Projects are influenced by a multitude of factors which can be external or internal to the organization

responsible for its management and execution. The important thing for the project manager is to
recognize what these factors are and how they impact the project during various phases from inception
to final handover, or even disposal. This module tackles those factors.

After successful completion of this module, you should be able to:

 Understand the scope of the project environment

 Identify external and internal factors influencing the project
 Determine the different organizational structures
 Recognize project stakeholders and their involvement

The Project Environment

The external or internal influences that affect a project are known as the project environment or project
context. The external factors making up this environment are the client or customer, various external
consultants, contractors, suppliers, competitors, politicians, national and local government agencies,
public utilities, pressure groups, the end users and even
the general public. Internal influences include the
organization’s management, the project team, internal
departments (technical and financial) and possibly the
shareholders. All these influences are neatly
encapsulated by the acronym PESTLE, which stands for:
• Political
• Economic
• Socio-cultural
• Technical or Technological
• Legal
• Environmental
Figure 2.1 illustrates the project surrounded by its Figure 2.1 The project environment
external environment.
Political. Two types of politics have to be considered here: internal and external politics.

 Internal Politics. There are the internal politics that inevitably occurs in all organizations
whether governmental, commercial, industrial or academic, and which manifest itself in
the opinions and attitudes of the different stakeholders in these organizations. These
stakeholder’s relationships to the project can vary from the very supportive to the
downright antagonistic, but depending on their field of influence, they must be considered
and managed. One of the task of the project manager is to meet the different agenda and
preferences of these stakeholders as much as possible.
 External Politics. There are the external politics, over which neither the sponsor nor the
project manager may have much, if any, control. The political interplay between national
and local government, lobbyists and pressure groups has to be taken into consideration in
this type of politics. This is can be experienced in projects of public significance such as
constructions of railroads, power plants, etc. or in international trade where the government
may change and impose additional import, export or exchange restrictions, or impose penal
working conditions. As mentioned, the project manager have no or very little control over
external politics.
Economic. Here again there are two levels of influence: internal or micro-economic, and external or
macro-economic.

 Micro-economic (internal). This relates to the viability of the project and the soundness of
the business case. Unless there is a net gain, whether financial or non-financial, there is no
point in even considering embarking on a project. It is therefore vital that financial models
and proven accountancy techniques are applied during the evaluation and monitoring phase
to ensure the economic viability of the project and to know if it is still worthwhile to
proceed.
 Macro-economic (external). This is often related to the political climate and can have a
serious influence on the project. Higher interest or exchange rates, and additional taxes on
labor, materials or the end product, can seriously affect the viability of the project. The
changes to fiscal and interest movements must be constantly monitored so that
representations can be made to government or the project be curtailed.
Socio-Cultural (Social). Many projects, and indeed most of the construction projects, inevitably affect the
community of the areas they are carried out in. It is therefore vital to inform the residents in the affected
areas as early as possible of the intent, purpose and benefits of the project to the organization and
community. This may require a public relations campaign to be initiated, which includes meetings,
exploratory discussions, consultations at various levels and possible trade-offs. There are always pressure
groups that have special interests in a particular project, and it is vital that they are given the opportunity
to state their case while at the same time informing them of the positive and often less desirable
implications. A useful method to ensure local involvement is to set up advisory committees or even invite
a local representative to be a part of the project management team.

Technical. It goes without saying that, unless the project is technically sound, it will end in failure. Whether
the project involves rolling out a new financial service product or building a power station, the technology
must be in place or be developed as the work proceeds. In short, the company must have the technical
capacity to support the project. The financial implications of all technical factors must also be considered.

Legal. One of the fundamental requirements of a contract, and by implication a project, is that it should
be legal. The relationships between the contracting parties must be confirmed by a legally binding
contract that complies with the laws (and preferably customs) of the participating organizations. The
documents themselves have to be legally acceptable and equitable. Unfair and unreasonable clauses must
be eliminated. Generally, project managers are strongly advised always to take legal advice from
specialists in contract law and especially, where applicable, in international law.

Environmental. Some of the environmental aspects of a project have already been alluded to under
‘Social’, from which it became apparent that environmental-impact assessments are highly desirable
where they are not already mandatory. The location of the project clearly has an enormous influence on
the cost and completion time. Most countries now have strict legislation to prevent or restrict emissions
of polluting substances whether solids, liquids or gases. In addition, noise restrictions may apply at various
times and cultural or religious laws may prohibit work at specified times or on special days in the year.
Aside from the environmental impacts of the project, the effect of the environment to the project must
also be considered. This may include assessing the temperature, accessibility, and seasonality of the
location. Program and project managers must therefore ensure that the projects under their control
create minimum (ideally zero) pollution of the atmosphere, water resources including sea water, and
minimum contamination of minerals, soils and vegetation (including forests), etc. This involves
environmental-impact assessments being carried out at the planning stage and developing a mechanism
which ensures that the methods and procedures agreed at these meetings are actually carried out.

The Organizational Structure

An organizational structure is a system that outlines how certain activities are directed in order to achieve
the goals of an organization. The organizational structure also determines how information flows between
levels within the company. To do your job efficiently and effectively, you must figure out what kind of
organizational structure you are working in. An effective project manager understands the organizational
structure and leverages it for the success of the project.

Functional Organizations. A functional organization has a traditional organizational structure in which

each functional department, such as engineering, marketing, and sales, is a separate entity. A typical
functional structure is where each member of each department (staff) reports to the functional manager
of a department, and the functional manager in turn reports to an executive, such as the chief executive
officer (CEO). All the managerial power, or authority, in a functional organization is vested in the functional
managers, so project managers don’t have the authority to make major decisions on projects.

Project-oriented Organizations. A project-oriented organization’s structure is largely organized around

projects. Most of the organization’s resources are devoted to projects. Project-oriented organizations give
authority to the PM. Along with responsibility comes a high level of autonomy over the projects.
Functional organizations and project-oriented organizations are on opposite ends of the spectrum as far
as a project manager’s authority and project resource availability.

Matrix Organizations. A matrix organization is organized into functional departments, but a project is run
by a team that may have members coming from different functional departments. Matrix organizations
share responsibility and authority between the functional managers and project managers. Matrix
organizations are generally categorized into a strong matrix, which is closer to a project-oriented
structure; a weak matrix, which is closer to a functional structure; and a balanced matrix, which is in
between strong and weak.

Hybrid Organizations. A hybrid organization is a type of organization that contains elements of multiple
other organizational structures, such as functional, matrix, and project-oriented. Since the teams are using
a combination of practices, the way the project manager works varies along with the team.

Multi-divisional Organization. In this kind of structure, work groups or divisions are organized by product,
production processes, portfolio, program, geographic region, or customer type. This is like a functional
organization except that the grouping is not based on functions. Decisions about budget or resource
allocation need to be made by division managers.

Organic. In this flexible organization structure, also called simple or flat, there are minimal boundaries.
Startup companies often have this kind of structure. In this type of organization, it’s likely that the project
manager has little responsibility for budget decisions. Usually those kinds of decisions are made by the
company owner.

Virtual. In this structure, where individuals and groups are connected through the web, we have fulltime
or part-time project managers with low to moderate authority and low to moderate project resource
availability. Virtual teams can be made up of people from many different parts of an organization who
might have different reporting structures and work in different offices.

The Project Management Office

The project management office (PMO) refers to an entity in an organization that is responsible for
providing centralized support, control, or directives for projects in the organization. The PMO has almost
total authority over all of the projects that are done within an organization. When an organization sets up
a PMO, it can operate in a few different ways. A PMO can be supportive, helping teams standardize their
project approaches by using the same document templates and practices for estimating and reporting on
their progress. In this type of structure, PMOs have a low degree of control and influence over the project.
Some PMOs are controlling, confirming that teams are following all of the processes they’ve defined
through audits, interviews, and observation of project documents and practices. In this type of structure,
the PMO requires compliance in addition to providing support. Still others are directive, actually managing
each project by assigning a PMO member to each one. In this type, the maximum control and influence
over projects is exercised by PMOs, where the PMO directly manages projects with full control.

The Project Stakeholders

Right from the day you assume responsibility for managing a project, you start meeting a very special class
of people called the project stakeholders. Project stakeholders are individuals and organizations whose
interests are affected (positively or negatively) by the project execution and completion. As they say in
physics, action and reaction are equal and opposite; if a project is going to influence and hence impact
stakeholders, they are going to impact the project back. Accordingly, these stakeholders fall into two
categories—positive stakeholders, who will normally benefit from the success of the project, and
negative stakeholders, who will see some kind of disadvantage coming from the project. The implications
obviously are that the positive stakeholders would like to see the project succeed, and the negative
stakeholders’ interests would be better served if the project were delayed or cancelled altogether.
Negative stakeholders are often overlooked by the project manager and the project team, which increases
project risk. Ignoring positive or negative project stakeholders will have a damaging impact on the project.
Therefore, it’s important that the project manager start identifying the project stakeholders early on in
the project. The following are the obvious stakeholders and their common interest in the project:

Stakeholders Interest in the project

Project Management The PMO is concerned about the overall outcome of the project and the
Office effective and efficient use of all available resources by the project manager.

Project Manager & Of course, the project manager and his or her team are concerned about the
Project Team project’s success by attaining the project objectives aligned with the
company’s strategic and business objectives.

Functional and These are individuals who play management roles within operational or
operational managers functional areas of the organization. If you are using resources or support that
are under a these managers, then they are stakeholders in your project.

Sellers and Business Business partners are entities external to the performing organization, such
Partners as contractors and suppliers that enter into a contractual agreement with the
performing organization to provide certain components for the project. They
are interested to know the technical requirements and needs of the project
that they need to supply.

Customer/User In general, customers are the entities that will acquire the project’s outcome,
such as a product, and users are the entities that will use the product.
Ultimately, they are the ones that must be satisfied about the project’s
quality.
Project Sponsor This is the individual or group that provides financial resources for the project.
The sponsor serves as an authority and a catalyst for issues beyond the control
of project managers, such as authorizing critical changes and other yes/no
decisions.
In addition to these key stakeholders, who are easy to identify, there can be a number of other
stakeholders who might be more difficult to identify both inside and outside of your organization.
Depending upon the project, these might include investors, sellers, contractors, family members of the
project team members, government agencies, media outlets, lobbying organizations, individual citizens,
and society at large.