Project Organization Types

Functional: Project is divided and assigned to appropriate functional

entities with the coordination of the project being carried out by
functional and high-level managers
Functional matrix: Person is designated to oversee the project
across different functional areas
Balanced matrix: Person is assigned to oversee the project and
interacts on equal basis with functional managers
Project matrix: A manager is assigned to oversee the project and is
responsible for the completion of the project
Project team: A 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

Project Organization Continuum

Functional Matrix

Functional
Organization

Projectfullymanaged
byfunctionalmanagers

ProjectMatrix

ProjectTeam
Balanced Matrix

Organization

Projectfullymanagedby
projectteammanager

A Business School as a Matrix Organization

Dean
Associate Dean for
Undergraduate
Program

Associate Dean for

MBA Programs

Director of
Doctoral Program

Accounting
Department Chair

Larry

Zelda

Diane

Marketing
Department Chair

Curly

Bob

Barby

Finance Department
Chair

Moe

Gloria

Leslie

Matrix Organizations & Project Success

Matrix

organizations emerged in 1960s as an

alternative to traditional means of project
teams

Became
Still

popular in 1970s and early 1980s

in use but have evolved into many different

forms

Basic question: Does organizational structure

impact probability of project success?

Organizational Structure & Project Success

Studies by Larson and Gobeli (1988, 1989)

Sent questionnaires to 855 randomly selected PMI members

Asked about organizational structure (which one best describes the primary
structure used to complete the project)
Perceptual measures of project success: successful, marginal, unsuccessful
with respect to :
1) Meeting schedule
2) Controlling cost
3) Technical performance
4) Overall performance
Respondents were asked to indicate the extent to which they agreed with
each of the following statements:
1) Project objectives were clearly defined
2) Project was complex
3) Project required no new technologies
4) Project had high priority within organization

Study Data
Classification of 547 respondents (64% response rate)
30% project managers or directors of project mgt programs
16% top management (president, vice president, etc.)
26% managers in functional areas (e.g., marketing)
18% specialists working on projects
Industries included in studies
14% pharmaceutical products
10% aerospace
10% computer and data processing products
others: telecommunications, medical instruments, glass products,
software development, petrochemical products, houseware goods
Organizational structures:
13% (71): Functional organizations
26% (142): Functional matrix
16.5% (90): Balanced matrix
28.5% (156): Project matrix
16% (87): Project team

ANOVA Results by Organizational Structure

N

Controlling
Cost
Ave (SD)

Meeting
S chedule
Ave (SD)

Technical
Performance
Ave (SD)

Overall
Results
Ave (SD)

Functional
Organization

71

1.76 (.83)

1.77 (.83)

2.30 (.77)

1.96 (.84)

Functional Matrix

142

1.91 (.77)

2.00 (.85)

2.37 (.73)

2.21 (.75)

Balanced Matrix

90

2.39 (.73)

2.15 (.82)

2.64 (.61)

2.52 (.61)

Project Matrix

156

2.64 (.76)

2.30 (.79)

2.67 (.57)

2.54 (.66)

Project Team

87

2.22 (.82)

2.32 (.80)

2.64 (.61)

2.52 (.70)

Total Sample

546

2.12 (.79)

2.14 (.83)

2.53 (.66)

2.38 (.70)

10.38*

6.94*

7.42*

11.45*

Organizational Structure

F-statistic
Scheffe Results
*Statistically significant at a p<0.01 level

A,B < C,D,E

E<D
A,B < C < D,E A,B < C,D,E

A,B < C,D,E

Summary of Results
Project structure significantly related to project success
New development projects that used traditional functional organization
had lowest level of success in controlling cost, meeting schedule,
achieving technical performance, and overall results
Projects using either a functional organization or a functional matrix had
a significantly lower success rate than the other three structures
Projects using either a project matrix or a project team were more
successful in meeting their schedules than the balanced matrix
Project matrix was better able to control costs than project team
Overall, the most successful projects used a balanced matrix, project
team, or--especially--project matrix

Subcontracting = Business Alliance

n

When you subcontract part (or all) of a

project, you are forming a business
alliance....

Intelligent Business Alliances: A business relationship for

mutual benefit between two or more parties with compatible
or complementary business interests and/or goals
Larraine Segil, Lared Presentations

Communication and Subcontractors

What types of communication mechanism(s) will be
used between company and subcontractor(s)?

WHAT a company
communicates.....

HOW a company
communicates.....

How is knowledge
transferred?

Personality Compatibility
Subcontractor
Personality

Corporate
Personality

Project

Individual
Personality

Subcontracting Issues
What part of project will be subcontracted?
n What type of bidding process will be used? What type of
contract?
n Should you use a separate RFB (Request for Bids) for
each task or use one RFB for all tasks?
n What is the impact on expected duration of project?
n Use a pre-qualification list?
n Incentives? Bonus for finishing early? Penalties for
finishing after stated due date?
What is impact of risk on expected project cost?
n

Basic Contract Types

n

Fixed Price Contract

u

Cost Plus Contract

u

Client pays a fixed price to the contractor irrespective of actual audited

cost of project

Client reimburses contractor for all audited costs of project (labor, plant,
& materials) plus additional fee (that may be fixed sum or percent of costs
incurred)

Units Contract
u

Client commits to a fixed price for a pre-specified unit of work; final

payment is based on number of units produced

Incentive (Risk Sharing) Contracts

General Form:
Payment to Subcontractor = Fixed Fee + (1 - B) (Project Cost)
where B = cost sharing rate
Cost Plus Contract
B=0

Fixed Price Contract

Linear & Signalling
Contracts

B=1

Why Use Incentive Contracts?

Expected Cost of Project = $100M
Two firms bid on subcontract
Firm 1

Firm 2

Fixed Fee (bid)

$5 M

$7 M

Project Cost

$105 M

$95 M

(inefficient producer)
What is result if Cost Plus Contract (B = 0) used?

Washington State Bid Code (WAC 236-48-093)

n

n
n
n

WAC 236-48-093: A contract shall be awarded to the lowest responsible and responsive
bidder based upon, but not limited to, the following criteria where applicable and only
that which can be reasonably determined:
1) The price and effect of term discounts...price may be determined by life cycle costing if
so indicated in the invitation to bid
2) The conformity of the goods and/or services bid with invitation for bid or request for
quotation specifications depicting the quality and the purposes for which they are
required.
3) The ability, capacity, and skill of the bidder to perform the contract or provide the
services required.
4) The character, integrity, reputation, judgement, experience, and efficiency of the
bidder.
5) Whether the bidder can perform the contract with the time specified.
6) The quality of performance on previous contracts for purchased goods or services.
7) The previous and existing compliance by the bidder with the laws relating to the
contract for goods and services.
8) Servicing resources, capability, and capacity.

Competitive Bidding: Low-Bid System

n

In the low-bid system, the owner wants the most

building for the least money, while the contractor
wants the least building for the most money. The
two sides are in basic conflict.
Steven Goldblatt
Department of Building Construction
University of Washington
The Seattle Times, Nov 1, 1987

Precedence Networks
Networks represent immediate precedence relationships
among tasks (also known as work packages or activities)
and milestones identified by the WBS
Milestones (tasks that take no time and cost $0 but indicate
significant events in the life of the project)
Two types of networks: Activity-on-Node (AON)
Activity-on-Arc (AOA)
All networks: must have only one (1) starting and one (1)
ending point

Precedence Networks: Activity-on-Node (AON)

Start

End

Precedence Diagramming
Standard precedence network (either AOA or AON) assumes that a successor
task cannot start until the predecessor(s) task(s) have been completed.
Alternative relationships can be specified in many software packages:
Finish-to-start (FS = ): Job B cannot start until days after Job A is
finished
Start-to-start (SS = ): Job B cannot start until days after Job A has
started
Finish-to-finish (FF = ): Job B cannot finish until days after Job A
is finished
Start-to-finish (SF = ): Job B cannot finish until days after Job A
has started

Critical Path Method (CPM): Basic Concepts

Task A
7 months

Task B
3 months

Start
End

Task C
11 months

Critical Path Method (CPM): Basic Concepts

ESA=0
LFA=8
ESStart=0
LFStart=0

ESB=7
LFB=11
Task A
7 months

Task B
3 months

ESEnd=11
LFEnd=11

Start

End

Task C
11 months
ESC=0
LFC=11

ESj = Earliest starting time for task (milestone) j

LFj = Latest finish time for task (milestone) j

AON Precedence Network: Microsoft Project

Task A
2

Task B
7d

Wed 12/20/00 Thu 12/28/00

3d

Fri 12/29/00

Tue 1/2/01

S tart
1

0d

End

Wed 12/20/00 Wed 12/20/00

Task C
4

11d

Wed 12/20/00 Wed 1/3/01

0d

Wed 1/3/01

Wed 1/3/01

Critical Path Method (CPM): Example 2

ES A=
LFA=

TaskA
14wks
ES START=0
LF START=0

START

ES B=
LFB=

TaskB
9wks
ES C=
LFC=

TaskC
20wks

ES F =
LFF =
ES D=
LFD=

TaskD
12wks

TaskF
9 wks

ES E=
LFE=

TaskE
6 wks

ES END=
LFEND=

END

Example 2: Network Paths

Path
1
2
3
4
5

Tasks
START-A-D-F-END
START-A-D-E-END
START-B-D-F-END
START-B-D-E-END
START-C-E-END

Expected
Duration (wks)
35
32
30
27
26

Example 2: CPM Calculations

EA R L IES T

LA T EST

Task or
Milestone

Duration
( ti )

S tart Time
(ES i)

Finish Time

S tart Time

Finish Time
(LFi)

START

0
14
9
20
12
6
9
0

0
0
0
0
14
26
26
35

0
14
9
20
26
32
35
35

0
0
5
9
14
29
26
35

0
14
14
29
26
35
35
35

A
B
C
D
E
F
END

Example 2: Calculating Total Slack (TSi)

Total Slack for task i = TSi = LFi - ESi - ti

Task or
Milestone

Duration
( ti )

Earliest
Start Time
(ES i)

START

0
14
9
20
12
6
9
0

0
0
0
0
14
26
26
35

A
B
C
D
E
F
END

Lastest
Finish Time
(LFi)
0
14
14
29
26
35
35
35

Total Slack
(TSi)

Critical
Task?

Yes

Yes

5
9

No
No

Yes

3
0

No
Yes

Yes

Slack (Float) Definitions (for task i)

Total Slack (TSi)

= LFi - ESi - ti

Free Slack (FSi)

= ESi,min - ESi - ti

where ESi,min = minimum early start time of all tasks that

immediately follow task i
= min (ESj for all task j Si)

Safety Slack (SSi)

= LFi - LFi,max - ti

where LFi,max = maximum late finish time of all tasks that

immediately precede task i
= min (LFj for all task j Pi)

Independent Slack (ISi)

= max (0, ESi,min - LFi,max - ti)

Example #2: LP Model

Decision variables: STARTj = start time for task j
END = ending time of project (END milestone)

Minimize END
subject to
STARTj FINISHi
STARTj 0

for all tasks i that immediately precede task j

for all tasks j in project

where FINISHi = STARTi + ti = STARTi + duration of task i

Example #2: Excel Solver Model

Gantt Chart
February
ID

Task Name

Start

Task A

Task B

Task C

Task D

Task E

Task F

Task G

Task H

10

Task J

11

End

March
21 24 27

April

10 13 16 19 22 25 28 31

May

12 15 18 21 24 27 30

12 15 18

3/1
Workers[5]
Workers[7]
Workers[3]
Workers[12]
Workers[2]
Workers
Workers[2]
Workers[5]
Workers[6]
5/10

Microsoft Project 4.0

Project Budgeting
The budget is the link between the functional units and the project
Should be presented in terms of measurable outputs
Budgeted tasks should relate to work packages in WBS and
organizational units responsible for their execution
Should clearly indicate project milestones
Establishes goals, schedules, and assigns resources (workers,
organizational units, etc.)
Should be viewed as a communication device
Serves as a baseline for progress monitoring & control
Update on rolling horizon basis
May be prepared for different levels of aggregation
(strategic,
tactical, short-range)

Project Budgeting (contd)

Top-down Budgeting: Aggregate measures (cost,
time) given by top management based on
strategic goals

and constraints

Bottom-up Budgeting: Specific measures aggregated

up from WBS tasks/costs and subcontractors

Issues in Project Budgets

How to include risk and uncertainty factors?
How to measure the quality of a project budget?
How often to update budget?
Other issues?

Critical Path Method (CPM): Example 2

ES A=0
LFA=14

TaskA
14wks
ES START=0
LF START=0

START

ES B=0
LFB=14

TaskB
9wks
ES C=0
LFC=29

TaskC
20wks

ES F =26
LFF =35
ES D=14
LFD=26

TaskD
12wks

TaskF
9 wks

ES E =26
LFE=35

TaskE
6 wks

ES END=35
LFEND=35

END

Project Budget Example

Task or
Milestone
START

A
B
C
D
E
F
END

Duration
(tj)
0
14
9
20
12
6
9
0

Early Start
Time (ESj)

No. of
No. of
Latest Start Resource A Resource B
Time (LSj)
work ers
work ers

Material
Costs

Direct Labor Labor +

Materials
Cost/wk

0
0

0
0

340

800

1,140

0
0
14
26

5
9
14
29

4
3
0
1

12
14
8
0

$
$
$
$

125
200
560

$
$
$
$

8,800
9,600
4,800
400

$
$
$
$

8,925
9,600
5,000
960

26
35

26
35

4
-

10
-

90

7,600
-

7,690
-

Cost for Resource A worker = $400/week

Cost for Resource B worker = $600/week

Project Budget Example (contd)

Early Start Times
Task
1
A
1140
B
8925
C
9600
D
E
F
Weekly Subtotals 19665
C umulative

19665

Week
2

10

11

12

800
8800
9600

800
8800
9600

800
8800
9600

800
8800
9600

800
8800
9600

800
8800
9600

800
8800
9600

800
8800
9600

800

800

800

9600

9600

9600

19200
38865

19200
58065

19200
77265

19200
96465

19200
115665

19200
134865

19200
154065

19200
173265

10400
183665

10400
194065

10400
204465

Week

Late Start Times

Task
A
B
C
D
E
F
Weekly Subtotals
C umulative

10

11

12

1140

800

800

800

800
8925

800
8800

800
8800

800
8800

800
8800
9600

800
8800
9600

800
8800
9600

800
8800
9600

1140
1140

800
1940

800
2740

800
3540

9725
13265

9600
22865

9600
32465

9600
42065

19200
61265

19200
80465

19200
99665

19200
118865

Cumulative Costs
450000
400000

300000

Range of
feasible budgets

250000
200000
150000
100000
50000

Week
Early Start Schedule

Late Start Schedule

33

31

29

27

25

23

21

19

17

15

13

11

0
1

Cumulative Cost

350000

Weekly Costs (Cash Flows)

25000

15000

10000

5000

Week
Early Start Schedule

Late Start Schedule

33

31

29

27

25

23

21

19

17

15

13

11

0
1

Weekly Costs

20000

Managing Cash Flows

Want to manage payments and receipts
Must deal with budget constraints on
project and organization requirements (e.g.,
payback period)
Organization profitability

Cash Flow Example

Make payment
of $5000

M1
TaskA
2mos

TaskD
8mos

Receive payment
of $3000

TaskC
4mos

START

END
TaskB
8mos

TaskE
3mos

M2

Receive payment
of $3000

Cash Flow Example: Solver Model

Material Management Issues

When to order materials? How much to order?
Example:
Single material needed for Task B (2 units) and Task E (30 units)
Fixed cost to place order = S
Cost of holding raw materials proportional to number of unit-weeks in
stock
Cost of holding finished product greater than the cost of holding raw
materials
Project can be delayed (beyond 17 weeks) at cost of $P per week

Material Management Example

LSA=0

LSB=4

LSC=12

TaskA
4wks

TaskB
8wks

TaskC
5wks

2units

Start
LSD=6

LSE=12

LSF=14

TaskD
6wks

TaskE
2wks

TaskF
3wks

30units

End

Lot-Sizing Decisions in Projects

To minimize holding costs, only place orders at Late Starting Times
Can never reduce holding costs by delaying project
Time
1

Demand:

Order option #1:

32

Order option #2:

10

11

12
30

30

Choose the option that minimizes inventory cost = order cost + holding
cost of raw materials