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Project Management Overview

The Project Management Institute (PMI)® has updated its Project Management Body of Knowledge (PMBOK® Guide) in a Fourth Edition. The PMBOK ® Guide and many other first-rate project management publications are available through PMI’s bookstore at http://www.pmi.org. PMI’s Project Management Professional (PMP)® Certification is an excellent step towards becoming a great project manager. We give a five-day class, “PMP® Certification Prep Course Plus,” worth 37.5 contact hours or Professional Development Units (PDUs) but the following is a quick overview using the PMBOK ® Guide’s WBS (Knowledge Areas or Chapters). There is some great material in the first two chapters of the PMBOK® Guide. The figures, definitions and bullets are very important throughout the guide. Definitions and acronyms are spelled out in the Glossary at the back of the Guide. 1.0 INTRODUCTION See Chapter 1 in the PMBOK ® Guide, starting on Page 3. Page 5 - “What is a Project?” is very important. We often see confusion on this issue and have to reverse-negotiate with resources on our projects. If you ask Mary how much time she is available on our project, she will tell you 60%. If Mary is doing non-project work 40% of the time and is working on three equal projects, she is available on our project only 20% of the time. If she is working simultaneously on three activities on our project, she can work only approximately 7% of her time on each activity. Page 5 - Projects are temporary and unique and therefore are often risky. These definitions are fundamental. Page 6 - Note that the infamous “triple constraints” have been replaced by “competing project constraints” of scope, quality, schedule, budget, resources, and risk. You need to balance these, often competing, constraints. In negotiations you may sometimes have to ascertain which constraint your boss or client cares about the least. Page 9, Table 1-1 gives a comparative overview of Project, Program and Portfolio management. Pages 10-14 address Projects and Strategic Planning, Project Management Office (PMO), Project Management and Operations Management, Role of Project Manager, the PMBOK® Guide, and Enterprise Environmental Factors. This material is increasingly significant as Project Management moves from single projects (a bridge construction project 500 miles away from head office) to include more-complex situations in head office.


2 - You must make the distinction between designing a new car, which is a project, and producing them each day after that, which is operations. 2.0 PROJECT LIFE CYCLE AND ORGANIZATION Page 18 - The concept of life cycle is essential to understand. The project to build a bridge may take three years. The bridge may be in use for hundreds of years. (Some of them just look this way.) Everyone will remember lousy quality long after you were a hero for bringing the project in on time and on budget. There is often an opportunity for negotiation early in the life cycle. If you have a boss or a client with unrealistic expectations about having software ready for a big trade show, when he came to you months late, you should ask how much more money the company will make if you make the deadline. You then should negotiate for a large chunk of this money to allow you to fast-track your project. You must negotiate for more and better resources, less scope, and so on. Pages 16 and 17 - In our classes, we demonstrate the importance of histograms (Figure 2-1), Cumulative or S-curves, and Go/No-Go decisions. You generally don’t have a realistic schedule until you use the total float to resource level and you should kill or postpone less-worthy projects at the first opportunity, before you waste resources. The figures on pp. 16 and 17 of the PMBOK ® Guide Second Edition, make a great Level 1 schedule for your project management software. We always try to break out projects by Phase and Deliverable at Level 1, rather than by functional group. We take a team approach to get everyone focused on the deliverables. The functional approach generally builds silos of people who misunderstand people in other silos and often is the kiss of death for a project. See our Project Management Using Microsoft Project®, (PMMP) Checklist. Page 28 - It is important to realize where your company is on the continuum between Functional and Projectized in Table 2-1. Functional organizations often are adequate at performing operations but lousy at performing projects. Projectized organizations often are superb at projects but may struggle to remain good at operations, which often are seen as less exciting or rewarding. It can be extremely difficult for older companies to make the transition from Functional to Projectized work partly because the people in the nose-bleed section of the organization chart are good at working their way up the organization chart and distrust project management. Many companies are both functional and project oriented. A prestige-car manufacturer used to be proud of the fact that it took seven years to produce a new model. Arguably they were wearing just their functional hat. Now they wear both hats. TWG is lucky to do projects only. We use Critical Path Method (CPM) schedules for just about everything. In our world, Organization charts are an instrument of the devil and lead to functional silos, lack of originality, poor communications and teamwork, and slow the project down. Many of you have to wear two hats, though, so various organization


charts are discussed on pp. 29-31. The organization chart is pretty simple for the Projectized organization. The project manager is king or queen and everyone else is an equal subject. The critical path, not the person in the corner office with the biggest rubber tree and the fancy title, rules. Project Management, A Systems Approach to Planning, Scheduling, and Controlling, by Harold Kerzner, PhD, has some great material and perspective on these issues. 3.0 PROJECT MANAGEMENT PROCESSES FOR A PROJECT The earliest editions of the PMBOK® Guide broke out the work by Knowledge Areas and paid little attention to processes or integration. In our opinion, p. 11 in the PMBOK® Guide, Third Edition, was so important that our students used it as a bookmark when studying. The WBS was PMI eating its own dog food. You still can see the information in Table 3-1 on p. 43 of the Fourth Edition, but it is not as clear. Work Breakdown Structure (WBS) Level 1 is Project Management. Note the definition of WBS in the Glossary. WBS Level 2 is the information in the nine PM Knowledge Areas - Chapters 4 to 12. WBS Level 3 contains the processes for each Knowledge Area, ranging from 3 to 6 processes, for a total of 42 processes. WBS Level 4 is Inputs, Tools and Techniques, and Outputs (ITTOs) for each Chapter. For an example, see p.131. WBS Level 5 contains the detail specific to each chapter. The PMBOK® Guide, Second Edition, drew a distinction between Core and Facilitating Processes from a historical perspective. Scope, Time, Resource Planning, Cost and Integration were the Core Planning processes while the other processes facilitated these. We still find this distinction useful although PMI has dropped it.


In the exam, it will help to remember that much of this chapter duplicates subsequent chapters to emphasize the material from a process perspective. 1 - Note the bold statement – “The Process Groups are not project phases. When large or complex projects are separated into distinct phases or sub-projects such as feasibility study, concept development, design, prototype, build, test, all of the Process Group processes normally would be repeated for each phase or subproject.” These phases are very useful as a Level 1 schedule in your project management software. Please note that in p. 40, Figure 3-1, the diagram is repeated for each phase. Do not try to use Figure 3-2 as Level 1 in your schedule. You then will end up with summary bars that run the length of the phase and that will not be very useful. See our PMMP Checklist. Page 43 is particularly important. Use it as a bookmark when studying the PMBOK® Guide. Note the mapping between the five Process Groups and nine Knowledge Areas and that there are 42 Processes in the PMBOK® Guide, Fourth Edition, versus 44 in the Third Edition. Note also the heavy emphasis on Planning (20 processes) although planning may run against every fiber of your being. Fortunately, if you wear two hats and you plan thoroughly up front, the amount of project management work may drop off rapidly when you start your “real work.” The Initiating Process Group has three processes, Executing has eight, Monitoring and Controlling, ten, and Closing, two. Total the processes across the bottom of p. 43 and note that the verbs will help you remember which process belongs in which group. Page 47, Figure 3-8 shows the twenty processes in the Planning Process Group. This figure actually is simpler than in the previous edition, although it still will require a great deal of thought and memorization. The other process groups are easy by comparison because they have fewer processes. Note that all the groups start out with Integration as the central hub. Note also the emphasis on Project Time Management, which has five of the twenty processes.


TWG Note: We believe that Time Management and Critical Path Method (CPM) are the foundation of project management. PMI’s College of Scheduling celebrated the 50 year anniversary of CPM in early 2007. Doing project management without CPM is like playing tennis without a racquet. See “Planning a Career in a World without Managers” Fortune Magazine March 20, 1995. CPM revolutionized our whole way of doing business and helped create the profession of project management. It gave us a tool that allowed us to flatten organization charts and do away with bureaucracy and irrelevant and out-of-date processes. It allowed us to put the project and team, rather than the person with the fancy title, first. We think of project management as being the antithesis of bureaucracy and mammoth procedural manuals. We find that a company’s success at projects is often in inverse proportion to the size of its procedural manuals and monthly reports. We believe the emphasis should be on critical path, who is the most qualified person to do the critical activities, how we can use float on less critical activities to resource level, how we can use Earned Value to manage-by-exception just the activities that are close to critical and behind schedule, which projects we should kill, and which processes are unnecessary. We are concerned about any trend that dilutes the importance of CPM. In our world, many people see flow charts as emasculated CPMs. A good CPM schedule tells you so much about the project -- how long it will take, what it will cost, how many resources it will soak up, and how much scope you may have to cut. More about CPM can be found in Chapter 6 – Project Time Management. 4.0 PROJECT INTEGRATION MANAGEMENT We address Chapter 4 later as a summary. 5.0 PROJECT SCOPE MANAGEMENT Many students find Chapter 5 boring, but it receives a great deal of attention in the exam. The IT industry has had a lot of difficulties with “creeping scope” and as more IT people come to PMI the emphasis may well increase. In the construction industry, the scope is generally well-defined in the contract specifications and drawings, and the contractor will often use his CPM schedule to define and manage scope. It is important to understand this chapter as well as what we consider the more exciting material in the Time section. The Scope WBS is on p. 104.

5.1 Collect Requirements 5.2 Define Scope 5.3 Create WBS 5.4 Verify Scope


5.5 Control Scope Comments:

1. Note the verb/noun format in this edition of the PMBOK® Guide, e.g., Collect Requirements.

2. Note the outputs of 5.3, Create WBS, and 5.5, Control Scope, in the PMBOK® Guide, p. 104.

3. The material in Section 5.3.2, starting on p. 118, is particularly valuable. We always try to break out by phase and deliverable, as shown in Fig 5-9; however, we do not put project management in its own silo. We assign project management to each of the other phases to keep the whole team focused on the next deliverable and to get a good waterfall from left to right in the schedule. We believe it is essential to avoid breaking out by functional groups, at least until you get down to lower levels in the WBS. Doing this helps you to get one integrated team rather than multiple teams.

4. We put the scope statements and assumptions in the Notes field of the project management software and cross-reference to other documents.

5. We insert new activities into our schedules to demonstrate impacts and scope changes. We also are great believers in performance reporting. See our PMMP Checklist and TWG Templates.


6.0 PROJECT TIME MANAGEMENT See Chapter 6 in the PMBOK® Guide. The whole chapter is excellent. If you follow the WBS on p. 131 and do the six processes in the order suggested, you will save a great deal of iteration, time and frustration.

6.1 Define Activities 6.2 Sequence Activities 6.3 Estimate Activity Resources – new starting in Third Edition. 6.4 Estimate Activity Durations 6.5 Develop Schedule 6.6 Control Schedule

Comments:

6.1 Use a strong verb and noun to define your activities in step 1 and keep descriptions short. Scope statements, notes, cross-references, etc., should be put in the notes field for each activity, not in the activity description. (Note that the PMBOK® Guide, Fourth Edition, has adopted this approach for all WBS headings, e.g., “Define Activities,” instead of “Activity Definition,” as in the Third Edition.) 6.2 Use Post-it notes with the whole senior team to come up with the Level 1 (Summary) schedule. Keep it simple. If you work top-down, you can put in the detail later. Think logic and duration, NOT dates! See details in our PMMP Checklist in the Planning section. 6.3 “Estimate Activity Resources” has been moved here from Project Cost Management. We prefer to do much of it AFTER we know where our critical path is. Assign people, equipment and materials to the activities in your schedule. Typically, we assign senior people at a lower percentage, e.g., 10%, and junior people at a higher percentage. You have to take other projects and non-project work into account and there often is a considerable amount of negotiation required. Use templates loaded with generic resources. See our PMMP Checklist. 6.4 Stick to this approach. Do not work with person-hours. Activity (task) durations should be shorter than the reporting period. If you plan to report weekly, no activity at the lowest level in the WBS should be longer than five days. If you plan to report every four hours on a shut-down project, no activity at the lowest level in the WBS should be longer than four hours. See our PMMP Checklist – Planning, Point 4. 6.5 Here is the fun part. Ensure that you have a well-defined, practical, critical path. Use discretionary as well as mandatory logic. At TWG, this is where we fine-tune our Estimates for Activity Resources. Use the Total Float (TF) sort to check for missing logic on activities with excessive float. Then use the corrected Total Float to resource level. Remember that you don’t have a realistic schedule if the resource demands are


not realistic. Your Planned Value also will be hopelessly unrealistic and embarrassing. Save your Baseline schedule at the end of Step 4. 6.6 “Control Schedule” should be relatively easy now. Update your schedule regularly. Manage- by-exception just the handful of activities that have problems, rather than the thousands that go well. Catch up activities on the critical path that are behind schedule by assigning more or better resources. Often you can borrow resources from activities that have large amounts of total float. Use Earned Value. See the Schedule Control section in our PMMP Checklist for further details.

Find a project management software package that will fit your needs. Such software is the ultimate time-management tool. The new tools make this section easy and rewarding by comparison to just a few years ago. If you keep your project on schedule, generally it will stay on budget (or the budget was unrealistic to start with). Don’t cheat yourself by using the tools to manage time only. With a little more work, you can leverage the new tools to help you with resources, cost, risk, and communications.

7.0 PROJECT COST MANAGEMENT See Chapter 7 in the PMBOK® Guide. Project Management, A Systems Approach to Planning, Scheduling, and Controlling, Seventh Edition by Harold Kerzner, PhD, also has some excellent additional material on cost/benefit analysis, depreciation, and NPV. The WBS on PMBOK® Guide, p.167, is as follows:

7.1 Estimate Costs 7.2 Determine Budget 7.3 Control Costs

Comments:

7.1 There is something magical about getting “free” cost estimates using the new project management tools when you resource load the schedule. You even get “free” cash-flow curves. 7.2 In the bad old days you generally bid the job on the basis of your cost estimate and did the schedule if you won the job. Budgeting was a big job because of the different Work Breakdown Structures (WBS) used in the cost estimate (high-level) and in the schedule (detailed). These days this approach is almost heresy. How can you know what a project is going to cost if you don’t know how long it will take? Today, it is easy and fast to do the schedule first, particularly if you have schedule templates from previous similar projects. Remember, too, that the cost baseline may


not be realistic until the schedule has been resource leveled. The initial Planned Value (PV) and projected cash flow often is hopelessly skewed and unrealistic. 7.3 “Control Costs” remains a challenge for many companies. It is difficult to collect actual cost information at the activity level in time to correct a problem. See Project Communication Management, Chapter 10 in the PMBOK® Guide, and our PMMP Checklist.

In our classes, we find that many people still have problems with Performance Reporting and Earned Value. This section is crucial both in real life and in the exam. In real life, it allows you to manage-by-exception just the problem activities. In the exam, you need to memorize the PMBOK® Guide definitions from the Glossary, starting on p. 423, and the formulae in Section 7.3.2. It is easy to remember the formulae if you understand the following definitions and ideas: Earned Value, EV (formerly Budgeted Cost of Work Planned) – What’s in the baseline budget * % Complete. (Once you update your schedule, the project management software will calculate Earned Value for you and give you a free invoice. Many sophisticated clients and banks now insist that the invoice be prepared this way. It doesn’t make sense to do it twice, once for time and once for cost!) Planned Value, PV (formerly Budgeted Cost of Work Scheduled) – the physical work scheduled (Project management software will calculate Planned Value for you but don’t forget to resource level your schedule first or this may be hopelessly optimistic!) Actual Cost, AC (formerly Actual Cost of Work Performed) – obtained from invoices and timesheets (This can be a lot of work.) Schedule Variance: SV = EV-PV (negative $ = trouble) Cost Variance: CV = EV-AC (negative $ = trouble) Schedule Performance Index: SPI = EV/PV (<1 = trouble) (All of our clients use SPI because it is free. We have found that if you keep your project on schedule using SPI, it normally will stay on budget or else the budget was hopelessly wrong to start with.) Cost Performance Index: CPI = EV/AC (<1 = trouble) (Our most advanced clients use CPI.)


Hints for remembering the formulae: There are only three terms and the EV always comes first or on top in the equation. If you’re asked for SV the answer is EV minus the schedule term, PV. If you’re asked for CV the answer is EV minus the cost term, AC. If you’re asked for SPI the answer is EV divided by the schedule term, PV. If you’re asked for CPI the answer is EV divided by the cost term, AC. Remember that a negative number or <1, means trouble. We are passionate believers in EV because it allows us to manage-by-exception just the tasks that go wrong. For example, we set the filters in the project management software to find the activities that have Total Float (TF) less than five and SPI less than 1.0. We then move resources from activities that have large amounts of float to these activities to catch up. EV is the ultimate Project Communications tool. Note that it is addressed again later in Chapter 10. Earned Value is magical because it works at all levels in the schedule. In the example in the PMBOK® Guide, p. 271, you can tell by looking at the summary that the project is 13% behind schedule and 7% over budget. You then can dive down in the WBS to find the activities that are causing the problem. Boeing and some banks demand EV on large construction projects.


Conversely, you can go up in the WBS to see how the company is performing. The following example is a client’s whole organization with all 84 projects plotted over a six- month period, showing months 1 to 6. Ideally, if all projects were perfectly on schedule and perfectly on budget, they wouldn’t deviate from the bull’s eye. Your goal is to stay on the bull’s eye or in the upper-right-hand corner of the dartboard. The newer versions of Microsoft Project handle Earned Value quite well and you can customize the software further using the Number and Cost fields. We cover this in great detail in our classes because it is so important. See also our PMMP Checklist.

When you assign resources, the schedule provides both a cost estimate and cash-flow projections. Resource leveling remains one of the most powerful tools for increasing profits and avoiding negative impacts. The software can be automated to calculate Estimate at Completion using different formulae, based on current performance.

CPI

Trend Analysis 1.41.4

1.3 1.21.2 1.1 1.0.0 0.9 0.8.8 00.0.7 0 0.6

.0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.46 0.7 0..4

Ahead of Schedule Over Budget

Ahead of Schedule Under Budget

Behind Schedule Over Budget

Behind Schedule Under Budget

1.

2.

3. 4

.

5.

6.

SPI = EV PV CPI = EV AC

SPI


8.0 PROJECT QUALITY MANAGEMENT See Chapter 8 in the PMBOK® Guide. Chapter 23 in Project Management, A Systems Approach to Planning, Scheduling, and Controlling, Seventh Edition by Harold Kerzner, PhD, gives a great summary and historical perspective. The WBS on p.191, Fig 8-1 of the PMBOK® Guide is as follows:

8.1 Plan Quality 8.2 Perform Quality Assurance 8.3 Perform Quality Control

Comments: At first, Quality Management seems much easier to apply to manufacturing than to projects. The heritage of Deming, Juran, Crosby, et al., and from manufacturing in the auto industry, is still very evident with the concepts of prevention rather than inspection, the distinction between grade and quality, and the emphasis on statistics. See Dr. Kerzner’s book for an excellent summary and historical perspective. Nonetheless, you must consider the process as well as the widget. It’s no good having a great widget if it’s late to market and costs too much. PMI’s approach to Project Quality Management makes the previous body of work relevant to projects. Quality is not just free – it should save you money! The tools — Cause-and-Effect diagrams, Benchmarking, Pareto diagrams — are particularly useful, although we prefer to take flow charts and put them into the project management software. We think doing this gives a lot more information about how long the process will take, how many resources it will require and what it will cost. We often tackle implementing a solution to a quality problem as a subproject with its own schedule, resources and budget. We plot SPI against time on our projects. It is our experience that if you keep your project on schedule, it will generally stay on budget and quality is much less likely to be a problem. We also put Quality activities in each phase of our schedules, see our PMMP Checklist. PMI’s balance in considering Quality as one of nine Knowledge Areas is very useful. It is daunting to realize how many companies have not done well after winning the Malcolm Baldrige award or adopting Six-Sigma because they paid too much attention to saving money rather than to adding value, they brought a great widget to market too late, or over-priced, with insufficient marketing, or they recognized change too late.


9.0 PROJECT HUMAN RESOURCE MANAGEMENT See Chapter 9 in the PMBOK® Guide. A previous PMBOK® Guide edition said that this “includes the processes required to make the most effective use of the people involved with the project. It includes all the project stakeholders – sponsors, customers, partners, individual contributors, and others ….” The first paragraph in the new edition, p. 215, is excellent. We agree entirely with both statements. We still see too many plans where many stakeholders’ activities are not included in the schedule or are treated as external relationships. If 99% of the activities on your schedule are your responsibility, 99% of the mistakes will appear to be your responsibility. You have to do the Level 1 schedule as a team, get buy in from everyone, and include everyone in your schedule. As always, the definitions and bullets in the PMBOK® Guide are very important. Too few people have been to negotiation classes. This is particularly the case in industries and companies that are new to project management. The most important word in project management often is “No”! We have to learn to negotiate for realistic time frames, more and better resources, possibly less scope, or a larger budget. The WBS on p. 217, Fig 9-1, of the PMBOK® Guide is as follows:

9.1 Develop Human Resource Plan 9.2 Acquire Project Team 9.3 Develop Project Team 9.4 Manage Project Team

Comments:

9.1 Many of the project management software packages are now addressing enterprise solutions to staffing requirements. It is important to show resource histograms both for the individual and the group to which he or she belongs. We no longer use separate Responsibility Assignment Matrices (RAMs). This information is easily entered into the new project management tools. For Fig 9-6, ask yourself the question “Why is this graph skewed?” Very often, a skew like this occurs when the schedule has not been resource leveled. See our PMMP Checklist. 9.2 The PMBOK® Guide used to state that the “best” resources may not be available. Now it is more PC but still stresses the importance of negotiations. On our projects, the activities that are most critical almost always get first choice on resources. 9.3 We are great believers in retreats as a team-building activity. Fast reward and recognition are very important in changing behavior like adopting PM in a Functional Company. In a recovering economy, a company may lose its best PMs very quickly. Collocation and war rooms can be very effective in increasing teamwork.


Increasingly, our global clients have virtual war rooms on project web sites so that everyone feels part of the team. Mentoring after training classes can be very effective in increasing PM proficiency and project success. We generally set up mentor-the-mentor programs so that each company has in-house experts on each of the PMBOK® Guide knowledge areas. Performance appraisals often do not pay enough attention to team play. See p. 426 of Dr. Kerzner’s book, referenced in the next chapter.

Note also, the new material that has been added in Appendix G of the PMBOK® Guide, starting on p. 417; Leadership, Team Building, Motivation, Communication, Influencing, Decision Making, Political and Cultural Awareness, and Negotiation. The references on p. 421 are excellent. The PMBOK® Guide, Second Edition, also addressed important leadership issues; see pp. 24-27. It is difficult to be a great project manager without being adept at leading, communicating, negotiating, running efficient meetings, and public speaking. The original Guide talked about General Communications but recent editions have attempted to be more project-specific, by addressing Project Communications (largely Earned Value) rather than General Communications. Some of this general information has returned in this edition of the PMBOK® Guide, in both the Communications and HR Chapters as well as the Appendix. We believe this material is important and it may well be on the exam. We also believe that every project manager should attend negotiation classes. Many project problems start because project managers do not have the courage to negotiate for commonsense budgets, time frames, or resources.

10.0 PROJECT COMMUNICATIONS MANAGEMENT See Chapter 10 in the PMBOK® Guide. Pages 273-288 in Project Management, A Systems Approach to Planning, Scheduling, and Controlling, Seventh Edition by Harold Kerzner, PhD, have some great information. See Fig 5-13 on p. 275. The WBS on p. 244 of the PMBOK® Guide includes:

10.1 Identify Stakeholders 10.2 Plan Communications 10.3 Distribute Information 10.4 Manage Stakeholders’ Expectations 10.5 Report Performance


Comments: The bulk of the material on Earned Value (EV) has been moved back to Project Cost Management, where it was in original versions of the PMBOK® Guide, leaving more room to address general communications and leadership. Fig 10-8 is important in the exam although it is general to communication rather than specific to PM communications. PMI still recognizes what a powerful project-communication-tool EV is for managing-by-exception just the activities that are close-to-critical and behind schedule or those with cost overruns. Anything that you can do to cut back on data overload has to be a fantastic advantage in clear communications. Fig 10-15 on p. 271 is a great example because it shows how EV works at both the summary and detailed levels. If you have to do these calculations manually, do them by column down the page so that you can apply the same formula to each activity. Recognize that the project is 13% behind schedule, as evidenced by both the Schedule Variance and the SPI, and that the project is over budget by 7%. Look at which activities are causing the problem. Unfortunately, in this example it may be too late to remedy the problem. Activity 4 has been completed because you have earned what you planned and most of the other activities are near completion, except for Activity 7. In the real world, you would turn on the PM software tool filters and have the software find the problematic activities early enough to fix them. Much of the general communication information should be common knowledge. Recognize that on some long pharmaceutical or construction projects the communication technology has changed from mail to Fax to E-mail to Web. Toastmasters, Dale Carnegie, and negotiation classes are highly recommended. Good negotiation books and tapes include those by Roger Dawson, Effective Negotiating by Dr. Chester L. Karrass, and Getting Ready to Negotiate, the Getting to Yes Workbook by Roger Fisher and Danny Ertel. Note also the new material that has been added in Appendix G of the PMBOK® Guide, beginning on p. 417: Leadership; Team Building; Motivation; Communication; Influencing; Decision Making; Political and Cultural Awareness, and Negotiation. The references on p. 421 are excellent.


11.0 PROJECT RISK MANAGEMENT See Chapter 11 in the PMBOK® Guide. Project Management, A Systems Approach to Planning, Scheduling, and Controlling, Seventh Edition by Harold Kerzner, PhD. See Risk in the index. Kepner-Tregoe’s work on Problem Analysis, Potential Problem Analysis and Decision Analysis; see their Web site at www.kepner-tregoe.com. The WBS on p. 274, Fig 11-1 of the PMBOK® Guide is as follows:

11.1 Plan Risk Management 11.2 Identify Risks 11.3 Perform Qualitative Risk Analysis 11.4 Perform Quantitative Risk Analysis 11.5 Plan Risk Responses 11.6 Monitor and Control Risks

Comments: This is a very important chapter and another of our favorites. Magical things often happen when you “do the thing you fear the most.” You can apply this material to your personal investment decisions as well as your projects at work. We always have admired the entrepreneurial, risk-taking approach in the PMBOK® Guide. The second sentence on p. 273 states “The objectives of Project Risk Management are to increase the probability and impact of positive events, and decrease the probability and impact of negative in the project.” Projects are inherently risky because they are unique. Great rewards generally come with considerable risk. If you don’t like risk, don’t do projects. Your boss has to remember that the person who never made a mistake never made anything! Management-by- Exception (MBE), discussed above, works only if there is sufficient trust in the organization to concentrate constructive energy on just the things that went wrong and how they will be fixed. Dysfunctional organizations hide bad news for fear of punishment. We have seen first-hand the dramatic difference that MBE can make. Companies that adopt it generally have great morale, team spirit and productivity, less bureaucracy and thinner reports, and successful projects. It is very difficult to change a culture that unduly punishes honest mistakes. It may be better to leave and find a company with more potential. Note the difference between Qualitative (Subjective) and Quantitative (Numerical Analysis) Risk Analysis. In Qualitative Risk Analysis you can easily customize Microsoft


Project to do much of the arithmetic in Fig 11-10, p. 292, of the PMBOK® Guide. You do this by using one of the Number fields to enter the impacts for each activity. We generally use Moderate 0.2, High 0.4, and Very High 0.8. Use the next Number field to enter Probability. We generally enter 0.5, 0.7 or 0.9. Use a third Number field to calculate the product or Risk Score; e.g., 0.8 Impact * 0.9 Probability gives a Risk Score of 0.72 (Threat or Opportunity), shown in the top row on Fig 11-10. We then can use the Microsoft Project filters to find just the activities with Total Float less than five days and Risk Score greater than 0.18. The software also can turn on a colored flag to highlight risky activities. Then you can perform Quantitative Risk Analysis on these prioritized high-risk activities. Know and understand PERT. Figure 11-14 Pert

O ML P Beta Triangular

4 6 10 6.33 6.67

16 20 35 21.83 23.67

11 15 23 15.67 16.33

31 41 68 43.83 46.67 Pert = (31+4*41+68)/6 = 43.83 Mean = (31+41+68)/3 = 46.67 Note how the numbers from Fig 11-13, p. 297, PMBOK® Guide, are used in Fig 11-16 on p. 300 and that, according to Monte Carlo simulation, you have only a 12% probability of achieving the most-likely Cost Estimate of $41m. This is yet another reason why you should negotiate for contingency. Decision Tree Analysis, as shown in Figure 11-15, p. 299, PMBOK® Guide, is great for brainstorming. “Solving the decision tree indicates which decision yields the greatest expected value … when all the uncertain implications, costs, rewards, and subsequent decisions are quantified.” Don’t take these solutions at face value, though. Look for solutions that can make a huge difference to the expected value. In the example, the cost of building a new plant is $120m vs. $50m to upgrade the existing plant. If there is a strong product demand, the payoff will be $200m for a new plant vs. $120m for the upgraded plant. If there is a weak product demand, the payoff will be $90m for a new plant vs. $60m for the upgraded plant. At face value, the pay offs are as shown in Scenario A, below, and you would choose to upgrade the existing plant. However, note the sensitivity of the calculation. If it costs $70m to upgrade the existing plant instead of $50m, the decision is reversed, as shown in Scenario B below. It is easy to look at different scenarios in PM or spreadsheet software.


DECISION COST PAYOFF PAYOFF - PROB. PRODUCT NET PATH

COST VALUE SCENARIO A Build New Plant 120 200 80 0.60 48 120 90 -30 0.40 -12 36 Upgrade Existing Plant 50 120 70 0.60 42 50 60 10 0.40 4 46 Choose SCENARIO B Build New Plant 120 200 80 0.60 48 120 90 -30 0.40 -12 36 Choose Upgrade Existing Plant 70 120 50 0.60 30 70 60 -10 0.40 -4 26

We became great believers in Kepner-Tregoe’s Potential Problem Analysis years ago when a brainstorming session revealed a risk that could be avoided for a cost of $3,000. This decision saved us $3 million a few weeks later. Kepner-Tregoe’s approach to Decision Analysis can be very useful in buying a home, car, or making other financial decisions. In Section 11.5.2, p. 303, the PMBOK® Guide states that the Strategies for Threats are Avoid, Transfer, Mitigate, and Accept. The Strategies for Opportunities are Exploit, Share, Enhance, and Accept. It also addresses Contingent Response Strategy on p. 305. Try applying some of these concepts in your personal life when buying real estate, choosing mortgages, or buying or leasing a car. For example, do an EMV calculation for the decision to buy a home and look at the risk of interest rates going up and home prices coming down. Consider different strategies for avoiding, transferring, or mitigating negative risks and exploiting, sharing, and enhancing opportunities. Look at acceptance and contingent response strategies as well. Litigation has become a huge risk in the USA for many industries such as construction in public agency work. The fear of litigation is an even greater cost. We believe strongly in mediation and have helped many clients resolve their differences out of court. One example of transference is to contract the work to others. This is covered in the following Project Procurement Management Chapter.


12.0 PROJECT PROCUREMENT MANAGEMENT See Chapter 12 in the PMBOK® Guide. Project Management, A Systems Approach to Planning, Scheduling, and Controlling, Seventh Edition by Harold Kerzner, PhD – Chapter 24, pp. 1139-1163 The Process names of the WBS on p. 314 of the PMBOK® Guide were changed for politically-correct reasons, overseas, in the previous edition and are now changed again and reduced from six processes to four, as follows:

12.1 Plan Procurements 12.2 Conduct Procurements 12.3 Administer Procurements 12.6 Close Procurements

Comments: The PMBOK® Guide discusses Project Procurement Management from the perspective of the buyer in the buyer-seller relationship but it is easy to reverse roles if you are the seller. A contract is a mutually-binding agreement that obligates the seller to provide the specified product and obligates the buyer to pay for it. A contract is a legal relationship subject to remedy in the courts. The PMBOK® Guide does not pursue the legal aspects in much depth. Mr. Walt Derlacki, ex-president of the Puget Sound (Seattle) PMI Chapter, makes the point that the legal aspects, disputes’ prevention and resolution, liability, and negotiations should receive added emphasis. He covers legal aspects superbly in the section he helped write. Negotiations books are referenced in Communications. It is important as an owner not to give up too much control to contractors, particularly in high-risk or public agency work. There was a huge shift in power starting with the invention of the personal computer (PC) and the introduction of inexpensive PM software. In the construction industry, owners and consultant teams can now do the work that only a large general contractor, with mainframe project management computers and software, could do until the early 1980s. An owner now can use a PC to fast-track and maintain control of his own project using multiple contractors, matched contracts and liquidated damages (LDs). LDs level the playing field and increase the odds of the low bidder being the best bidder. The owner should insist on good schedules and EV from his contractors. See our case study. In the Contracts and Procurement Chapters of his books, Dr. Kerzner spells out the different types of contracts, their advantages and disadvantages, and the different risks involved. Other industries can learn much about procurement management from the construction industry.


4.0 PROJECT INTEGRATION MANAGEMENT See Chapter 4 in the PMBOK® Guide. Project Management, A Systems Approach to Planning, Scheduling, and Controlling, Seventh Edition by Harold Kerzner, PhD The WBS on p. 73 of the PMBOK® Guide was put on steroids in the Third Edition, but the processes now have been cut back from seven to six, as follows: 4.1 Develop Project Charter 4.2 Develop Project Management Plan 4.3 Direct and Manage Project Execution 4.4 Monitor and Control Project Work 4.5 Perform Integrated Change Control 4.6 Close Project or Phase Comments: We normally study this chapter as a summary rather than as an introduction. We like the emphasis on Earned Value as an integration tool, on corrective action and on Integrated Change Control. We often see too much emphasis placed on “lessons learned” and too little on corrective action. “We’re late, over budget and the quality is lousy, but look at all the lessons we learned!” This approach is not good enough, particularly when the lessons learned are ignored on subsequent projects! We use Earned Value to manage-by-exception just the tasks that go wrong, for example, activities with less than five days float and SPI < 1.0. Each day, we move resources to these activities from activities that have float. Original editions of the PMBOK® Guide were written by different experts in each Knowledge Area who sometimes felt that their specialty was the most important one. PMI is increasing the emphasis on Process and Integration and Iteration, recognizing that these Knowledge Areas all influence each other. For example, a change in risk will generally have an impact on scope, schedule, cost, quality, and/or HR. Study the PMBOK® Guide, p. 43, at length to understand processes. Note the mapping between the five Process Groups and the nine Knowledge Areas and that there are 42 Processes in the Fourth Edition, down from 44 in the previous edition. Note that there are two processes in Initiating, twenty in Planning, eight in Executing, ten in Monitoring and Controlling, and two in Closing. The verbs should help you remember which Knowledge Area and Process Group a Process belongs in, e.g., Plan Communications. Note again the warning in bold at the bottom of p. 41. “The Process Groups are not project phases. When large or complex projects are separated into distinct phases or


subprojects such as feasibility study, concept development, design, prototype, build, test, etc., all of the Process Groups would normally be repeated for each phase or subproject.” Learn the processes within each group and the order in which you should do them, while understanding that this is oversimplified and that iteration will be required. Flesh out the activities required (verb and noun) to fulfill these processes, particularly for Initiating and Closing. Could you really initiate a project without a Communications Process? The Fourth Edition puts 10.1, Identify Stakeholders, in the Initiating Process Group. Understand PMBOK® Guide, p. 42, as well. GLOSSARY AND INDEX The Common Acronyms starting on p. 424 and the Definitions starting on p. 426 in the PMBOK® Guide Glossary give us a common language with our clients and colleagues worldwide. Sometimes, one word can make a great deal of difference to a definition, so you should read them carefully. For example, the definition of Critical Path has changed from the previous PMBOK® Guide editions. Many people think that these are the activities with zero float, but if you’ve inherited a project with minus 120 days of float, zero is a luxury. Or if you have a three-year-long project, you had better treat activities with five days float as critical. A previous PMBOK® Guide edition stated that “…the critical path is usually defined as those activities with float less than or equal to a specified value, often zero.”


CONCLUSION PMI is putting an increased emphasis on Processes and Integration. Study the PMBOK® Guide, pp. 42-43, thoroughly to understand processes. Note the mapping between the five Process Groups and nine Knowledge Areas and that there are 42 Processes in the PMBOK® Guide, Fourth Edition. The order in which you do these processes can sometimes be very important and sometimes iterative. Read the Fourth Edition Changes on p. 349 to understand PMI’s latest emphasis. For example, in the Third Edition, Material was added to clarify the distinction between the Project Management Process Groups and project phases, which have sometimes mistakenly been viewed as one and the same. The current edition drops the second cross- reference to Chapter 3, which was quite confusing and made the 44 processes look like 88 in the Third Edition. Read and understand PMI’s Code of Professional Conduct. You can use this in negotiations if you have a boss or a client asking you do to something unprofessional or unethical. Follow the “golden rule” – treat others as you would want them to treat you. Be honest, don’t break copyright or other laws, tell the truth, don’t disclose confidential information, avoid conflicts of interest, report violations, don’t take bribes, share information, continue to learn and grow, and put the team first. Pay special attention to CPM, calculating total float and free float. Understand that you use float to level resources. Learn to do sample problems quickly by hand, using either node calculations or scaling. Many people find that scaling works faster than node calculations. Check your answers in Microsoft Project or other PM Software. A thorough understanding of CPM and float is very important both in the exam and on your projects. Know the formulae for Earned Value and understand where the data come from. PV is generated by the software but you have to resource level first or it will be based on early dates and you never will be able to keep up to this baseline schedule. EV is calculated when you update your current schedule and Microsoft Project calculates the value earned based on the baseline value. If you have done 50% of an activity with a budget of $1,000, you have earned $500 regardless of whether you have spent $50 or $5,000. AC comes from time sheets and invoices and is a lot of work at the activity level. You often can do it much easier at the summary level. CPM and EV are magical tools that allow you to manage-by-exception just the activities that are critical and behind schedule. If you stay on schedule, you will generally stay on budget or else your budget was flawed to begin with.


Learn any other formulae you may need for the exam because arithmetic questions are easy and non-subjective. PERT O+P+4ML/6 Standard Deviation of activity duration P- 0/6 Present Value PV = FV/(1+r)n

Number of Communication channels n(n-1)/2 Do lots of practice exams but remember that the actual exam questions should be better because they have been tested and approved by PMI, whereas most practice tests are written by people guessing at PMI questions or doing unethical exit interviews. Keep a record of your scores each time you take a practice test so that you can see in which chapters you are weak and concentrate your efforts on those. Be particularly careful of chapters you may assume you don’t have to study because of lots of work experience. It is important to learn PMI’s terminology. The Inclusions and Exclusions, Common Acronyms and Definitions in the PMBOK® Guide Glossary are very helpful. Remember that the PMP® Certification is just a stepping stone to becoming a great project manager. You still will need a lot of experience with the tools and techniques, mentoring, and continuing education. Volunteering with your local PMI Chapter and going to PMI’s Global Congress can boost your career dramatically. We give five-day classes in PMP® Certification worth 37.5 PDUs, three-day classes in project management software worth 22.5 PDUs and classes in Litigation Avoidance, Executive Overviews, and other PM topics. We also consult and mentor in PM and PM Software. Good luck and please contact us with any questions or suggestions. TWG Project Management, LLC 189 River Road, Washington Crossing, PA 18977-‐1603 Tel 215.369.1777, Fax 215.369.5373, ® www.TWGpm.com ; email: [email protected]

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