Organization Structure

In a project-driven organization, such as construction or aerospace, all work is characterized through projects, with each
project as a separate cost center having its own profit-and-loss statement. The total profit to the corporation is simply
the summation of the profits on all projects. In a project-driven organization, everything centers around the projects.

In the non–project-driven organization, such as low-technology manufacturing, profit and loss are measured on vertical
or functional lines. In this type of organization, projects exist merely to support the product lines or functional lines.
Priority resources are assigned to the revenue-producing functional line activities rather than the projects.

Non-project based organizational structure is an umbrella category that includes all organizational structure that are not
design around a project. In non-project driven organization, something other than project completion drives the
organization. In non-project driven organization, the organization is based around functions, projects exist merely or
rarely to support the product line or functionals line.

Project management in a non–project-driven organization is generally more difficult for these reasons:
● Projects may be few and far between.
● Not all projects have the same project management requirements, and therefore they cannot be managed identically.
This difficulty results from poor understanding of project management and a reluctance of companies to invest in proper
training.
● Executives do not have sufficient time to manage projects themselves, yet refuse to delegate authority.
● Projects tend to be delayed because approvals most often follow the vertical chain of command. As a result, project
work stays too long in functional departments.
● Because project staffing is on a “local” basis, only a portion of the organization understands project management and
sees the system in action.
● There is heavy dependence on subcontractors and outside agencies for project management expertise.

A project-driven organization has the following characteristics:

● It has an organizational design that defines the use of a “matrix organization” structure which provides a focus for the
management of projects.
● It supports the linkage of projects as building blocks in the design and execution of organizational strategies.
● The organization has senior executives that are committed to the use of projects in the design and execution of
enterprise strategies.
● It constantly reinforces the role of project management as the means for dealing with product, service, and process
changes in the enterprise—carried out through the management of a project portfolio that prepares the organization for
the future—as if that future mattered.
● An explicit culture of project management is evident in the organization, and means are constantly used to reinforce
this culture.
● Project management experience has become an explicit consideration for promotion to higher levels of responsibility
in the enterprise.
● Teamwork has become a key characteristic of the culture of the enterprise.
● The management of stakeholders is a key task of the project team’s endeavors.
● Project management is a core business process in the enterprise.

Various Forms/Design of Project Organization (Cleland)

Functional organization
The project is divided up and assigned to relevant functional areas with coordination being carried out by functional and
upper levels of top management.
Functional matrix
Where a person( the project manager) is designated to oversee the process across different functional units and is
vested with the authority to coordinate the project across functions of the organizations or enterprise with the
functional managers retaining the authority and responsibility for the specialized area of expertized.
Balanced matrix
where the project manager shares the authority and responsibility with the functional managers and by joined effort the
project and functional managers provide direction to the project and share in the decision-making project
Project matrix
where project manager is assigned to oversee the project and has the authority and responsibility for completion of the
project and the functional manager assigns the technical specialists needed to provide expertise for the teams work
Project team
Where the project manager is put in charge of a core group of personnel from several functional areas who are assigned
to the project on a full-time basis and the functional manager has no formal involvement.

Functional organization:

A functional organization structure is a hierarchical organization structure wherein people are grouped as per their area
of specialization.
✓ These people are supervised by a functional manager with expertise in the same field.
✓ This expertise helps him effectively utilize the skills of employees, which ultimately helps organizations in achieving its
business objectives.
✓ People are classified according to the function they perform within the organization. Each department will have a
department head who will be
responsible for the performance of his section. This helps the organization control the quality and uniformity of
performance.
✓ All authority (i.e. budget allocation, resource allocation, decision making, etc.) stays with the functional manager.
✓ Usually, the position of the project manager does not exist in this type of organization structure.
✓ Even if this position exists, the role of the project manager will be very limited and he will need permission from the
functional manager to fulfil his requirements.
✓ The communication flows through the department heads to the top management.
✓ The functional organization structure is suitable for an organization which has ongoing operations and produces
standard products or goods, such as manufacturing industries.

Advantages of the Functional Organization Structure

• Employees are grouped by their knowledge and skills, which helps achieve the highest degree of performance.
• Employees are very skilled. Efficiency is gained because they are experienced in the same work and they perform very
well.
• Their roles and responsibilities are fixed, which facilitates easy accountability for the work.
• The hierarchy is very clear and employees don’t have to report to multiple supervisors. which reduces the number of
communication channels?
• There is no duplication of work because each department and each employee have a fixed job responsibility.
• Employees feel secure, and therefore, they perform well without fear.
• Since there is a sense of job security, employees tend to be loyal to the organization.
• Employees have a clear career growth path.
• Cooperation and communication are excellent within the department.

Disadvantages of the Functional Organization Structure

• Employees may feel bored due to the monotonous, repetitive type of work and may lose enthusiasm for the job.
• If the performance appraisal system is not managed properly, conflicts may arise.
• A highly-skilled employee cost more.
• The departments have a self-centered mentality. The functional manager pays more attention to his department; he
usually doesn’t care about other departments.
• Communication is poor among the departments, which causes poor inter-department coordination. This decreases
flexibility and innovation.
• There is a lack of teamwork among different departments.
• Employees may have little concern and/or knowledge about events outside their department. This causes obstacles in
communication and cooperation.
• The functional structure is rigid, making adaptation to changes difficult and slow.
• Due to bureaucratic hierarchy, delays frequently occur in decision making.
• Generally, the functional manager makes decisions autocratically without consulting his team members. This may not
always work in favor of the organization.
• Functional departments may be distracted by departmental goals and focus on them rather than the organizational
goal.

Projectized organization:
ADVANTAGES OF THE PRODUCT ORGANIZATIONAL (projectized) FORM
• Provides complete line authority over the project (i.e., strong control through a single project authority).
• Participants work directly for the project manager. Unprofitable product lines are easily identified and can
be eliminated.
• Strong communications channels.
• Staffs can maintain expertise on a given project without sharing key personnel.
• Very rapid reaction time is provided.
• Personnel demonstrate loyalty to the project; better morale with product identification.
• A focal point develops for out-of-company customer relations.
• Flexibility in determining time (schedule), cost, and performance trade-offs.
• Interface management becomes easier as unit size is decreased.
• Upper-level management maintains more free time for executive decision-making.

DISADVANTAGES OF THE PRODUCT ORGANIZATIONAL FORM

• Cost of maintaining this form in a multiproduct company would be prohibitive due to duplication of effort,
facilities, and personnel; inefficient usage.
• A tendency to retain personnel on a project long after they are needed. Upper-level management must
balance workloads as projects start up and are phased out.
• Technology suffers because, without strong functional groups, outlook of the future to improve company’s
capabilities for new programs would be hampered (i.e., no perpetuation of technology).
• Control of functional (i.e., organizational) specialists requires top-level coordination.
• Lack of opportunities for technical interchange between projects.
• Lack of career continuity and opportunities for project personnel.

Matrix organization
✓ A matrix organization is a structure in which there is more than one line of reporting managers. Effectively, it means
that the employees of the organization have more than one boss!
✓ In other words, employees have dual reporting relationships - generally to both a functional manager and a project
manager.
✓ The matrix organization structure is complex but helps in achieving the ultimate goal i.e. reaching higher productivity.
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Matrix organization is a mixed of project and functional structure, which is designed for managing certain projects within
desired cost, schedule, and performance standards. The mixture can lie anywhere between the pure project and the
pure functional extremes, the exact structure being determined by the particular project requirements

The characteristics of an effective matrix organization include the following(cleland-240)

 First, appropriate empowerment to include appropriate documentation is instituted so that authority,
responsibility, and accountability are shared as team members perform their individual and collective roles on
the project team.
 Second, lines and methods of communication are well established, and people understand and accept their
obligations to communicate freely information team members and stakeholders need.
 Third, functional managers accept and are committed to the matrix organizational design and are committed to
the provisioning of functional resources to support the project needs.
 Fourth, there is an explicit understanding of the interdependent roles of the functional managers and the
project managers working together to support the project purposes.
 Finally, there is a prevailing culture in the enterprise that basically supports the organizational design of the
matrix as a way of sharing scarce resources in the enterprise. People agree that the matrix reflects “simply the
way that we do things around here.”

Strong matrix:
Strong matrix resembles the pure project organization where the project manager has more influence all over the
project team-mate
Weak matrix
Resembles the pure function organization where line manager has more influence than the project manager
Balance matrix
Lies between these two extremes which typically anything but balanced. Where the project managers interact on an
equal basis with the functional manager.

A weak matrix is one characterized by the following(cleland-241)

 A failure on the part of key participants to understand the basic principles and roles involved in the matrix
 An inherent suspicion and distrust of any organizational design that departs from the management principle of
unity of command in which one individual is expected to receive orders and direction from only one individual
 Functional managers who feel threatened by an apparent superiority of the project objectives and goals over
those of the functional entity
 A failure on the part of senior management to see to it that some basic documentation is prepared to describe
the formal and reciprocal roles of the key managers involved on the project: the project manager, functional
managers, and work package managers
● A lack of appreciation on the part of the project manager and key staff to understand and respect the role of the
functional professionals and their authorities and responsibilities in the management of the project
● Poor selection of project and functional managers
● The project manager who sees his or her role as simply a coordinator rather than as a manager in the truest sense of
the word
● A project manager who fails to understand the many stakeholders on the project, even those outside the parent
organization, who have to be “managed” to fulfill the project ends
● Lack of trust, integrity, loyalty, and commitment on the part of the project team members
● Failure to develop and maintain the project team
● Putting the functional managers on report to senior managers rather than working out the conflict and challenges that
are bound to occur in the management of the project
● Indecisiveness on the part of the project manager who would rather defer decisions to the senior managers than make
as many decisions as possible on the project, referring only those that must be made by the senior executives

Conversely, a strong matrix exhibits these characteristics:

● Care has been taken by senior managers to define the individual and collective authority-responsibility roles of the
project manager, functional managers, and work package managers.
● The project manager and the other key managers feel a strong sense of personal ownership and responsibility for their
work and are willing to share ownership and responsibility, their resources, and the rewards to be gained from the
successful projects.
● The project manager is given full authority and responsibility and is expected to exercise managerial prerogatives in
managing the project so that it is completed on time and within budget and satisfies its technical performance
objectives.
● The project manager knows how to delegate, demands excellent performance by the functional managers and the
members of the project team, and is willing to accept full responsibility for the project.
● The project manager is prompt and judicious in resolving conflicts and disputes that will inevitably arise in the
program.
● Project problems are taken to senior management as a last resort, but senior
management is informed at all times of the status of the project.
● High performance and quality standards are expected from the functional entities
participating on the project
Since it is our objective in this chapter to provide criteria for the selection of a project organization, we shall illustrate
the process with an example using the following procedure.(Meredith-203)
1. Define the project with a statement of the objective(s) that identifies the major outcomes desired.
2. Determine the key tasks associated with each objective and locate the units in the parent organization that serve as
functional “homes” for these types of tasks.
3. Arrange the key tasks by sequence and decompose them into work packages.
4. Determine which organizational units are required to carry out the work packages and which units will work
particularly closely with which others.
5. List any special characteristics or assumptions associated with the project—for example, level of technology needed,
probable length and size of the project, any potential problems with the individuals who may be assigned to the work,
possible political problems between different functions involved, and anything else that seems relevant, including the
parent firm’s previous experiences with different ways of organizing projects.
6. In light of the above, and with full cognizance of the pros and cons associated with each structural form, choose a
structure.

Matrix implementation requires:

● Training in matrix operations Four fundamental parameters must be
● Training in how to maintain open communications
analyzed when considering
● Training in problem solving
implementation of a project
● Compatible reward systems
organizational form:
● Role definitions
 Integrating devices
The basic factors that influence the selection of a project organizational  Authority structure
form are:  Influence distribution
 Project size  Information system
 Project length
 Experience with project management organization
 Philosophy and visibility of upper-level management
 Project location
 Available resources
 Unique aspects of the project
Obviously, the matrix structure is the most complex of all organizational forms. Grinnell and Apple define four situations
where it is most practical to consider a matrix:
 When complex, short-run products are the organization’s primary output.
 When a complicated design calls for both innovation and timely completion.
 When several kinds of sophisticated skills are needed in designing, building, and testing the products—skills then
need constant updating and development.
 When a rapidly changing marketplace calls for significant changes in products, perhaps between the time they
are conceived and delivered.

The pure project organization

The pure project organization is a project organization that is separated from the rest of the parent system. It
becomes a self-contained unit with its own technical staff, its own administration, tied to the parent fi rm by the
tenuous strands of periodic progress reports and oversight. Some parent organizations prescribe administrative,
financial, personnel, and control procedures in detail. Others allow the project almost total freedom within the
limits of final accountability.

Organisational structure defines how individuals and groups are organised or how their tasks are divided and
coordinated.