GPM First
Chapter 8 of Project Management for Supplier Organizations (978-1-4724-1109-9) by Adrian Taggart

The Role of a Supplier Organization Within a Project

Chapter 8

By the simplest analysis, the expression ‘Supplier Organization (SO)’ can include an enormous range of different types of organization.

The relationship between the project and the Supplier Organization (SO), and the degree to which the SO should embrace the principals of project management, differs for these various different types.

These points were acknowledged in Chapter 6 but this chapter explores further the different types of SO and their relationship with the Owner Organization’s (OO) project.

The Supplier Organization as a Member of the Owner Organization’s Project Team

The classic approach to the planning of a project involves decomposing the work to be done into a series of discrete Work Packages. This is usually achieved with the aid of a Work Breakdown Structure (WBS): a hierarchical structure that sequentially decomposes the totality of the project work into smaller and smaller fragments. ‘Work Package’ is the name given to those fragments that exist at the lowest level of the Work Breakdown Structure, the so-called Work Package Level (see Figure 8.1 on the next page).

Ownership of each of these Work Packages is given to an individual party, and they are then responsible for ensuring the work contained therein is completed. An owner can own more than one Work Package.

Many readers will be familiar with a structured approach to this apportioning of Work Packages that involves a Responsibility Assignment

 
Figure 8.1 A Work Breakdown Structure

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Figure 8.2 A Responsibility Assignment Matrix (RACI) Chart

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Matrix, of which the RACI Chart is the most popular example (see Figure 8.2 above). This RACI Chart is a two-dimensional matrix that links between the Work Packages and those involved in the project. The former is the bottom row of the Work Breakdown Structure whereas the latter is the bottom row of an Organizational Breakdown Structure (OBS) (a hierarchical structure that identifies all the parties involved in the project).

If the project is very modest in size, and completed using just the Owner Organization’s (OO) in-house resources, then the Work Package Owners will be individual employees. However, outside of these caveats, it is most likely that Work Package Owners will also consist of external organizations; Supplier Organizations (SO).

By defining the project organization thus, such that it includes SOs, we see further clarification around the ‘temporary and transient’ nature of the project organization discussed in Chapter 1. The SO is only involved whilst its Work Package is active. Once it is complete it will drop out of the project organization of the OO.

Also, we see here the relevance of the Task Force Organization discussed in Chapter 2, and its ability to accommodate the ‘revolving door’ phenomenon whereby new parties constantly join and leave the project organization as their Work Packages commence and complete.

In this respect the Task Force organizational structure is more relevant to the amalgamation of all those parties engaged in a project, rather than just one commercial entity. That is to say, parties that are connected by purchase contracts and not just employment contracts. This scenario is what some commentators, for example Lock (2002), refer to as a ‘Contract Matrix’.

Project Team Members: The Trouble with Semantics

Since the Supplier Organization (SO) is a member of the Organizational Breakdown Structure (OBS) of the Owner Organization (OO), it becomes tempting to describe the SO as a ‘team member’, but some care is required here since we quickly become drawn into a maelstrom of conflicting syntax. Consider the following.

Figure 8.3, on the next page, describes the classic structure that helps to define project roles such as the roles of sponsor and project manager. Within this, there is a distinction between ‘suppliers’ and ‘team members’; a distinction that relates to the employing organization.

The implication is that the sponsor and the project manager are employees of the same organization (the Owner Organization (OO)) and if the Work Package Owner is also an employee of this same organization, then the expression ‘team member’ can be applied to them. If, however, the Work Package Owner is employed by another organization, i.e. a Supplier Organization (SO), then within the constraints of the model they are ‘suppliers’. Seemingly, to be a member of the ‘project team’ individuals must be employees of the OO.

The distinction becomes questionable if we embrace the growing habit of organizations to engage individuals on a freelance basis and referring to them as ‘contractors’. Step into many offices of an Owner Organization (OO) that is delivering a project and you will see a group of men and women, doing identical work, wearing identical clothes and behaving in identical ways. However, whereas most will be employees of the organization, the rest are engaged on a ‘contract’ basis and for a limited duration, such as the lifetime of a specific project. Strictly speaking within the constraints of the above these are ‘suppliers’. The situation becomes further complicated when we consider long duration projects which can result in the ‘contract’ staff being more permanent than the ‘permanent’ staff. (Incidentally, this distinction is a problem for the tax authorities as well. Contractors in the UK may be familiar with IR35 legislation.)

 
Figure 8.3 Project roles

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A simple definition of a ‘team member’ as being someone who ‘does the work required of the project’ becomes unworkable if it is to include every individual who has contributed to the project, even down to the individual who drove the digger that loaded the iron ore into the truck that eventually formed the steel beam that became part of the roof of our new car plant. Individuals at that level have no concept of themselves working on an individual project.

This confusion does serve to show that not all Supplier Organizations (SO) are the same and the degree to which they can claim to be members of the overall project team varies. The following section offers a practical classification for this.

Classifying Supplier Organizations as Members of the Owner Organization’s Project Team

In considering the degree to which the Supplier Organization (SO) can be classed as a member of the Owner Organization (OO) project team, two aspects are significant and each relate to what they are supplying.

The Size of the Fragment (Breadth of Involvement)

Within the simple analysis offered by Figure 8.3, and further presuming that no SO owns more than one Work Package, the co-ordination between Work Package Owners is wholly undertaken by the project manager. Often, however, the SO will own more than one Work Package of a project.

In this case, for economies of scale and other matters of convenience, it is most likely that there will be just one contract between the Supplier Organization (SO) and the Owner Organization (OO). Consequently, the fragment of the project that the SO retains responsibility for can be very large and consist of many Work Packages. This being the case, a portion of the co-ordination duties will be transferred to the SO, decreasing the role of OO project manager but increasing the burden of project management borne by the SO.

To take this scenario to the extreme, if all the Work Packages were owned by just one Supplier Organization (SO) then the concept of project management will be more associated with this SO rather than the Owner Organization (OO).

The Nature of the Fragment (Intimacy)

In addition to its size, the nature of the Supplier Organization (SO) fragment also has an influence on the degree to which the SO can be classed as a member of the Owner Organization’s (OO) project team.

If, for instance, we consider a construction project, in terms of the total man-hours the involvement of the architect may be relatively modest. ‘Create drawings’ may be just one Work Package, but just the number or size of the Work Packages does not fully recognize its importance to the project and hence the relationship with the SO that is required.

The designer of the building must be intimate with the uniqueness of the project and their work will have significant implications on how the other Work Packages and Supplier Organizations (SO) will be defined.

The extreme of this will involve the engagement of a SO just to carry out the project management function on behalf of the OO. This is largely consistent with role of the ‘Consultant’ within traditional procurement strategies commonplace within the UK construction industry, as defined by Smith (2003).

Types of Supplier Organization

Reference to these two aspects enables us to offer a basis of classifying different types of Supplier Organization (SO).

By adopting each of the considerations described above we have the following two-dimensional matrix (see Table 8.1).

 
Table 8.1 Types of supplier organizations (SO)

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The matrix offers four different types of Supplier Organization (SO), described as follows.

Turnkey Suppliers

The Supplier Organization (SO) located in the top right-hand corner would be those undertaking a very large portion of the work scope and also undertaking work that was intimate to the project. This category would include ‘turnkey’ suppliers. This expression relates to the idea whereby at the end of the contract the SO simply hands over to the Owner Organization (OO) the keys to a new facility that has been created by the SO. The involvement of the OO is minimal and restricted to indicating the performance required of the deliverable (and making payment on completion). In these circumstances the SO will undertake everything required including design and management of the project.

Accordingly they are not so much a member of the Owner Organization’s (OO) project team: they are their project team.

Commodity Suppliers

The Supplier Organization (SO) that would be located in the bottom left-hand corner would be those undertaking a modest and defined portion of the work scope and also undertaking work that was not intimate to the project. This category would include those providing standard ‘off-the-shelf’ equipment such as a pump, a crane, a printer as well as simple commodities. The component may be very complicated, such as a television, but since it is not modified to any degree for the project in question, and especially if the equipment is selected by the buyer, then there is little need for the supplier to be engaged with the specific aspects of the project in hand.

They have minimal claim to be treated as a member of the Owner Organization (OO) project team.

They would not meet the requirements described in Chapter 6 for those organizations that should embrace project management techniques.

Bespoke Item Suppliers

The Supplier Organization (SO) that would be located in the top left-hand corner would be those undertaking a modest portion of the work scope but work that was intimate to the project. This category would include the type of consultants described above, within the construction arena. Such a SO would need to be fully conversant with the specifics of the project and produce a bespoke product that responds accordingly.

It would also include those organizations that supply highly bespoke components. An example here would be the supply of a turbine for use in a hydro-electric project. The apparatus would be very carefully designed to suit only the geographical aspects, such as pressure and flow rate of the water, of that particular application. As such the designers would need to be wholly familiar with the specifics of the project and would share a considerable amount of communication with the Owner Organization (OO) team. This is the case even though the work to produce the turbine is only a very small part of the entire project effort in terms of expenditure.

They have a strong justification for being regarded, and hence treated, as a member of the Owner Organization (OO) project team.

Bespoke Cluster Suppliers

The Supplier Organization (SO) that would be located in the bottom right- hand corner would be those undertaking a large portion of the work scope but work that was not intimate to the project. This category would include those supplying a wide number of standard components and where the size, and hence value, of the work warrants special attention.

By way of example, let us imagine the supply of security scanners for the recent Olympic Games. The Olympic Games utilized a large number of venues and each contained an extensive security facility featuring numerous airport type scanners that each customer was obliged to pass through. These scanners were not designed specifically for the Olympic Games, they were standard components, however, there were a great many of them, in a variety of locations.

This imposes an additional burden on the Supplier Organization (SO) in terms of managing the coordination of their extensive scope of supply and also the degree of liaison required with the OO. It would be expected that the SO in question would treat this as a special and unique event and would look to manage the overall supply as a project.

They have a very good justification for being regarded as a member of the Owner Organization’s (OO) project team.

The Relevance of Project Management

The closer a Supplier Organization (SO) towards the top right-hand corner of Table 8.1, the greater its claim to be regarded as a member of the Owner Organization’s (OO) project team and also the greater its need to embrace aspects of project management.

We would expect a degree of consistency between the location of an individual SO in Table 8.1, its location on the ‘Continuum of Creative Endeavours’ (Figure 1.1), and also its location on the Organizational Continuum (Figure 2.4).

As the SO approaches the top right-hand corner of Table 8.1, the top of Figure 1.1 and the right of Figure 2.4, there will be an increase in its obligations for communication externally with the OO, and internal cross-functional integration. This can be indicated by the authority given to the nominated individual within the SO, responsible for the contract.

More often than not, this individual is given the name ‘Project Manager’. Since Owner Organizations (OO) usually engage more than one Supplier Organization (SO) we can immediately see that for any one OO project there could be a large number of individuals with the title ‘Project Manager’ and yet there will be only one bearing this title within the OO.

It is a premise of this book that most practitioners of project management are employed by Supplier Organizations (SO) rather than by Owner Organizations (OO).

The Supplier Organization as the Owner Organization’s Project Manager

Consider those Supplier Organization (SO) who lie at the extreme top right-hand corner of Table 8.1. As stated above, they take on considerable responsibility for the management of the project, so much so that the role of a project manager within an Owner Organization (OO) diminishes.

If we refer to the classic model offered in Figure 8.3 we see the distinction between a sponsor and a project manager.

There are variations in practice here but again within the context of a ‘classic model’ the two roles are differentiated thus.

The sponsor commissions the project, secures the funding, owns the Business Case (and the answer to the question whether to proceed with the project) and is ultimately accountable for delivering the benefits specified in the Business Case.

The project manager manages the project and the team on a day-to-day basis, monitors and controls progress, owns the project management plan (and the answer to the question how to proceed with the project) and is ultimately accountable for delivering the product (deliverable) to the success criteria relating to time, money and quality.

Within these definitions, and as implied earlier, it is wholly realistic for the project manager so described to be part of a Supplier Organization (SO). Indeed this becomes inevitable when either the SO is a single ‘turnkey supplier’, or alternatively, when the SO is a ‘bespoke item supplier’ and the Work Package involved is explicitly ‘project management’.

The attraction to the Owner Organization (OO) of dispensing with an inhouse project manager can be strong, particularly when the project in question demands specialist knowledge or capability that the OO does not have and also when this specialist knowledge or capability is not intrinsic to the core business of the OO.

However, the arrangement becomes less safe when the frequency of such projects change, or if the nature of the work is intrinsic to the core business of the OO.

Imagine, for instance, a mail order company embarking on a project involving the replacement of its IT system. The IT system of any modern company is crucial to its business and this is especially so for one involved in mail order.

The Owner Organization (OO) may choose to simply engage a Supplier Organization (SO) on a ‘turnkey’ basis to undertake the project. Whilst there may be a simple short-term numerical business rationale for this, there are risks. Specifically, there is a risk that the OO becomes a ‘dumb client’. This expression is reserved for those OO who have insufficient expertise even to maintain appropriate oversight of a SO. It is a point that is difficult to define but many with experience of working within an OO will have experience of having passed beyond it and being wholly at the behest of the SO.

To their cost, too many OO have failed to recognize the danger of subcontracting functions that are the soul of their business.

Procurement Chains and the Supplier Organization as a Subcontractor

We have focused on the Supplier Organization (SO) only insofar as it being directly in contract with an Owner Organization (OO).

This is overly simplistic and many readers will have experience of SO offering bespoke equipment for use on a project when their organizations are not in direct contract with an OO. Instead they are in contract with another SO who in turn may be in contract with the OO.

For any project of moderate size or greater, there exists a procurement chain. At the apex of this is the Owner Organization (OO), immediately below are the Tier 1 suppliers (with whom the OO is in contract directly), immediately below them are the Tier 2 suppliers (with whom Tier 1 suppliers are in contract directly), and so on through the remaining tiers.

The need for a Supplier Organization (SO) to embrace aspects of project management is not reserved just for Tier 1 suppliers. The need exists below this level but as we move down through the tiers of the supply chain this need reduces and the type of SO involved migrates towards the bottom left-hand corner of Table 8.1.

Notes

[1] Usually, the product is the unique element of a project but this is not always the case. For instance a project may be initiated to create a standard product but to do so using a different manufacturing technique, or by using alternative equipment, or in a different location. In each of these cases the challenge is to do something which has not been attempted before and as such the word ‘unique’ is applicable and hence the use of the word ‘project’ justified.

[2] The troubled facility created for the 1976 Olympic Games in Montreal, the chaotic preparation of the stadia for the FIFA World Cup in Brazil in 2014 and the reconstruction of Wembley Stadium in 2007 are notable examples in this respect.

[3] Many readers will be employed by organizations that deliver successive projects and the completion of one project does not lead to termination of employment. These types of organizations are referred to as ‘matrix’ organizations and have special characteristics, some of which they share with organizations engaged in non-project work. They will be addressed in some detail in Chapter 2 but for the purposes of this chapter it is appropriate to consider what may be referred to as a ‘pure project’, like our stadium project, a characteristic of which is its temporary management structures.

[4] In practice, the involvement of individual project team members is even more volatile than the life of the overall project team. Most likely, an individual will be a member of a sub-team which will only exist until the fragment of the project for which the sub-team is responsible, is complete. For this reason the make-up of the overall project team is always changing.

[5] This may stretch the historical knowledge of some of our younger readers but suffice to say that after vinyl records, the favoured medium for storing music was a spool of magnetic tape contained within a plastic case; the cassette tape.

[6] The various levels of project success and the interplay between products and benefits is addressed in detail in Chapter 16.

[7] There are instances where organizations may choose to move in the opposite direction, and for good reason, but this book does seek to address their concerns.

[8] Ultimately, all expenditure is for the engagement of people since all material comes out of the ground (either mined or harvested) and at this point is free of charge.

[9] For the mathematically minded it is the integral of the earlier curve (area under the curve) and its gradient, or steepness is equal to the value of the previous curve, at any individual point in time.

[10] The name derives from ‘S’ being an abbreviation for ‘Summation’, since these curves are most properly referred to as ‘Summation Curves’. This explains why, very often, real ‘S-curves’ do not look much like an ‘S’. The important features are, firstly, that it is always ascending (the cumulative expenditure never reduces) and, secondly, the gradient, on a large scale, is shallow-steep-shallow, even though locally, on a finer scale, there may be some variation in gradient.

[11] The decision made at the gates involves the marginal benefit and marginal cost. Actual expenditure to date is ignored on the basis that it is a ‘sunk cost’ and cannot be recovered in any case. This is a reason why, especially at the later Decision Gates, a project may be continued with, even though the total benefits may be exceeded by the total costs.

[12] Further detailed analysis and comparison of strategic and tactical control is offered in Chapter 16.

[13] There is again an analogy to our own lives. Shakespeare once famously wrote about the ‘Seven Ages of Man’ and yet Hinduism talks about the four stages of man. Each is describing the same life; the same journey from cradle to grave, and yet they choose to decompose it in different ways, each to reflect their own understanding and their own emphasis.

[14] Readers may wish to note that in some countries, most notably the United States, the mandate document that bears the authorizing signatures is a ‘Project Charter’. This is a standalone and separate document that will refer to a Business Case.

[15] Some care is required here because there are some obligations of the SO that may not be explicitly stated in the contract. For instance, in any case, the SO is obliged to provide goods of ‘merchantable quality’ and this will confer ‘implied terms’ on the SO.

[16] The analysis is more straightforward if we assume the contract is of ‘Firm Price’ type (see Chapter 13).

[17] Some OO manage major assets and infrastructure (rail, water and telecommunication networks) and are constantly commissioning projects to create or refurbish assets. For them, projects are an ongoing feature, but they are the exception. For most OO their involvement in projects is sporadic.

[18] Like the lifecycle offered in Chapter 5, the lifecycle offered here is a model. To be useful, models need to be simple, however their principal weakness is always their simplicity. The nature of procurement is such that there are a great many combinations and permutations of payment terms, contract types, and the like that can result in variation in the exact Decision Gates and phases that apply. The model is offered as a generic model to assist in the understanding of what appertains to most SO, most of the time. Real examples may, and will, vary.

[19] Some legal obligations of the SO do live on beyond this point, for instance its obligations for latent defects.

[20] It should be noted, however, that this is not always the case. Acme Pool Services is selected on the basis that, unlike the Owner Organization (OO), it is experienced in the construction of pools. It has skills, equipment, knowledge, expertise and contacts that enable it to manage the building of the pool far better than the OO, such that it may well be able to do the work for a considerably cheaper sum and some of this saving may be passed onto the OO in which case the second scenario is both easier and cheaper for the OO.

[21] There are variants that do not contain such an agreement but are less attractive to the OO.

[22] The exact sharing of risk is determined by the wording and quantifications within each specific contract. The arrangement within a continuum offers an approximate guide only.

[23] Ideally such negotiations should be embraced as early as possible and not wait for the final phase but practicalities often result in them being held to the end.

[24] For example some EU legislation imposes constraints on publicly funded projects.

[25] Discrete probability distributions for time or cost of a project are rarely symmetrical. It is almost always the case that it is more likely to cost more, or last longer, than the ‘most likely’ figure, than less, i.e. the mean is very likely to be greater than the mode. This results in a distorted distribution curve with a longer tail to the right of the mode. It is for this reason that the single estimate derived by the three-point estimating technique is usually greater than the mean and a more representative figure of the overall distribution.

[26] Or other entity such as Work Package.

[27] The use of Product Breakdown Structures and Work Breakdown Structures (WBS) will be addressed comprehensively in Chapter 14.

[28] There is an opportunity to withdraw an offer by the offerer, before the expiry of any validity period, but it is limited and different legal systems have different approaches. It is, for instance, an area of inconsistency between English and Scottish law.

[29] For an OO the ‘why’ is addressed within the Business Case and the ‘Project Background’ section of their PMP is informed by this.

[30] This ‘locking’ of the estimate is sometimes referred to as ‘baselining’.

[31] It is the case for project control as it is for planning. ‘Scope creep’ (doing something that was not intended) impacts upon duration and cost and, without a scope baseline, ‘scope creep’ cannot be recognized and hence project cost and duration cannot be controlled.

[32] For projects with very large physical deliverables, such as machinery, many practitioners choose to draw up a PBS (Product Breakdown Structure) that decomposes the deliverable into discrete parts, as a prelude to creating the WBS.

[33] A Work Breakdown Structure Dictionary is a textual document that supports the WBS by containing additional information about individual Work Packages.

[34] ‘Cost’ is a complex entity and care is required here. Chapter 17 refers.

[35] Such ‘house standards’ will be key elements of the project management method adopted by the SO.

[36] Although presented in the context of management of resource, since time and cost are inextricably linked, they can be thought of as time or cost management techniques, depending upon the context.

[37] To many, this four-part cycle is known as the ‘Deming Cycle’ or the ‘Deming Wheel’ on the understanding that it was originated by W. Edwards Deming. However, in his book Out of the Crisis, Deming (1982) himself attributed the original design to W.A. Shewhart.

Others, such as Ronald D. Moen and Clifford L. Norman (2010) differentiate between ‘Deming’s Wheel’ and the PDCA cycle, attributing the latter to a reworking of Deming’s work by a group of Japanese executives after receiving a presentation by Deming in the 1950s.

[38] This can be considered as an example of the ‘Hawthorne Effect’ (Buchanan and Huczynski, 2004).

[39] As discussed in Chapter 7, through the life of a contract the SO has progressively less influence over the gate decisions than the OO. For example, once the contract is signed the opportunity for the SO to terminate the contract is negligible.

[40] For convenience we will consider a Firm Price contract.

[41] If the estimated cost within the baselines of the PMP is less than that within the pre-contract sales estimate it is inconceivable that SO management would not insist on the former being adopted as the target cost.

[42] Although it is easy to refer to just cost, the real goal of the SO is profit and so there is a pressing need to manage and control revenue, both in terms of expediting payments to which the SO is already entitled, and also maximising the amount of entitlement. The latter will involve the SO’s PM acting as a marketer and salesperson seeking out new opportunities within the context of the existing OO and project. Such activity is akin to the ‘farmer’ aspect of selling as opposed to the more conventional ‘hunter’ aspect, as addressed in Chapter 13.

[43] To some extent this is because this strategic level of control is not as easy to exert within an SO because, once a contract is signed, the SO has no option to withdraw.

[44] It is said that project managers spend upwards of 90 per cent of their time simply communicating with others (Heldman, 2009).

[45] Care is required here since some projects will have their own contractual requirements that may not be adequately serviced by the existing facility.

[46] This also helps to manage the risks associated with the unexpected departure of key project staff.

[47] Some practitioners also include the processes and documents required to manage change as being part of the Configuration Management System (CMS).

[48] For instance, to avoid potential for any contradictions such suites should, ideally, ensure that a requirement (such as a dimension) is only stated once, in one document, which is then referenced by the others.

[49] Or alternatively with a CMS imposed by a SO higher in the supply chain.

[50] Some recipients will receive a ‘Controlled Copy’ in which case they will automatically receive any subsequent updated versions. Recipients of ‘Uncontrolled Copies’ do not atomically receive updated versions.

[51] Further enhancement can be adopted when using a spreadsheet’s logic to colour the cells to indicate status (for instance: Green - Work Package has started/finished before its planned date Amber - Work Package has started/finished but after the planned date; Red - Work Package has not started/finished and it is after the planned date).

[52] The size (and hence number) of the smallest fragment into which the project is decomposed.

[53] Implicit within all these discussions of costs incurred by a SO, and their use in the strategic and tactical control of projects, is the assumption that costs can be attributed to each individual bespoke product. Those SO who currently only produce standard products and are looking to embrace the supply of bespoke products may find this requirement surprisingly onerous. This is because, currently, many will operate a cost collection system that uses only functional departments as cost centres and lack the facility to record costs against individual products. Converting such a system can represent a significant amount of work and may, for instance, include the need for employees to create timesheets. Cultural resistance can be expected as well as significant technical difficulties and additional complexity.

[54] Many SO choose to have a ‘Cost Management Plan’, as a subsidiary management plan within the PMP that contains such definitions and conventions.

[55] The precise point of commencement of the warranty period is defined within the contract in question.

[56] In some instances such access is an element within the original supply contract. It can be a useful negotiating token for the OO.

References

8 

Lock, D., 2002. Organisation Structure. In M. Stevens, ed., Project Management Pathways. High Wycombe: The Association for Project Management. Section 66.

9 

Smith, N., 2003. Roles and Responsibilities in Project Contract Management. In R. Turner, ed., Contracting for Project Management. Aldershot: Gower Publishing.

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