When preparing to execute any project, choosing the right strategy is pivotal to its success. As an aspiring Project Management Professional (PMP), you will need to become adept at recognizing various project execution strategies and when to apply them. In this context, two key areas demand particular focus: Contracting and Finance.
1. Contracting Strategies:
Contracting strategies form the scaffolding for relationships between your project and supplier entities. Selecting the right contracting method can directly impact your project’s risk management, cost-effectiveness, and overall success. There are generally four types of contracting strategies:
- Fixed Price (FP) Contract: In this contract, the scope of the services or goods is well defined and the price is determined upfront. The contractor takes on the risk of cost overruns.
- Cost Reimbursable (CR) Contract: This contract includes payment for the actual cost of direct labour and materials, with an additional fee to cover overhead and profit. Here, the company undertaking the project bears the risk of cost overruns.
- Time and Material (T&M) Contract: A hybrid of FP and CR contracts, this contract includes elements of both fixed price and cost reimbursable characteristics, usually struck for small projects or early phase of a larger project.
- Unit Price Contract: In this contract, the final price is determined by multiplying the quantity of work done by a unit price. This is common in construction and manufacturing projects.
Each of these has its pros and cons, so careful consideration of the project’s needs and risks is essential.
2. Financial Strategies:
Project financing plays an integral role in determining how to execute your project. There are multiple funding options available based on the need and scale of the project. These could involve:
- Equity Financing: Here, the funding comes directly from stakeholders, who in turn own a share of the project or the parent company.
- Debt Financing: The organization borrows money from external entities to fund its project. The borrowed amount has to be repaid over a set period along with interest.
- Hybrid Financing: A combination of equity and debt financing.
- Leasing: An option where the organization doesn’t own the assets but rents them for a particular period.
- Grant or Donations: Non-repayable funds disbursed by one party to another, typically applicable for non-profit projects.
This table summarizes the different strategies for comparison:
| Contracting Strategy | Financial Strategy | |
|---|---|---|
| Risk Profile | Risk shared or transferred | Risk retained by the organization |
| Cost Effectiveness | Fixed or Variable depending on the contract | Depends on funding availability and interest rates, if any |
| Examples | Fixed Price, Cost Reimbursable, Time & Material, Unit Price | Equity, Debt, Hybrid, Leasing, Grants / Donations |
Choosing the right project execution strategy can be a complex task given the diverse mechanisms and extensive considerations involved. PMP experts employ these strategies to optimize their project resources and drive success.
However, as a project manager, it’s essential that you not only understand but can also effectively select and manage the right project execution strategies for your business. Effective decision-making around contracting and finance will not just contribute to project success, but can also enhance your organization’s relationships, reputation, and bottom line.
Practice Test
True or False: A project execution strategy outlines the actions that all team members should take to reach the project’s goal.
- True
- False
Answer: True
Explanation: The project execution strategy is a plan that guides all members of a project team on the steps to take towards achieving the project’s objective or goal.
Multiple select: Which of the following are considered when recommending a project execution strategy?
- A. Risk management
- B. Quality control
- C. Stakeholder management
- D. Time management
Answer: A, B, C, D
Explanation: Investment strategy involves obtaining the necessary funds for the project. Contracting ensures that the project has the required personnel/resources. Time, Risk, Quality, and Stakeholder management are part of any project strategy.
True or False: In project management, contracting refers to the process of acquiring goods and services from outside the organization.
- True
- False
Answer: True
Explanation: Contracting in project management involves obtaining necessary resources that are not available within the project organization.
Single select: The project execution strategy should be decided by:
- A. The project manager alone
- B. The project team members
- C. The project manager and key stakeholders
- D. The investor
Answer: C. The project manager and key stakeholders
Explanation: The project execution strategy must be agreed upon by both the project manager and key stakeholders to ensure that all parties are satisfied with the approach.
True or False: Project execution strategy is irrelevant in finance planning.
- True
- False
Answer: False
Explanation: Project execution strategy is vital in finance planning as it assists in understanding the financial resources required, allocation and planning for contingencies.
Multiple select: Which of the following may be more appropriate for a project with high levels of uncertainty and change?
- A. Fixed-price contract
- B. Cost-reimbursable contract
- C. Time and material contract
Answer: B, C
Explanation: In projects with high levels of uncertainty and change, contracts allowing for flexibility in cost (cost-reimbursable) or based on the time and materials needed (Time and material contract) can be more suitable.
Single select: In project execution strategy, __________ plays a major role.
- A. Stakeholders
- B. Risk
- C. Scope
- D. All of the above
Answer: D. All of the above
Explanation: All factors; stakeholders, risk and, scope play an important role in the development and execution of a project plan.
True or False: The project execution strategy is always set in stone and cannot be adjusted.
- True
- False
Answer: False
Explanation: Project execution strategy is typically designed to be flexible, allowing changes as per project’s needs, risks, and feedback.
Multiple select: the role of the Project Execution Plan includes:
- A. Outlining the project’s objectives
- B. Providing a detailed breakdown of each phase of the project
- C. Defining the responsibilities of each team member
- D. Establishing the project’s anticipated results.
Answer: A, B, C, D
Explanation: All choices are correct as the execution plan outlines objectives, phases, responsibilities, and expected results for the project.
True or False: The finance strategy in a project execution plan doesn’t require regular monitoring and control.
- True
- False
Answer: False
Explanation: Regular monitoring and control are crucial in a finance strategy to ensure that the project stays within the planned budget and to avoid any unnecessary expenditure.
Single select: The project execution strategy should include:
- A. Schedules only
- B. Cost estimation only
- C. Contracts only
- D. All of the above
Answer: D. All of the Above
Explanation: The project execution strategy should include all elements like schedules, cost estimation, and contracts. It is a comprehensive plan detailing every aspect of the project.
Interview Questions
What is a project execution strategy in project management?
A project execution strategy is a well-defined approach that is used to guide a project towards achieving its objectives and goals. It typically includes aspects like project contracting, allocation of resources, budgeting, monitoring and control, and risk management strategies.
What is the role of contracting in a project execution strategy?
Contracting is a critical aspect of a project execution strategy. It involves identifying, establishing, and managing relationships with external vendors or contractors who provide necessary services or resources for the project. It can include defining the contract’s terms, managing the procurement process, and overseeing contract deliverables.
How does finance influence a project execution strategy?
Finance influences a project execution strategy through budgeting and cost management. It involves securing sufficient funds for the project, allocating these funds efficiently to different project activities, tracking costs, and controlling expenses to ensure the project does not overspend.
Can you briefly explain procurement management in relation to project execution strategy?
Procurement management involves the process of planning, executing, controlling, and closing procurements. It is part of the execution strategy where a project manager ensures that the project gets the necessary resources or services, at the best price, from external sources.
What is Risk Management in Project Execution Strategy?
Risk management identifies potential threats or opportunities that could impact a project’s timeline, cost, and quality. Based on the identification, mitigation strategies are developed and implemented to reduce the potential impacts.
What does Resource Management entail in Project Execution Strategy?
Resource management involves planning, scheduling, and allocating the necessary human resources and materials needed to execute the project effectively. It’s crucial to balance the resources available to the project needs to ensure its success.
What is the role of a project charter in the project execution strategy?
A project charter is a document that formally acknowledges a project’s existence and provides the project manager with the authority to apply organizational resources to project activities. It plays a vital part in the project execution strategy as it also provides a clear overview of the project’s purpose and objectives.
How does earned value management (EVM) impact the project execution strategy?
EVM is a technique used for measuring project performance and progress in terms of scope, schedule, and cost. It provides a quantitative measure of project performance and can inform the project execution strategy by revealing if the project is ahead or behind schedule, under or over budget.
What does the term ‘stakeholder management’ mean in the context of project execution strategy?
Stakeholder management involves identifying all stakeholders in a project, understanding their expectations and impact on the project, and managing their contribution and influence to ensure the project’s successful execution.
What is the role of communication in a project execution strategy?
Communication is critical for keeping all stakeholders informed about the project’s progress, changes, and risks. An effective communication strategy facilitates better decision-making, enhances stakeholder engagement, and helps avoid misunderstandings that could derail a project.
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