Unit –III

Project Execution
 Project Initiation
The project initiation phase is the first phase within the project
management life cycle, as it involves starting up a new project.

Within the initiation phase, the business problem or

opportunity is identified, a solution is defined, a project is
formed, and a project team is appointed to build and deliver
the solution to the customer.
 Controlling & Reporting Project Objectives

As part of the Project Definition, there should be agreement on

the needs for control and reporting along with the overall
approach to be adopted. Careful consideration should be given
to the appropriate balance between the various influencing
factors, example cost, effort, time, risk, benefit. If possible, a
sample reporting pack and control procedures should be
presented and agreed with the project's Steering Committee,
sponsors and other interested parties.
 Controlling & Reporting Project Objectives
To make a success of the project control process, the Project
Manager needs to achieve two objectives:
• To balance the needs for information against the time, effort,
and emotional costs of collecting and collating the data so as
to achieve optimum benefit from the process, and
• To communicate clearly and effectively to all participants why
this information is vital to the success of the project and,
therefore, why the participants' time is well spent in
contributing accurate, valuable data.
Control & Reporting during the Project
The project control and reporting process should run
throughout the project. The main routine aspects are:
• Timesheets
• Collation of information
• Reporting
• Meetings and communication.
 Risk Management
Risk management, which recognizes the capacity of any project
to run into trouble, is defined as the art and science of
identifying, analyzing, and responding to risk factors throughout
the life of a project and in the best interests of its objectives.
The Project Management Institute defines project risk as “an
uncertain event or condition that, if it occurs, has a positive or
negative effect on one or more project objectives such as
scope, schedule, cost, or quality. A risk may have one or more
causes and if it occurs, may have one or more impacts.”
 Risk Management
Risk management consists of anticipating, at the beginning of the project,
unexpected situations that may arise that are beyond the project manager’s
control. These situations have the capacity to severely undermine the
success of a project. Broadly speaking, for the manager, the process of risk
management includes asking the following questions:
• What is likely to happen (the probability and impact)?.
• What can be done to minimize the probability or impact of these events?
• What cues will signal the need for such action (i.e., what clues should I
actively look for)?
• What are the likely outcomes of these problems and my anticipated
 Risk Management – A Four Stage Process
Systematic risk management comprises four distinct steps:
• Risk identification—the process of determining the specific risk factors
that can reasonably be expected to affect your project.
• Analysis of probability and consequences—the potential impact of
these risk factors, determined by how likely they are to occur and the
effect they would have on the project if they did occur.
• Risk mitigation strategies—steps taken to minimize the potential
impact of those risk factors deemed sufficiently threatening to the
project.
• Control and documentation—creating a knowledge base for future
projects based on lessons learned
 Risk Classification
Financial risk—Financial risk refers to the financial exposure a firm opens itself
to when developing a project
Technical risk—When new projects contain unique technical elements or
unproven technology, they are being developed under significant technical
risk.
Commercial risk—For projects that have been developed for a definite
commercial intent (profitability), a constant unknown is their degree of
commercial success once they have been introduced into the marketplace
Execution risk—What are the specific unknowns related to the execution of
the project plan? For example, you may question whether geographical or
physical conditions could play a role
 Risk Mitigation Strategies
Accept Risk: One option that a project team must always consider is
whether the risk is sufficiently strong that any action is warranted. Any
number of risks of a relatively minor nature may be present in a project as
a matter of course.
Minimize Risk: Strategies to minimize risk are the next option. Consider
the challenges that Boeing Corporation faces in developing new airframes,
such as the newly introduced 787 model. Each aircraft contains millions of
individual parts, most of which must be acquired from vendors. Further,
Boeing has been experimenting with the use of composite materials,
instead of aluminum, throughout the airframe.
 Risk Mitigation Strategies
Share risk: Risk may be allocated proportionately among multiple
members of the project. Two examples of risk sharing include the research
and development done through the European Space Agency (ESA) and the
Airbus consortium.
Transfer risk: In some circumstances, when it is impossible to change the
nature of the risk, either through elimination or minimization, it may be
possible to shift the risks bound up in a project to another party. This
option, transferring risk to other parties when feasible, acknowledges that
even in the cases where a risk cannot be reduced, it may not have to be
accepted by the project organization, provided that there is a reasonable
 RM Integrated Approach
The European Association for Project Management has developed an
integrated program of risk management, based on efforts to extend risk
management to cover a project’s entire life cycle. This program, known
as Project risk Analysis and Management (PrAM), presents a generic
methodology that can be applied to multiple project environments and
encompasses the key components of project risk management. The
ultimate benefit of models such as PRAM is that they present a
systematic alternative to ad hoc approaches to risk assessment, and
hence can help organizations that may not have a clearly developed,
comprehensive process for risk management and are instead locked into
one or two aspects (e.g., risk identification or analysis of probability and
 RM Integrated Approach

The recognition that risk management follows its own life cycle, much as a
project follows a life cycle. Risk management is integrated throughout the
project’s entire life cycle.
• The application of different risk management strategies at various points
in the project life cycle. The PRAM approach tailors different strategies for
different project life cycle stages.
• The integration of multiple approaches to risk management into a
coherent, synthesized approach. PRAM recommends that all relevant risk
management tools be applied as they are needed, rather than in a “pick-
 RM Integrated Approach
1. Define—Make sure the project is well defined, including all
deliverables, statement of work, and project scope.
2. Focus—Begin to plan the risk management process as a project in its
own right, as well as determining the best methods for addressing
project risk, given the unique nature of the project being undertaken.
3. Identify—Assess the specific sources of risk at the outset of the
project, including the need to fashion appropriate responses. This step
requires that we first search for all sources of risk and their responses
and then classify these risks in some manner to prioritize or organize
them.
 RM Integrated Approach
4. Structure—Review and refine the manner in which we have classified risks
for the project, determine if there are commonalities across the various risks
we have uncovered (suggesting common causes of the risks that can be
addressed at a higher level), and create a prioritization scheme for
addressing these risks.
5. Clarify ownership of risks—Distinguish between risks that the project
organization is willing to handle and those that the clients are expected to
accept as well as allocate responsibility for managing risks and responses
6. Estimate—Develop a reasonable estimate of the impacts on the project of
both the identified risks and the proposed solutions. What are the likely
scenarios and their relative potential costs?
 RM Integrated Approach

7. Evaluate—Critically evaluate the results of the estimate phase to

determine the most likely plan for mitigating potential risks. Begin to
prioritize risks and the project team’s responses.
8. Plan—Produce a project risk management plan that proactively offers
risk mitigation strategies for the project as needed.
9. Manage—Monitor actual progress with the project and associated risk
management plans, responding to any variances in these plans, with an
eye toward developing these plans for the future
 Cost Management

Cost management is extremely important for running successful projects.

The management of costs, in many ways, reflects the project organization’s
strategic goals, mission statement, and business plan. Cost management
has been defined to encompass data collection, cost accounting, and cost
control, and it involves taking financial-report information and applying it to
projects at finite levels of accountability in order to maintain a clear sense of
money management for the project.
cost estimation processes create a reasonable budget baseline for the
project and identify project resources (human and material) as well, creating
a time-phased budget for their involvement in the project.
 Sources of Project cost

1.Labor

2.Materials

3.Subcontractors

4.Equipment & Facilities

5.Travel
 Types of Cost

1.Direct VS Indirect Cost

2.Recurring VS Nonrecurring cost

3.Fixed VS Variable Cost

4.Normal VS Expedited Cost

 CREATING A PROJECT BUDGET
The project budget is a plan that identifies the allocated resources, the
project’s goals, and the schedule that allows an organization to achieve
those goals. Effective budgeting always seeks to integrate corporate-level
goals with department-specific objectives; short-term requirements with
long-term plans; and broader, strategic missions with concise, needs-based
issues.
A number of important issues go into the creation of the project budget,
including the process by which the project team and the organization gather
data for cost estimates, budget projections, cash flow income and expenses,
and expected revenue streams. The methods for data gathering and
allocation can vary widely across organizations; some project firms rely on
 CREATING A PROJECT BUDGET

1. Top – Down Budgeting:

Top-down budgeting requires the direct input from the organization’s top
management; in essence, this approach seeks to first ascertain the
opinions and experiences of top management regarding estimated
project costs. The assumption is that senior management is experienced
with past projects and is in a position to provide accurate feedback and
estimates of costs for future project ventures.
 CREATING A PROJECT BUDGET

2. Bottom-up budgeting:
Bottom-up budgeting takes a completely different approach than that
pursued by top-down methods. The bottom-up budgeting approach begins
inductively from the work breakdown structure to apply direct and indirect
costs to project activities. The sum of the total costs associated with each
activity are then aggregated, first to the work package level, then at the
deliverable level, at which point all task budgets are combined, and then
higher up the chain where the sum of the work package budgets are
aggregated to create the overall project budget.
 CREATING A PROJECT BUDGET

3. Activity-based costing:
Most project budgets use some form of activity-based costing. Activity-
based costing (ABc) is a budgeting method that assigns costs first to
activities and then to the projects based on each project’s use of
resources. Remember that project activities are any discrete task that
the project team undertakes to make or deliver the project. Activity-
based costing, therefore, is based on the notion that projects consume
activities and activities consume resources. Activity-based costing
consists of four steps:
 CREATING A PROJECT BUDGET

1.Identify the activities that consume resources and assign costs to them, as
is done in a bottom up budgeting process.
2.Identify the cost drivers associated with the activity. Resources, in the form
of project personnel, and materials are key cost drivers.
3.Compute a cost rate per cost driver unit or transaction. Labor, for example,
is commonly simply the cost of labor per hour, given as:
4.Assign costs to projects by multiplying the cost driver rate times the
volume of cost driver units consumed by the project.
 Developing Budget Contingencies

1.Project scope is subject to change

2.Murphy’s Law is always present.

3.Cost estimation must anticipate interaction costs.

4.Normal conditions are rarely encountered.