Project Management the Managerial Process 6th Edition Larson Solutions Manual

1. What Is a Project? A. What a Project Is Not B. The Project Life Cycle C. The Project Manager 2. The Importance of Project Management 1-2 A. Compression of the Product Life Cycle B. Global Competition C. Knowledge Explosion D. Corporate Downsizing E. Increased Customer Focus F. Small Projects Represent Big Problems 3. Project Management Today—An Integrative Approach A. Integration of Projects with the Strategic Plan B. Integration within the Process of Managing Actual Projects 4. Summary 5. Text Overview 6. Key Terms 7. Review Questions 8. Exercises 9. Case: A Day in the Life Chapter Objectives • To explain why project management is crucial in today’s world • To define a project and differentiate projects from routine operations • To establish the importance of projects in implementing organization strategy • To establish that managing projects is an act of balancing the technical and sociocultural sides of the project. Review Questions 1-3 1. Define a project. What are five characteristics which help differentiate projects from other functions carried out in the daily operations of the organization? A project is a complex, non routine, one-time effort limited by time, budget, resource, and specifications. Differentiating characteristics of projects from routine, repetitive daily work are below: a. A defined life span b. A well-defined objective c. Typically involves people from several disciplines d. A project life cycle e. Specific time, cost, and performance requirements. 2. What are some of the key environmental forces that have changed the way projects are managed? What has been the effect of these forces on the management of projects? Some environmental forces that have changed the way we manage projects are the product life cycle, knowledge growth, global competition, organization downsizing, technology changes, time-to-market. The impact of these forces is more projects per organization, project teams responsible for implementing projects, accountability, changing organization structures, need for rapid completion of projects, linking projects to organization strategy and customers, prioritizing projects to conserve organization resources, alliances with external organizations, etc. 3. Why is the implementation of projects important to strategic planning and the project manager? Strategic plans are implemented primarily through projects—e.g., a new product, a new information system, a new plant for a new product. The project manager is the key person responsible for completing the project on time, on budget, and within specifications so the project’s customer is satisfied. If the project is not linked to the strategic plan of the organization, resources devoted to the project are wasted and a customer need is not met. This lack of connectivity occurs more in practice than most would believe. 4. The technical and sociocultural dimensions of project management are two sides to the same coin. Explain. The system and sociocultural dimensions of project management are two sides of the same coin because successful project managers are skillful in both areas. The point is successful project managers need to be very comfortable and skillful in both areas. 1-4 5. What is meant by an integrative approach to project management? Why is this approach important in today’s environment? An integrative approach to project management is one in which all the parts are interrelated. This approach is important because it can give an organization a competitive edge in today’s environment. An integrative approach includes two parts. First, projects must have a strong link to the organization’s strategic plan, which is directed toward meeting the customer’s needs. A project priority system reinforces this linkage by prioritizing projects according to their contribution to the strategic plan and allocates resources by the priorities set. Second, an integrative approach provides an integrated system for the actual implementation of the projects. This includes an information system which supports decision making and a sociocultural environment which creates a positive, active contribution from team members responsible for completing the project. Exercises 1. Review the front page of your local newspaper, and try to identify all the projects contained in the articles. How many were you able to find? It is nearly impossible to open a newspaper and not find articles relating to projects. Sunday editions are especially good for this exercise. Even experienced project managers find the number of projects far greater than they would have predicted. Each one was managed by a project manager! This is a good illustration of the important role projects play in our daily lives. 2. Individually identify what you consider to be the greatest achievements accomplished by mankind in the last five decades. Now share your list with three to five other students in the class, and come up with an expanded list. Review these accomplishments in terms of the definition of a project. What does your review suggest about the importance of project management? Typical responses center on technology, medical advances, space exploration—e.g., computer advances, laser operations and new drugs, building the space station. Often you have to point out that many of these projects are really programs. We usually select two or three student suggestions of projects (there will be plenty!) and ask the students to identify the kinds of problems the project manager of the project may have had to deal with. Again, once the students get into the exercise, the problems they can envision are many. These problems are placed on the board. After the board is near filled and most students have participated, we try to show or classify on the board the problems by the content of the text chapters. The intent is to demonstrate to the class the course and text will address many of the problems suggested by the students. 1-5 3. Individually identify projects assigned in previous terms. Were both sociocultural and technical elements factors in the success or difficulties in the projects? Students will naturally focus on sociocultural aspects in part because they are more familiar with concepts such as leadership, problem-solving, and teamwork than scope, WBS, and baseline budgets. Furthermore interpersonal friction is often a source of consternation on student projects. The instructor may have to point out that interpersonal conflicts often arise from ill-defined scopes, uneven work schedules, and poor planning. 4. Check out the Project Management Institute’s home page at . a. Review general information about PMI as well as membership information. b. See if there is a PMI chapter in your state. If not, where is the closest one? c. Use the search function at the PMI home page to find information on Project Management Body of Knowledge (PMBOK). What are the major knowledge areas of PMBOK? d. Explore other links that PMI provides. What do these links tell you about the nature and future of project management? Note: If you have any difficulty accessing any of the Web addresses listed here or elsewhere in the text, you can find up-to-date addresses on the home page of Dr. Erik Larson, coauthor of this text: Case A Day in the Life This case shows a glimpse of what it is like to be a project manager. It also underscores that being a project manager is more social than technical and that project managers spend the majority of their time interacting with various people who impact a project. Note: This case can either be used up front in the course or towards the end when the sociocultural aspects of project management have been covered. 1. How effectively do you think Rachel spent her day? Students will be divided in their evaluation of Rachel. Some will argue that she is inefficient and does not have control over her time. Others will argue that this is the nature of the job, and is to be expected. They will point out that she is appropriately spending her time managing relations and keeping on top of things that affect the project. We tend to observe that students with little work experience are much more critical than those with work experience. 1-6 Note: International students often take exception to Rachel devoting lunch time to gossiping and taking time to relax and listen to music. They feel these are inappropriate behaviors. When used towards the end of the course the case can stimulate a lively discussion between international and American students. 2. What does the case tell you about what it is like to be a project manager? Rachel’s day underscores three key functions project managers spend their time performing: a. Building and sustaining interpersonal relations. Project managers have to network and develop good working relations with team members and other project stakeholders. b. Information gathering and dissemination. Project managers are theinformation hub for their projects. They are in constant communication with various stakeholders, collecting information from various sources, and sending it to those who have a need to know. c. Decision-making. Project managers consult with various people to make decisions necessary to complete theproject. 1-7 Supplemental Case South American Adventures Unlimited This case was included in thefirst two editions of thebook and is included here so that teachers can hand it out or post it on theweb for class discussion. SA Adventures Unlimited was formed four years ago by Michael and Jill Rodriguez. Michael was a trained geologist, while Jill had a master’s degree in Spanish. They were both avid outdoor enthusiasts and fell in love while trekking across theAndes in Chile. Upon graduation they seized upon theidea of starting their own specialized tour business that would focus on organizing and leading “high-end” adventure trips in South America. Their first trip was a three-week excursion across Ecuador and Peru. Thetrip was a resounding success, and they became convinced that they could make a livelihood doing something they both enjoyed. After thefirst year, Adventures Unlimited began to slowly expand thesize and scope of thebusiness. TheRodriguezes’ strategy was a simple one. They recruited experienced, reliable people who shared their passion for South America and theoutdoors. They helped these people organize specific trips and advertised theexcursion over theInternet and in travel magazines. Adventures Unlimited has grown from offering 4 trips a year to having 16 different excursions scheduled, including trips to Central America. They now had an administrative support staff of three people and a relatively stable group of five trip planners/guides whom they hired on a trip-by-trip contract basis. Thecompany enjoyed a high level of repeat business and often used their customers’ suggestions to organize future trips. Although theRodriguezes were pleased with thesuccess of their venture, they were beginning to encounter problems that worried them about thefuture. A couple of thetours went over budget because of unanticipated costs, which eroded that year’s profit. In one case, they had to refund 30 percent of thetour fee because a group was stranded five days in Blanco Puente after missing a train connection. They were also having a hard time maintaining thehigh level of customer satisfaction to which they were accustomed. Customers were beginning to complain about thequality of theaccommodations and theprice of thetours. One group, unfortunately, was struck by a bad case of food poisoning. Finally, theRodriguezes were having a hard time tracking costs across projects and typically did not know how well they did until after their taxes were prepared. This made it difficult to plan future excursions. TheRodriguezes shared these concerns around thefamily dinner table. Among themembers in attendance was Michael’s younger brother, Mario, a student at a nearby university. After dinner, Mario approached Michael and Jill and suggested that they look into what business people called “project management.” He had been briefly exposed to project management in his Business Operations class and felt that it might apply to their tour business. 1-8 1. To what extent does project management apply to Adventures Unlimited? 2. What kind of training in project management should theRodriguezes, theadministrative staff, and tour guides receive to improve theoperation of Adventures Unlimited? Try to identify major topics or skill sets that should be addressed. This short case is intended to introduce students to thewide range of issues surrounding project management. It is also intended to expand students’ awareness of theapplication of project management beyond traditional construction and product development projects. 1. To what extent does project management apply to Adventures Unlimited? Students should be encouraged to relate Adventures Unlimited to theconcepts and ideas in thechapter. For example, each tour has an established objective, a defined life span, is unique, and is constrained by time, cost, and performance requirements. Likewise, each tour follows theproject life cycle. When viewed from this angle, students recognize that Adventures Unlimited is in thebusiness of managing projects. 2. What kind of training in project management should theRodriguezes, theadministrative staff, and tour guides receive to improve theoperation of Adventures Unlimited? Try to identify major topics or skill sets that should be addressed. At first students may struggle to identify major topics and skill sets due to their lack of familiarity with project management. They should be encouraged to identify different tasks and decisions that have to be made to organize and lead a tour as well as manage a tour business. For example, in leading a specific tour thetasks would include defining thescope of thetour, scheduling theitinerary, developing a budget, negotiating contracts, and identifying and reducing risks. TheRodriguezes also have to manage a project organization which involves selecting which tours to sponsor, hiring and training guides, marketing tours, and controlling costs. An alternative teaching strategy would be to have students access thePMI PMBOK (Project Management Body of Knowledge) from theWeb site mentioned at theend of thechapter and ask them to relate thecore knowledge areas (for example, Project Integration Management, Project Scope Management) to theAdventures Unlimited. This would be a good way to expose students to thecore elements of project management and see how thecore elements help them relate to a less conventional project management business. Another alternative strategy would be to simply present an overview of PMBOK by displaying TP 1-1 and using it to guide thediscussion. Ask students to identify a specific activity that would apply to each of thenine core processes. Use this as an opportunity to identify which core processes will be covered in your course and which will not. 1-9 TRANSPARENCIES TP 1-1 PMBOK: Nine Knowledge Areas 1. Project Integration Management 2. Project Scope Management 3. Project Time Management 4. Project Cost Management 5. Project Quality Management 6. Project Human Resource Management 7. Project Communications Management 8. Project Risk Management 9. Project Procurement Management Chapter 02 - Organization Strategy and Project Selection 2-1 Chapter 2 ORGANIZATION STRATEGY AND PROJECT SELECTION Chapter Outline 1. TheStrategic Management Process: An Overview A. Four Activities of theStrategic Management Process B. Scenario Planning: A Supplement to Traditional 2. TheNeed for an Effective Project Portfolio Management System A. Problem 1: TheImplementation Gap B. Problem 2: Organizational Politics C. Problem 3: Resource Conflicts and Multitasking 3. A Portfolio Management System A. Classification of theProject B. Nonfinancial Criteria 4. Applying a Selection Model A. Sources and Solicitation of Project Proposals B. Ranking Proposals and Selection of Projects 5. Managing thePortfolio System A. Balancing thePortfolio for Risks and Types of Projects 6. Summary 7. Key Terms 8. Review Questions 9. Exercises 10. Case: Hector Gaming Company 11. Case: Film Prioritization 12. Appendix 2.1: Request for Proposal (RFP) 2.2 Contractor Evaluation Template Chapter Objectives • To identify thesignificant role projects contribute to thestrategic direction of theorganization • To stress theimportance of establishing project priorities and top management support Chapter 02 - Organization Strategy and Project Selection 2-2 • To describe thelinkages of strategies and projects • To write a set of hierarchical objectives for an organization • To describe a scheme for prioritizing projects that ensures top management involvement and minimizes conflicts • To apply an objective priority system to project selection. • To recognize that today’s world may require a shorter range strategic plan and scenario planning is necessary. Review Questions 1. Describe themajor components of thestrategic management process. Thestrategic management process involves assessing what we are, what we want to become, and how we are going to get there. Themajor generic components of theprocess include thefollowing: a. Defining themission of theorganization b. Analysis of theexternal and internal environments c. Setting objectives d. Formulating strategies to reach objectives e. Implementing strategies through projects. 2. Explain therole projects play in thestrategic management process. Strategy is implemented primarily through projects. Successful implementation of projects means reaching thegoals of theorganization and thus meeting theneeds of its customers. Projects that do not contribute to thestrategic plan waste critical organization resources. 3. How are projects linked to thestrategic plan? Projects are linked to thestrategic plan because projects represent how a strategy is to be implemented. Since some projects are more important than others, thebest way to maximize theorganization’s scarce resources is through a priority scheme which allocates resources to a portfolio of projects which balance risk and contribute themost to thestrategic plan. 4. Theportfolio of projects is typically represented by compliance, strategic, and operations projects. What impact can this classification have on project selection? Chapter 02 - Organization Strategy and Project Selection 2-3 By carefully aligning your project proposal with one classification, you may increase thechances of it being selected. Remember, senior management typically allots budgets for each category independent of actual project selection. Knowledge of funds available, risk portfolio, senior management bias, etc. may cause some to attempt to move their project proposal to a different classification to improve thechances of theproject being selected. 5. Why does thepriority system described in this chapter require that it be open and published? Does theprocess encourage bottom-up initiation of projects? Does it discourage some projects? Why? An open, published priority system ensures projects are selected on thebasis of their contribution to theorganization. If thepriority system is not open, squeaky wheels, strong people, and key departments all get their projects selected for thewrong reasons. Bottom-up is encouraged because every organization member can self evaluate their project idea against priorities – and so can everyone else in theorganization. To some, this approach may look intimidating but rarely is in practice; however, it does discourage projects that clearly will not make positive, significant contributions to theorganization vision. 6. Why should an organization not rely only on ROI to select projects? Financial criteria, like ROI alone, will not ensure that selected projects contribute to themission and strategy of a firm. Other considerations such as developing new technology, public image, brand loyalty, ethical position, and maintaining core competencies should be considered. Furthermore, it is difficult or next to impossible to assess ROI for many important projects (e.g., Y2K projects). While ROI is likely to be a key consideration for many organizations, multiple screening criteria are recommended for selecting and prioritizing projects. 7. Discuss thepros and cons of thechecklist versus theweighted factor methods of selecting projects. Checklist Model • Flexible • Applies over a wide range of different types of projects, divisions, and locations • Impossible to rigorously compare and rank project by priority • Politics, power, and manipulation of project selection is very possible. Weighted Factor Model • Allows comparison and ranking of potential projects • Open system • Allows for self evaluation of proposed project • Power and politic games are exposed. Exercises Chapter 02 - Organization Strategy and Project Selection 2-4 1. You manage a hotel resort located on theSouth Beach on theIsland of Kauai in Hawaii. You are shifting thefocus of your resort from a traditional fun-in-thesun destination to eco-tourism. (Eco-tourism focuses on environmental awareness and education.) How would you classify thefollowing projects in terms of compliance, strategic, and operational? a. Convert thepool heating system from electrical to solar power. b. Build a 4-mile nature hiking trail. c. Renovate thehorse barn. d. Replace thegolf shop that accidentally burned down after being struck by lightning. e. Launch a new promotional campaign with Hawaii Airlines. f. Convert 12 adjacent acres into a wildlife preserve. g. Update all thebathrooms in condos that are 10 years or older. h. Change hotel brochures to reflect eco-tourism image. i. Test and revise disaster response plan. j. Introduce wireless Internet service in café and lounge areas. How easy was it to classify these projects? What made some projects more difficult than others? Most students classify theprojects as follows: Compliance: d., g., i. Operational: a., c., j. Strategic: b., e., f., h. Most students claim it was not too difficult to classify theprojects other than they had to make judgment calls given thelimited information. In real life they would have such information. Debates occur around whether converting theheating system to solar polar was an operational necessity or to fit theeco-friendly image. Likewise, launching thepromotional campaign with Hawaii Airlines would be considered strategic if it promoted theeco-tourism theme, otherwise it could be consider operational. What do you think you now know that would be useful for managing projects at thehotel? By classifying theprojects, prioritizing is more easily done. Different selection criteria can be used for selecting strategic versus operational projects. Financially, senior management would have more information to divide thetotal money pie allocated to projects. EMAIL ME: For help with report, Assignment, Essay and thesis writing. Chapter 02 - Organization Strategy and Project Selection 2-5 2. Two new software projects are proposed to a young, start-up company. TheAlpha project will cost $150,000 to develop and is expected to have annual net cash flow of $40,000. TheBeta project will cost $200,000 to develop and is expected to have annual net cash flow of $50,000. Thecompany is very concerned about their cash flow. Using thepayback period, which project is better from a cash flow standpoint? Why? Payback = Investment / Annual Savings Project Alpha: $150,000 / $40,000 = 3.75 years Project Beta: $200,000 / $50,000 = 4.0 years Project Alpha is thebetter payback. 3. A five-year project has a projected net cash flow of $15,000, $25,000, $30,000, $20,000, and $15,000 in thenext five years. It will cost $50,000 to implement theproject. If therequired rate of return is 20 percent, conduct a discounted cash flow calculation to determine theNPV. A B C D E F G H 1 2 Exercise 2.3 3 Net Present Value Example 4 5 Project 2.3 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 6 Investment -$50,000 7 Cash Inflows $15,000 $25,000 $30,000 $20,000 $15,000 8 Required Rate of Return 20% Formula: =C6+NPV(B8,D7:H7) 9 10 NPV = $12,895 Since theNPV is positive, accept project. 4. You work for the3T company, which expects to earn at least 18 percent on its investments. You have to choose between two similar projects. Your analysts predict that inflation rate will be a stable 3 percent over thenext 7 years. Below is thecash flow information for each project. Which of thetwo projects would you fund if thedecision is based only on financial information? Why? Omega Alpha Year Inflow Outflow Netflow Year Inflow Outflow Netflow Y0 0 $225,000 -225,000 Y0 0 $300,000 -300,000 Y1 0 190,000 -190,000 Y1 $50,000 100,000 -50,000 Y2 $150,000 0 150,000 Y2 150,000 0 150,000 Y3 220,000 30,000 190,000 Y3 250,000 50,000 200,000 Y4 215,000 0 215,000 Y4 250,000 0 250,000 Y5 205,000 30,000 175,000 Y5 200,000 50,000 150,000 Chapter 02 - Organization Strategy and Project Selection 2-6 Y6 197,000 0 197,000 Y6 180,000 0 180,000 Y7 100,000 30,000 70,000 Y7 120,000 30,000 90,000 Total 1,087,000 505,000 582,000 Total 1,200,000 530,000 670,000 2-7 Chapter 02 - Organization Strategy and Project Selection A B C 1 2 D E F Exercise 4a G H 3 Net Present Value Example Comparing Two Projects 4 5 Project Omega Year 0 Year 1 Year 2 Year 3 Year 4 Year 6 Required Rate of Return 18% 7 Investment -$225,000 8 Cash Inflows -$190,000 $150,000 $190,000 $215,000 $1759 NPV = $119,689 Formula Project Omega: =C7+NPV(B6,D8:J8) 10 11 Project Alpha Year 0 Year 1 Year 2 Year 3 Year 4 Year 12 Required Rate of Return 18% 13 Investment 14 Cash Inflows -$50,000 $150,000 $200,000 $250,000 $15015 NPV = $176,525 Formula Project Alpha: =C13+NPV(B12,D14:J14) 16 17 NPV comparison: Accept both Omega and Alpha; or select Alpha that has thehighest NPV of $176,525 18 19 Exercise 4b 20 Net Present Value Example Comparing Two Projects (with inflation) 21 22 Project Omega Year 0 Year 1 Year 2 Year 3 Year 4 Year 23 Required Rate of Return 21% 24 Investment 25 Cash Inflows -$190,000 $150,000 $190,000 $215,000 $17526 NPV = $76,650 Formula Project Omega: =C24+NPV(B23,D25:J25) 27 28 Project Alpha Year 0 Year 1 Year 2 Year 3 Year 4 Year 29 Required Rate of Return 21% 30 Investment -$300,000 31 Cash Inflows -$50,000 $150,000 $200,000 $250,000 $15032 NPV = $129,536 Formula Project Alpha: =C30+NPV(B29,D31:J31) 33 34 NPV comparison: Accept both Omega and Alpha; or select Alpha that has thehighest NPV of $129,536 -$225,000 -$300,000 Chapter 02 - Organization Strategy and Project Selection 2-8 5. Theonly project SIMSOX should consider is Voyagers. Each of theother two projects would not satisfy thehigh rate of return SIMSOX expects from its projects. Project: Dust Devils Year Inflows Outflows Net flow Discount Factor NPV 0 500,000 (500,000) 1.00 (500,000) 1 50,000 50,000 0.81 40,500 2 250,000 250,000 0.66 165,000 3 350,000 350,000 0.54 189,000 Total: $(105,500} If calculated in EXCEL: $(106,020) Project: Ospry Year Inflows Outflows Net flow Discount Factor NPV 0 250,000 (250,000) 1.00 (250,000) 1 75,000 75,000 0.81 60,750 2 75,000 75,000 0.66 49,500 3 75,000 75,000 0.54 40,500 4 50,000 50,000 0.44 22,000 Total: $(77,250) If calculated in EXCEL: $(77,302) Project: Voyagers Year Inflows Outflows Net flow Discount Factor NPV 0 75,000 (75,000) 1.00 (75,000) 1 15,000 15,000 0.81 12,150 2 25,000 25,000 0.66 16,500 3 50,000 50,000 0.54 27,000 4 50,000 50,000 0.44 22,000 5 150,000 150,000 0.36 54,000 Total: $56,650 If calculated in EXCEL: $55,714 Chapter 02 - Organization Strategy and Project Selection 2-9 6. Thefirst recording Broken Arrow should choose to undertake is Tonight’s theNight, followed by On theBeach. TheTime Fades Away project does not satisfy thehigh rate of return Broken Arrow expects from its projects. Recording Project: Time Fades Away Year Inflows Outflows Net flow Discount Factor NPV 0 600,000 (600,000) 1.00 (600,000) 1 600,000 600,000 0.82 492,000 2 75,000 75,000 0.67 50,250 3 20,000 20,000 0.55 11,000 4 15,000 15,000 0.45 6,750 5 10,000 10,000 0.37 3,700 Total: $(36,300) If calculated in EXCEL: $(36,322) Recording Project: On theBeach Year Inflows Outflows Net flow Discount Factor NPV 0 400,000 (400,000) 1.00 (400,000) 1 400,000 400,000 0.82 328,000 2 100,000 100,000 0.67 67,000 3 25,000 25,000 0.55 13,750 4 20,000 20,000 0.45 9,000 5 10,000 10,000 0.37 3,700 Total: $21,450 If calculated in EXCEL: $21,551