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PROJECT
MANAGEMENT
ffirs.qxd 1/3/13 3:48 PM Page i
Dr. Kerzner’s 16 Points to Project
Management Maturity
1. Adopt a project management methodology and use it
consistently.
2. Implement a philosophy that drives the company toward
project
management 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
project
management information.
8. Strengthen involvement and support of line management.
9. Focus on deliverables rather than resources.
10. Cultivate effective communication, cooperation, and trust to
achieve
rapid project management maturity.
11. Share recognition for project success with the entire project
team and
line management.
12. Eliminate nonproductive meetings.
13. Focus on identifying and solving problems early, quickly,
and cost
effectively.
14. Measure progress periodically.
15. Use project management software as a tool—not as a
substitute for
effective planning or interpersonal skills.
16. Institute an all-employee training program with periodic
updates based
upon documented lessons learned.
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PROJECT
MANAGEMENT
A Systems Approach to
Planning, Scheduling,
and Controlling
E L E V 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 Management
The International Institute for Learning
New York, New York
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Cover illustration: xiaoke ma/iStockphoto
This book is printed on acid-free paper.
Copyright © 2013 by John Wiley & Sons, Inc. All rights
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Published by John Wiley & Sons, Inc., Hoboken, New Jersey
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Library of Congress Cataloging-in-Publication Data:
Kerzner, Harold.
Project management : a systems approach to planning,
scheduling, and controlling / Harold Kerzner, Ph. D. Senior
Executive
Director for Project Management, the International Institute for
Learning, New York, New York. — Eleventh edition.
pages cm
Includes bibliographical references and index.
ISBN 978-1-118-02227-6 (cloth); ISBN 978-1-118-41585-6
(ebk); ISBN 978-1-118-41855-0 (ebk); ISBN 978-1-118-43357-
7
(ebk); ISBN 978-1-118-48322-0 (ebk); ISBN 978-1-118-48323-
7 (ebk) 1. Project management. 2. Project management—Case
studies. I. Title.
HD69.P75K47 2013
658.4’04 —dc23
2012026239
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 xxiii
1 OVERVIEW 1
1.0 Introduction 1
1.1 Understanding Project Management 2
1.2 Defining Project Success 7
1.3 Success, Trade-Offs, and Competing Constraints 8

1.4 The Project Manager–Line Manager Interface 9
1.5 Defining the Project Manager’s Role 14
1.6 Defining the Functional Manager’s Role 15
1.7 Defining the Functional Employee’s Role 18
1.8 Defining the Executive’s Role 19
1.9 Working with Executives 19
1.10 Committee Sponsorship/Governance 20
1.11 The Project Manager as the Planning Agent 23
1.12 Project Champions 24
1.13 The Downside of Project Management 25
1.14 Project-Driven versus Non–Project-Driven Organizations
25
1.15 Marketing in the Project-Driven Organization 28
1.16 Classification of Projects 30
1.17 Location of the Project Manager 30
1.18 Differing Views of Project Management 32
1.19 Public-Sector Project Management 34
1.20 International Project Management 38
1.21 Concurrent Engineering: A Project Management Approach
38
1.22 Added Value 39
1.23 Studying Tips for the PMI® Project Management
Certification Exam 40
Problems 42
Case Study
Williams Machine Tool Company 44
vii
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2 PROJECT MANAGEMENT GROWTH: CONCEPTS

AND DEFINITIONS 47
2.0 Introduction 47
2.1 General Systems Management 48
2.2 Project Management: 1945–1960 48
2.5 Resistance to Change 59
2.6 Systems, Programs, and Projects: A Definition 64
2.7 Product versus Project Management: A Definition 66
2.8 Maturity and Excellence: A Definition 68
2.9 Informal Project Management: A Definition 69
2.10 The Many Faces of Success 70
2.11 The Many Faces of Failure 73
2.12 The Stage-Gate Process 76
2.13 Project Life Cycles 78
2.14 Gate Review Meetings (Project Closure) 83
2.15 Engagement Project Management 84
2.16 Project Management Methodologies: A Definition 85
2.17 Enterprise Project Management Methodologies 87
2.18 Methodologies Can Fail 91
2.19 Organizational Change Management and Corporate
Cultures 94
2.20 Project Management Intellectual Property 100
2.21 Systems Thinking 101
Problems 107
Case Study
Creating a Methodology 108
3 ORGANIZATIONAL STRUCTURES 111
3.0 Introduction 111

3.1 Organizational Work Flow 113
3.2 Traditional (Classical) Organization 114
3.3 Developing Work Integration Positions 117
3.4 Line-Staff Organization (Project Coordinator) 121
3.5 Pure Product (Projectized) Organization 122
3.6 Matrix Organizational Form 125
3.7 Modification of Matrix Structures 132
3.8 The Strong, Weak, or Balanced Matrix 136
3.9 Center for Project Management Expertise 136
3.10 Matrix Layering 137
viii CONTENTS
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3.11 Selecting the Organizational Form 138
3.12 Structuring the Small Company 143
3.13 Strategic Business Unit (SBU) Project Management 146
3.14 Transitional Management 147
3.15 Barriers to Implementing Project Management in Emerging
Markets 149
3.16 Seven Fallacies that Delay Project Management Maturity
156
Problems 161
Case Studies
Jones and Shephard Accountants, Inc. 166
Coronado Communications 168
4 ORGANIZING AND STAFFING THE PROJECT OFFICE
AND TEAM 171

4.1 The Staffing Environment 172
4.2 Selecting the Project Manager: An Executive Decision 174
4.3 Skill Requirements for Project and Program Managers 178
4.4 Special Cases in Project Manager Selection 184
4.5 Selecting the Wrong Project Manager 184
4.6 Next Generation Project Managers 188
4.7 Duties and Job Descriptions 189
4.8 The Organizational Staffing Process 193
4.9 The Project Office 199
4.10 The Functional Team 204
4.11 The Project Organizational Chart 205
4.12 Special Problems 208
4.13 Selecting the Project Management Implementation Team
210
4.14 Mistakes Made by Inexperienced Project Managers 213
Problems 216
5 MANAGEMENT FUNCTIONS 223
5.1 Controlling 225
5.2 Directing 225
5.3 Project Authority 230
5.4 Interpersonal Influences 237
5.5 Barriers to Project Team Development 240
5.6 Suggestions for Handling the Newly Formed Team 243
Contents ix
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5.7 Team Building as an Ongoing Process 246
5.8 Dysfunctions of a Team 247
5.9 Leadership in a Project Environment 250
5.10 Life-Cycle Leadership 252
5.11 Value-Based Project Leadership 255
5.12 Organizational Impact 257
5.13 Employee–Manager Problems 259
5.14 Management Pitfalls 262
5.15 Communications 265
5.16 Project Review Meetings 274
5.17 Project Management Bottlenecks 275
5.18 Cross-Cutting Skills 276
5.19 Active Listening 277
5.20 Project Problem-Solving 278
5.21 Brainstorming 288
5.22 Project Decision-Making 293
5.23 Predicting the Outcome of a Decision 301
5.24 Facilitation 303
5.25 Handling Negative Team Dynamics 306
5.26 Communication Traps 307
5.27 Proverbs and Laws 309
5.28 Human Behavior Education 311
5.29 Management Policies and Procedures 312
Problems 318
Case Studies
The Trophy Project 327
Communication Failures 329
McRoy Aerospace 332
The Poor Worker 333
The Prima Donna 334

The Team Meeting 335
Leadership Effectiveness (A) 337
Leadership Effectiveness (B) 341
Motivational Questionnaire 347
6 MANAGEMENT OF YOUR TIME AND STRESS 355
6.1 Understanding Time Management 356
6.2 Time Robbers 356
6.3 Time Management Forms 358
x CONTENTS
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6.4 Effective Time Management 359
6.5 Stress and Burnout 360
Problems 363
Case Study
The Reluctant Workers 364
7 CONFLICTS 365
7.1 Objectives 366
7.2 The Conflict Environment 367
7.3 Types of Conflicts 368
7.4 Conflict Resolution 371
7.5 Understanding Superior, Subordinate, and Functional

Conflicts 372
7.6 The Management of Conflicts 374
7.7 Conflict Resolution Modes 375
Problems 379
Case Studies
Facilities Scheduling at Mayer Manufacturing 382
Telestar International 383
Handling Conflict in Project Management 384
8 SPECIAL TOPICS 391
8.1 Performance Measurement 392
8.2 Financial Compensation and Rewards 399
8.3 Critical Issues with Rewarding Project Teams 405
8.4 Effective Project Management in the Small Business
Organization 408
8.5 Mega Projects 410
8.6 Morality, Ethics, and the Corporate Culture 411
8.7 Professional Responsibilities 414
8.8 Internal Partnerships 417
8.9 External Partnerships 418
8.10 Training and Education 420
8.11 Integrated Product/Project Teams 422
8.12 Virtual Project Teams 424
8.13 Breakthrough Projects 427
Contents xi
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xii CONTENTS
8.14 Managing Innovation Projects 427
8.15 Agile Project Management 430
Problems 437
Case Study
Is It Fraud? 440
9 THE VARIABLES FOR SUCCESS 443
9.1 Predicting Project Success 444
9.2 Project Management Effectiveness 448
9.3 Expectations 449
9.4 Lessons Learned 450
9.5 Understanding Best Practices 451
9.6 Best Practices versus Proven Practices 458
Problems 460
Case Study
Radiance International 460
10 WORKING WITH EXECUTIVES 463
10.1 The Project Sponsor 464
10.2 Handling Disagreements with the Sponsor 474
10.3 The Collective Belief 475

10.4 The Exit Champion 476
10.5 The In-House Representatives 477
10.6 Stakeholder Relations Management 478
10.7 Politics 486
Problems 488
Case Studies
Corwin Corporation 491
The Prioritization of Projects 499
The Irresponsible Sponsors 500
Selling Executives on Project Management 502
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11 PLANNING 505
11.1 Validating the Assumptions 508
11.2 Validating the Objectives 509
11.3 General Planning 510
11.4 Life-Cycle Phases 513
11.5 Proposal Preparation 516
11.6 Kickoff Meetings 516
11.7 Understanding Participants’ Roles 519
11.8 Project Planning 519
11.9 The Statement of Work 521
11.10 Project Specifications 526
11.11 Milestone Schedules 528
11.12 Work Breakdown Structure 529
11.13 WBS Decomposition Problems 536
11.14 Work Breakdown Structure Dictionary 540

11.15 Role of the Executive in Project Selection 541
11.16 Role of the Executive in Planning 546
11.17 The Planning Cycle 546
11.17 Work Planning Authorization 547
11.19 Why Do Plans Fail? 548
11.20 Stopping Projects 549
11.21 Handling Project Phaseouts and Transfers 550
11.22 Detailed Schedules and Charts 551
11.23 Master Production Scheduling 554
11.24 Project Plan 556
11.25 Total Project Planning 561
11.26 The Project Charter 565
11.27 Project Baselines 566
11.28 Verification and Validation 570
11.29 Requirements Traceability Matrix 571
11.30 Management Control 572
11.31 The Project Manager–Line Manager Interface 575
11.32 Fast-Tracking 577
11.33 Configuration Management 578
11.34 Enterprise Project Management Methodologies 579
11.35 Project Audits 582
Problems 586
12 NETWORK SCHEDULING TECHNIQUES 597
12.1 Network Fundamentals 600
Contents xiii
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12.2 Graphical Evaluation and Review Technique (GERT) 604
12.3 Dependencies 605
12.4 Slack Time 606
12.5 Network Replanning 612
12.6 Estimating Activity Time 616
12.7 Estimating Total Project Time 617
12.8 Total PERT/CPM Planning 618
12.9 Crash Times 620
12.10 PERT/CPM Problem Areas 623
12.11 Alternative PERT/CPM Models 626
12.12 Precedence Networks 627
12.13 Lag 630
12.14 Scheduling Problems 632
12.15 The Myths of Schedule Compression 632
12.16 Understanding Project Management Software 634
12.17 Software Features Offered 634
12.18 Software Classification 636
12.19 Implementation Problems 637
12.20 Critical Chain 638
Problems 643
Case Studies
Crosby Manufacturing Corporation 656
The Invisible Sponsor 658
13 PROJECT GRAPHICS 661
13.1 Customer Reporting 662
13.2 Bar (Gantt) Chart 663
13.3 Other Conventional Presentation Techniques 670
13.4 Logic Diagrams/Networks 673

Problems 675
14 PRICING AND ESTIMATING 677
14.1 Global Pricing Strategies 678
14.2 Types of Estimates 679
14.3 Pricing Process 682
14.4 Organizational Input Requirements 684
14.5 Labor Distributions 686
xiv CONTENTS
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14.6 Overhead Rates 690
14.7 Materials/Support Costs 692
14.8 Pricing Out the Work 695
14.9 Smoothing Out Department Man-Hours 696
14.10 The Pricing Review Procedure 698
14.11 Systems Pricing 700
14.12 Developing the Supporting/Backup Costs 701
14.13 The Low-Bidder Dilemma 705
14.14 Special Problems 705
14.15 Estimating Pitfalls 706
14.16 Estimating High-Risk Projects 707
14.17 Project Risks 708
14.18 The Disaster of Applying the 10 Percent

Solution
to Project Estimates 712
14.19 Life-Cycle Costing (LCC) 714
14.20 Logistics Support 719
14.21 Economic Project Selection Criteria: Capital Budgeting
720
14.22 Payback Period 720
14.23 The Time Value of Money 721
14.24 Net Present Value (NPV) 722
14.25 Internal Rate of Return (IRR) 723
14.26 Comparing IRR, NPV, and Payback 724
14.27 Risk Analysis 724
14.28 Capital Rationing 725
14.29 Project Financing 726
Problems 730
Case Study
The Estimating Problem 734

15 COST CONTROL 737
15.1 Understanding Control 741
15.2 The Operating Cycle 744
15.3 Cost Account Codes 745
15.4 Budgets 750
15.5 The Earned Value Measurement System (EVMS) 752
15.6 Variance and Earned Value 754
15.7 The Cost Baseline 773
15.8 Justifying the Costs 775
15.9 The Cost Overrun Dilemma 778
15.10 Recording Material Costs Using Earned Value
Measurement 779
15.11 The Material Accounting Criterion 782
Contents xv
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15.12 Material Variances: Price and Usage 783
15.13 Summary Variances 784
15.14 Status Reporting 785

15.15 Cost Control Problems 792
15.16 Project Management Information Systems 793
15.17 Enterprise Resource Planning 793
15.18 Project Metrics 794
15.19 Key Performance Indicators 800
15.20 Value-Based Metrics 806
15.21 Dashboards and Scorecards 812
15.22 Business Intelligence 815
15.23 Infographics 816
Problems 820
Case Studies
The Bathtub Period 838
Franklin Electronics 839
Trouble in Paradise 841
16 TRADE-OFF ANALYSIS IN A PROJECT ENVIRONMENT
845
16.1 Methodology for Trade-Off Analysis 848
16.2 Contracts: Their Influence on Projects 865

16.3 Industry Trade-Off Preferences 866
16.4 Conclusion 869
17 RISK MANAGEMENT 871
17.1 Definition of Risk 873
17.2 Tolerance for Risk 875
17.3 Definition of Risk Management 876
17.4 Certainty, Risk, and Uncertainty 877
17.5 Risk Management Process 883
17.6 Plan Risk Management (11.1) 884
17.7 Risk Identification (11.2) 885
17.8 Risk Analysis (11.3, 11.4) 892
17.9 Qualitative Risk Analysis (11.3) 897
17.10 Quantitative Risk Analysis (11.4) 903
17.11 Probability Distributions and the Monte Carlo Process
904
17.12 Plan Risk Response (11.5) 913
xvi CONTENTS

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17.13 Monitor and Control Risks (11.6) 919
17.14 Some Implementation Considerations 920
17.15 The Use of Lessons Learned 921
17.16 Dependencies Between Risks 925
17.17 The Impact of Risk Handling Measures 930
17.18 Risk and Concurrent Engineering 933
Problems 940
Case Studies
Teloxy Engineering (A) 948
Teloxy Engineering (B) 948
The Risk Management Department 949
18 LEARNING CURVES 953
18.1 General Theory 954
18.2 The Learning Curve Concept 954

18.3 Graphic Representation 956
18.4 Key Words Associated with Learning Curves 958
18.5 The Cumulative Average Curve 958
18.6 Sources of Experience 960
18.7 Developing Slope Measures 963
18.8 Unit Costs and Use of Midpoints 964
18.9 Selection of Learning Curves 965
18.10 Follow-On Orders 966
18.11 Manufacturing Breaks 966
18.12 Learning Curve Limitations 968
18.13 Prices and Experience 968
18.14 Competitive Weapon 970
Problems 972
19 CONTRACT MANAGEMENT 975
19.1 Procurement 976
19.2 Plan Procurements 978
19.3 Conducting the Procurements 981
19.4 Conduct Procurements: Request Seller Responses 983
19.5 Conduct Procurements: Select Sellers 983

19.6 Types of Contracts 987
19.7 Incentive Contracts 991
19.8 Contract Type versus Risk 994
Contents xvii
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19.9 Contract Administration 995
19.10 Contract Closure 998
19.11 Using a Checklist 999
19.12 Proposal-Contractual Interaction 1000
19.13 Summary 1003
Case Studies
The Scheduling Dilemma 1009
To Bid or Not to Bid 1011
The Management Reserve 1012
20 QUALITY MANAGEMENT 1015

20.1 Definition of Quality 1017
20.2 The Quality Movement 1019
20.3 Comparison of the Quality Pioneers 1022
20.4 The Taguchi Approach 1023
20.5 The Malcolm Baldrige National Quality Award 1026
20.6 ISO 9000 1027
20.7 Quality Management Concepts 1029
20.8 The Cost of Quality 1032
20.9 The Seven Quality Control Tools 1035
20.10 Process Capability (CP) 1052
20.11 Acceptance Sampling 1054
20.12 Implementing Six Sigma 1054
20.13 Lean Six Sigma and DMAIC 1056
20.14 Quality Leadership 1057
20.15 Responsibility for Quality 1058
20.16 Quality Circles 1058
20.17 Just-In-Time Manufacturing (JIT) 1059
20.18 Total Quality Management (TQM) 1061
21 MODERN DEVELOPMENTS IN PROJECT MANAGEMENT
1069

21.1 The Project Management Maturity Model (PMMM) 1070
21.2 Developing Effective Procedural Documentation 1074
21.3 Project Management Methodologies 1078
21.4 Continuous Improvement 1079
21.5 Capacity Planning 1080
21.6 Competency Models 1082
21.7 Managing Multiple Projects 1084
21.8 End-of-Phase Review Meetings 1085
xviii CONTENTS
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Case Study
Honicker Corporation 1086
22 THE BUSINESS OF SCOPE CHANGES 1089
22.1 Need for Business Knowledge 1091
22.2 Timing of Scope Changes 1092
22.3 Business Need for a Scope Change 1093

22.4 Rationale for Not Approving a Scope Change 1094
Case Study
Kemko Manufacturing 1094
23 THE PROJECT OFFICE 1097
23.1 Present-Day Project Office 1098
23.2 Implementation Risks 1099
23.3 Types of Project Offices 1100
23.4 Networking Project Management Offices 1101
23.5 Project Management Information Systems 1101
23.6 Dissemination of Information 1103
23.7 Mentoring 1104
23.8 Development of Standards and Templates 1105
23.9 Project Management Benchmarking 1105
23.10 Business Case Development 1106
23.11 Customized Training (Related to Project Management)
1107
23.12 Managing Stakeholder Relations 1108
23.13 Continuous Improvement 1109
23.14 Capacity Planning 1109
23.15 Risks of Using a Project Office 1110
23.16 Project Portfolio Management 1111

Case Study
The Project Management Lawsuit 1116
24 MANAGING CRISIS PROJECTS 1119
24.1 Understanding Crisis Management 1119
24.2 Ford versus Firestone 1121
24.3 The Air France Concorde Crash 1122
24.4 Intel and the Pentium Chip 1123
24.5 The Russian Submarine Kursk 1123
24.6 The Tylenol Poisonings 1124
Contents xix
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24.7 Nestlé’s Marketing of Infant Formula 1127
24.8 The Space Shuttle Challenger Disaster 1129
24.9 The Space Shuttle Columbia Disaster 1130
24.10 Victims Versus Villains 1131
24.11 Life-Cycle Phases 1132

24.12 Project Management Implications 1133
25 FUTURE OF PROJECT MANAGEMENT 1135
25.0 Changing Times 1135
25.1 Complex Projects 1139
25.2 Complexity Theory 1144
25.3 Scope Creep 1145
25.4 Project Health Checks 1151
25.5 Managing Troubled Projects 1155
26 THE RISE, FALL, AND RESURRECTION OF IRIDIUM:
A PROJECT MANAGEMENT PERSPECTIVE 1167
26.1 Naming the Project “Iridium” 1169
26.2 Obtaining Executive Support 1170
26.3 Launching the Venture 1170
26.4 The Iridium System 1172
26.5 The Terrestrial and Space-Based Network 1172
26.6 Project Initiation: Developing the Business Case 1173
26.7 The “Hidden” Business Case 1175
26.8 Risk Management 1175
26.9 The Collective Belief 1177
26.10 The Exit Champion 1177

26.11 Iridium’s Infancy Years 1178
26.12 Debt Financing 1181
26.13 The M-Star Project 1182
26.14 A New CEO 1183
26.15 Satellite Launches 1183
26.16 An Initial Public Offering (IPO) 1184
26.17 Signing Up Customers 1184
26.18 Iridium’s Rapid Ascent 1185
26.19 Iridium’s Rapid Descent 1187
26.20 The Iridium “Flu” 1191
26.21 Searching for a White Knight 1192
26.22 The Definition of Failure (October, 1999) 1192
26.23 The Satellite Deorbiting Plan 1193
26.24 Iridium is Rescued for $25 Million 1194
26.25 Iridium Begins to Grow 1194
xx CONTENTS
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26.26 Shareholder Lawsuits 1195
26.27 The Bankruptcy Court Ruling 1195
26.28 Autopsy 1196

26.29 Financial Impact of the Bankruptcy 1197
26.30 What Really Went Wrong? 1198
26.31 Lessons Learned 1200
26.32 Conclusion 1202
Appendix A.

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