Modern Project

Management

Chapter 1
 Attributes of a Project
• A non-routine endeavor with a limited life
• Objective: complete a series of
interdependent tasks:
– requiring coordinated effort
– within resource constraints
– within time constraints
– within budget constraints
– to the customer’s satisfaction
– in an environment of uncertainty & risk
 Examples
• Consulting firms servicing a client
• Marketing campaigns
• Planning a wedding or hosting a big party
• Designing & implementing a new production
process
• Launching a new business
• Executing an environmental clean-up of a
contaminated site
• Performing a series of surgeries on an accident
victim
The Age of Project Management
 Drivers of Change

• Compressed product life cycles

• Global competition – BRICS, Mexico
• Evolving cultural values - triple bottom line
• Knowledge explosion - AI
• Process redesign - reshoring
• New technology - blockchain
• Multi-project environments
 Common Constraints

• Scope
– Customer satisfaction
• Time
• Cost
– Other resources (labor, capacity, etc.)
 Uncertainty & Risk

• Unforeseen circumstances often

jeopardize the project:
– poor planning & scope creep
– technical infeasibility
– acts of God
– competitor actions
• The project manager’s challenge is to
anticipate, then prevent or overcome
 Dimensions of
Project Management
 The Project Life Cycle

• Projects are “born” when a need is

identified
• Project life cycles vary in length.
• No “magic” to the four phases of the
book’s project life cycle (could be many
more)
Project Life Cycle
 Useful Jargon

• Scope & scope creep

• Deliverables (tangibles)
• Baseline plan
• Work breakdown structure (WBS)
• Network diagrams:
– Critical Path Method (CPM)
– Program Evaluation & Review Technique
(PERT)
Work Breakdown Structure
 Network Diagram

Plan Survey Design Questioner Print Survey

Start: 10/ 2/03 I D: 1 Start: 10/ 6/03 I D: 2 Start: 10/ 8/03 I D: 6
F inish: 10/3/03 Dur: 2 days F inish: 10/7/03 Dur: 2 days F inish: 10/9/03 Dur: 2 days
Res: Plan Sur vey Res: Design Questi oner Res: Print Sur vey

Hire Personnel Train Person nel

Start: 10/ 6/03 I D: 3 Start: 10/ 20/ 03 I D: 4
F inish: 10/17/03 Dur: 10 days F inish: 10/24/03 Dur: 5 days
Res: Hir e Per sonnel Res: Train Personnel

Select Household s Cond uct Survey Analyze Results

Start: 10/ 6/03 I D: 5 Start: 10/ 27/ 03 I D: 7 Start: 11/ 6/03 I D: 8
F inish: 10/7/03 Dur: 2 days F inish: 11/5/03 Dur: 8 days F inish: 11/12/03 Dur: 5 days
Res: Sel ect Households Res: Conduct Sur vey Res: Analyze Resul ts
 Benefits

• Satisfied customers
• Additional business
• Expansion of career opportunities
• Satisfaction of being on a winning team
• Improved knowledge and skills
Integrated Management of Projects
- Execution of Strategy -
Capability Maturity Model (CMM)
-Project Mgt as a Core Competency -
Best Practice?
 Alternative Frameworks
• Critical Path Method
– CPM
– PERT
– Critical Chain
• Waterfall
• Agile/Scrum
• Lean/Six Sigma
– DMAIC
– DFSS
… many others
Alignment of Projects with
Organization Strategy

Chapter 2
Strategic Management Process
 Implementation Gap

• Delegation to middle managers

– Functional loyalty
– Sub-optimization
• Resource conflicts
• Multitasking
– Overwhelmed
• Ignorance (nobody told them)
– No priorities set
 Implementation Gap

• Focused on low strategic priorities (e.g.:

squeaky wheels)
• Pursuing “cool” exotic technology
• Ignoring Pareto’s Law (80:20 rule)
• Letting “perfect” be the enemy of “good”
Cause-and-Effect Worksheet
Example
 Portfolio Management

• Classification of projects:
– Compliance & emergency (must do)
– Strategic
– Operational
 Major Project Proposal

• Open door?
• Formal process:
– Problem definition
– Goal definition (faster, better, cheaper?)
– Financial (projected investment, savings, cash
flow, ..)
• Risk
Project Screening Process
 Project Selection
• Develop a set of criteria against which
each opportunity will be evaluated
• List assumptions
• Gather data and information on each
proposed project
• Evaluate each proposal against the criteria
• Select the biggest bang for the buck
 Nonnumeric Models
• The sacred cow
– Senior managers say so
• Operating necessity
– Immediate threat
• Competitive necessity
– Market driven
• Product line extensions
– Fill a gap
• Comparative benefit model
– United Way, peer review
Project Screening Matrix
 Example: Driehaus Seminars
• Clear academic focus
• Nexus: country & focus
• Nexus: faculty & country/focus
• Geographic diverse portfolio of seminars
• Perceived student interest
• Past performance of faculty
• Novice faculty & nurturing ongoing relationship
• 12 month before return to same country
 Numeric Models
• Payback period
– Cost/(annual revenue)
• Average rate of return
– (annual revenue)/ cost
• Net present value
– Discount cash flows using a hurdle rate
• Internal rate of return
– The discount rate that equates the cash inflows &
cash outflows
 Payback Method

Investment
Payback Period 
Annual Net Savings

Annual Net Savings

Rate of Return 
Investment
 Net Present Value

• Considers the time value of money

• Compute the NPV of all cash flows:
– $ in less $ out
– Discount rate set by management
 Numeric Models
• Profitability
• Pacifico’s Method:PI = rdpc SP(L)1/2/C
– r: probability of research success
– d: probability of development success
– p: probability of process success
– c: probability of commercial success
– S: annual sales volume
– P: profit per unit
– L: life of the product
– C: cost of the research & development project
 Numeric Models

• Unweighted factor models

• Weighted factor models
• Constrained factor models
• Goal programming
 Model Usage

• Small sample study (n = 29) found 80% of

Fortune 500 companies use some form of
financial analysis
– Generally NPV
• Some form of weighted factor scoring is
also highly recommended
– Allows consideration of multiple criteria
Balance Risks
 Organization:
Structure and Culture

Chapter 3
 PM Structures

• Within existing functional hierarchy

• Dedicated project teams
• Matrix organizations
• Network of collaborators
 Functional Structure
• Commonly used in businesses with standard
products
• Silo structure (Groups performing similar jobs)
• Individuals can be assigned to a project as a
“group” representative
• Team members often continue regular jobs –
projects often “extra”
• Project manager does not have line authority
over team members
Functional Structure
 Dedicated Project Teams
• Commonly used in project-oriented
companies (e.g.: construction &
consulting)
• Firms working multiple projects
simultaneously
• Project teams dedicated to each project
• Project manager has complete authority
over team
• Project teams tend to be isolated
 Pure Project Organization
(a/k/a Skunk Works)

• Dedicated team - separate from everything

Project Organization Structure
 Matrix-Type Organization
• A mix of functional & project structures
• Used in companies that work on multiple
projects simultaneously
• Provides dual project and customer focus
• Retains functional expertise
• Individuals can be assigned to various
types of projects
 Matrix

• Project managers & functional managers

share direct authority
• The Project Manager is the intermediary
between customer and company
• The Functional Manager decides how
tasks will be accomplished
Matrix Organization Structure
 Network Organization

• Collaborative alliances between

independent contractors
• Contractually defined authority &
responsibility
• Rely on outsourcing & off-shoring
Network (Virtual) Organization
 Choosing a Structure

• Percentage of project work versus

standardized work
• Resource availability
• Organizational culture
• Individual project considerations:
– Size of project (scope, budget, & time frame)
– Strategic importance
– Complexity & need for innovation
Effectiveness (on Projects)
 Functional Advantages

• Reduces duplication and overlap of

activities – allows high utilization of
personnel
• Provides specialization and functional
excellence
• Easy project termination
 Functional Disadvantages
• Functions can be insular leading to
parochial decision-making
• Teamwork is not emphasized
• Slow communication, problem solving &
decision making
• Stronger allegiance to function than
project impacts motivation
Project Organization Advantages

• Team has full control over resources

• Authority = responsibility
• Organization is cohesive & responsive to
customer
• Short lines of communication & quick
decision-making
 Project Disadvantages
• Can be expensive:
– Low utilization of personnel
– Tendency to stretch out work during slow periods
– Potential for duplication on concurrent projects
• Low level of knowledge transfer & shallow pool
of talent
• No functional “home” when project terminated
 Matrix Advantages
• Flexible & efficient utilization of resources
• Individuals can be moved among projects
• Provides an ongoing core of functional
expertise
• Facilitates information flow - teams
communicating with project & functional
managers
• Relatively strong customer focus
• Easy termination
 Matrix Disadvantages

• Team members have multiple reporting

relationships
• A proper balance of power must be
established between project and functional
managers
• Conflicts regarding priorities can arise
• Reaching consensus can be slow
 Network Advantages

• Very flexible
• Low overhead
• Seek out low cost provider
• Seek out high expertise
• No termination issues
 Network Disadvantages

• Coordination issues
• Building trust & learning to communicate
can be slow - misunderstandings
• Loss of control
• Must amend contracts for unforeseen
events (e.g.: change orders)
 Organizational Culture

• A system of shared norms, beliefs, values

& assumptions
• Strong versus weak cultures & subcultures
 Organizational Culture

• Member identity - organization or

functional area
• Group or individual focus
• Management focus (e.g.: bottom line only)
• Cross-functional barriers
• Degree of control (e.g.: a “rule” for
everything)
 Organizational Culture

• Risk tolerance
• Reward seniority or performance
• Tolerance of conflict & criticism
• Means or ends orientation
• Internal or external orientation
Typical “Projectized” Culture
Mechanisms for Sustaining
Organizational Culture
 Anthropology

• Physical characteristics (theater design)

• Self-defined priorities (e.g.: newsletters &
annual reports)
• Why promoted or fired
• How is time allocated
• Folklore & legends
Estimating Project
Times and Costs

Chapter 5
 Why estimation is important

• Support good decisions:

– Take the job?
– Prepare a profitable bid
• Reliable estimate duration & cost
• Cash flow analysis
• Monitor progress (provide a baseline)
 Estimation Issues

• Level of detail required?

• Accuracy required?
– 95% probability OK?
– Administrative cost & burden
– Availability of relevant data
• Reliability required?
– How far can you be off without creating
problems?
 Accuracy & Reliability Factors
• Forecasting horizon
• Duration of implementation
• People:
– Skill levels, past experience with task, past
experience with each other
• Organizational:
– Structural support & priority of project:
– Cultural bias toward “padding”
– Multi-tasking & resource conflicts
• External factors
 Guidelines

• Rely on people who will do work

– Most familiar with the task
• Multiple estimators?
– Delphi method
• Consider “normal” conditions:
– No contingencies, interactions, resource
conflicts, …
• Standard units of time
 Risk Management

• No contingency padding at the work

package level:
– Hidden
– Non-standardized
– Adding standard deviations
• Project level:
– Contingency reserves
– Time buffers
 Macro (Rough-Cut) Estimates

• Top-down, based on past experience:

– Consensus, analogy, guesstimates,
quantitative methods (e.g.: regression)
• Ratio method:
– Cost per square foot, line of code
• Apportion method
• Function Point method (software)
Apportion Example
Choosing a Method
 Best Practice

• Rough top-down estimate & apportion

• Develop the WBS-based estimates
• Calculate bottom-up estimate (roll up)
• Reconcile differences between top-down
& bottom-up projections
• Develop final schedule and budget
 Detailed Estimates

• Based off the WBS:

– Generally the most reliable & accurate
Work Breakdown Structure (WBS)

• A hierarchical list of all required activities

• A work package is the lowest-level item:
– Can assign responsibility
– Can identify required resources
– Duration is shorter than the review cycle
Hybrid: Phase Estimation

Examples: Agile PM & DMAIC

 Other Considerations

• Repetitive tasks:
– Multiply cost per unit?
– Learning curves?
• Templates:
– Based on past projects
– Adjust for scope changes, inflation, …
• Uncertainty of durations:
– Program Evaluation & Review Technique
• Excessive detail is costly:
– Fosters sub-optimization (“can’t see the forest
for the trees”)
– Creates unproductive bureaucracy
• Insufficient detail is costly:
– Lack of focus
– Wasted effort
 Implications for
Knowledge Management
 Developing Budgets

• Direct costs:
– From WBS analysis
• Direct Overhead Costs:
– Directly attributable to the project
• General Overhead Costs:
– Often a % of project costs
 Time-Phase Costs = Budget

• Develop the budget from cost estimates &

time-phased schedule
• Focus on cash flows
• Baseline budget becomes a “control” tool
Example: Cost Control
Developing a Project Plan

Chapter 6
 Gantt Charts

• Gantt charts are popular user interfaces:

– Activities on the Y-axis, time on the X-axis
– Combine planning & scheduling
– Easy to interpret
– Difficult to update
 Gantt Chart

University of Minnesota Stadium

 Gantt Chart Considerations

• Doesn’t display precedent relationships

• If one activity is delayed, it isn’t obvious
how other activities are affected
• Most PM software shows relationships
with arrows (exponentially confusing)
 Network Techniques

• Precedence diagramming
• Critical path method (CPM)
• Program evaluation and review technique
(PERT)
• Graphical evaluation and review technique
(GERT)
 Options

• Different formats can be used:

– Activity on node (AON)
• a/k/a: activity in box (AIB)
– Activity on arrow (AOA)
 Activity on Node (or AON)

• Each activity is represented by a node

– Each task is assigned a unique activity
number
• Activities may have a precedence
relationship
– Precedent-successor relationship represented
by an arrow
• Activities may be done concurrently
 Activity in Box

• Variation of Activity on Node

 Activity on Arrow (AOA)
• Each activity is represented by an arrow:
– The description is above the arrow
– The tail designates the start of the activity
– The head designates the completion of the activity
• Activities are linked by nodes (or events):
– A node represents the finish of activities entering it
and the start of activities leaving it
– Events are identified by their start-finish nodes
 Dummy Activities

• Only used in the AOA format

• Consumes zero time
• Represented by a dashed arrow
• Needed to:
– Identify unique activities, while showing
multiple precedent relationships emanating
from a single node
 AOA & AON Compared
This AON Becomes:
Network:

B 2 3

A C 1 4 5

D 6 7

Dummy in AOA Notation

Activities
Example: AON Network
Example: AOA Network

Oops!
Preparing the Network Diagram
• Ask the following questions regarding
each activity:
– Which activities must be finished immediately
before this activity can be started?
– Which activities can be done concurrently with
this activity?
– Which activities cannot be started until this
activity is finished?
Preparing the Network Diagram

• Should flow from left to right

• Not drawn to a time scale
• Can vary in how detailed the diagram
should be.
• AON vs. AOA is a matter of personal
preference
• AON is the most common & easiest
 Inter-Relationships

• Finish to Start:
– Most common
– Almost always the only one used
• Others (often using lags):
– Start to Start
– Finish to Finish
Example: Hammock Activity
 CPM example:

Activity Letter Predecessor Duration

Assess customer's needs A none 2
Write and submit proposal B A 1
Obtain approval C B 1
Develop service vision and goals D C 2
Train employees E C 5
Quality improvement pilot groups F D and E 5
Write assessment report G F 1
 Precedence Diagramming

D, 2

A, 2 B, 1 C, 1 F, 5 G, 1

E, 5
Concurrent Activities
 Laddering

• Note the second “resource-based”

precedent relationship)
 Schedule Calculations

• A project schedule includes:

– the earliest times (or dates) at which each
activity can start and finish, based on the
project's estimated start time (or date)
– the latest times (or dates) by which each
activity must start and finish in order to
complete the project by its required
completion time (or date)
 Activity Durations

• Deterministic (known & predictable)

• Probabilistic (stochastic)
– Risk = uncertainty
 Earliest Start and Finish Times

• Earliest start time (ES) is the earliest time

at which a particular activity can begin.
• Earliest finish time (EF) is the earliest time
by which a particular activity can be
completed.
• EF = ES + Duration Estimate
 Forward Pass Rule

• The earliest start time for an activity must

be the same as or later than the latest of
all the earliest finish times of all the
activities leading directly into that
particular activity.
 Early start and finish times
ES=4
EF=6

ES=0 ES=2 ES=3 D, 2

EF=2 EF=3 EF=4 ?
A, 2 B, 1 C, 1 F, 5 G, 1
ES=4
EF=9

E, 5
 Start time depends on when
predecessors finish
ES=4
EF=6

ES=0 ES=2 ES=3 D, 2

ES=9 ES=14
EF=2 EF=3 EF=4 EF=14 EF=15

A, 2 B, 1 C, 1 F, 5 G, 1
ES=4
EF=9

E, 5

Duration = 15 weeks
 Latest Start and Finish Times
• Latest finish time (LF) is the latest time an
activity must be finished in order for the entire
project to be completed by its completion time.
• Latest start time (LS) is the latest time an activity
must be started in order for the entire project to
be completed by its completion time.
• LS = LF – Duration Estimate
 Backward Pass Rule

• The latest finish time for a particular

activity must be the same as or earlier
than the earliest of all the latest start times
of all the activities emerging directly from
that particular activity.
 Late starts and late finish times
ES=4
EF=6

ES=0 ES=2 ES=3 D, 2

ES=9 ES=14
EF=2 EF=3 EF=4 LS=7 EF=14 EF=15
LF=9
A, 2 B, 1 C, 1 F, 5 G, 1
ES=4
EF=9 LS=9 LS=14
? LF=14 LF=15
E, 5

LS=4
LF=9
 When do successor tasks need to
start?
Don’t delay the project!
ES=4
EF=6

ES=0 ES=2 ES=3 D, 2

ES=9 ES=14
EF=2 EF=3 EF=4 LS=7 EF=14 EF=15
LF=9
A, 2 B, 1 C, 1 F, 5 G, 1
ES=4
LS=0 LS=2 LS=3 EF=9 LS=9 LS=14
LF=2 LF=3 LF=4 LF=14 LF=15
E, 5

LS=4
LF=9
 Total Slack, Defined

• Total slack (TS) or float is the difference

between the calculated earliest finish time
of the very last activity and the project’s
required completion time.
– Total Slack = LF - EF
– Total Slack = LS - ES
 Total Slack

• It is the maximum time the activities on the

path can be delayed without delaying the
project’s completion
• Shared by all activities on that path
 Negative Slack

• Can occur when a project has an imposed

due date
– Indicates an unfeasible schedule & the need
for expediting (crashing)
• We’ll deal with it as a separate issue – so
assume slack is non-negative
 Free Slack

• EF of predecessor less the earliest ES of

successor activities
• Unshared (the individual activity can be
delayed by this amount without impacting
any other activity)
• Always a non-negative value
 Critical Path

• The critical path (or paths) that have (or

share) the longest duration
• The critical path & slack:
– Each activity on a critical path has zero slack
– All activities with zero slack are on a critical
path
 Critical Path & Total Slack
ES=4
Slack=(7-4)=(9-6)= 3 weeks
EF=6

ES=0 ES=2 ES=3 D, 2

ES=9 ES=14
EF=2 EF=3 EF=4 LS=7 EF=14 EF=15
LF=9
A, 2 B, 1 C, 1 F, 5 G, 1
ES=4
LS=0 LS=2 LS=3 EF=9 LS=9 LS=14
LF=2 LF=3 LF=4 LF=14 LF=15
E, 5

LS=4
LF=9
 Quick & dirty method:

D, 2

A, 2 B, 1 C, 1 F, 5 G, 1

ABCDFG 12
E, 5
ABCEFG 15
15 - 12 = 3
Computer Software
 Uncertainty & Task Duration

• Program Evaluation & Review Technique

(PERT)
• Duration of individual activities assumed to
be drawn from a probability distribution
 Activity Probabilities
• Optimistic time:
– Time to complete an activity if everything goes
perfectly well (target 95% probability)
• Most likely time:
– Duration under normal conditions
• Pessimistic time:
– Time to complete an activity under adverse
circumstances (target 95% probability)
 The Beta Distribution

• When using three time estimates, assume

the task duration follows a beta probability
distribution:
– It is a versatile, robust, & easy-to-use
modeling tool
– It is also statistically questionable, but seems
to work in practice
Beta Example
 The Beta Distribution

• Expected duration (the mean):

to  4t m   t p
te 
6
• Expected error (the variance):

 t p  to 
2

  
2

 6 
 Path Probabilities
• However, the probability distribution of any given
path is a normal probability distribution:
– Based on sampling from multiple distributions & the
Central Limit Theorem
• We estimate the path variance by summing the
variances of the individual activities:
– Again, this is statistically questionable, but seems to
work in practice
Bell-Shaped Curves
 Example

Immediate
Task Predecesors Optimistic Most Likely Pessimistic
A None 3 6 15
B None 2 4 14
C A 6 12 30
D A 2 5 8
E C 5 11 17
F D 3 6 15
G B 3 9 27
H E,F 1 4 7
I G,H 4 19 28
 Immediate Expected
Expected Task
A
Predecesors
None
Time
7
Times B
C
None
A
5.333
14
D A 5
E C 11
F D 7
G B 11
H E,F 4
a  4m  b I G,H 18
te 
6
 Duration = 54 Days

C, 14 E, 11

A, 7 H, 4
D, 5 F, 7

I, 18

B G, 11
5.3
ACEHI 54
ADFHI 41
BGI 34.3
 Calculating Probability

TS - TE
Z=

2
te

TS: the duration you’re interested in

TE: the expected completion time of the
critical path
 What is “Z”?

3 2 2 3

Mean
95.5%

99.7%

Standard Normal Distribution:

Mean = 0
Standard deviation = 1
Question: What is the probability of finishing
this project in less than 55 days?
p(completion < D)

TE
t
=54 TS=55

TS - TE
Z=

2
te
 ba
2

 
2

 6 
Task Optimistic Most Likely Pessimistic Variance
A 3 6 15 4
B 2 4 14
C 6 12 30 16
D 2 5 8
E 5 11 17 4
F 3 6 15
G 3 9 27
H 1 4 7 1
I 4 19 28 16


2
(sum the variance along the critical path) te
= 41
 TE = 54

p(t < TS)

TS=55 time
TS - TE 55 - 54
Z= = = .156

2
te
41

p(Z < 0.16) = .5636

There is a 56.4% probability that this project
will be completed in less than 55 days.
 Exercise

• What is the probability that the project

duration will exceed 56 days?
 Exercise Solution

p(t < TS)

t
TE = 54 TS=56

TS - TE 56 - 54
Z= = = .313
 te
 2
41
 Solution (continued)

p(Z < 0.31) = .6217 or 62.17%

1.00 - .6217 = .3783 or 37.83%

37.8% chance project finishes

in 56 days or more.
 25% Probability of Bonus!

• Assume that the CEO has told you that

you need to negotiate the project contract
and she wants at least a 25% probability
of receiving a bonus for early completion.
What date should you put in the contract?
• You already know:

TS - TE TS - 54
= =Z
 te
 2
41
 Find Z, then D

• Z for 25% = - Z for 75%

• Z for 75% = 0.67
• Then Z for 25% = - 0.67
• Plug Z into the equation & solve for TS

TS - 54
= - 0.67
41
 Solution
TS - 54
= - 0.67
41
TS - 54  6.4(- 0.67)
TS  54 - 4.3
TS  49.7
• A contract giving you a bonus for completion
within 50 days would give you a little more than
25% chance of receiving the bonus.
 CPM & PERT assumptions
• Project activities can be identified (there is
a clear beginning and ending point for
each activity.)
• Sequence (predecessor-successor)
relationships can be specified
• Project control should focus on the critical
path (beware of “near” critical paths).
 Additional PERT assumptions

• The activity times in PERT follow the beta

distribution
• The variance of the project duration is
equal the sum of the variances along the
critical path.
 Careful with Last Assumption:
Be Wary of Joint Probabilities

C, 14 E, 11

A, 7 H, 4
D, 5 F, 7

For Complex Networks: I, 18

Consider Simulation

B
G, 11 ACEHI 54
5.3
ADFHI 41
BGI 34.3
Managing Risk
Risk
Doing Business in the USA 2018
 Project Risk
• A potential threat that might negatively impact
the project’s objectives:
– Timescale
– Cost
– Quality
– Scope
• Flipside: an opportunity
No Risk, No Reward
 Typical Risk Categories

• Scope creep:
– Unstable requirements
• Technical risks:
– Unproven technology
• Schedule risks:
– Delays, acts of God, poor estimation
• Financial risks:
– Increasing costs & pulled funding
 Guidelines for Managing Risk
• Risk management starts when the project
starts
• Dual goals:
– Reduce the likelihood of threats
– Increase the likelihood of opportunities
• Focus on the big ones, but don’t forget the
others (Pareto 80:20 rule)
• Develop contingency plans
The Risk Management Process
• Identify
• Assess
• Anticipate:
– Avoid/reduce
during planning
– Contingency plan
• Trip wire
• Responsibility
• Respond
 Caveats
• Most people are naturally optimistic
• Risk cannot be eliminated:
– Risk management is not infallible
– Driving risk underground is dangerous
• Risk is part of the project’s scope:
– Sponsor should have full knowledge & accept the
potential consequences
• Likelihood of risks & opportunities generally
declines as the project is executed
– Highest likelihood is at the start!
Risk Event Graph
 Options

• Prevention
• Mitigation (reduce likelihood or severity)
• Transfer to third party (insurance)
• Pursue alternate path (decision tree)
• Share the risk
• Acceptance
 Generic Alternatives
• More detailed planning & analysis
• Select alternative approaches
• Adopt enhanced design
• Procedural changes
• Require permits & specific authorization
• Add protection & safety systems
• Preventative maintenance
• Separate or relocate tasks or resources
• Operational reviews
• Regular inspection & compliance audits
• Training & skill enhancement
• Implement formal processes & quality assurance procedures
• Install structural barriers
• Negotiate contract terms & conditions
• Adopt crisis management & disaster recovery plans
Pre-Planning Risk Management
• Use project team to brainstorm:
– Risks under the control of the team:
• poorly defined scope, competency, technical issues,…
– Risks outside the team’s direct control:
• Competitors’ acts, economic climate, regulatory changes, …
• Estimate the likelihood of each & likely severity:
– High, Medium, Low?
– Exponential sequence (2, 4, 9, 16, 25, …)
– Fibonacci sequence (0, 1, 1, 2, 3, 5, 8, 13, 21, 34, …)
Risk Assessment
Risk Severity Matrix
 Pre-Planning Exercise
• Uncritical brainstorming
– Capture on Post-It Notes & display
• Cluster similar items
• Rationalize the clusters
• Evaluate:
– Likelihood & severity of each risk
– Are any themes developing?
– Is a particular aspect of the project troublesome?
• Consider options & develop contingency plan
• Assign responsibility for each risk
Response Plan
Analogy: Failure Mode Effect Analysis
 Additional Considerations
• If risk is from insufficient information, build
investigative action into the project plan:
– Market analysis, proof of concept, prototypes, pilot
projects
• Bring risky activities forward in the schedule:
– Easier to pull the plug or catch up lost ground
• Modify the project scope to reduce of eliminate
risk:
– Low tech, proven solutions
 Formal Contingencies

• Budget reserves
• Management reserves
• Time buffers
 Other Exercises
• Brainstorm using the work breakdown structure:
– Evaluate the potential risks & opportunities relevant to
each work package
• Sensitivity analysis:
– Identify assumptions (customer demand, usage,
repeat purchases, plant efficiency, inflation, operating
costs, timing, …)
– Rework the business model with a range of optimistic,
most likely & pessimistic estimates
– Identify the assumptions that have the most impact
 Other Exercises

• Scenario analysis:
– Many times assumptions are linked (e.g.:
sales & cost of goods sold)
– Investigate optimistic, most likely &
pessimistic scenarios
• Monte Carlo simulations
• Decision trees
Track Changes
 Systematic Control

• Identify & elevate request

• Assess impact on time, scope & cost
• Negotiate allocation of impact
• Record adjustment to baseline
• Assign responsibility
• Capture info for knowledge
management
 Uncertainty & Task Duration

• Program Evaluation & Review Technique

(PERT)
• Duration of individual activities assumed to
be drawn from a probability distribution
International Projects

Chapter 15
Environmental Factors
 Legal & Political

• Political stability
• Bureaucracy & regulation
• Labor unrest
• Repatriation of capital
• Equal treatment for domestic & foreign
firms
• Currency Fluctuations
Site Selection Evaluation
 Security
Physical & Business Interests
• Terrorism
• Crime
• Corruption
• Agent self-dealing
• Proprietary information
• Trade secrets (including business methods)
• Privacy regulations
 Geography

• Distance & Time Zone

• Climate
 Infrastructure

• Railroads, highways, rivers & canals,

airports, pipelines, utilities &
telecommunication:
– Availability
– Reliability
Global Ports

Source:
World Shipping Council
2014
Infrastructure
Yangshan Deep Water Port
One Road One Belt
Infrastructure Evaluation
 Cultural Differences
• Customs & language:
– Translators & guides?
• Values & personal philosophies
– Religious sensibilities
– Value of time
– Attitude toward social networks
• Universalism:
– USA most “universalist” society
 Examples

• Business etiquette
• Time orientation (e.g.: deadlines, NPV)
• Guanxi
• Wasta
• Saving face
 Cultural References

• Santa Claus Figurines

– Christmas decorations
• Chinese supplier:
– Reputation for high quality
– On-time shipment
– Great price
 Kluckhohn-Strodtbeck’s
Anthropology’s Framework
 Hofstede’s Dimensions

• Power Distance:
– Attitude toward power inequality
• Individualism:
– Self image as “I” or “we”
• Masculinity:
– Motivated by competition or
collaboration
 Hofstede’s Dimensions

• Uncertainty Avoidance:
– Attitude toward ambiguity & risk
• Long Term Orientation:
– Attitude toward “time-honored” traditions
• Indulgence:
– Control over desires & impulses
NAFTA
Asia
Europe
South America
Cross-Regional
 Expatriate Managers

• Major career move:

– Normally voluntary
– Why is the firm going overseas?
– Have risks & benefits been explored?
– Competencies & resources adequate?
– Personal risks & benefits?
Culture Shock Cycle

Burn out
 Cultural Training
• Work through case studies
• Communication skills:
– Repeat instructions in another medium
• Greeting protocols:
– Business cards & handshakes
– Small talk versus business first
• Business dining protocols:
– Cleaning your plate?
– Utensils & which hand to use
Leading with Limited Experience

• Let the experts be the experts

• Don’t rush to judgment
• Take all perspectives into account
• Give credit where it’s due
 Personal Thoughts

• Authentic & honest

• Curious & friendly
• Don’t pretend to be something you’re not
• Eat
 Expect the Unexpected

• Anaconda versus boa constrictor

• Import restrictions
Ease of Doing Business
Source: World Bank
Ease of Doing Business Metrics
• Starting a Business
• Dealing with construction permits
• Employing workers
• Registering property
• Getting credit
• Protecting investors
• Paying taxes
• Trading across borders
• Enforcing contracts
• Closing a business
Global Competitiveness 2013

Source: World Economic Forum

World Economic Forum
Competiveness Challenges
Country Examples