TEAMFLY Team-Fly ® Preparing for the Project Management Professional (PMPா) Certification Exam 9618$$ $$FM 09-06-02 14:57:59 PS 9618$$ $$FM 09-06-02 14:57:59 PS This Page Intentionally Left Blank Preparing for the Project Management Professional (PMPா) Certification Exam Second Edition Michael W. Newell, PMP, ENP American Management Association New York • Atlanta • Brussels • Buenos Aires • Chicago • London • Mexico City San Francisco • Shanghai • Tokyo • Toronto • Washington, D.C. 9618$$ $$FM 09-06-02 14:58:00 PS Special discounts on bulk quantities of AMACOM books are available to corporations, professional associations, and other organizations. For details, contact Special Sales Department, AMACOM, a division of American Management Association, 1601 Broadway, New York, NY 10019. Tel.: 212-903-8316 Fax: 212-903-8083 Web site: www.amacombooks.org This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. ‘‘PMI’’ and the PMI logo are service and trademarks registered in the United States and other nations; ‘‘PMP’’ and the PMP logo are certification marks registered in the United States and other nations; ‘‘PMBOK’’, ‘‘PM Network’’, and ‘‘PMI Today’’ are trademarks registered in the United States and other nations; and ‘‘Project Management Journal’’ and ‘‘Building professionalism in project management’’ are trademarks of the Project Management Institute, Inc. Library of Congress-Cataloging-in-Publication Data Newell, Michael W., 1945– Preparing for the project management professional (PMP) certification exam / Michael W. Newell.—2nd ed. p. cm. Includes bibliographical references and index. ISBN 0-8144-7172-2 (pbk.: alk. paper) 1. Project management—Examinations, questions, etc. I. Title. HD69.P75 N49 2002 658.4Ј04Ј076—dc21 2002010223 ᭧ 2002 Michael W. Newell. All rights reserved. Printed in the United States of America. This publication may not be reproduced, stored in a retrieval system, or transmitted in whole or in part, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of AMACOM, a division of American Management Association, 1601 Broadway, New York, NY 10019. Printing number 10987654321 9618$$ $$FM 09-06-02 14:58:00 PS This book is dedicated to my wife, Saralee, who corrects my spelling and puts up with all my foolishness. 9618$$ $$FM 09-06-02 14:58:01 PS 9618$$ $$FM 09-06-02 14:58:01 PS This Page Intentionally Left Blank Contents Preface xv Introduction 1 What Is Project Management Anyway? 2 Advantages of Project Management 6 Organizing for Project Management 7 The Projectized Organization 7 The Traditional Organization 9 The Matrix Organization 10 The Project Office 12 How the Project Manager Makes Projects Successful 13 The Project Life Cycle 14 Project Processes 14 Summary 15 1. Scope Management 16 Initiation of the Project 17 Project Charter 17 Constraints and Assumptions 18 Who Are Those Stakeholders? 18 Cost and Its Relationship to Price 19 Overbid or Underbid: Which Is Better for Your Company? 20 Getting to the Scope Baseline 23 Work Breakdown Structure 25 Systems Approach to Work Breakdown Structure 28 Additional Project Breakdown Structures 30 Change Management 30 Project Justifications 31 The Break Even Chart 32 Problems with Break Even Charts 33 Average Rate of Return on Investment 34 Present Value of Money 34 Internal Rate of Return on Investment 39 Summary 44 vii 9618$$ CNTS 09-06-02 14:58:10 PS viii Contents 2. Time Management 46 Activity Definition 46 Activity Sequencing 47 Activity on Arrow Diagramming 48 Precedence Diagramming Method (PDM) 49 Logical Relationships 50 Finish-Start Relationship (FS) 50 Start-Start Relationship (SS) 52 Finish-Finish Relationship (FF) 53 Start-Finish Relationship (SF) 53 Leads and Lags 54 Diagramming Relationships 55 Project Start and Project Finish Events 55 Logical Precedence Diagram 56 Activity Durations 56 Building the Network Diagram 57 Buffering the Schedule 63 Reverse Resource Allocation Scheduling 67 Critical Path Method (CPM) 67 Program Evaluation and Review Technique (PERT) 68 Monte Carlo Simulation 73 The Simulation 74 Output from the Monte Carlo Simulation 75 Summary 75 3. Cost Management 77 Why We Need Cost Management 77 Project Life Cycle and Project Cost 78 Using the Work Breakdown Structure 78 Cost Estimating 79 Types of Estimates 80 Top Down Estimates 80 Bottom Up Estimates 80 Analogous Estimates 80 Parametric Estimates 81 Definitive Estimates 81 Cost Budgeting 83 9618$$ CNTS 09-06-02 14:58:11 PS ixContents Cost Control 85 Earned Value Reporting 85 Cumulative Reporting 85 Earned Value Parameters 86 Difficulties in Data Collection 87 Reporting Work Complete 89 Examples 89 Calculated Values for Earned Value Reports 90 Financial Measures 94 Return on Sales 97 Return on Assets 98 Economic Value Added 99 Depreciation 100 Straight Line Depreciation 100 Accelerated Depreciation 101 Sum of the Years’ Digits 101 Double Declining Balances 102 Summary 102 4. Human Resources Management 104 Project Manager Roles and Responsibilities 104 Strong Matrix, Weak Matrix, and Balanced Matrix 106 Strong Matrix 106 Weak Matrix 106 Balanced Matrix 108 Making Matrix Management Work 109 Personnel and Personal Evaluations 109 Motivation 110 Importance of Motivation 110 Industrial Revolution 110 Scientific Management 111 Learning Curve Theory 111 Depression Era 112 World War II 112 Post–World War II 112 Motivational Ideas 112 Procedures versus Motivation 113 Expectancy Theory 113 Maslow’s Hierarchy of Needs Theory 115 Hertzberg’s Motivation/Hygiene Theory 117 9618$$ CNTS 09-06-02 14:58:11 PS [...]... the project does not meet or exceed the benefits received from doing the project At this phase of the project there is little known about the project Project Processes In the Guide to the Project Management Body of Knowledge, the basic project management processes are discussed This approach to finding a way to look at the project management process uses the systems management approach to project management. .. company using project management methods We hope to encourage the use of project management in all businesses with this book, and we hope to encourage and help project managers learn more about the Guide to the Project Management Body of Knowledge (PMBOK௡) and pass the Project Management Professional (PMP௡) examination If the professional organization for project managers, the Project Management Institute... If project management is practiced using the methodology outlined in this book and the Project Management Institute’s Guide to the Project Management Body of Knowledge, you will become a good project manager Learning project management is more than studying a book or even a group of books Project management must also be learned in the field with experience and exposure to real responsibility on real projects... teamwork and participative management have been around for that long as well What project management as a profession does is draw these tools together into a homogeneous whole and forge them into a new tool that produces reliable results in the management of projects What Is Project Management Anyway? TE The Guide to the PMBOK defines project management as follows: ‘ Project Management is the application... closeout phase of the project we must have cost information to close out the accounts and make sure that all of the bills associated with the project are paid In each of the knowledge areas, integration management, scope management, time management, cost management, quality management, human resources management, communications management, risk management, and contracts and procurement management, it can... trying to do Advantages of Project Management Project management brings together many of the things that are needed to make endeavors like projects successful But what do we mean by a successful project? A successful project is one that meets or exceeds the expectations of the stakeholders in the project By organizing the project in a way that concentrates the efforts of the project team in the direction... can be brought to a project when needed Projects always have limited resources, but sometimes there are projects where the cost and amount of resources seem to be unlimited Projects like the Apollo Project in the 1960s and the Manhattan Project in the 1940s come to mind, but even these projects had some resource constraints on them To the project manager that is trying to get a project completed with... work of the project has been accomplished Some projects will end when for various reasons it has been decided to abandon the project or stop work on it This is generally because the goals of the project cannot be practically achieved Introduction 3 Some distinction is made between the terms project and program Most project managers feel that the project management profession can manage projects of... as well as in the projects The type of organization, where there is a balance of power between the functional managers and the project managers, is called a balanced matrix organization The Project Office TE ‘ Project office’’ is a term that has come into use in the past few years It should be noted that the project office is different than the ‘ project management office.’’ The project management office... project team, the work of the project is coordinated through a project manager who is in close contact with the client and stakeholders This allows the project manager to focus the project team on the completion of the project The project manager and his or her team are able to focus on the goals of the project with relatively little distraction To the project team, this project is the main thing in . Introduction 1 What Is Project Management Anyway? 2 Advantages of Project Management 6 Organizing for Project Management 7 The Projectized Organization. and the Project Management Institute’s Guide to the Project Management Body of Knowledge, you will become a good project manager. Learning project management