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HAROLD KERZNER, PH.D.

K E R Z N E R T E N T H E D I T I O N

THE LANDMARK PROJECT MANAGEMENT REFERENCE, NOW IN A NEW EDITION

Now in a Tenth Edition, this industry-leading project management “bible” aligns its streamlined approach to the latest release of

the Project Management Institute’s Project Management Body of Knowledge (PMI’s PMBOK® Guide), the new mandatory source of training for the Project Management Professional (PMP®) Certifi cat-ion Exam. This outstanding edition gives students and professionals a profound understanding of project management with insights from one of the best-known and respected authorities on the subject.

From the intricate framework of organizational behavior and structure that can determine project success to the planning, scheduling, and controlling processes vital to effective project management, the new edition thoroughly covers every key component of the subject. This Tenth Edition features:

■ New sections on scope changes, exiting a project, collective belief, and managing virtual teams

■ More than twenty-fi ve case studies, including a new case on the Iridium Project covering all aspects of project management

■ 400 discussion questions■ More than 125 multiple-choice questions

Other powerful tools by Harold Kerzner:Project Management Workbook and PMP®/CAPM® Exam Study Guide, Tenth Edition (978-0-470-27872-7)

Project Management Case Studies, Third Edition (978-0-470-27871-0)

Project Management

T E N T H E D I T I O N

HAROLD KERZNER, PH.D., is Senior Executive Director for Project, Program and Portfolio Management at International Institute of Learning, Inc. (IIL), a global learning solutions company that conducts training for leading corporations throughout the world.

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PROJECTMANAGEMENT

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Dr. Kerzner’s 16 Points to ProjectManagement Maturity

1. Adopt a project management methodology and use it consistently.

2. Implement a philosophy that drives the company toward projectmanagement maturity and communicate it to everyone.

3. Commit to developing effective plans at the beginning of each project.

4. Minimize scope changes by committing to realistic objectives.

5. Recognize that cost and schedule management are inseparable.

6. Select the right person as the project manager.

7. Provide executives with project sponsor information, not projectmanagement information.

8. Strengthen involvement and support of line management.

9. Focus on deliverables rather than resources.

10. Cultivate effective communication, cooperation, and trust to achieverapid project management maturity.

11. Share recognition for project success with the entire project team andline management.

12. Eliminate nonproductive meetings.

13. Focus on identifying and solving problems early, quickly, and costeffectively.

14. Measure progress periodically.

15. Use project management software as a tool—not as a substitute foreffective planning or interpersonal skills.

16. Institute an all-employee training program with periodic updates basedupon documented lessons learned.

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PROJECTMANAGEMENT

A Systems Approach toPlanning, Scheduling,

and Controlling

T E N T H E D I T I O N

H A R O L D K E R Z N E R , P h . D .Senior Executive Director for Project ManagenmentThe International Insitute for Learning New York,

New York

John Wiley & Sons, Inc.

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This book is printed on acid-free paper. �

Copyright © 2009 by John Wiley & Sons, Inc. All rights reserved

Published by John Wiley & Sons, Inc., Hoboken, New JerseyPublished simultaneously in Canada

No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online athttp://www.wiley.com/go/permission.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best effortsin preparing this book, they make no representations or warranties with respect to the accuracy orcompleteness of the contents of this book and specifically disclaim any implied warranties of merchantabilityor fitness for a particular purpose. No warranty may be created or extended by sales representatives orwritten sales materials. The advice and strategies contained herein may not be suitable for your situation.You should consult with a professional where appropriate. Neither the publisher nor author shall be liablefor any loss of profit or any other commercial damages, including but not limited to special, incidental,consequential, or other damages.

For general information about our other products and services, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317)572-3993 or fax (317) 572-4002.

Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may notbe available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com.

Library of Congress Cataloging-in-Publication Data:

Kerzner, Harold.Project management : a systems approach to planning, scheduling, and conrolling/Harold Kerzner.—10th ed.

p. cm.Includes index.ISBN 978-0-470-27870-3 (cloth : acid-free paper) 1. Project management. I. Title.

HD69.P75K47 2009658.4�04—dc22

2008049907

Printed in the United States of America.

10 9 8 7 6 5 4 3 2 1

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To

Dr. Herman Krier,

my Friend and Guru,

who taught me well the

meaning of the word “persistence”

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Contents

Preface xxi

1 OVERVIEW 1

1.0 Introduction 11.1 Understanding Project Management 21.2 Defining Project Success 71.3 The Project Manager–Line Manager Interface 81.4 Defining the Project Manager’s Role 121.5 Defining the Functional Manager’s Role 141.6 Defining the Functional Employee’s Role 171.7 Defining the Executive’s Role 171.8 Working with Executives 181.9 The Project Manager as the Planning Agent 191.10 Project Champions 201.11 The Downside of Project Management 211.12 Project-Driven versus Non–Project-Driven Organizations 221.13 Marketing in the Project-Driven Organization 241.14 Classification of Projects 261.15 Location of the Project Manager 271.16 Differing Views of Project Management 291.17 Concurrent Engineering: A Project Management Approach 301.18 Studying Tips for the PMI® Project Management Certification Exam 30

Problems 33

Case StudyWilliams Machine Tool Company 35

vii

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2 PROJECT MANAGEMENT GROWTH: CONCEPTS AND DEFINITIONS 37

2.0 Introduction 372.1 General Systems Management 382.2 Project Management: 1945–1960 382.3 Project Management: 1960–1985 392.4 Project Management: 1985–2009 452.5 Resistance to Change 502.6 Systems, Programs, and Projects: A Definition 542.7 Product versus Project Management: A Definition 572.8 Maturity and Excellence: A Definition 582.9 Informal Project Management: A Definition 592.10 The Many Faces of Success 602.11 The Many Faces of Failure 632.12 The Stage-Gate Process 662.13 Project Life Cycles 682.14 Gate Review Meetings (Project Closure) 742.15 Project Management Methodologies: A Definition 742.16 Organizational Change Management and Corporate Cultures 762.17 Project Management Intellectual Property 812.18 Systems Thinking 822.19 Studying Tips for the PMI® Project Management Certification Exam 85

Problems 88

3 ORGANIZATIONAL STRUCTURES 91

3.0 Introduction 913.1 Organizational Work Flow 943.2 Traditional (Classical) Organization 953.3 Developing Work Integration Positions 983.4 Line–Staff Organization (Project Coordinator) 1023.5 Pure Product (Projectized) Organization 1033.6 Matrix Organizational Form 1063.7 Modification of Matrix Structures 1133.8 The Strong, Weak, Balanced Matrix 1173.9 Center for Project Management Expertise 1173.10 Matrix Layering 1183.11 Selecting the Organizational Form 1193.12 Structuring the Small Company 1253.13 Strategic Business Unit (SBU) Project Management 1283.14 Transitional Management 1293.15 Studying Tips for the PMI® Project Management Certification Exam 131

Problems 133

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Case StudyJones and Shephard Accountants, Inc. 138

4 ORGANIZING AND STAFFING THE PROJECT OFFICE ANDTEAM 141

4.0 Introduction 1414.1 The Staffing Environment 1424.2 Selecting the Project Manager: An Executive Decision 1444.3 Skill Requirements for Project and Program Managers 1484.4 Special Cases in Project Manager Selection 1544.5 Selecting the Wrong Project Manager 1544.6 Next Generation Project Managers 1584.7 Duties and Job Descriptions 1594.8 The Organizational Staffing Process 1634.9 The Project Office 1694.10 The Functional Team 1744.11 The Project Organizational Chart 1754.12 Special Problems 1784.13 Selecting the Project Management Implementation Team 1804.14 Studying Tips for the PMI® Project Management Certification Exam 183

Problems 185

5 MANAGEMENT FUNCTIONS 191

5.0 Introduction 1915.1 Controlling 1935.2 Directing 1935.3 Project Authority 1985.4 Interpersonal Influences 2065.5 Barriers to Project Team Development 2095.6 Suggestions for Handling the Newly Formed Team 2125.7 Team Building as an Ongoing Process 2165.8 Dysfunctions of a Team 2175.9 Leadership in a Project Environment 2205.10 Life-Cycle Leadership 2215.11 Organizational Impact 2255.12 Employee–Manager Problems 2275.13 Management Pitfalls 2305.14 Communications 2335.15 Project Review Meetings 2425.16 Project Management Bottlenecks 2435.17 Communication Traps 244

Contents ix

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5.18 Proverbs and Laws 2455.19 Human Behavior Education 2485.20 Management Policies and Procedures 2495.21 Studying Tips for the PMI® Project Management Certification Exam 249

Problems 254

Case StudiesThe Trophy Project 264Leadership Effectiveness (A) 266Leadership Effectiveness (B) 271Motivational Questionnaire 277

6 MANAGEMENT OF YOUR TIME AND STRESS 285

6.0 Introduction 2856.1 Understanding Time Management 2866.2 Time Robbers 2866.3 Time Management Forms 2886.4 Effective Time Management 2896.5 Stress and Burnout 2906.6 Studying Tips for the PMI® Project Management Certification Exam 292

Problems 293

Case StudyThe Reluctant Workers 294

7 CONFLICTS 295

7.0 Introduction 2957.1 Objectives 2967.2 The Conflict Environment 2977.3 Conflict Resolution 3007.4 Understanding Superior, Subordinate, and Functional

Conflicts 3017.5 The Management of Conflicts 3037.6 Conflict Resolution Modes 3047.7 Studying Tips for the PMI® Project Management Certification Exam 306

Problems 308

Case StudiesFacilities Scheduling at Mayer Manufacturing 311Telestar International 312Handling Conflict in Project Management 313

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8 SPECIAL TOPICS 319

8.0 Introduction 3198.1 Performance Measurement 3208.2 Financial Compensation and Rewards 3278.3 Critical Issues with Rewarding Project Teams 3338.4 Effective Project Management in the Small Business

Organization 3368.5 Mega Projects 3388.6 Morality, Ethics, and the Corporate Culture 3398.7 Professional Responsibilities 3428.8 Internal Partnerships 3458.9 External Partnerships 3468.10 Training and Education 3488.11 Integrated Product/Project Teams 3508.12 Virtual Project Teams 3528.13 Breakthrough Projects 3548.14 Studying Tips for the PMI® Project Management Certification Exam 355

Problems 361

9 THE VARIABLES FOR SUCCESS 365

9.0 Introduction 3659.1 Predicting Project Success 3669.2 Project Management Effectiveness 3709.3 Expectations 3719.4 Lessons Learned 3729.5 Understanding Best Practices 3739.6 Studying Tips for the PMI® Project Management Certification Exam 380

Problems 381

10 WORKING WITH EXECUTIVES 383

10.0 Introduction 38310.1 The Project Sponsor 38410.2 Handling Disagreements with the Sponsor 39310.3 The Collective Belief 39410.4 The Exit Champion 39510.5 The In-House Representatives 39610.6 Studying Tips for the PMI® Project Management Certification Exam 397

Problems 398

Contents xi

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xii CONTENTS

Case StudyCorwin Corporation 401

11 PLANNING 411

11.0 Introduction 41111.1 Validating the Assumptions 41411.2 General Planning 41511.3 Life-Cycle Phases 41811.4 Proposal Preparation 42111.5 Kickoff Meetings 42111.6 Understanding Participants’ Roles 42411.7 Project Planning 42411.8 The Statement of Work 42611.9 Project Specifications 43111.10 Milestone Schedules 43311.11 Work Breakdown Structure 43411.12 WBS Decomposition Problems 44011.13 Role of the Executive in Project Selection 44411.14 Role of the Executive in Planning 44911.15 The Planning Cycle 44911.16 Work Planning Authorization 45011.17 Why Do Plans Fail? 45111.18 Stopping Projects 45211.19 Handling Project Phaseouts and Transfers 45311.20 Detailed Schedules and Charts 45411.21 Master Production Scheduling 45711.22 Project Plan 45911.23 Total Project Planning 46411.24 The Project Charter 46811.25 Management Control 46911.26 The Project Manager–Line Manager Interface 47211.27 Fast-Tracking 47411.28 Configuration Management 47511.29 Enterprise Project Management Methodologies 47611.30 Project Audits 47911.31 Studying Tips for the PMI® Project Management Certification Exam 480

Problems 483

12 NETWORK SCHEDULING TECHNIQUES 493

12.0 Introduction 49312.1 Network Fundamentals 495

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12.2 Graphical Evaluation and Review Technique (GERT) 50012.3 Dependencies 50112.4 Slack Time 50212.5 Network Replanning 50812.6 Estimating Activity Time 51212.7 Estimating Total Project Time 51312.8 Total PERT/CPM Planning 51412.9 Crash Times 51612.10 PERT/CPM Problem Areas 51912.11 Alternative PERT/CPM Models 52212.12 Precedence Networks 52312.13 Lag 52612.14 Scheduling Problems 52812.15 The Myths of Schedule Compression 52812.16 Understanding Project Management Software 53012.17 Software Features Offered 53012.18 Software Classification 53212.19 Implementation Problems 53312.20 Critical Chain 53412.21 Studying Tips for the PMI® Project Management Certification Exam 536

Problems 539

Case StudyCrosby Manufacturing Corporation 552

13 PROJECT GRAPHICS 555

13.0 Introduction 55513.1 Customer Reporting 55613.2 Bar (Gantt) Chart 55713.3 Other Conventional Presentation Techniques 56413.4 Logic Diagrams/Networks 56713.5 Studying Tips for the PMI® Project Management Certification Exam 568

Problems 569

14 PRICING AND ESTIMATING 571

14.0 Introduction 57114.1 Global Pricing Strategies 57214.2 Types of Estimates 57314.3 Pricing Process 57614.4 Organizational Input Requirements 57814.5 Labor Distributions 58014.6 Overhead Rates 584

Contents xiii

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14.7 Materials/Support Costs 58614.8 Pricing Out the Work 58914.9 Smoothing Out Department Man-Hours 59014.10 The Pricing Review Procedure 59214.11 Systems Pricing 59414.12 Developing the Supporting/Backup Costs 59514.13 The Low-Bidder Dilemma 59914.14 Special Problems 59914.15 Estimating Pitfalls 60014.16 Estimating High-Risk Projects 60114.17 Project Risks 60214.18 The Disaster of Applying the 10 Percent Solution to Project Estimates 60514.19 Life-Cycle Costing (LCC) 60614.20 Logistics Support 61314.21 Economic Project Selection Criteria: Capital Budgeting 61414.22 Payback Period 61414.23 The Time Value of Money 61514.24 Net Present Value (NPV) 61614.25 Internal Rate of Return (IRR) 61714.26 Comparing IRR, NPV, and Payback 61814.27 Risk Analysis 61814.28 Capital Rationing 61914.29 Project Financing 62014.30 Studying Tips for the PMI® Project Management Certification Exam 622

Problems 624

15 COST CONTROL 629

15.0 Introduction 62915.1 Understanding Control 63315.2 The Operating Cycle 63615.3 Cost Account Codes 63715.4 Budgets 64415.5 The Earned Value Measurement System (EVMS) 64515.6 Variance and Earned Value 64715.7 The Cost Baseline 66615.8 Justifying the Costs 66815.9 The Cost Overrun Dilemma 67115.10 Recording Material Costs Using Earned Value Measurement 67215.11 The Material Accounting Criterion 67515.12 Material Variances: Price and Usage 67615.13 Summary Variances 67715.14 Status Reporting 67815.15 Cost Control Problems 685

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15.16 Studying Tips for the PMI® Project Management Certification Exam 686

Problems 689

Case StudiesThe Bathtub Period 708Franklin Electronics 709Trouble in Paradise 711

16 TRADE-OFF ANALYSIS IN A PROJECT ENVIRONMENT 715

16.0 Introduction 71516.1 Methodology for Trade-off Analysis 71816.2 Contracts: Their Influence on Projects 73516.3 Industry Trade-off Preferences 73616.4 Conclusion 73916.5 Studying Tips for the PMI® Project Management Certification Exam 739

17 RISK MANAGEMENT 741

17.0 Introduction 74117.1 Definition of Risk 74317.2 Tolerance for Risk 74517.3 Definition of Risk Management 74617.4 Certainty, Risk, and Uncertainty 74717.5 Risk Management Process 75317.6 Plan Risk Management 75317.7 Risk Identification 75517.8 Risk Analysis 76117.9 Qualitative Risk Analysis 76617.10 Quantitative Risk Analysis 77117.11 Probability Distributions and the Monte Carlo Process 77217.12 Plan Risk Response 78217.13 Monitoring and Control Risks 78817.14 Some Implementation Considerations 78817.15 The Use of Lessons Learned 79017.16 Dependencies between Risks 79317.17 The Impact of Risk Handling Measures 79817.18 Risk and Concurrent Engineering 80117.19 Studying Tips for the PMI® Project Management Certification Exam 804

Problems 808

Case StudiesTeloxy Engineering (A) 815Teloxy Engineering (B) 815

Contents xv

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18 LEARNING CURVES 817

18.0 Introduction 81718.1 General Theory 81818.2 The Learning Curve Concept 81818.3 Graphic Representation 82018.4 Key Words Associated with Learning Curves 82218.5 The Cumulative Average Curve 82218.6 Sources of Experience 82418.7 Developing Slope Measures 82718.8 Unit Costs and Use of Midpoints 82818.9 Selection of Learning Curves 82918.10 Follow-on Orders 83018.11 Manufacturing Breaks 83018.12 Learning Curve Limitations 83218.13 Prices and Experience 83218.14 Competitive Weapon 83518.15 Studying Tips for the PMI® Project Management Certification Exam 835

Problems 836

19 CONTRACT MANAGEMENT 839

19.0 Introduction 83919.1 Procurement 84019.2 Plan Procurement 84219.3 Conducting the Procurements 84519.4 Conduct Procurements: Request Seller Responses 84719.5 Conduct Procurements: Select Sellers 84719.6 Types of Contracts 85119.7 Incentive Contracts 85519.8 Contract Type versus Risk 85819.9 Contract Administration Cycle 85919.10 Contract Closure 86219.11 Using a Checklist 86319.12 Proposal-Contractual Interaction 86419.13 Summary 86719.14 Studying Tips for the PMI® Project Management Certification Exam 868

20 QUALITY MANAGEMENT 873

20.0 Introduction 87420.1 Definition of Quality 87520.2 The Quality Movement 87720.3 Comparison of the Quality Pioneers 88020.4 The Taguchi Approach 881

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20.5 The Malcolm Baldrige National Quality Award 88420.6 ISO 9000 88520.7 Quality Management Concepts 88720.8 The Cost of Quality 89020.9 The Seven Quality Control Tools 89320.10 Process Capability (CP) 91020.11 Acceptance Sampling 91220.12 Implementing Six Sigma 91220.13 Lean Six Sigma and DMAIC 91420.14 Quality Leadership 91520.15 Responsibility for Quality 91620.16 Quality Circles 91620.17 Just-in-Time Manufacturing (JIT) 91720.18 Total Quality Management (TQM) 91920.19 Studying Tips for the PMI® Project Management Certification Exam 923

21 MODERN DEVELOPMENTS PROJECT MANAGEMENT 927

21.0 Introduction 92721.1 The Project Management Maturity Model (PMMM) 92821.2 Developing Effective Procedural Documentation 93221.3 Project Management Methodologies 93621.4 Continuous Improvement 93721.5 Capacity Planning 94221.6 Competency Models 94321.7 Managing Multiple Projects 94521.8 End-of-Phase Review Meetings 947

22 THE BUSINESS OF SCOPE CHANGES 949

22.0 Introduction 94922.1 Need for Business Knowledge 95122.2 Timing of Scope Changes 95222.3 Business Need for a Scope Change 95322.4 Rationale for Not Approving a Scope Change 954

23 THE PROJECT OFFICE 955

23.0 Introduction 95523.1 Present-Day Project Office 95623.2 Implementation Risks 95723.3 Types of Project Offices 95823.4 Networking Project Management Offices 95923.5 Project Management Information Systems 95923.6 Dissemination of Information 96123.7 Mentoring 962

Contents xvii

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23.8 Development of Standards and Templates 96323.9 Project Management Benchmarking 96323.10 Business Case Development 96423.11 Customized Training (Related to Project Management) 96523.12 Managing Stakeholders 96623.13 Continuous Improvement 96723.14 Capacity Planning 96723.15 Risks of Using a Project Office 968

24 MANAGING CRISIS PROJECTS 971

24.0 Introduction 97124.1 Understanding Crisis Management 97124.2 Ford versus Firetone 97324.3 The Air France Concorde Crash 97424.4 Intel and the Pentium Chip 97524.5 The Russian Submarine Kursk 97524.6 The Tylenol Poisonings 97624.7 Nestlé’s Marketing of Infant Formula 97924.8 The Space Shuttle Challenger Disaster 98124.9 The Space Shuttle Columbia Disaster 98224.10 Victims versus Villains 98324.11 Life-Cycle Phases 98424.12 Project Management Implications 985

25 THE RISE, FALL, AND RESURRECTION OF IRIDIUM: A PROJECT MANAGEMENT PERSPECTIVE 987

25.0 Introduction 98725.1 Naming the Project “Iridium” 98925.2 Obtaining Executive Support 99025.3 Launching the Venture 99025.4 The Iridium System 99225.5 The Terrestial and Space-Based Network 99225.6 Project Initiation: Developing the Business Case 99325.7 The “Hidden” Business Case 99525.8 Risk Management 99525.9 The Collective Belief 99725.10 The Exit Champion 99725.11 Iridium’s Infancy Years 99925.12 Debt Financing 100125.13 The M-Star Project 100225.14 A New CEO 100325.15 Satellite Launches 1003

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25.16 An Initial Public Offering (IPO) 100425.17 Signing up Customers 100425.18 Iridium’s Rapid Ascent 100525.19 Iridium’s Rapid Descent 100725.20 The Iridium “Flu” 101225.21 Searching for a White Knight 101225.22 The Definition of Failure (October, 1999) 101225.23 The Satellite Deorbiting Plan 101325.24 Iridium Is Rescued for $25 Million 101425.25 Epilogue 101525.26 Shareholder Lawsuits 101525.27 The Bankruptcy Court Ruling 101625.28 Autopsy 101625.29 Financial Impact of the Bankruptcy 101825.30 What Really Went Wrong? 101825.31 Lessons Learned 102025.32 Conclusion 1023

Appendix A. Solutions to the Project Management Conflict Exercise 1025Appendix B. Solution to Leadership Exercise 1031Appendix C. Dorale Products Case Studies 1037Appendix D. Solution to the Dorale Products Case Studies Answers 1049Appendix E. Crosslisting of PMBOK® to the Text 1055

Author Index 1061

Subject Index 1065

Contents xix

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Preface

Project management has evolved from a management philosophy restricted to afew functional areas and regarded as something nice to have to an enterprise pro-ject management system affecting every functional unit of the company. Simplystated, project management has evolved into a business process rather thanmerely a project management process. More and more companies are nowregarding project management as being mandatory for the survival of the firm.Organizations that were opponents of project management are now advocates.Management educators of the past, who preached that project management couldnot work and would be just another fad, are now staunch supporters. Project man-agement is here to stay. Colleges and universities are now offering graduatedegrees in project management.

The text discusses the principles of project management. Students who areinterested in advanced topics, such as some of the material in Chapters 21 to 24of this text, may wish to read one of my other texts, Advanced ProjectManagement: Best Practices in Implementation (Hoboken, NJ: Wiley, 2004), andProject Management Best Practices: Achieving Global Excellence (Hoboken, NJ:Wiley, 2006). John Wiley & Sons will also be introducing a five-book series onproject management best practices, co-authored by Frank Saladis and HaroldKerzner, to accompany the above two books.

This book is addressed not only to those undergraduate and graduate studentswho wish to improve upon their project management skills but also to those func-tional managers and upper-level executives who serve as project sponsors andmust provide continuous support for projects. During the past several years, man-agement's knowledge and understanding of project management has matured tothe point where almost every company is using project management in one formor another. These companies have come to the realization that project management

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xxii PREFACE

and productivity are related and that we are now managing our business as thoughit is a series of projects. Project management coursework is now consuming moreof training budgets than ever before.

General reference is provided in the text to engineers. However, the readershould not consider project management as strictly engineering related. The engi-neering examples are the result of the fact that project management first appearedin the engineering disciplines, and we should be willing to learn from their mis-takes. Project management now resides in every profession, including informa-tion systems, health care, consulting, pharmaceutical, banks, and governmentagencies.

The text can be used for both undergraduate and graduate courses in business,information systems, and engineering. The structure of the text is based upon mybelief that project management is much more behavioral than quantitative sinceprojects are managed by people rather than tools. The first five chapters are partof the basic core of knowledge necessary to understand project management.Chapters 6 through 8 deal with the support functions of managing your time effec-tively, conflicts, and other special topics. Chapters 9 and 10 describe factors forpredicting success and management support. It may seem strange that 10 chapterson organizational behavior and structuring are needed prior to the “hard-core”chapters of planning, scheduling, and controlling. These first 10 chapters areneeded to understand the cultural environment for all projects and systems. Thesechapters are necessary for the reader to understand the difficulties in achievingcross-functional cooperation on projects where team members are working onmultiple projects concurrently and why the people involved, all of whom may have different backgrounds, cannot simply be forged into a cohe-sive work unit without friction. Chapters 11 through 20 are more of the quantita-tive chapters on planning, scheduling, cost control, estimating, procurement, andquality. Chapters 21 through 24 are advanced topics and future trends. Chapter 25is a capstone case study that can be related to almost all of the chapters in the text.

The changes that were made in the 10th edition include:

● A chapter on the business of scope changes● A chapter on managing crises projects● A chapter on the Iridium Project, which serves as a capstone case● An appendix on using the book to study for the PMP® exam● A section on understanding the collective belief on a project● A section on the need for an exit champion● A section on project financing● A section on managing virtual teams● A section on rewarding project teams● A section on the need for an enterprise project management system● A section on kickoff meeting● A section on breakthrough projects● A section on project audits● A section on managing intellectual property

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● A section on the problems associated with project scheduling● A section on schedule compression myths● A section on human behavior education● A section on dysfunctional team behavior● A section on validating project assumptions● Existing sections from the 9th edition with expanded information

include: the new breed of project manager; additional scheduling prob-lems; a discussion on the difference between active and passive involve-ment by the sponsor; the need for challenging the decisions of thesponsor; information needed for effective estimating; managing stake-holder expectations; the project war room; power and authority; the man-agement reserve; and Six Sigma. The chapters on risk management andprocurement were restructured to be in better alignment with thePMBOK® Guide, 4th edition.

The text contains more than 25 case studies, more than 125 multiple choicequestions, and nearly 400 discussion questions. In addition, there is a supple-mental workbook (Project Management Workbook to Accompany ProjectManagement, tenth edition) that contains more than 600 multiple choice ques-tions, additional case studies, challenging problems, and crossword puzzles.There is also a separate book of cases (Project Management Case Studies, thirdedition) that provides additional real-world examples.

This text, the workbook, and the book of cases are ideal as self-study toolsfor the Project Management Institute’s PMP® Certification exam. Because of this,there are tables of cross references on each chapter’s opening page in the textbook detailing the sections from the book of cases, the workbook, and the Guide to the Project Management Body of Knowledge (PMBOK® Guide) thatapply to that chapter's content. The left-hand margin of the pages in the text hasside bars that identify the cross-listing of the material on that page to the appro-priate section(s) of the PMBOK® Guide. At the end of most of the chapters is asection on study tips for the PMP® exam, including more than 125 multiplechoice questions.

This textbook is currently used in the college market, in the reference mar-ket, and for studying for the PMP® Certification exam. Therefore, to satisfy theneeds of all markets, a compromise had to be reached on how much of the textwould be aligned to the PMBOK® Guide and how much new material would be included without doubling the size of the text. Some colleges and universitiesuse the textbook to teach project management fundamentals without reference to the PMBOK® Guide. The text does not contain all of the material necessary tosupport each section of the PMBOK® Guide. Therefore, to study for the PMP®

Certification exam, the PMBOK® Guide must also be used together with this text.The text covers material for almost all of the PMBOK® Guide knowledge areasbut not necessarily in the depth that appears in the PMBOK® Guide.

An instructor's manual is available only to college and university facultymembers by contacting your local Wiley sales representative or by visiting

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the Wiley website at www.wiley.com/kerzner. This website includes not only theinstructor's manual but also 500 PowerPoint slides that follow the content of the book and help organize and execute classroom instruction and group learning.Access to the instructor’s material can be provided only through John Wiley &Sons Publishers, not the author.

One-, two-, and three-day seminars on project management and the PMP®

Certification Training using the text are offered by contacting Lori Milhaven,Executive Vice President, the International Institute for Learning, at 800-325-1533, extension 5121 (email address: lori.milhaven@iil.com).

The problems and case studies at the ends of the chapters cover a variety ofindustries. Almost all of the case studies are real-world situations taken from myconsulting practice. Feedback from my colleagues who are using the text has pro-vided me with fruitful criticism, most of which has been incorporated into thetenth edition.

The majority of the articles on project management that have become clas-sics have been referenced in the textbook throughout the first 11 chapters. Thesearticles were the basis for many of the modern developments in project manage-ment and are therefore identified throughout the text.

Many colleagues provided valuable criticism. In particular, I am indebted tothose industrial/government training managers whose dedication and commit-ment to quality project management education and training have led to valuablechanges in this and previous editions. In particular, I wish to thank Frank Saladis,PMP®, Senior Consultant and Trainer with the International Institute forLearning, for his constructive comments, recommendations, and assistance withthe mapping of the text to the PMBOK® Guide as well as recommended changesto many of the chapters. I am indebted to Dr. Edmund Conrow, PMP®, for adecade of assistance with the preparation of the risk management chapters in allof my texts.

To the management team and employees of the International Institute forLearning, thank you all for 20 years of never-ending encouragement, support, andassistance with all of my project management research and writings.

Harold KerznerThe International Institute for Learning

2009

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Overview

1

Related Case Studies Related Workbook Exercises (from PMBOK® Guide, 4th(from Kerzner/Project Kerzner/Project Management Edition, ReferenceManagement Case Studies, Workbook and PMP®/CAPM® Exam Section for the PMP®

3rd Edition) Study Guide, 10th Edition) Certification Exam

• Kombs Engineering • Multiple Choice Exam • Integration• Williams Machine • Management• Tool Company* • Scope• Hyten Corporation • Management• Macon, Inc. • Human Resource• Continental Computer • Management

Corporation• Jackson Industries

1.0 INTRODUCTION

Executives will be facing increasingly complex challenges during the next decade. These challenges willbe the result of high escalation factors for salaries and raw materials, increased union demands, pressurefrom stockholders, and the possibility of long-term high inflation accompanied by a mild recession and alack of borrowing power with financial institutions. These environmental conditions have existed before,but not to the degree that they do today.

*Case Study also appears at end of chapter.

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In the past, executives have attempted to ease the impact of these environmental conditions by embark-ing on massive cost-reduction programs. The usual results of these programs have been early retirement,layoffs, and a reduction in manpower through attrition. As jobs become vacant, executives pressure linemanagers to accomplish the same amount of work with fewer resources, either by improving efficiency orby upgrading performance requirements to a higher position on the learning curve. Because people costsare more inflationary than the cost of equipment or facilities, executives are funding more and more capi-tal equipment projects in an attempt to increase or improve productivity without increasing labor.

Unfortunately, executives are somewhat limited in how far they can go to reduce manpower withoutrunning a high risk to corporate profitability. Capital equipment projects are not always the answer. Thus,executives have been forced to look elsewhere for the solutions to their problems.

Almost all of today’s executives are in agreement that the solution to the majority of corporate prob-lems involves obtaining better control and use of existing corporate resources, looking internally rather thanexternally for the solution. As part of the attempt to achieve an internal solution, executives are taking a hard look at the ways corporate activities are managed. Project management is one of the techniques underconsideration.

The project management approach is relatively modern. It is characterized by methods of restructuringmanagement and adapting special management techniques, with the purpose of obtaining better control anduse of existing resources. Forty years ago project management was confined to U.S. Department of Defensecontractors and construction companies. Today, the concept behind project management is being applied insuch diverse industries and organizations as defense, construction, pharmaceuticals, chemicals, banking,hospitals, accounting, advertising, law, state and local governments, and the United Nations.

The rapid rate of change in both technology and the marketplace has created enormous strains on exist-ing organizational forms. The traditional structure is highly bureaucratic, and experience has shown that itcannot respond rapidly enough to a changing environment. Thus, the traditional structure must be replacedby project management, or other temporary management structures that are highly organic and can respondvery rapidly as situations develop inside and outside the company.

Project management has long been discussed by corporate executives and academics as one of severalworkable possibilities for organizational forms of the future that could integrate complex efforts and reducebureaucracy. The acceptance of project management has not been easy, however. Many executives are notwilling to accept change and are inflexible when it comes to adapting to a different environment. The proj-ect management approach requires a departure from the traditional business organizational form, which isbasically vertical and which emphasizes a strong superior–subordinate relationship.

1.1 UNDERSTANDING PROJECT MANAGEMENT

In order to understand project management, one must begin with the definition of a project. A project can be considered to be any series of activities and tasks that:

● Have a specific objective to be completed within certain specifications● Have defined start and end dates● Have funding limits (if applicable)● Consume human and nonhuman resources (i.e., money, people, equipment)● Are multifunctional (i.e., cut across several functional lines)

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Project management, on the other hand, involves five process groups as identified inthe PMBOK® Guide, namely:

● Project initiation● Selection of the best project given resource limits● Recognizing the benefits of the project● Preparation of the documents to sanction the project● Assigning of the project manager

● Project planning● Definition of the work requirements● Definition of the quality and quantity of work● Definition of the resources needed● Scheduling the activities● Evaluation of the various risks

● Project execution● Negotiating for the project team members● Directing and managing the work● Working with the team members to help them improve

● Project monitoring and control● Tracking progress● Comparing actual outcome to predicted outcome● Analyzing variances and impacts● Making adjustments

● Project closure● Verifying that all of the work has been accomplished● Contractual closure of the contract● Financial closure of the charge numbers● Administrative closure of the papework

Successful project management can then be defined as having achieved the projectobjectives:

● Within time● Within cost● At the desired performance/technology level● While utilizing the assigned resources effectively and efficiently● Accepted by the customer

The potential benefits from project management are:

● Identification of functional responsibilities to ensure that all activities areaccounted for, regardless of personnel turnover

● Minimizing the need for continuous reporting● Identification of time limits for scheduling● Identification of a methodology for trade-off analysis● Measurement of accomplishment against plans

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● Early identification of problems so that corrective action may follow● Improved estimating capability for future planning● Knowing when objectives cannot be met or will be exceeded

Unfortunately, the benefits cannot be achieved without overcoming obstacles such as:

● Project complexity● Customer’s special requirements and scope changes● Organizational restructuring● Project risks● Changes in technology● Forward planning and pricing

Project management can mean different things to different people. Quite often, peoplemisunderstand the concept because they have ongoing projects within their company andfeel that they are using project management to control these activities. In such a case, thefollowing might be considered an appropriate definition:

Project management is the art of creating the illusion that any outcome is theresult of a series of predetermined, deliberate acts when, in fact, it was dumb luck.

Although this might be the way that some companies are running their projects, this isnot project management. Project management is designed to make better use of existingresources by getting work to flow horizontally as well as vertically within the company. Thisapproach does not really destroy the vertical, bureaucratic flow of work but simply requiresthat line organizations talk to one another horizontally so work will be accomplished moresmoothly throughout the organization. The vertical flow of work is still the responsibility ofthe line managers. The horizontal flow of work is the responsibility of the project managers,and their primary effort is to communicate and coordinate activities horizontally between theline organizations.

Figure 1–1 shows how many companies are structured. There arealways “class or prestige” gaps between various levels of management.There are also functional gaps between working units of the organization.

If we superimpose the management gaps on top of the functional gaps, we find that com-panies are made up of small operational islands that refuse to communicate with oneanother for fear that giving up information may strengthen their opponents. The projectmanager’s responsibility is to get these islands to communicate cross-functionally towardcommon goals and objectives.

The following would be an overview definition of project management:

Project management is the planning, organizing, directing, and controlling ofcompany resources for a relatively short-term objective that has been establishedto complete specific goals and objectives. Furthermore, project management uti-lizes the systems approach to management by having functional personnel (thevertical hierarchy) assigned to a specific project (the horizontal hierarchy).

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