Abstract of course: B16321, Projectmanagement

Based on the textbook:

Meredith, Jack R. and Mantel, Samuel J. (2003) Project management : a managerial approach. John Wiley & Sons

Chapter 1 Projects in Contemporary Organization

Projects and project management has emerged because the characteristics of our contemporary society demand the development of new methods of management.

Forces fostering project management

There are three important forces which are fostering Project Management (PM):

1The exponential expansion of human knowledge

2The growing demand for a broad range of complex, sophisticated, customized goods and services

3The evolution of worldwide competitive markets for the production of goods and services.

Otherforces are:

1The intense competention among institutions

2Projects undertaken are large and getting larger.

Projects that command the most public attention tend to be large, complex, multidisciplinary endeavours.

Three Project Objectives

1Performance (or scope)



A fourth dimension are the expectations of the client, which tend to increase during project progress, known as “scope screep”.

The Project Manager

Between Objectives 1-3 exist relationships, called trade-offs. A primary task of the project manager (PMR) is to manage these trade-offs.

The job of a PMR is not without problems. Problems are caused by:

  • PMR lacks full authority to command the requisite resources or personnel
  • Parties involved: senior management, client, project team or public. They seem to speak different languages and have different objectives.

However: PMRship is now regarded as a valuable career path.

Recent changes in managing organizations

Managing organizations has been impacted by three revolutionary changes:

  • Replacement of traditional, hierarchical management by consensual management
  • Adoption of the “systems approach”( or “systems engineering”)
  • Organizations establishing projects as the preferred way to accomplish their goals.

Traditional management is regarded as a major generator of conflict between project team members.

1.1Definition of a “Project”

Project Management Institute (PMI) defined a project as:”A temporary endeavour undertaken to create a unique product or service”.

As the techniques of project management were developed (mostly by the military) the use of project organization began to spread.

A project organization is divided in: Progam; Project; Tasks; Work packages; Work units.

Attributes that characterize projects:

  • One-time activity (singleness of purpose)
  • Definite life cycle
  • Interaction with other projects and organization’s standard, ongoing operations
  • Uniqueness
  • Environment of conflict

If a project does not meet these attributes it is a nonproject (all routine).

1.2Why project management?

The basic purpose for initiating a project is to accomplish specific goals.

The project form of organization allows the PMR to be responsive to:

  • The client and the environment
  • Identify and correct problems at an early date
  • Make timely decisions about trade-offs between conflicting project goals
  • Ensure that managers of the separate tasks do not suboptimize their tasks.

Actual experience with PM indicates:

  • Better control and customer relations
  • Shorter development times
  • Lower costs
  • Higher quality and reliability
  • Higher profit margins
  • Sharper orientation toward results
  • Better interdepartemental coordination
  • Higher worker morale

However, on the negative side:

  • Higher organizational complexity
  • Violations of organizational policy
  • Conflicts
  • PMR lacks authority that is consistent with the assigned level of responsibility
  • PMR depends on goodwill of managers in the parent organization.

On the whole, the balance weights in favor of project organization if the work to be done is appropriate for a project. But PM has its limitations! Tough as it may be, it’s all we have – and it works.

1.3The project life cycle

Projects should have a slow-rapid-slow progress toward the project goal. This is the so-called ‘S-shape life cycle’.

Stages of projects are: Conception; Selection; Planning, Scheduling,Monitoring, Control; Evaluation and termination.

Risks during the life cycle

Projectrisks = uncertainties about how the performance, time, and cost goals will be met.

However, the more progress is made on the project, the less uncertainty about achieving the project goals.

Chapter 2 Strategic and project selection

The accomplishment of important tasks and goals in organizations is more and more achieved through projects. However, with this rapid adoption of project management it is also true that:

  • There are many projects that fall outside the organization’s stated mission
  • There are many projects being conducted that are completely unrelated to the strategy and goals of the organization
  • There are many projects with funding levels that are excessive relative to their expected benefits.

Organizations face problems with trying to manage multiple projects:

  • Delays in one project delay other projects because of common resource needs or technological dependencies
  • The inefficient use of corporate resources results in peaks and valleys of resource utilization
  • Bottlenecks in resource availability or lack of required technological inputs results in project delays that depend on those scarce resources or technology.

It is expected by the authors that the Project Management Office (PMO) of an organization promote those projects that capitalize on the organization’s strenghts, offer a competitive advantage, and mutually support each other, while avoiding those with resource or technology needs in areas where the organization is weaker. Challenges are how to tie projects more closely to the organization’s goals and strategy, and the matter of project management maturity (PMM).

2.4Project Management Maturity

Project management maturity deals with:

  • How to handle the growing number of ongoing projects
  • And how to make these projects more successful.

A model for PMM has been developed by R. Remy (1997). The PMM of an organization is assessed being at one of five levels:

  • Ad-hoc
  • Abbreviated
  • Organized
  • Managed
  • Adaptive

It appears that most organizations do not score very well in terms of maturity.

2.2 Project selection and criteria of choice

The authors recommend the process of project selection: evaluating individual projects or groups of projects, and then choosing to implement some set of them so that the objectives of the parent organization will be achieved.

Project selection is only one of many decisions associated with PM. To deal with, we use decision-aiding models. A model is an idialized version of a problem and comes as a stochastic (use of probabilistic information) or deterministic one. Project selection models tend to be stochastic.

When choosing a project selection model the following criteria (Souder, 1973)are important:

  • Realism
  • Capability
  • Flexibility
  • Ease of use
  • Cost
  • Easy computerization (added by Meridith and Mantel)

2.3 The nature of project selection models

There are two basic types of project selection models:

Nonnumeric OR Numeric

Don’t forget:

  • Models do not make decisions – people do
  • All models, however sophisticated, are only partial representations of the reality they are meant to reflect.

A model of some sort is implied by any consicious decision.

A list of objectives (‘factors’, ‘elements’) should be generated by the organization’s top management.

Objectives should be weighted and can be related to:

  • Production
  • Marketing
  • Financial
  • Personnel
  • Administrative and miscellaneous

A model can also be helpful as project improvement. This regards the difference between the actual criterion’s score and the highest possible score on that criterion.

2.4 Types of project selection models

Nonnumeric models

  • The Sacred Cow
    In this case the project is suggested by senior and powerful officials in the organization. Added feature: supported by “the powers that be”.
  • The Operating Necessity
    The project is required in order to keep the system operating, with one question to be answered: is the system worth saving at the estimated costs of the project?
  • The Competive Necessity
    The project is untertaken based on a desire to maintain the company’s competitive position.
  • The Product Line Extension
    Project is judged on the degree to which it fits the firm’s existing product line, fills a gap, strengthens a weak link, or extends the line in a new, desirable direction.
  • Comparative Benefit Model (CBM)
    Members of senior management thinks that some projects will benefit the firm more than others, even if they have no pricise way to define or measure ‘benefit’. However, several techniques are existing for ordering and comparing projects. An example is Q-sort (Helin and Souder, 1974). CBM are goal-oriented and directly reflect the primary concerns of the organization.

Numeric models: Profit/Profitability

  • Payback Period
    The payback period for a project is the initial fixed investment in the project divided by the estimated annual net cash inflows from the project. Widely used but not recommended.
  • Average Rate of Return
    The average rate of return is the ratio of the average annual profit to the initial or average investment in the project. Not recommended.
  • Discounted Cash Flow
    Determines the net present value of all cash flows by discounting them by the required rate of return (know as hurdle rate, cutoff rate). Net present value (NPV) should be positive to deem the project acceptable.
  • Internal Rate of Return
    Discount rate that equates the present values of the cash inflow and cash outflow.
  • Profitability Index (Benefit-Cost ratio)
    Is the net present value of all future expected cash flows divided by the initial cash investment. Ratio should greater than 1.0 for acceptation.

Avantages of Profit/Profitability Numeric models

  • The undistcounted models are simple to use and understand
  • All use readily available accounting data to determine the cash flows
  • Model output is in terms familiar to business decision makers
  • With a few exceptions, model output is on an “absolute”profit/profitability scale and allows “absolute”go/no-go decisions
  • Some profit models account for project risk

Disadvantages of Profit/Profitability Numeric models

  • These models ignore all nonmonetary factors except risk
  • Models that do not include discounting ignore the timing of the cash flows and the time-value of money
  • Models that reduce cash flows to their present value are strongly biased toward the short run
  • Payback-type models ignore cash flows beyond the payback period
  • The internal rate of return model can result in multiple solutions
  • All are sensitive to errors in the input data for the early years of the project
  • All discounting models are nonlinear, and the effects of changes (or errors) in the variables of parameters are generally no obvious to most decision makers
  • All these models depend for input on a determination of cash flows, but it is not clear exactly how the concept of cash flow is properly defined for the purpose of evaluating projects.

‘Simplicity as only virtue, is a dubious virtue’.

Numeric models: scoring

  • Unweighted 0-1 factor model
    The factor Qualifies OR Does not Qualify
  • Unweighted factor scoring model
    Constructs a simple linear measure of the degree to which the project being evaluated meets easch of the critera contained in the list.
  • Weighted Factor Scoring Model
    When numeric weights reflecting the relative importance of each individual factor are added, we have a weighted factor scoring model. An example of a technique is Delphi. Delphi develops numeric values that are equivalent to subjective, verbal measures of relative value. Resist the temptation to include marginally relevant criteria along with the obviously important items!
  • Constrained Weighted Factor Scoring Model
    The temptation to include marginal criteria can be partially overcome by allowing additional criteria to enter the model as constraints rather than weighted factors. Constraints represent characteristics that must be present or absent in order for the project to be acceptable. However, exercise care when adopting contrainsts.
  • Other Scoring Models
    Example: Goal programming, which is a variation of the general linear programming method that can optimize an objective function with multiple objectives.

Avantages of Scoring models

  • These models allow multiple criteria to be used for evaluation and decision making, including profit/profitablility models and both tangible and intangible criteria
  • They are structurally simple and therefore easy to understand and use
  • They are a direct reflection of managerial policy
  • They are easily altered to accommodate changes in the environment or managerial policy
  • Weighted scoring models allow for the fact that some criteria are more important than others
  • These models allow easy sensitivity analysis. The trade-offs between the several criteria are readily observable.

Disavantages of Scoring models

  • The output of a scoring model is strictly a relative measure. Project scores do not respresent the value or “utility”associated with a project and thus do not directly indicate whether or not the project should be supported.
  • In general, scoring models are linear in form and the elements of such models are assumed to be independent
  • The ease of use of these models is conducive to the inclusion of a large number of criteria, most of which have such small weights that they have little impact on the total project score.
  • Unweighted scoring models assume all criteria are of equal importance, which is almost certainly contrary to fact
  • To the extent that profit/profitability is included as an element in the scoring model, this element has the advantages and disadvantages noted earlier for the profitablity models themselves.

Choosing a Project Selection Model

By the authors Weighted Scoring models are favored for 3 fundamental reasons:

  • They allow the the multiple objectives of all organizations to be reflected in the important decision about which projects will be supported and which will be rejected
  • Scoring models are easily adapted to changes in managerial philosophy or changes in enviroment
  • They do not suffer from the bias toward the short run that is inherent in profitability models that discount future cash flows.

2.5Analysis under uncertainty – the management of risk

Uncertainty affects the selection process. Thus it is important to understand the nature of the uncertainties. Risk management tries to reduce uncertainty by procedures(pro-forma documents) and risk analysis.

This can be done analytically or by Monte Carlo simulation. Result will be a forecast but remember: precise forecasts will be precisely wrong!

Window-of-Opportunity Analysis (WOOA)

This method is specially used for R & D and innovation projects. The reason is that not can be assumed that these kind of projects will be successful. The WOOA approach is about looking for baseline data.

2.6Comments on the information base for selection

There are three special problems affecting the data used in project selection models:

  • Accounting Data
  • Measurements
  • Uncertain Information

Accounting Data

  • Accountants live in a linear world. Cost and revenue data are assumed to vary linearly with associated changes in inputs and outputs
  • The accounting system often provides cost-revenue information that is derived from standard cost analysis. The standards may or may not be accurate representations of the cost revenue structure of the physical system they purport to represent
  • Data furnished by the accounting system may or may not include overhead costs.


  • Subjective versus Objective
  • Quantitative versus Qualitative
  • Reliable versus Unreliable
  • Valid versus Invalid

‘GIGO – garbage in, gospel out’

Uncertain Information

Use methods like Delphi for finding the numeric weights and criteria scores when they take the form of verbal descriptors rather than numbers.

2.7Project Portfolio Process (PPP)

A PPP is an eight-step process that holds promise for improving an organization’s project management maturity.Important is that the goals and strategies of the organization have been well articulated. PPP attempt to link the organization’s projects directly to the goals and strategy of the organization.

Step 1: Establish a Project Council

Main purpose of the project council is to establish and articulate a strategic direction for those projects spanning internal or external boundaries of the organization. Senior managers must play an important role in the council.

Step 2: Identify Project Categories and Criteria

In this step, various project categories are identified so the mix of projects funded by the organization will be spread appropriately across those areas making major contributions to the organization’s goals.

Wheelwright and Clark (1992) identified four separate categories of projects:

  • Derivative projects
  • Platform projects
  • Breakthrough projects
  • R&D projects

Next, the council must develop separate criteria and cost ranges for each category. The outcome should be a Weighted Factor Scoring model.

Step 3: Collect Project Data

For each existing and proposed project, assemble the data appropiate to that category’s criteria.

Step 4: Assess Resource Availability

Next, assess the availability of both internal and external resources, by type, department, and timing.

Step 5: Reduce the Project and Critera Set

This step tries to narrow down the number of competing projects.

Step 6: Prioritize the Projects within Categories

Apply the scores and criterion weights to rank the project within each category.

Step 7: Select the Projects to be Funded and Held in Reserve

The first step is determining the mix of projects across the various categories. Result of step 7 (and mostly the PPP) should be a Plan of Record. Here, the mix across categories is listed, priorities and resource needs of each project are given, the timing of each project over the PPP cycle (6 months for example) is shown.

Step 8: Implement the Process

  • Make results of PPP widely known
  • Senior management should fully fund the selected projects
  • Process will be repeated on a regular basis.

2.8Project Proposals

Documentation is needed to evaluate a project that is being considered. This set of documents is called the project proposal.

Proposals should content:

  • Executive summary (in non-technical language)
  • The Technical Approach
  • The Implementation Plan
  • The Plan for Logistics Support and Administration
  • Past Experience (full resume for each principal).

Chaper 3 The Project Manager