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Projects are one at the principal means by which we change our world. Whether the goal is to split the atom, tunnel under the English Channel, introduce Windows 7, or plan the next Olympic Games in London, the means through which to achieve these challenges remains the same: project management. Project management has become one of the most popular tools for organizations, both public and private, to improve internal operations, respond rapidly to external opportunities, achieve technological breakthroughs, streamline new product development, and more robustly manage the challenges arising from the business environment. Consider what Tom Peters, best-selling author and management consultant, has to say about project management and its place in business: "Projects, rather than repetitive tasks, are now the basis for most value-added in business." Project management has become a critical component of successful business
operations in worldwide organizations.

One of the key features of modern business is the nature of the opportunities and threats posed by external events. As never before, companies face international competition and the need to pursue commercial opportunities rapidly. They must modify and introduce products constantly, respond to customers as fast as possible, and maintain competitive cost and operating levels. Does performing all these tasks seem impossible? At one time, it was. Conventional wisdom held that a company could compete using a low-cost strategy or as a product innovator or with a focus on customer service. In short, we had to pick our competitive niches and concede others their claim to market share. In the 1990s, however, everything turned upside down. Companies such as General Electric, Apple, Ericksson, Boeing, and Oracle became increasingly effective at realizing all ot these goals rather than settling for just one. These companies seemed to be successful in every aspect of the competitive model: They were fast to market and efficient, cost-conscious and customer focused. How were they performing the impossible?

TOC

Chapter 1 Introduction: Why Project Management? 1
PROJECT PROFILE: Rescue of Chilean Miners 2
Introduction 4
1.1 What is a Project? 5
General Project Characteristics 6
1.2 Why are Projects Important? 9
PROJECT PROFILE: Projects in China: Pushing the Innovative Envelope 10
1.3 Project Life Cycles 11
PROJECT MANAGERS IN PRACTICE: Stephanie Smith, Westinghouse Electric Company
1.4 Determinants of Project Success 15
PROJECT MANAGEMENT RESEARCH IN BRIEF: Assessing Information Technology (IT)
Project Success 17
1.5 Developing Project Management Maturity 18
1.6 Project Elements and Text Organization 22
Summary 25
Key Terms 26
Discussion Questions 27
Case Study 1. 1 MegaTech, Inc. 27
Case Study 1.2 The IT Department at Hamelin Hospital 28
Case Study 1.3 Disney's Expedition Everest 28
Internet Exercises 29
PMP Certification Sample Questions 30
Notes 30

Chapter 2 The Organizational Context: Strategy, Structure, and Culture 32
PROJECT PROFILE: The U.S. Army Returns to the Era of Blimps 33
Introduction 34
2.1 Projects and Organizational Strategy 35
2.2 Stakeholder Management 38
Identifying Project Stakeholders 38
Managing Stakeholders 41
2.3 Organizational Structure 44
2.4 Forms of Organizational Structure 44
Functional Organizations 45
Project Organizations 47
Matrix Organizations 49
Moving to Heavyweight Project Organizations 5 1
PROJECT MANAGEMENT RESEARCH IN BRIEF: The Impact of Organizational Structure
on Project Performance 52
2.5 Project Management Offices 53
2.6 Organizational Culture 55
How Do Cultures Form? 57
Organizational Culture and Project Management 59
PROJECT PROFILE: A Culture of Caring: Sanofi-Aventis and Its Commitment to Global
Medical Assistance 60
Summary 61
Key Terms 62
Discussion Questions 63
Case Study 2. 1 Rolls-Royce Corporation 63
Case Study 2.2 Classic Case: Paradise Lost: The Xerox Alto 64
Case Study 2.3 Project Task Estimation and the Culture of "Gotcha!" 65
Case Study 2.4 Widgets 'R Us 65
Internet Exercises 66
PMP Certification Sample Questions 66
Integrated Project—Building Your Project Plan 67
Notes 69

Chapter 3 Canadian Forms of Business Organizations 71
Sole Proprietorship 71
Partnership 72
Corporation 73
Cooperative 74
Review Questions 75
References 75
Additional Resources 75

Chapter 4 Contracts and Contract Types 76
Overview of a Contract 76
Contract Types 77
Provisions For Risk Allocation 79
Review Questions and Exercises 80
References 80
Additional Resources 80

Chapter 5 Project Delivery Systems 81
Design-Bid-Build Project Delivery System 81
Turnkey Project Delivery System 82
Owner-Builder Project Delivery System 82
Professional Construction Management Project Delivery System 83
Review Questions 85
References 86
Additional Resources 86

Chapter 6 Project Scheduling: Networks, Duration Estimation, and Critical Path 87
PROJECT PROFILE: South Africa Gets Stadiums Ready for 2010 World Cup 88
Introduction 90
6.1 Project Scheduling 90
6.2 Key Scheduling Terminology 92
6.3 Developing a Network 93
Labeling Nodes 94
Serial Activities 94
Concurrent Activities 94
Merge Activities 95
Burst Activities 95
6.4 Duration Estimation 98
6.5 Constructing the Critical Path 102
Calculating the Network 102
The Forward Pass 103
The Backward Pass 104
Probability of Project Completion 106
Laddering Activities 109
Hammock Activities 110
Options for Reducing the Critical Path 110
PROJECT MANAGEMENT RESEARCH IN BRIEF: Software Development Delays and Solutions 112
Summary 112
Key Terms 113
Solved Problems 114
Discussion Questions 115
Problems 116
Internet Exercises 117
MS Project Exercises 1 17
PMP Certification Sample Questions 118
Notes 119

Chapter 7 Cost Estimation and Budgeting 120
PROJECT PROFILE: Cost Overruns Continue to Dog Important Projects 121
7.1 Cost Management 123
Direct Versus Indirect Costs 124
Recurring Versus Nonrecurring Costs 1 25
Fixed Versus Variable Costs 1 26
Normal Versus Expedited Costs 126
7.2 Cost Estimation 127
Learning Curves in Cost Estimation 129
Software Project Estimation—Function Points 133
PROJECT MANAGEMENT RESEARCH IN BRIEF: Software Cost Estimation 133
Problems with Cost Estimation 135
PROJECT MANAGEMENT RESEARCH IN BRIEF: "Delusion and Deception" Taking Place in
Large Infrastructure Projects 137
7.3 Creating a Project Budget 138
Top-Down Budgeting 138
Bottom-Up Budgeting 139
Activity-Based Costing 139
7.4 Developing Budget Contingencies 141
Summary 143
Key Terms 144
Solved Problems 144
Discussion Questions 145
Problems 146
Case Study 7.1 The Dulhasti Power Plant 147
Case Study 7.2 Boston's Central Artery/Tunnel Project 148
Internet Exercises 151
PMP Certification Sample Questions 151
Integrated Project—Developing the Cost Estimates and Budget 152
Notes 154

Chapter 8 Project Control: An Introduction to Earned Value Management
(EVM) 156
What Is Earned Value Management? 156
The Cost Schedule Plan 156
Earned Value Terminology 156
Use of Earned Value Management for Performance Reporting 1 58
Review Questions and Exercises 159
References 160

Chapter 9 Time Value of Money 161
ENGINEERING ECONOMICS IN ACTION, PART 9A A Steal For Steel 161
9.1 Introduction 162
9.2 Interest and Interest Rates 162
NET VALUE 9.1:: Prime Interest Rates 162
9.3 Compound and Simple Interest 164
9.4 Effective and Nominal Interest Rates 166
9.5 Continuous Compounding 169
9.6 Cash Flow Diagrams 170
9.7 Equivalence 172
Mathematical Equivalence 174
Decisional Equivalence 172
Market Equivalence 1 73
Review Problems 174
Summary 176
ENGINEERING ECONOMICS IN ACTION, PART 9B You Just Have to Know When
Problem 177
Mini Case 9. 1 Student Credit Cards 180

Chapter 10 Cash Flow Analysis 182
10.1 Introduction 182
10.2 Timing of Cash Flows and Modelling 182
ENGINEERING ECONOMICS IN ACTION, PART 10A Apples and Oranges 183
10.3 Compound Interest Factors for Discrete Compounding 183
10.4 Compound Interest Factors for Single Disbursements or Receipts 1
10.5 Compound Interest Factors for Annuities 187
10.6 Conversion Factor for Arithmetic Gradient Series 193
10.7 Conversion Factor for Geometric Gradient Series 195
NET VALUE 10.1 ESTIMATING GROWTH RATES 196
10.8 Non-Standard Annuities and Gradients 198
10.9 Present Worth Computations When N -> 200
Review Problems -201
Summary 202
ENGINEERING ECONOMICS IN ACTION, PART 10B No Free Lunch 204
Problems 204
Mini Case 10. 7 The Canadian Oil Sands 208
Appendix 10A Derivation of Discrete Compound Interest Factors 210

Chapter 11 Comparison Methods Part 1 213
11.1 Introduction 213
ENGINEERING ECONOMICS IN ACTION, PART 11 A What's Best? 214
1 1 .2 Relations Among Projects 2 1
5
11.3 Minimum Acceptable Rate of Return (MARR) 217
1 1.4 Present Worth (PW) and Annual Worth (AW) Comparisons 2 1
7
11.4.1 Present Worth Comparisons for Independent Projects 218
11.4.2 Present Worth Comparisons for Mutually Exclusive Projects 219
11.4.3 Annual Worth Comparisons 220
NET VALUE 10.1 CAR PAYMENT CALCULATORS 220
1 1 .4.4 Method Two: Comparison of Alternatives With Unequal Lives 222
11.5 Payback Period 225
Review Problems -229
Summary 232
ENGINEERING ECONOMICS IN ACTION, PART 11B Doing It Right? 232
Problems 233
Mini Case Study 11.1 Rockwell International 240
Appendix 1 1 A The MARR and the Cost of Capital 241

Chapter 12 Comparison Methods Part 2 243
ENGINEERING ECONOMICS IN ACTION, PART 12A What's Best? Revisited 244
12.1 Introduction 244
12.2 The Internal Rate of Return 244
12.3 Internal Rate of Return Comparisons 247
12.3.1 IRR for Independent Projects 247
12.3.2 IRR for Mutually Exclusive Projects 249
12.3.3 Multiple IRRs 253
NET VALUE 12.1 ADDITIONAL PROJECT COMPARISON RESOURCES 256
12.3.4 External Rate of Return Methods 256
12.3.5 When to Use the ERR 258
12.4 Rate of Return and Present/Annual Worth Methods Compared 259
12.4.1 Equivalence of Rate of Return and Present/Annual Worth
Methods 260
12.4.2 Why Choose One Method Over the Other? 263
Review Problems -264
Summary 266

Chapter 13 Depreciation and Financial Accounting 273
ENGINEERING ECONOMICS IN ACTION, PART 13A The Pit Bull 274
13.1 Introduction 274
13.2 Depreciation and Depreciation Accounting 274
13.2.1 Reasons for Depreciation 274
13.2.2 Value of an Asset 275
13.2.3 Straight-Line Depreciation 275
13.2.4 Declining-Balance Depreciation 277
13.3 Elements of Financial Accounting 281
13.3.1 Measuring the Performance of a Firm 282
13.3.2 The Balance Sheet 283
13.3.3 The Income Statement 286
13.3.4 Estimated Values in Financial Statements 288
13.3.5 Financial Ratio Analysis 288
NET VALUE 13.1:: SECURITIES REGULATORS 289
13.3.6 Financial Ratios 289
Review Problems -295
Summary 297
ENGINEERING IN ACTION, PART 13B:: Usually the Truth 298
Problems 298
Mini Case 13. 1 Research In Motion 304
Appendix 13A Cost Estimation 306

Chapter 14 Taxes 312
ENGINEERING ECONOMICS IN ACTION, PART 14A It's in the Details 313
14.1 Introduction 313
14.2 Personal Income Taxes and Corporate Income Taxes Compared 31
14.3 Corporate Tax Rates 314
14.4 Before- and After-Tax MARR 316
14.5 The Effect of Taxation on Cash Flows 317
14.5.1 The Effect of Taxes on First Cost 317
14.5.2 The Effect of Taxes on Savings 319
14.5.3 The Effect of Taxes on Salvage or Scrap Value 319
14.6 Present Worth and Annual Worth Tax Calculations 320
14.7 IRR Tax Calculations 321
14.7.1 Accurate IRR Tax Calculations 321
14.7.2 Approximate After-Tax Rate-of-Return Calculations 322
14.8 Specific Tax Rules in Canada 323
14.8.1 The Capital Cost Allowance System 323
NET VALUE 14.1 CANADA REVENUE AGENCY WEBSITE 324
14.8.2 Undepreciated Capital Cost and the Half-Year Rule 327
14.8.3 The Capital Tax Factor and Capital Salvage Factor 329
14.8.4 Components of a Complete Tax Calculation 331
Review Problems -334
Summary 336
ENGINEERING ECONOMICS IN ACTION, PART 14B The Work Report 337
Problems 338
Mini Case 14. 1 Flat Taxes 341
Appendix 14A Deriving the Capital Tax Factor 341

Chapter 15 Inflation 344
ENGINEERING ECONOMICS IN ACTION, PART 15A The Inflated Expert 345
15.1 Introduction 345
15.2 Measuring the Inflation Rate 345
NET VALUE 15.1 STATISTICS CANADA 346
15.3 Economic Evaluation with Inflation 347
15.3.1 Converting Between Real and Current Dollars 348
1 5.4 The Effect of Correctly Anticipated Inflation 350
15.4.1 The Effect of Inflation on the MARR 351
15.4.2 The Effect of Inflation on the IRR 353
1 5.5 Project Evaluation Methods With Inflation 354
Review Problems -360
Summary 361
ENGINEERING IN ACTION, PART 158 Exploiting Volatility 362
Problems 362
Mini Case 15. 1 Economic Comparison of High Pressure and
Conventional Pipelines: Associated Engineering 368
Appendix 15A Computing a Price Index 369

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