Concepts
In preparing for the Project Management Professional (PMP) exam, broad knowledge regarding project execution strategies is paramount. These strategies, such as contracting and finance, help to ensure that the project’s tasks are coordinated efficiently to achieve specified objectives. A well-designed project execution strategy accounts for individual tasks, potential risks, required resources, and the skills needed to complete the project.
II. Contracting as a Project Execution Strategy
Contracting in project management involves engaging the services of an external entity for project execution. It’s crucial for project managers to understand the different types of contracts – fixed-price, cost-reimbursable, and time and materials contracts.
- Fixed-Price Contracts: In this type of contract, a fixed price is agreed upon for the whole project or part of it. Although this provides certainty about costs, any changes in project scope can result in contract renegotiation.
- Cost-Reimbursable Contracts: In these contracts, the contractor is reimbursed for approved project costs. This approach is beneficial when project requirements are uncertain. However, it may lead to cost overruns if not properly managed.
- Time and Materials Contracts: These contracts blend elements of both fixed-price and cost-reimbursable contracts. They’re commonly used when a project has a clear scope but the duration or required resources are uncertain.
To choose the right contract type, project managers should consider project complexity, level of uncertainty, and whether the needed expertise is available internally.
III. Finance as a Project Execution Strategy
The financial structure of a project is integral to its execution strategy. To execute a project successfully on a financial front, managers need to focus on budget planning, cost estimation control, financial risk management, and financing.
- Budget Planning: This involves estimating the total costs required to complete the project. It takes all project activities into account, from initial planning stages through to project closure.
- Cost Estimation: Cost estimation involves understanding how much each project activity will cost. This needs to be as accurate as possible to prevent overruns.
- Cost Control: This process ensures that planned costs and actual expenditure match. Regular monitoring and comparison are necessary to identify and correct any variations.
- Financial Risk Management: This approach identifies potential financial risks and evaluates strategies to manage them.
- Financing: Projects may require external funding. The project manager must, therefore, identify potential sources of funding, the associated costs, and the risks or benefits thereof.
IV. Comparison of Contracting and Finance
While both contracting and finance are important parts of a project execution strategy, they address different aspects of the project. Contracting focuses on engaging external resources to provide services or deliver goods necessary for the project. On the other hand, finance focuses on the costs involved in delivering the project, from budget allocation to cost control, and from risk management to securing finances. Both strategies must be coordinated to ensure efficient project execution.
In conclusion, understanding contracting and finance as project execution strategies is key to acing the PMP exam. Balancing the benefits and risks associated with each method can make a fundamental difference in whether a project is delivered on time, within budget, and meets the expected quality standards.
Answer the Questions in Comment Section
True or False: In a project execution strategy, contracting is optional.
False
Contracting is a significant part of a project execution strategy. It involves making arrangements and legally binding agreements with other parties that contribute to the project.
Which of the following is NOT a type of contract used in project execution strategies?
- a) Fixed-price contract
- b) Cost-reimbursable contract
- c) Time and materials contract
- d) Non-disclosure contract
Answer: d) Non-disclosure contract
Non-disclosure contracts or NDAs are indeed legal agreements but they are not linked directly to project execution strategy. They are used to protect confidential or proprietary information.
The main purpose of finance in project execution strategy is to:
- a) Decide how the project is financed and managed financially.
- b) Always increase the project budget.
- c) Always decrease the project budget.
- d) Use only equity financing.
Answer: a) Decide how the project is financed and managed financially.
Financial planning is a critical part of determining a project’s success, but it does not mean always increasing or decreasing the budget. It’s about making sound financial decisions.
True or False: A well-executed contracting strategy should aim to minimize risks and maximize the opportunities for all parties involved.
True
A well-executed contracting strategy should indeed seek to balance risk and opportunity to ensure mutual benefit for all parties involved.
Single source procurement should only be used when:
- a) You want the cheapest option.
- b) There is only one suitable supplier.
- c) You want to mitigate all risks.
- d) There are too many suitable suppliers.
Answer: b) There is only one suitable supplier.
Single source procurement is typically used when there is only one supplier who can deliver the required product or service, not based on price, risks or supplier availability.
True or False: A deprivation strategy in project finance involves cutting costs at every possible stage in the project.
False
A deprivation strategy is not a recognized strategy in project finance. The correct strategies involve maximizing the use of resources and managing risks.
Earned value management (EVM) is mainly used in project execution to:
- a) Study profitability.
- b) Calculate total project cost.
- c) Track project performance.
- d) Decide project timelines.
Answer: c) Track project performance.
EVM is a tool used in project management to measure the project performance and progress in an objective manner.
The five Cs of credit that help in analyzing a project’s ability to repay debt do NOT include:
- a) Capital
- b) Collateral
- c) Character
- d) Charity
Answer: d) Charity
Charity is not a factor in analyzing a project’s ability to repay its debt. The five Cs of credit in this context are Character, Capacity, Capital, Collateral, and Conditions.
True or False: Scope creep can have a significant impact on a project’s financial strategy.
True
Scope creep refers to uncontrolled changes in a project’s scope. This can significantly increase the costs of a project, thereby affecting the financial strategy.
Lump-sum Contracts are most suitable for projects which have:
- a) Unclear scope
- b) Well-defined scope
- c) Very small scope
- d) Very large scope
Answer: b) Well-defined scope
Lump sum or fixed-price contracts are best suited for projects with a well-defined scope, as the total cost is agreed upon upfront and changes could lead to contractual issues.
True or False: The financing of a project begins after the project implementation.
False
The financing of a project usually begins before the project implementation and continues throughout the project lifecycle.
A project execution strategy should NOT include:
- a) Risk Management
- b) Stakeholder Management
- c) Legal Advice
- d) Party Planning
Answer: d) Party Planning
While maintaining a positive project environment is important, party planning is not typically part of a formal project execution strategy.
Great post on project execution strategy! I’d recommend Agile Contracting for projects with evolving requirements.
Can anyone suggest good financial strategies for large-scale projects?
Thanks for the informative post!
What are your thoughts on Fixed-Price Contracts for short-term projects?
Really appreciate this insightful blog post!
Could anyone provide an example of Time and Materials (T&M) contracting?
While I found this post useful, I think it could have covered more on risk management strategies.
For those who have adopted PMI’s PMBOK, how effective is it in your project execution strategy?