Organization Structures
Abstract
This chapter deals with the three main organization structures used for managing projects. These are functional organization, matrix organization, and project organization or task force. The differences, advantages and drawbacks of these are discussed. A diagram showing the basic differences is included.
Keywords
Organization structures; functional organization; matrix organization; project organization; task force
Chapter Outline
To manage a project, a company or authority has to set up a project organization, which can supply the resources for the project and service it during its life cycle. There are three main types of project organizations:
Functional Organization
This type of organization consists of specialist or functional departments, each with their own departmental manager responsible to one or more directors. Such an organization is ideal for routine operations where there is little variation of the end product. Functional organizations are usually found where items are mass produced, whether they are motor cars or sausages. Each department is expert at its function and the interrelationship between them is well established. In this sense a functional organization is not a project-type organization at all and is only included because when small, individual, one-off projects have to be carried out, they may be given to a particular department to manage. For projects of any reasonable size or complexity, it will be necessary to set up one of the other two types of organizations.
Matrix Organization
This is probably the most common type of project organization, since it utilizes an existing functional organization to provide the human resources without disrupting the day-to-day operation of the department.
The personnel allocated to a particular project are responsible to a project manager for meeting the three basic project criteria: time, cost, and quality. The departmental manager is, however, still responsible for their ‘pay and rations’ and their compliance with the department’s standards and procedures, including technical competence and conformity to company quality standards. The members of this project team will still be working at their desks in their department, but will be booking their time to the project. Where the project does not warrant a full-time contribution, only those hours actually expended on the project will be allocated to it.
The advantages of a matrix organization are:
1. Resources are employed efficiently, since staff can switch to different projects if held up on any one of them;
2. The expertise built up by the department is utilized and the latest state-of-the-art techniques are immediately incorporated;
3. Special facilities do not have to be provided and disrupting staff movements are avoided;
4. The career prospects of team members are left intact;
5. The organization can respond quickly to changes of scope; and
6. The project manager does not have to concern himself with staff problems.
The disadvantages are:
1. There may be a conflict of priorities between different projects;
2. There may be split loyalties between the project manager and the departmental manager due to the dual reporting requirements;
3. Communications between team members can be affected if the locations of the departments are far apart; and
4. Executive management may have to spend more time to ensure a fair balance of power between the project manager and the department manager.
Matrix organizations can sometimes be categorized as strong or weak, depending on the degree of dominance or authority of the project manager or department managers respectively. This can of course create friction as both sides will try to assert themselves.
However, all the above problems can be resolved if senior management ensures (and indeed insists) that there is a good working relationship between the project manager and the department heads. At times both sides may have to compromise on the interests of the project and the organization as a whole.
Project Organization (Taskforce)
From a project manager’s point of view this is the ideal type of project organization, since with such a setup he or she has complete control over every aspect of the project. The project team will usually be located in one area, which can be a room for a small project or a complete building for a very large one.
Lines of communication are short and the interaction of the disciplines reduces the risk of errors and misunderstandings. Not only are the planning and technical functions part of the team but also the project cost control and project accounting staff. This places an enormous burden and responsibility on the project manager, who will have to delegate much of the day-to-day management to special project coordinators whose prime function is to ensure a good communication flow and timely receipt of reports and feedback information from external sources.
On large projects with budgets often greater than ≤0.5 billion, the project manager’s responsibilities are akin to those of a managing director of a medium-size company. He or she is not only concerned with the technical and commercial aspects of the project but must also deal with the staff, financial, and political issues, which are often more difficult to delegate.
There is no doubt that for large projects a taskforce type of project organization is essential, but as with so many areas of business, the key to success lies with the personality of the project manager and his or her ability to inspire the project team to regard themselves as personal stakeholders in the project.
One of the main differences between the two true project organizations (matrix and taskforce) and the functional organization is the method of financial accounting. For the project manager to retain proper cost control during the life of the project, it is vital that a system of project accounting is instituted, whereby all incomes and expenditures, including a previously agreed overhead allocation and profit margin, are booked to the project as if it were a separate self-standing organization. The only possible exceptions are certain corporate financial transactions such as interest payments on loans taken out by the host organization and interest receipts on deposits from a positive cash flow.
Figure 9.1 shows a diagrammatic representation of the three basic project management organizations, functional, project (or taskforce), and matrix.
