Project Management for Business,
Engineering, and Technology
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Project Management
for Business, Engineering,
and Technology
Principles and Practice
3RD EDITION
John M. Nicholas
Loyola University Chicago
Herman Steyn
University of Pretoria
AMSTERDAM • BOSTON • HEIDELBERG • LONDON • NEW YORK • OXFORD
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9 Project Quality Management 332
10 Managing Risks in Projects 362
11 Project Execution and Control 404
12 Project Evaluation, Communication, Implementation, and
Closeout 452
PART IV: ORGANIZATION BEHAVIOR 479
13 Project Organization Structure and Integration 481
14 Project Roles, Responsibility, and Authority 517
15 Managing Participation, Teamwork, and Conflict 545
PART V: PROJECT MANAGEMENT IN THE
CORPORATE CONTEXT 575
16 The Management of Project Management 577
17 Project Selection and Portfolio Management 604
18 International Project Management 628
Author Index 691
Subject Index 694
vi
CONTENTS
Preface xvii
Acknowledgments xx
About the Authors xxi
Introduction xxiii
I.1 In the Beginning xxiii
I.2 What Is a Project? xxvi
I.3 Project Management: The Need xxviii
I.4 Response to a Changing Environment xxx
I.5 Systems Approach to Management xxx
I.6 Project Goal and Project Management Benefits xxxi
I.7 Project Management: The Person, the Team,
the Methodology xxxii

2.3 Systems Concepts and Principles 34
2.4 Human Organizations 39
2.5 Systems Approach 43
2.6 Systems Engineering 47
2.7 Relevancy of the Systems Approach to Project Management 51
2.8 Summary 52
Appendix: Stages of Systems Engineering 53
Stage 1: Needs Identification and Conceptual Design 54
Stage 2: Preliminary Design 59
Stage 3: Detailed Design and System Development 64
Stage 4: System Construction and/or Production 66
Stage 5: System Operation and Support 67
Review Questions 68
Questions About the Study Project 69
Case 2-1 70
Endnotes 71
PART II: SYSTEMS DEVELOPMENT CYCLE 73
CHAPTER 3 Systems Development Cycle and Project Conception 75
3.1 Systems Life Cycle 76
3.2 Systems Development Cycle 77
3.3 Phase A: Conception 82
3.4 Project Feasibility 83
3.5 Project Charter 93
3.6 The Project Proposal 94
3.7 Project Contracting 100
3.8 Summary 106
Appendix: Kinds of Contracts 107
Fixed Price Contracts 108
Cost-Plus Contracts 109
Incentive Contracts 110

5.6 Scheduling 176
5.7 Planning and Scheduling Charts 177
5.8 Line of Balance 183
5.9 Procurement Management 187
5.10 Summary 190
Review Questions 190
Questions About the Study Project 192
Case 5-1 193
Case 5-2 194
Endnotes 194
ix
Contents
x
CHAPTER 6 Project Time Planning and Networks 196
6.1 Networks Diagrams 197
6.2 The Critical Path 202
6.3 Gantt Charts and Calendar Schedules 210
6.4 Management Schedule Reserve 211
6.5 Precedence Diagramming Method 212
6.6 Scheduling with Resource Constraints 217
6.7 Criticisms of Network Methods 225
6.8 Summary 225
Appendix: AOA Diagrams and Time-Scaled Networks 227
Review Questions and Problems 231
Questions About the Study Project 238
Endnotes 239
CHAPTER 7 Advanced Project Network Analyses and Scheduling 240
7.1 CPM and Time–Cost Tradeoff 240
7.2 Variability of Activity Duration 247
7.3 PERT 249

9.1 The Concept of Quality 332
9.2 The Processes of Project Quality Management 336
9.3 Techniques for Quality Assurance during System Development 341
9.4 Processes and Techniques for Quality Control 351
9.5 Summary 357
Review Questions 357
Questions and Assignments Regarding the Study Project 358
Case 9-1 359
Endnotes 360
CHAPTER 10 Managing Risks in Projects 362
10.1 Risk Concepts 363
10.2 Risk Identification 364
10.3 Risk Assessment 369
10.4 Risk Response Planning 378
10.5 Risk Tracking and Response 383
10.6 Project Management is Risk Management 383
10.7 Summary 387
Appendix: Risk Analysis Methods 388
Review Questions and Problems 394
Questions About the Study Project 397
Case 10-1 398
Case 10-2 399
Case 10-3 400
Endnotes 402
CHAPTER 11 Project Execution and Control 404
11.1 Phase C: Execution 405
11.2 Design Stage 405
11.3 Production/Build Stage 409
11.4 The Control Process 411
11.5 Project Monitoring 412

12.10 Project Terminating and Closeout 468
12.11 Closing the Contract 470
12.12 Project Summary Evaluation 471
12.13 After the Project—Phase D: Operation 474
12.14 Summary 475
Review Questions 476
Questions About the Study Project 477
Endnotes 477
PART IV: ORGANIZATION BEHAVIOR 479
CHAPTER 13 Project Organization Structure and Integration 481
13.1 Formal Organization Structure 482
13.2 Organizational Design by Differentiation and Integration 483
13.3 Requirements of Project Organizations 485
Contents
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13.4 Integration of Subunits in Projects 486
13.5 Liaison Roles, Task Forces, and Teams 487
13.6 Project Expeditors and Coordinators 488
13.7 Pure Project Organizations 490
13.8 Matrix Organizations 493
13.9 Selecting an Organization Form for Projects 496
13.10 Project Office 499
13.11 Integration in LSPs 501
13.12 Integration in Systems Development Projects 505
13.13 Concurrent Engineering 507
13.14 Summary 511
Review Questions 512
Questions About the Study Project 513
Case 13-1 513
Case 13-2 514

15.13 Stress Management 568
15.14 Summary 569
Review Questions 570
Questions About the Study Project 571
Case 15-1 572
Endnotes 572
PART V: PROJECT MANAGEMENT IN THE
CORPORATE CONTEXT 575
CHAPTER 16 The Management of Project Management 577
16.1 Project Management Methodology 578
16.2 Project Management Maturity and Maturity Models 584
16.3 Knowledge Management in Project Management 587
16.4 Project Management Office 593
16.5 Summary 598
Review Questions 599
Questions About the Study Project 600
Case 16-1 600
Endnotes 602
CHAPTER 17 Project Selection and Portfolio Management 604
17.1 Project Portfolio Management 605
17.2 Framework for Project Selection and Portfolio Management 607
17.3 Methods for Individual Project Analysis 610
17.4 Methods for Comparing and Selecting Projects 613
17.5 Periodic Project Review and Assessment 621
17.6 Integrating the Gating Process with Portfolio Management 621
17.7 Summary and Discussion 621
Review Questions and Problems 622
Question About the Study Project 625
Case 17-1 625
Endnotes 626

Distribution Company 663
1 Cover Sheet 663
2 Executive Summary 664
3 Statement of Work 665
4 Budget and Price (Project Price: $14,413,905) 669
5 Project Organization and Management Plan 669
6 Qualifications and Key Personnel 670
7 Attachments 671
Appendix C Project Master Plan for Logistical Online System 672
Contents 672
Logistical Online System Project Summary Plan 675
I Management Summary 675
II Project Description 675
III Organization Section 678
IV Technical Section 683
Author Index 691
Subject Index 694
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PREFACE
When people see something impressive—a bridge arching high over a canyon, a
space probe touching down on a distant planet, a graceful curlicue ramp on a free-
way, a motion picture (so real you think you ’ re there!), or a nifty computer the size
of your hand—they wonder “ how did they do that? ” By they , of course, they are
referring to the creators, designers, and builders, the people who thought up and
actually made those things. Seldom do they wonder about the managers , the people
who organized and lead the efforts that brought those wondrous things from a con-
cept or idea into reality and without whose talent, skills, and hard work most neat
ideas would never amount to anything. This book is about the managers—project
managers, the mostly unsung heroes of business and technology who stand outside
the public eye but are behind practically every collective effort to create, develop, or

you would pick up the “ other ” necessary skills. The flaw in this reasoning is that
project management encompasses a broad range of skills—managerial, leadership,
xvii
Preface
xviii
interpersonal—that are much different and independent of skills associated with
technological competency. And there is no reason to presume that the project envi-
ronment alone will provide the opportunity for someone to “ pick up ” these other
necessary skills.
As a text and handbook, this book is about the “ right ” way to manage projects.
It is intended for advanced undergraduate and graduate university students, and
for practicing managers in business, engineering, and technology. As the title says,
it is a book about principles and practice, meaning that the topics in it are practical
and meant to be applied. It covers the big picture of project management—origins,
applications, and philosophy, as well as the nitty-gritty, how-to steps. It describes
the usual project management topics of schedules, budgets, and controls, but also
the human side of project management, including leadership and conflict.
Why a book on business, engineering, and technology? In our experience, techni-
cal specialists such as engineers, programmers, architects, chemists, and so on, often
have little or no management training. This book, which includes many engineering
and technology project examples, provides somewhat broad exposure to relevant
business concepts and management specifics to help these specialists get started as
project managers.
What about those people involved in product-development, marketing,
process-improvement, and related projects commonly thought of as “ business
projects ” ? Just as students of engineering and technology seldom receive formal
management training, rarely are business students exposed to common practices
in technology projects. This book reveals not only how “ business ” projects are con-
ducted, but also concepts and necessary steps in the conception and execution of
engineering, construction, and other kinds of “ technology ” projects.

and case studies of projects and project managers. Chapter 2 includes new material
and a new appendix on systems engineering. Chapters 3 and 4 have new coverage of
front-end topics such as preparation of RFPs, proposals, charters, and definition of user
needs, requirements, and specifications. Chapter 5 includes a new section on procure-
ment management. Chapter 6 has been substantially revised to cover precedence
diagramming. In Chapter 7, coverage of constrained-resource scheduling, the critical-
chain method, and multiple-project scheduling based on the Theory of Constraints has
been expanded. Chapter 9 is completely new and addresses methodologies and prac-
tices for project quality assurance. Chapter 11 is expanded and combines the topics
of project execution and control. Chapter 12 is completely revised and covers project
communications, review meetings, and system implementation and project close-
out. Part V—Chapters 16 to 18—is completely new: Chapter 16 addresses 4 topics
of growing recent interest: project management methodology, maturity, and knowl-
edge management, and the project management office; Chapter 17 deals with
methods for project selection and managing projects in a portfolio; and Chapter 18
covers the management of projects that are “ international ” , “ global ” , or “ overseas. ”
Numerous new examples and 11 new end-of-chapter case studies have been added
throughout the book.
Our goal in writing this book is to provide students and practicing managers
the most practical, current, and interesting text possible. We appreciate hearing your
comments and suggestions. Please send them to us at and herman.

xix
ACKNOWLEDGMENTS
Writing a book is a project and, like most projects, reflects the contributions of many
people. Here we want to acknowledge and give special thanks to those who contrib-
uted the most. First, thanks to our research assistants. Research assistants in general do
a lot of work—academic as well as gofer work, and without their toiling efforts most
professors would accomplish far less. We have been fortunate to have had the assist-
ance of several such bright and capable people, particularly Elisa Denney, Hollyce

John M. Nicholas
Herman Steyn
xx
xxi
ABOUT THE AUTHORS
JOHN NICHOLAS is professor of operations management and former associate
dean of the Graduate School of Business at Loyola University Chicago. He is an
active teacher, writer, and researcher in project management and manufacturing
management, and conducts executive seminars and has been a consultant on project
management and process improvement. John is the author of numerous academic
and technical publications, and five books including Competitive Manufacturing
Management (1998) and The Portal to Lean Production (2006). He has held the posi-
tions of engineer and team leader on aircraft development projects at Lockheed-
Martin Corporation, business analyst on operations projects at Bank America, and
research associate on energy-environmental research projects at Argonne National
Laboratory. He has a BS in aeronautical and astronautical engineering and an MBA
in operations research from the University of Illinois, Urbana-Champaign, and a
PhD in industrial engineering and applied behavioral science from Northwestern
University.
HERMAN STEYN is professor of project management in the Graduate School of
Technology Management, University of Pretoria, South Africa. He has been involved
in project management in industry since 1975, has managed a variety of large and
small engineering projects (system, product, and process development) in the min-
erals, defense and nuclear industries, and has also managed project portfolios. In
1996, he was appointed to his current position at the University of Pretoria where he
initiated a masters’ program in project management and a comprehensive continuing-
education program in project management. Besides teaching graduate courses,
consulting, and conducting research in project management, over the last decade
Herman has conducted more than 80 seminars and workshops on project manage-
ment. He has a bachelor’s degree and graduate diploma in metallurgical engineer-

Introduction
Introduction
xxiv
But just as mind-boggling was the managerial ability of the Egyptians—the
planning, organizing, and controlling that were exercised throughout the 20-year
duration of the pyramid construction. Francis Barber, a nineteenth century American
naval attaché and pyramid scholar, concluded that:
it must have taken the organizational capacity of a genius to plan all the
work, to lay it out, to provide for emergencies and accidents, to see that
the men in the quarries, on the boats and sleds, and in the mason ’ s and
smithies shops were all continuously and usefully employed, that the
means of transportation was ample, . . . that the water supply was
ample, . . . and that the sick reliefs were on hand.
3

Building the Great Pyramid is what we today would call a large-scale project, and
stands representative of numerous projects from early recorded history that required
massive human works and managerial competency. The Bible provides accounts of
many projects that required orchestration of thousands of people and the transport
and utilization of enormous quantities of materials. Worthy of note are the managerial
and leadership accomplishments of Moses. The scriptural account of the exodus of the
Hebrews from the bondage of the Egyptians gives some perspective on the preparation,
organization, and execution of this tremendous undertaking. Supposedly Moses did a
magnificent job of personnel selection, training, organization, and delegation of author-
ity.
4
The famed ruler Solomon, among other accomplishments, was the “ manager ”
of numerous great construction projects. He transformed the battered ruins of many
ancient cities and crude shantytowns into powerful fortifications. With his wealth and
the help of Phoenician artisans, Solomon built the Temple in Jerusalem. Seven years went