
E. Sewer Lines 7 days v
F. Base Paving 3 days v
G. City Approval 6days
H. Final Paving 8 days

FIGURE A.8 Resource Assignment Completed

Continue assigning resources to the project activities from the people identified in the "Assign
Resources" box. The completed resource assignment will look like Figure A.8.

4. SUPPOSE ROSE IS RESPONSIBLE FOR ACTIVITIES B AND C.

ARE THERE ANY RESOURCE CONFLICTS? HOW DO WE KNOW?
Will assigning Rose to Activities B and C cause a resource conflict? To determine this information, take a
look at the Gantt chart constructed in Figure A.9 and note the human figures in the information column at
the left. This is a warning of resource conflict. Just by looking at the Gantt chart, you can see that assigning
 Exercise A: Constructing the Network: Site Preparation Project 501

0 Task Name ... Nov7 '10 Nov21 '1

s M w F s M w
1 A. Contract Approval Sdays
2 i B. Site Survey
Sdays'~
i
- 3
4
C. Pennit Application
D. Grading
4days
5days
5 E. Sewer Lines 7days
6 F. Base Paving 3days
7 G. City Approval 6days
8 H. Final Paving Sdays

FIGURE A.9 Resource Conflict Warning

Rose to Activities B and C will be a problem because both activities are scheduled to begin at the same time.
How do you resolve this conflict?
One option is to click on the "Resource" tab and highlight the two activities that are in conflict
(Band C) . Then, click the "Level Resource" option and a dialogue box will appear in which you can highlight
the name of the resource conflict (Rose). Figure A.10 shows the screen with Rose's name highlighted. Click
"Level Now" in the box.

Task Resourct ~OJtct View Formal

°"'
l'1l
8'>
Oll.
tf!ll'
•r
,&
~ils
~
~Ml, ~
'1s...J ~
•
•
Q.. • ijl l"''""o oouons
........ ~Clear ltvel/no
Assign Resou rce Substrtuh: A.dd I tnforrrwitlon Notu Details l evel l rvel Ltvtl .,
r.. Resou rces Pool• RtsouHcs Ruourets · I' Selection Res our ct All f.lli Next Overallocation I
I Assignments I lllnrt Properties ln-el

loc Ou 7 Ftr Otc 10

Dtc 12 ' 10
Dtc 19 '10
STTSMWF

E. Sewer Lines
F. Base Paving
G. City Approval
H. Final Paving
6days
Sdays
-
e
~~------·::::i ~

Todd

FIGURE A.10 Leveling Resources

Notice that the project schedule (Gantt chart shown in Figure A.11) has been modified as a result
of the decision to level the resource. As the figure shows, the new precedence ordering for the activities
moves Activity C into a sequential relationship with Activity D. The important question is, "What
happens to the project's duration as a result ofleveling the resources?" Figure A.11 shows that it does not
change the expected completion date for this project because there were several days of slack built into
Activity C. In this example, delaying the start of Activity C does not affect the project's critical path, as
Figure A.12 shows.