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CHAPTER 3Project Management Concepts and Process

A project is an endeavor to accomplish a specific objective through effectively utilizing resources in order to complete a unique set of interrelated tasks. The following attributes help define a project:

►A project has a well-defined objective—an expected result or product. The objective of a project is usually defined in terms of scope, schedule, and cost. For example, the objective of a project might be to introduce to the market— in 10 months and within a budget of $400,000—a new food preparation appliance that meets certain predefined performance specifications. The project team must complete a scope statement for developing a common understanding of the project scope among stakeholders. This lists project deliverables – summary level sub-products, whose full and satisfactory delivery marks the completion of the project. Furthermore, it is expected that the work scope will be accomplished in a quality manner and to the customer’s satisfaction.

►A project is carried out through a series of interdependent tasks—that is, a number of nonrepetitive tasks that need to be accomplished in a certain sequence in order to achieve the project objective.

►A project utilizes various resources to carry out the tasks. Such resources can include different people, organizations, equipment, materials, and facilities. For example, a wedding is a project that may involve resources such as a caterer, a florist, a limousine, and a reception hall.

► A project has a specific time frame, or finite life span. It has a start time and a date by which the objective must be accomplished. For example, the refurbishing of an elementary school might have to be completed between June 20 and August 20.

►A project may be a unique occurrence or one-time endeavor. Some projects— like designing and building a space station on Mars—are unique because they have never before been attempted. Other projects, such as developing a new product, building a house, or planning a wedding, are unique because of the customization required. For example, a wedding can be a simple informal occasion, with a few friends in a chapel, or a spectacular event staged for a royal family.

►A project has a stakeholder. The stakeholder (or customer) is the entity that provides the funds necessary to accomplish the project—it can be a person, an organization, or a group of two or more people or organizations. When a contractor builds a customized home for a couple, the couple is the stakeholder funding the project. When a company receives funds from the government to develop a robotic device for handling radioactive material, the stakeholder is the government agency. When a company provides funds for a team of its employees to upgrade the firm’s management information system, the term stakeholder takes on a broader definition, including not only the project funder (the company’s management) but also other stakeholders, such as the people who will be the end users of the information system. The person managing the project and the project team must successfully accomplish the project objective to satisfy the stakeholder(s).

►Finally, a project involves a degree of uncertainty. Before a project is started, a plan is prepared based on certain assumptions and estimates. It is important to document these assumptions, since they will influence the development of the project budget, schedule, and work scope. A project is based on a unique set of tasks and estimates of how long each task should take, various resources and assumptions about the availability and capability of those resources, and estimates of the costs associated with the resources. This combination of assumptions and estimates causes a degree of uncertainty as to whether the project objective can or will be completely accomplished by deadline. For example, the project scope may be accomplished by the target date, but the final cost may be much higher than anticipated because of low initial estimates for the cost of certain resources. As the project proceeds, some of the assumptions will be refined or replaced with factual information. For example, once the conceptual design of a company’s annual report is finalized, the amount of time and effort needed to complete the detailed design and printing can be better estimated.

The successful accomplishment of the project objective is usually constrained by four factors: scope, cost, schedule, and customer satisfaction.

The scope of a project—also known as the project scope, or work scope—is all the work that must be done in order to ensure that the customer is completely satisfied and that the deliverables (the tangible product or items to be provided) meet the requirements or acceptance criteria agreed upon at the onset of the project. For example, a project scope might include all of the work involved in clearing the land, building a house, and landscaping to the specifications agreed upon by the contractor and the buyer. The customer expects the work scope to be accomplished in a quality manner. For example, in a house-building project, the customer expects the workmanship to be of the highest quality. Completing the work scope but leaving windows that are difficult to open and close, faucets that leak, or a landscape full of rocks will result in an unsatisfied customer.

The cost of a project is the amount the customer has agreed to pay for acceptable project deliverables. The project cost is based on a budget that is determined by cost estimates of all necessary resources for completing the project. It might include the salaries of people who will work on the project, materials and supplies, equipment or facility rentals, and the fees of subcontractors or consultants who will perform some of the project tasks. For example, if the project is a wedding, some of the budgeted items might include flowers, wedding gown, tuxedo, caterer, cake, limousine rental, photographer, and so on.

The schedule for a project is the timetable that specifies when each activity should start and finish. The project objective usually states the time by which the project scope must be completed, which is typically a specific date agreed upon by the customer and the individual or organization performing the work. It might be the date when a town’s centennial celebration will take place or the date by which you want to complete the addition of a family room to your home.

The objective of any project is to complete the scope within budget, by a certain date, and to the customer’s satisfaction. To help assure the achievement of this objective, it is important to develop a plan before the start of the project; this plan should include all the work tasks, associated costs, and estimates of the time necessary to complete them. The lack of such a plan increases the risk of failing to accomplish the full project scope within budget and on schedule.

Once a project is started, unforeseen circumstances may arise that jeopardize the achievement of the project objective with respect to scope, cost, or schedule. Here are a few examples:

►The cost of some of the materials may be higher than originally estimated.

►Inclement weather may cause a delay.

► Additional redesign and modifications to a sophisticated piece of automated machinery may be required to get it to meet the performance specifications.

The challenge to the project manager is to prevent, anticipate, and/or overcome such circumstances in order to complete the project scope on schedule, within budget, and to the customer’s satisfaction. Good planning and communication are essential to prevent problems from occurring and to minimize the impact of these problems on the achievement of the project objective should they occur. The project manager needs to be proactive in planning and communicating and should demonstrate strong leadership toward the project team in helping them to accomplish the project objective.

Ultimately, the responsibility of the project manager is to make sure the customer is satisfied. This goes beyond just completing the project scope within budget and on schedule or asking the customer at the end of the project if he or she is satisfied. It requires ongoing communication with the customer to keep the customer informed and to determine whether expectations have changed. Regularly scheduled meetings or progress reports, frequent phone discussions, and email are examples of ways to maintain such communications. Customer satisfaction means involving the customer as a partner in the successful outcome of the project by allowing them to actively participate in many aspects of the project. The project manager must be aware of the degree of customer satisfaction throughout the project. By maintaining regular communication with the customer, the project manager demonstrates to the customer that he or she is genuinely concerned with the expectations of the customer which may prevent unpleasant surprises later.

Project Life Cycle

In project management, the sequence of project phases and phase gates is often referred to as project life cycle. Exhibit 3 shows the four phases of the project life cycle and the relative amount of effort and time devoted to each phase. As the project moves through its life cycle, different organizations, individuals, and resources play dominant roles.

Exhibit 3: Project Life Cycle

Projects are “born” when a need is identified by the customer—the people or the organization willing to provide funds to have the need satisfied. For example, for a growing family, the need may be for a larger house, whereas for a company, the problem may be a high scrap rate from its manufacturing process that makes its costs higher and production times longer than those of its competitors. The customer first must identify the need or problem. Sometimes the problem is identified quickly, as in the case of a disaster such as an earthquake or explosion. In other situations, it may take months for a customer to clearly identify a need, gather data on the problem, and define certain requirements that must be met by the person, project team, or contractor who will solve the problem.

This first phase of the project life cycle involves the identification of a need, problem, or opportunity. Once the need has been identified, the customer may request proposals from individuals, project teams, or organizations (contractors) to address the identified need or solve the problem. The needs and requirements are usually written up by the customer in a document called a request for proposal (RFP). Through the RFP, the customer asks individuals or contractors to submit proposals on how they might solve the problem, along with the associated cost and schedule. A couple who needs a new house may spend time identifying requirements for the house—size, style, number of rooms, location, maximum amount they want to spend, and date by which they would like to move in. They may then write down these requirements and ask several contractors to provide house plans and cost estimates. A company that has identified a need to upgrade its computer system might document its requirements in an RFP and send it to several computer consulting firms. Not all situations involve a formal RFP, however. Needs are often defined informally during a meeting or discussion among a group of individuals. Some of the individuals may then volunteer or be requested to prepare a proposal to determine whether a project should be undertaken to address the need. Such a scenario might be played out when the management of a hospital wants to establish an on-site daycare center for the children of its employees. The management team or a specific manager may write down the requirements in a document and give it to an internal project team, who in turn will submit a proposal for how to establish the center. In this case, the contractor is the hospital’s own internal project team, and the customer is the hospital’s manager or, possibly, board of directors. It is important to accurately define the precise need. For example, is the need to provide an onsite daycare center, or is it merely to provide child care hospital employees? In other words, is it necessary for the daycare to be “on-site”?

The second phase of the project life cycle is the development of a proposed solution to the need or problem. This phase results in the submission of a proposal to the customer by one or more individuals or organizations (contractors) who would like to be hired by the customer for paid implementation of the proposed solution. In this phase, the contractor’s effort becomes dominant. Contractors interested in responding to the RFP may spend several weeks developing approaches to solving the problem, estimating the types and amounts of resources that would be needed, and estimating the time it would take to design and implement the proposed solution. Each contractor documents this information in a written proposal. All of the contractors then submit their proposals to the customer. For example, several contractors may submit proposals to a customer to develop and implement an automated invoicing and collection system. After the customer evaluates the submissions and selects the winning proposal, the customer and the winning contractor negotiate and sign a contract (agreement). In many situations, a request for proposal may not involve soliciting competitive proposals from external contractors. A company’s own internal project team may develop a proposal in response to a management-defined need or request. In this case, the project would be performed by the company’s own employees rather than an external contractor.

The third phase of the project life cycle is the implementation of the proposed solution. This phase begins after the customer decides which of the proposed solutions will best fulfill their need and an agreement is reached between the customer and the chosen individual or contractor. This phase, sometimes referred to as performing the project, involves detailed planning for the project and implementation of that plan to accomplish the project objective. During the course of the project, different types of resources will be utilized. For example, if the project is to design and construct an office building, the project effort might first involve a few architects and engineers who can draw up the building plans. Then, as construction gets under way, the resources needed will substantially increase to include steelworkers, carpenters, electricians, painters, and the like. The project will wind down after the building is finished, and a smaller number of different workers will finish up the landscaping and final interior touches. Once this final phase is completed, if the customer is satisfied that the full scope of work was completed on time, within budget, and in a quality manner, then the project can be said to be completed and the goal accomplished. For example, the third phase is complete when a contractor has completed the design and installation of a customized automation system that satisfactorily passes performance tests and is accepted by the customer or when an internal project team within a company has completed a project, in response to a management request, which consolidated two of its facilities into one.

The final phase of the project life cycle is terminating the project. When a project is completed, certain close-out activities need to be performed, such as confirming that all deliverables have been received and accepted by the customer, all payments have been collected, and all invoices have been paid. An important task during this phase is evaluating performance of the project team in order to learn what could be improved if a similar project were to be carried out in the future. This phase should include obtaining feedback from the customer to determine the level of the customer’s satisfaction and whether the project met the customer’s expectations. Also, recommendations and feedback from the project team will help improve performance of similar projects in the future.

Project life cycles vary in length from a few weeks to several years, depending on the content, complexity, and magnitude of the project. What’s more, not all projects formally go through all four phases of the project life cycle. If a group of community volunteers decides that they want to use their own time, talents, and resources to organize a food drive for the homeless, they may get right into phase three— planning the event and carrying it out. The first two phases of the life cycle would not be relevant to such a project. Likewise, if a company’s general manager determines that changing the layout of equipment in the factory will increase efficiency, he or she might simply instruct the manufacturing manager to initiate such a project and to implement it using the company’s own people. In this case, there would be no written request for proposal from external contractors.

In other situations, such as a home remodeling project for which a contractor will likely be hired, a customer may go through the first two phases of the project life cycle in a less structured, more informal manner. He or she may not write down all of the requirements or ask several contractors for estimates. Rather, they may call a specific contractor who has been recommended by a friend or neighbor, explain what the job is, and ask that contractor to provide some sketches and a cost estimate.

In general, the project life cycle is followed in a more formal and structured manner when a project is conducted in a business setting. It tends to be less formal when a project is carried out by a private individual or volunteers.

Types of Contracts

Contract type is an important consideration. Different types of contracts can be used in different situations. Two broad categories of contracts are fixed price or lump sum, cost reimbursable, and unit price.

Fixed price or lump sum contracts involve a fixed total price for a well-defined product or service. The buyer incurs little risk in this situation. For example, a company could award a fixed price contract to purchase 100 laser printers with a certain print resolution and print speed to be delivered to one location within two months. In this example, the product and delivery date are well defined. Fixed price contracts may also include incentives for meeting or exceeding selected project objectives. For example, the contract could include an incentive fee paid if the laser printers are delivered within one month. A firm-fixed price contract has the least amount of risk for the consumer, followed by a fixed price incentive contract.

Cost reimbursable contracts involve payment to the seller for direct and indirect actual costs. Direct costs are costs that are related to a project and can be traced back in a cost-effective way. Indirect costs are costs related to the project that cannot be traced back in a cost-effective way. For example, the salaries for people working directly on a project and hardware or software purchased for a specific project are direct costs, while the cost of providing a work space with electricity, a cafeteria, and the like are indirect costs. Indirect costs are often calculated as a percentage of direct costs. Cost reimbursable contracts often include fees such as a profit percentage or incentives for meeting or exceeding selected project objectives. These contracts are often used for projects that include providing goods and services that involve new technologies. The consumer absorbs more of the risk with cost reimbursable contracts than they do with fixed price contracts.

The Project Management Process

Succinctly, the project management process means planning the work and then working the plan. A coaching staff may spend hours preparing unique plans for a game, then the team executes the plans to meet the objective and the result—victory. Similarly, project management involves a process of first establishing a plan and then implementing that plan to accomplish the project objective.

The front-end effort in managing a project must be focused on establishing a baseline plan that provides a roadmap for how the project scope will be accomplished on time and within budget. This planning effort includes the following:

1. Clearly define the project objective. The goal must be defined in a way that is agreed upon by the customer and the individual or organization that will perform the project.

2.Divide and subdivide the project scope into major “pieces” or work packages. Although major projects may seem overwhelming when viewed as a whole, one way to conquer even the most monumental endeavor is to break it down. A work breakdown structure (WBS) is a hierarchical tree of work elements or items accomplished or produced by the project team during the project. The work breakdown structure usually identifies the organization or individual responsible for each work package. Exhibit 4 is an example of a work breakdown structure (WBS). Chapter 4 discusses the WBS.

Exhibit 4: Work breakdown structure (WBS)

3.Define the specific activities that need to be performed for each work package in order to accomplish the project objective. In Exhibit 4, the work package, Vacuum carpets involves many smaller specific activities involved in the broader task of vacuuming the carpet.

4.Graphically portray the activities in the form of a network diagram. This type of diagram shows the necessary sequence and interdependencies of activities to achieve the project objective. (Network diagrams will be discussed further in Chapter 5.)

5.Make a time estimate for how long it will take to complete each activity. It is also necessary to determine which types of resources and how many of each resource are needed for each activity to be completed within the estimated duration.

6.Make a cost estimate for each activity. The cost is based on the types and quantities of resources required for each activity.

7. Calculate a project schedule and budget to determine whether the project can be completed within the required time, with the allotted funds, and with the available resources. If it is determined that the project cannot be accomplished within the limitations, adjustments must be made to the project scope, activity time estimates, or resource assignments until an achievable, realistic baseline plan (a roadmap for accomplishing the project scope on time and within budget) can be established. Exhibit 5 shows an example of a project schedule, and Exhibit 6 illustrates a project budget. (These will be covered in Chapters 5 and 7.)

Exhibit 5: Network Diagram – Consumer Market Study Project

Exhibit 6: Project Budget

Planning determines what needs to be done, who will do it, how long it will take, and how much it will cost. The result of this effort is a baseline plan. Taking the time to develop a well thought out plan is critical to the successful accomplishment of any project. Many projects have overrun their budgets, missed their completion dates, or only partially met their requirements because there was no viable baseline plan before the project was started.

The baseline plan for a project can be displayed in graphical or tabular format for each time period (i.e. week, month) from the start of the project to its completion. (Plans are discussed and illustrated in Chapter 3.) Information should include:

►The start and completion dates for each activity

►The amounts of the various resources that will be needed during each time period

►The budget for each time period, as well as the cumulative budget from the start of the project through each time period

Once a baseline plan has been established, it must be implemented. This involves performing the work according to the plan and controlling the work so that the project scope is achieved within the budget and schedule, to the customer’s satisfaction.

Once the project starts, it is necessary to monitor progress to ensure that everything is going according to plan. At this stage, the project management process involves measuring actual progress and comparing it to planned progress. To measure actual progress, it is important to keep track of which activities have actually been started and/or completed, when they were started and/or completed, and how much money has been spent or committed. If at any time during the project comparison of actual progress to planned progress reveals that the project is behind schedule, overrunning the budget, or not meeting the technical specifications, corrective action must be taken to get the project back on track.

Before a decision is made to implement corrective action, it may be necessary to evaluate several alternative actions to make sure the corrective action will bring the project back within the scope, time, and budget constraints of the objective. Be aware, for instance, that adding resources to make up time and get back on schedule may result in overrunning the planned budget. If a project gets too far out of control, it may be difficult to achieve the project objective without sacrificing the scope, budget, schedule, quality, or all of the above.

The key to effective project control is measuring actual progress and comparing it to planned progress on a timely and regular basis and taking corrective action immediately, if necessary. Hoping that a problem will go away without corrective intervention is naïve and irresponsible. Based on actual progress, it is possible to forecast a schedule and budget for completion of the project. If these parameters are beyond the limits of the project objective, corrective actions need to be implemented at once.

Attempting to perform a project without first establishing a baseline plan is foolhardy. It is like starting a vacation without a roadmap, itinerary, and budget. You may land up in the middle of nowhere— out of money and out of time.

Benefits of Project Management

The ultimate benefit of implementing project management techniques is having a satisfied stakeholder (customer)—whether you are the customer of your own project, such as remodeling your basement, or a business (contractor) being paid by a customer to perform a project. Ultimately, in the close-out phase, the customer has the greatest influence on the quality, scope, time and cost of the project. Completing the full project scope in a quality manner, on time, and within budget provides a great feeling of satisfaction. For a contractor, it could lead to additional business from the same customer in the future or to business from new customers referred by previously satisfied customers.