Hello future Project Managers! As you embark on your journey through the PMP certification, understanding different project management approaches is crucial. While Agile is gaining prominence, many projects still operate under a Predictive (or Waterfall) methodology. This blog post will lay the groundwork for understanding predictive contracts and the essential terminology you’ll encounter.
What is Predictive Project Management?
In contrast to Agile’s iterative nature, Predictive Project Management is a more traditional approach where the project scope, time, and cost are extensively planned and defined at the beginning of the project. Think of it like building a house: you typically have detailed blueprints, a fixed budget, and a clear timeline before you even break ground.
PMBOK 7, while emphasizing value delivery and principles, still acknowledges and includes the processes and knowledge areas fundamental to predictive environments. Rita Mulcahy’s PMP Exam Prep dedicates significant sections to these traditional methods, as they form the backbone of many established project management practices and are vital for exam success.
Understanding Predictive Project Contracts
In predictive projects, contracts are often much more rigid and detailed upfront. The goal is to minimize changes once the work begins, ensuring everyone knows exactly what to expect. This typically means a heavy focus on defining the scope precisely.
Here are the primary types of contracts you’ll encounter in a predictive environment:
1. Fixed-Price (FP) or Lump-Sum Contracts
- Concept: The buyer pays a set, total price for all the work, regardless of the seller’s actual costs.
- Predictive Fit: Ideal when the scope is extremely well-defined, and there’s little to no uncertainty about the work required.
- Risk: Puts the most risk on the seller for cost overruns. If the seller underestimates the work, they lose money.
- Rita’s Insight: Rita emphasizes that FP contracts are attractive to buyers because they know the total cost upfront. However, sellers must be very careful in their bidding to avoid losses.
- Example: Building a standard office building with established blueprints for a fixed amount.
2. Cost-Reimbursable (CR) Contracts
- Concept: The buyer pays for all the seller’s legitimate actual costs incurred for the project, plus an agreed-upon fee (which represents the seller’s profit).
- Predictive Fit: Used when the scope is not fully clear, or the project involves high risks and uncertainties, making it difficult to estimate costs accurately upfront.
- Risk: Puts the most risk on the buyer because the final cost is unknown until the project is complete.
- Types of Cost-Reimbursable Contracts:
- Cost Plus Fixed Fee (CPFF): Buyer pays all costs plus a fixed fee that doesn’t change, regardless of actual costs.
- Cost Plus Percentage of Cost (CPPC): Buyer pays all costs plus a fee calculated as a percentage of the actual costs. This is generally the riskiest for the buyer and is rarely used.
- Cost Plus Incentive Fee (CPIF): Buyer pays all costs plus a fee that is adjusted based on the seller meeting predefined performance objectives (e.g., finishing under budget, early completion). If the seller performs well, their fee increases.
- Rita’s Insight: Rita highlights the importance of auditing and monitoring seller’s costs in CR contracts to ensure they are reasonable and incurred as per the contract.
- Example: A complex R&D project where the exact resources and time needed are unknown.
3. Time and Materials (T&M) Contracts
- Concept: A hybrid type of contractual agreement that contains aspects of both cost-reimbursable and fixed-price contracts. The buyer pays the seller for the time spent by their employees and for the materials used.
- Predictive Fit: Often used for staff augmentation, when the scope is not fully defined, or for short-term engagements.
- Risk: Buyer risk is moderate, as actual costs can vary, but often includes “not-to-exceed” clauses to cap the total payment. Seller risk is also moderate, as they are reimbursed for time and materials but might be capped.
- Rita’s Insight: Rita points out that T&M contracts require careful monitoring of hours and resources, and the buyer should ensure value is being delivered for the time charged.
- Example: Hiring a consultant or a specific team of engineers for a period to work on a part of the project.
Essential Predictive Terminology You Need to Know
In addition to contract types, mastering the vocabulary of predictive projects is crucial. Here are some key terms:
1. Scope Baseline
- Definition: A component of the project management plan that describes the scope, work breakdown structure (WBS), and WBS dictionary. It’s the approved version of the scope statement, WBS, and WBS dictionary. Any changes to the scope baseline must go through a formal change control process.
- Think of it as: The detailed, approved blueprint of exactly what the project will deliver.
- PMBOK 7 Connection: While PMBOK 7 emphasizes value, the concept of clearly defined scope is still fundamental for predictive projects to ensure agreed-upon deliverables.
2. Work Breakdown Structure (WBS)
- Definition: A hierarchical decomposition of the total scope of work to be carried out by the project team to accomplish the project objectives and create the required deliverables. It organizes and defines the total scope of the project.
- Think of it as: Breaking down the entire project into smaller, manageable pieces that can be assigned and tracked. Each level provides more detail.
- Rita’s Insight: Rita stresses that the WBS is deliverable-oriented and the foundation for many other project plans (cost, schedule, risk). She often says, “If it’s not in the WBS, it’s not in the project!”
3. WBS Dictionary
- Definition: A document that provides detailed deliverables, activities, and scheduling information about each component in the WBS.
- Think of it as: The “owner’s manual” for each piece of the WBS, providing specifics like definitions, scope, resources, and cost estimates.
4. Gantt Chart
- Definition: A type of bar chart that illustrates a project schedule. It shows the start and finish dates of the terminal elements and summary elements of a project.
- Think of it as: A visual timeline for tasks, showing dependencies and progress. It’s a hallmark of predictive scheduling.
5. Change Control Board (CCB)
- Definition: A formally constituted group of stakeholders responsible for reviewing, evaluating, approving, delaying, or rejecting changes to the project, and for recording and communicating such decisions.
- Think of it as: The “gatekeepers” for any proposed changes to the approved project plan, ensuring careful consideration before modifications.
- Rita’s Insight: Rita emphasizes the critical role of formal change control in predictive projects to manage scope creep and maintain baselines.
6. Baselines (Scope, Schedule, Cost)
- Definition: The approved versions of the project scope statement, WBS, WBS dictionary, schedule, and cost plan. These are used as a comparison point for measuring performance. Any changes must go through the formal change control process.
- Think of it as: The “frozen” plans that you compare actual progress against. They are your benchmarks.
Bringing It All Together
In predictive project management, certainty and control are paramount. Contracts are designed to fix the “what” (scope), “when” (schedule), and “how much” (cost) as much as possible upfront. This requires meticulous planning, detailed documentation, and a disciplined approach to managing changes.
For your PMP journey, remember that understanding these predictive concepts provides a solid foundation, even as you learn about agile adaptability. Many projects, or parts of projects, still benefit from this structured approach.
Mastering these contractual nuances and terminology will give you a significant advantage in managing predictive projects and excelling on your PMP exam.
