The project sponsor has approved the project schedule and communication ?matrix. It is now time to execute the project.? Instructions Write a 3?4

Project Management EIGHTH EDITION

Dennis Lock

GOWER

O Dennis Lock 2003

All rights reserved. No part of this publication may be r e p r o d u d , stored in a retrieval system, or transmitted in any fonn or by any means. electronic, mechanical, photocopying, recording or otherwise without the permission of the publisher.

First puhlished in 1968 Second edition 1977 Third edition 1984 Fourth edition 1988 Fifth edition 1992 Sixth edition 1996 Seventh edition 2000

This edition published by Gower Publishing Limited Gower House Cmft Road Aldershot Hampshire G u l l 3HR England

Gower Suite 420 101 Cherry Street Burlington Vermont 05401-4405 USA

Dennis Lock has asserted his right under the Copyright, Designs and Patents Act 1988 to be identified as the author of this work.

British Lihrary Cataloguing in Publication Data Lack, Dennis, 1929-

Project management. – 8th ed. 1. Project management I. Title 658.4'04

ISBN 6566-08578-X Hardback 0-5664855 1-8 Paperback

Library of Congress Cataloging-in-Publication Data Lock, Dennis.

Pmject managementi Dennis Lock.4th ed. p. cm.

ISBN 6 5 6 6 a 8 5 7 8 – X ISBN 0-566-0855 1-8 I. Project management. I. Title.

Typeset in Times by Bournemouth Colour Press, Poole and printed in Great Britain by MPG Books Ltd., Bodmin.

Contents

List of figures Preface to eighth edition Acknowledgements

… X l l l

xix xxiii

Part I The nature and organization of project management 1

Chapter 1 The nature and purpose of project management 3 Projects 4 The primary project objectives 6 Balancing the primary objectives 8 Perceptions of project success or failure beyond the three primary objectives 12 Customers, clients, contractors and end-users 15 Project life cycle 16 Associations representing the profession of project management 17

Chapter Project management organization Effective organization and communications The emergence of project management in a developing company Project matrix organizations Project teams and task forces Organization of central administration functions Which type of organization is best? The project manager Project services groups Organizations with more than one project manager

References and further reading for Part I 53

v i Pmject management

Part I1 The financial and commercial framework

Chapter 3 Defining the project Projects which are dtfficult or impossible to define Feasibili~ studies to improve early project definition Checklists Defining a project forfinancial appraisal Customer enquiries The contractor 5. specification and questions o f strategy Specifications for product development projects Developing and documenting the project specification

Chapter 4 Cost estimates, Part 1: Definitions and principles Cost definitions and principles Estimating accuracy Classification of estimates according to confidence Estimating accuracy in relation to prices and profits Version control of project cost estimates Work breakdown structure Cost-coding systems Benefits of a logical coding system Choosing a coding system What happens when the customer says 'You shall use my coding system!'?

Chapter 5 Cost estimates, Part 2: Estimating in practice Top-down or bottom-up? Compiling the task list Level of detail in project cost estimating Estimating formats Estimating manufacturing costs Collecting estimates for labour times Personal estimating characteristics Estimates for material and equipment costs Below-the-line costs Reviewing the cost estimates

Chapter 6 Commercial management Project.feasibility analysis Financial project appraisal SensitiviQ analysis Project funding Contracts Contract payment structures

References and further reading for Part I1

Part III Planning and scheduling 157

Chapter 7 An introduction to planning and scheduling The planning and scheduling environment Distinction between planning and scheduling The planning time frame Matrix charts Simple tabular planning (timetables) Bar charts (Gantt charts) Line o f balance charts

Chapter 8 Network analysis: Logic diagrams and the critical path Background The different network notation systems Critical path analysis using arrow diagrams Critical path analysis using precedence notation Case study: Furniture project Case study: Gantry project PERT More complex network notation

Chapter 9 Network analysis in practice Developing network logic Level of detail in network planning Intevface events and activities Milestones Estimating activity durations I s the timescale shown too long? A case jbr drawing networks from right to left Network analysis as a management tool

Chapter 10 Scheduling resources, Part 1: Principles What are resources and which of them can he scheduled? The role of network analysis in resource scheduling Case study: Garage project Float Two fundamental priority rules for resource scheduling Summary: The elements of a practicable schedule

Chapter 11 Scheduling resources, Part 2: In practice Choice of labour resources to be scheduled Choice of resource units Rate-constant and nun-rate-constant use of resources Specifying resource availability levels Using different calendars for resource scheduling

. . . vrrr Project management

Scheduling labour costs 263 Scheduling costs for materials and other purchases 263 Scheduling cash flow 266 The seven steps of project resource scheduling 270 Project scheduling in the corporate context 272

References and further reading for Part I11 275

Part IV Computer applications 277

Chapter 12 Project management computer systems, Part 1 : Preparation 279 Scheduling with or without a computer 279 Facilities required 282 System requirements 284 Choosing a suitable computer program 286 Special network logic requirements for computer applications 293 Preparing for the first computer schedule 293

Chapter 13 Project management computer systems, Part 2: Typical applications The welcoming screen Case study project Data entry errors Network plotting Time analysis of the garage project network Resource scheduling: The general process Resource scheduling for the garage project Output reports Updating

Chapter 14 Project management computer systems, Part 3: Specialized applications 329 Dealing with large networks 329 Multi-project resource scheduling 332 Standard networks 341 Templates (standard network modules) 343 Programs for probability and risk analysis 352 SofnYare sources 357

Part V Purchasing and materials management 359

Chapter 15 Scheduling parts for manufacturing projects 361 Parts scheduling compared with project scheduling 36 1

Identifying and quantlfling common parts Filing cabinet project Line of balance Computer solutions

Chapter 16 Purchasing, Part 1: Principles and initial ordering The importance of purchasing and materials control The purchasing cycle The purchase order Commercial conditions of purchase Terms of trade used in international business (Incoterms 2000) Speczfying the goods Timing of orders and deliveries Purchase quantities

Chapter 17 Purchasing, Part 2: Post-order activities and wider aspects of materials control Purchase order amendments Expediting Shortages The Pareto principle and stock management Project or stock purchasing? Project purchasing as a condition of contract Stores administration Materials management as a shared or common service

Chapter 18 hrchasing, Part 3: Procedures for capital projects The purchasing organization Purchase control schedules Purchase specifications Purchase enquiries Bid evaluation Purchase requisitions and orders Correlation between specification, enquiry and order numbers Assuring quality and progress Vendors' documents Shipping, port and customs formalities Purchase order status reports

References and further reading for Part V

x Project management

Part VI Managing work and costs

Chapter 19 Managing project start-up Project authorization Authorizing work without a contract or customer S order Preliminary organization of the project Correspondence and other documents Project engineering standards and procedures Physical preparations and organization Getting work started Issuing detailed planning and work instructions

Chapter 20 Managing progress Project progressing as a closed-loop control system Routine collection of progress data The non-routine approach to progressing Managing subcontractors and agency employees Routine priority allocation in manufacturing projects When the news is had Corrective measures Immediate action orders Haste versus good management Construction site organization and management Conduct of project meetings Progress meetings Progress meetings abandoned Project progress reports

Chapter 21 Managing Costs Objectives of project cost management A checklist of cost management,factors The total cost approach Budgets Cost-collection methods Audits Comparing actual costs with planned costs

Chapter 22 Earned-value analysis Milestone analysis Earned-value analysis Earned-value analysi.~ prediction reliability and implications Evaluating cost performance for materials and bought-out equipment Eflect of project changes on earned-value analysis The project ledger concept

Predicting profitability for the whole project Post mortem

Chapter 23 Managing project changes Classification o f changes ~uthoiization arrangements General administration Estimating the true cost of a change Forms and procedures Version conrol for modified drawings and specifications Emergency modifications

Chapter 24 Managing project risk Identifiing and assessing risks Methods,for dealing with risks Insurance Planning for a crisis

Chapter 25 Managing project closure Reasons,for closing a project Formal project closure Final project cost records Disposal of surplus material stocks Final project definition: The end of a continuous process As-built condition of a manufacturing or capital engineering project As-built condition of a multiple manufacturing project As-built condition of a project that is interrupted before completion Managing files and archives

References and further reading for Part VI

A general project management bibliography 609

Index 613

Figures

Triangle of objectives: Version 1 Triangle of objectives: Version 2 Example of a stakeholders' objectives matrix Examples of project relationships Typical project life history Example of a manufacturing company organization A manufacturing project cycle A functional matrix for a single project in a manufacturing company Matrix organization for several simultaneous manufacturing projects Matrix organization for a company engineering mining, petrochemical or large construction projects Project team organization Project team versus a balanced matrix A hybrid organization A project with more than one project manager The project definition process Part of a definition checklist for a new project A screening and action plan for new sales enquiries Cost and price structure for a simple manufacturing project Example of labour grades for standard costing in a project engineering company Part of the work breakdown for a large mining project Work breakdown for a project to build a new railway Work breakdown and cost-coding structure for a small radiocommunications project Detail from the work breakdown for the radiocommunications project Project coding system used by a heavy engineering company

xiv Pr oject munagement

Project coding system used by a mining engineering company 101 A general-purpose cost estimating format 112 Cost estimating format for purchased materials on large projects 114 A format for indicating project price 116 Boiler replacement project: Payback calculation 132 Boiler replacement project: Payback graphs 133 Table of discount factors for calculating net present values 135 Boiler replacement project: Net present value calculation 136 Tollbridge project: net present value calculation 138 Relationship between the basis of payment and project control emphasis 151 The planning and scheduling environment 160 Simple matrix chart for planning and controlling a book editing project 166 Four possible matrix chart arrangements 167 A simple bar chart 170 Furniture project task list 173 Furniture project: Bar chart 175 Furniture project: Linked bar chart 176 Five-house project: Bar chart 178 Five-house project: Line of balance chart 179 Eighty-house project: Line of balance chart 180 The main elements of arrow logic 185 Tree project network using arrow notation 186 An example of arrow network time analysis 188 Three methods for showing times on arrow networks 191 An activity in precedence notation 192 Tree project using precedence notation 194 An example of precedence network time analysis 195 Furniture project: Task list 197 Furniture project: Activity-on-arrow network diagram 198 Furniture project: Precedence network diagram 199 Furniture project: T i e analysis 200 Gantry project 202 Gantry project: Network diagram 203 Gantry project: Time analysis 204 Gantry project: Possible crash actions to shorten the project duration 207 Methods for showing overlapping activities in arrow and precedence networks 210 Constraint options in precedence networks 212 Using dummies to clarify cluttered logic 213 A common logic error in arrow networks 218 Level of detail in a purchasing sequence 222

Network interfaces Garage project: Network diagram Garage project: Task list and time analysis Garage project: Bar chart and resource histogram – aggregation Garage project: Bat chart and resource histogram – resource-limite Garage project: Bar chart and resource histogram – time-limited Garage project: Float analysis of activity GO913 (09-13) Garage project: Float analysis of activity G1016 (10-16) Time-limited versus resource-limited priority rules for resource scheduling Cash outflow schedule Net cash flow schedule Essential elements of a project net cash flow schedule The complexity of project resource scheduling Seven logical steps towards a project resource schedule Suggested procedure for buying project management software Checklist for use when buying project management software Suggested procedure for implementing new project management software Garage project: Precedence network diagram Garage project: Cost estimates Garage project: Data errors Garage project: Summary network plotted by 4c Garage project: Time analysis from Microsoft Project 2000 Garage project: Time-limited resource histograms by Pnmavera Garage project: Resource-limited resource histograms by Pnmavera Garage project: Cost report by Primavera Garage project: A useful resource and cost summary Rolling wave planning Breaking down a large project plan into sub-networks Managing a multi-project model Transfer line machine project: An early example of a standard network module (template) Transfer line machine project: Procurement and machining tem~late –

14.6 Ternplating case study: The template library principle 14.7 Temulatine case study: The standard start template

TCSAA and template A 14.8 Ternplating case study: Template D and the

standard finish template TCSFF 14.9 Templating case st;dy: The template Library browser 14.10 Templating case study: Network diagram

mi Project management

14.11 Templating case study: A network fragment 35 1 14.12 Templating case study: Bar chart produced by 4c 353 14.13 Garage project: Duration estimates for

PERT or Monte Carlo analysis 355 14.14 Garage project: Monte Carlo analysis 356 15.1 Filing cabinet project: Exploded view 364 15.2 Filing cabinet project: Simple parts list 365 15.3 Filing cabinet project: Family tree 367 15.4 Filing cabinet project: Parts list arranged in sub-assemblies 368 15.5 Filing cabinet project: Delivery data 369 15.6 Filing cabinet project: Family tree redrawn for line of balance 370 15.7 Filing cabinet project: Calculation of lead times for parts 371 15.8 Filing cabinet project: Delivery commitment graph 372 15.9 Filing cabinet project: Calculation for line of balance at day 4 373 15.10 Filing cabinet project: The line of balance at day 4 375 15.11 Filing cabinet project: The line of balance chart completed for day 4 376 16.1 Value of purchasing in project management 380 16.2 The purchasing cycle 381 16.3 Elements of a typical purchase order form 385 17.1 A shortage list format 399 17.2 Three methods for recording the costs of project materials 403 18.1 Elements of a purchasing organization for a large international

project 412 18.2 Stages in the purchase of equipment for a large international project 414 18.3 Page heading for sheet 1 of a purchase control schedule 417 18.4 A complete purchase control schedule 418 18.5 A purchase specification: Front sheet 42 1 18.6 A purchase specification: Second sheet 422 18.7 A purchase specification: Continuation sheet 423 18.8 A purchase enquiry request 425 18.9 A bid summary example 428 18.10 A purchase requisition 43 1 18.11 An inspection and expediting report 434 19.1 A project register page 447 19.2 Works order 450 19.3 Project authorization 45 1 19.4 Typical cost-time relationship 452 19.5 Linear responsibility matrix 455 19.6 Document distribution matrix 456 19.7 A standard start-up network for a manufacturing project 464 20.1 A familiar sign 469 20.2 A control loop 47 1 20.3 A combined work-to list and progress questionnaire 473 20.4 Immediate action order 486 20.5 A construction site organization 492

A combined meeting agenda and action sheet A weekly timesheet Comparison of actual costs against a time-scaled budget Project cost and achievement comparison using milestones Data for a milestone chart Earned-value analysis for an engineering department A cost-profit prediction graph A tabulated project cost report Some origins of project changes Decision tree for change requests A general-purpose change register Car project: Estimated modification cost Project variation order Engineering change request Production permit or concession Engineering query note Inspection report format An Ishikawa fishbone diagram Part of a simple failure mode and effect matrix (FMEA) A very simple risk classification matrix A simple qualitative risk assessment matrix Part of a failure mode effect and criticality analysis matrix (FMECA) Risk and insurance in project management Project closure notice with checklist Column headings for a drawing schedule A build schedule sheet

Preface to the eighth edition

Once, some time ago, my fellow day-release management students and I were invited to write a 5000-word assignment as part of our fist-year course work. Most of my colleagues spent many hours and late nights diligently researching this or that aspect of industry, marketing or economics for their material. Always keen to save time and effort, however, I chose to describe my own job. I think the result received an 'A-minus' but, more importantly, it seeded the first (1968) edition of this book. Now, after many subsequent years as a manager, I teach project management to MBA and MSc students. So a book originally written by a management student has been developed and improved through my management years and is now written very much with the needs of students in mind.

Project management is well supported in the literature. Excellent texts appear regularly in new editions that combine comprehensive theory with practical advice and case studies. Sometimes one or more of these admirable works are used alongside this book as recommended course texts. I am always pleased when students tell me that they prefer my book because they find it particularly approachable and easy to read. Of course, when the warm glow of satisfaction has subsided, I try to analyse the reasons and build on them. My abhorrence of unnecessary jargon and 'management speak' must be one reason. A writer must always seek to inform using plain language rather than set out to impress with words that compel the reader to have the book in one hand and a dictionary in other. So writing style is obviously important. But the text must also be easy to navigate. Readers, especially time-starved students on intensive courses, must be able to find or revisit any topic quickly. Some otherwise excellent books fall down in this respect. The chapters have to be organized in a logical sequence and, most important, everything must be comprehensively indexed.

My sequence of chapters has always been intended to track the logical progression of a project through its active life cycle from concept to closedown. There might be one or two anomalies in this respect because I have generally held back from significant restructuring that could cause inconvenience and rework for universities and other academic establishments where this book forms part of the recommended reading and where their course notes refer to particular chapters. It

u Project mnnagement

was necessary, however, to rearrange the chapters in Part VI to some extent to accommodate a new chapter on risk management. The total number of chapters has increased from 24 to 25.

Reproduction of very complex illustrations (large network diagrams, for instance) is not very practicable on a book page so, once again, I have reviewed every figure to ensure that it is designed and drawn for optimum clarity. The seventh edition introduced a few images captured from my computer screen that lost some definition in the printing process. All computer screen images have therefore been replaced in this edition by faithful simulations, prepared using a drawing program.

Text revisions are too numerous to list in detail, so I shall outline just a few of the more significant changes. These begin in Chapter 1, which has been extended to give more emphasis to the views of stakeholders beyond the project owner and project manager. The more mature view recognizes that the perceived success or failure of a project often depends on more than the three primary factors of time, money and quality.

Chapter 3 has been restructured to present its material in a more logical sequence.

The section on insurance that was previously placed in Chapter 6 has been updated (for which I am indebted once again to Robert Pow) and transferred to become part of Chapter 24, the completely new chapter dealing with project risk management. A new financial appraisal example, improved treatment of feasibility analysis and a short section on sensitivity analysis now strengthen the remainder of Chapter 6.

Some manual procedures, especially in the planning and resource scheduling chapters, have been removed because they are now well out of date and almost always performed using computers. While arrow networks can still play a valuable part in preliminary planning sessions and are therefore retained in Part 111, the last computer program known to me that could process these networks has recently been changed to a precedence-only capability. I have therefore updated all the examples in Part IV accordingly.

Following the format of previous editions, each part of this book ends with a short list of references and further reading. These have all been checked and, where appropriate, revised. For this eighth edition I have decided to add a general bibliography of books on project management.

Preface to the eighth edition xxi

Although an author might write with a particular readership in mind, he or she has no control over who buys and uses their work. Early editions of this book were intended for students and fellow industrial managers who might appreciate a practical and holistic guide to project management. Experience has since revealed a readership that extends to professional people with no apparent connection to industry or projects, demonstrating that project management has grown into a core management skill, to be practised in any organization and by any professional person undertaking a programme of change.

Dennis Lock St Albans

2002

Acknowledgements

I am grateful to the following people and organizations who have helped in different but valuable ways in the preparation of this edition.

4c Systems Limited Association for Project Management Microsoft Corporation Primavera Robert Pow Martin Stevens Welcom Software

Artemis Kews is a registered trademark. Microsoft Project, Microsoft Project 98, Microsoft Project 2000 and Microsoft

Project 2002 are registered trademarks and Windows is a trademark of Microsoft Corporation.

Open Plan, Open Plan Professional, COBRA and OPERA are registered trademarks of Welcom Software Corporation.

PMI and the PMI logo are service and trademarks registered in the United States and other nations.

PMBOK, PM Network and PMI Today are trademarks registered in the United States and other nations.

Project Management Journal and 'Building professionalism in project management' are trademarks of the Project Management Institute, Inc.

Primavera Project Planner is a registered trademark. 4c is a trademark of 4c Systems Limited.

Part I

The nature and organization of

project management

The nature and purpose of project management

Project management as we know it today has evolved in order to plan, coordinate and control the complex and diverse activities of modern industrial, commercial and management change projects.

Clearly, man-made projects are not new; monuments surviving from the earliest civilizations testify to the incredible achievements of our forebears and still evoke our wonder and admiration. Modern projects, for all their technological sophistication, are not necessarily greater in scale than some of those early mammoth works. But economic pressures of the industrialized world, military defence needs, competition between rival companies, and greater regard for the value and well-being (and hence the employment costs) of working people have all led to the development of new ideas and techniques for managing projects.

All projects share one common characteristic – the projection of ideas and activities into new endeavours. The ever-present element of risk and uncertainty means that the events and tasks leading to completion can never be foretold with absolute accuracy. For some very complex or advanced projects even the possibility of successful completion might be in serious doubt.

The purpose of project management is to foresee or predict as many of the dangers and problems as possible and to plan, organize and control activities so that projects are completed as successfully as possible in spite of all the risks. This process starts before any resource is committed, and must continue until all work is finished. The primary aim of the project manager is for the final result to satisfy the project sponsor or purchaser, within the promised timescale and without using more money and other resources than those that were originally set aside or budgeted.

Much of the development in project management methods took place in the second half of the twentieth century, spurred by impatient project purchasers (who wanted their projects finished quickly so that their investments could be put to profitable use as soon as possible). Competition between nations for supremacy in weapons and defence systems played a significant role in the development of project management techniques, and the process has been accelerated by the widespread availability of powerful, reliable and cheap computers. Project

4 The nature and organization ofproject management

management is more effective when it makes appropriate use of these sophisticated techniques and facilities and, in this sense, is a highly specialized branch of management.

Planning and control must, of course, be exercised over all the activities and resources involved in a project. The project manager therefore needs to understand how all the various participants operate, and to appreciate (at least in outline) their particular skills, working methods, problems and weaknesses. This demands a fairly wide degree of general experience so that, in this practical sense, project management is akin to general management.

A software house once advertised its wares with the claim: 'If you can move a mouse you can manage a project'. Most people realize, however, that there is far more to project management than the application of a few computer programs, no matter how sophisticated those programs might be. Successful project management involves a whole framework of logical and progressive planning and decisions, perceptiveness, the liberal application of common sense, proper organization, effective commercial and financial management, painstaking attention to documentation, good communication skills and a clear grasp of proven and long-established principles of management and leadership.

Projects

The principal identifying characteristic of a project is its novelty. It is a step into the unknown, fraught with risk and uncertainty. No two projects are ever exactly alike: even a repeated project will differ from its predecessor in one or more commercial, administrative or physical aspects.

I find it convenient to classify projects under four main headings.

1 Civil engineering, construction, petrochemical, mining and quarrying

Projects in this category are those which spring to mind most readily whenever industrial projects are mentioned. One common feature is that the fulfilment phase must be conducted on a site that is exposed to the elements, and usually remote from the contractor's head office.

These projects incur special risks and problems of organization. They often require massive capital investment, and they deserve (but do not always get) rigorous management of progress, finance and quality.

For very large industrial projects the funding and resources needed are often too great for one contractor to risk or even find. The organization and communications are therefore likely to be complicated by the participation of many different specialists and contractors, with the main players possibly acting together as a consortium or joint venture company.

The nature and purpose of project managemenf 5

2 Manufacturing projects

Manufacturing projects aim to produce a piece of equipment or machinery, ship, aircraft, land vehicle or some other item of specially designed hardware. The finished product might be purpose-built for a single customer, or the project could be generated and funded from within a company for the design and development of a new product intended for subsequent manufacture and sale in quantity.

Manufacturing pr

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