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

Project Team Organization

Project Matrix

Project fully managed by functional managers Project fully managed by

project team manager

FunctionalOrganization

Functional Matrix

Balanced Matrix

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

Marketing Department Chair

Finance Department Chair

Gloria

Diane

Bob

ZeldaLarry

Curly

Moe

Barby

Leslie

Matrix Organizations & Project Success

• Matrix organizations emerged in 1960’s as an alternative to traditional means of project teams

• Became popular in 1970’s and early 1980’s

• Still 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 schedule2) Controlling cost3) Technical performance4) Overall performance

• Respondents were asked to indicate the extent to which they agreed with each of the following statements:

1) Project objectives were clearly defined2) Project was complex3) Project required no new technologies4) Project had high priority within organization

• Classification of 547 respondents (64% response rate)

30% project managers or directors of project mgt programs16% top management (president, vice president, etc.)26% managers in functional areas (e.g., marketing)18% specialists working on projects

• Industries included in studies14% pharmaceutical products10% aerospace10% computer and data processing products

others: telecommunications, medical instruments, glass products, software development, petrochemical products, houseware goods

• Organizational structures:

13% (71): Functional organizations26% (142): Functional matrix16.5% (90): Balanced matrix28.5% (156): Project matrix16% (87): Project team

Study Data

ANOVA Results by Organizational Structure

Controlling Cost

Meeting Schedule

Technical Performance

Overall Results

Organizational Structure N Ave (SD) Ave (SD) Ave (SD) Ave (SD)

AFunctional

Organization 71 1.76 (.83) 1.77 (.83) 2.30 (.77) 1.96 (.84)

B Functional Matrix 142 1.91 (.77) 2.00 (.85) 2.37 (.73) 2.21 (.75)

C Balanced Matrix 90 2.39 (.73) 2.15 (.82) 2.64 (.61) 2.52 (.61)

D Project Matrix 156 2.64 (.76) 2.30 (.79) 2.67 (.57) 2.54 (.66)

E 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)

F-statistic 10.38* 6.94* 7.42* 11.45*

Scheffe ResultsA,B < C,D,E

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

*Statistically significant at a p<0.01 level

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 Alliancen 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

How is knowledge transferred?

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

WHAT a company communicates.....

HOW a company communicates.....

Personality Compatibility

Corporate Personality

Subcontractor Personality

Individual Personality

Project

Subcontracting Issues

n• 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?

Basic Contract Types

n Fixed Price Contractu Client pays a fixed price to the contractor irrespective of actual audited

cost of project

n Cost Plus Contract u 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)

n Units Contractu 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 B = 1

Fixed Price Contract

Linear & Signalling Contracts

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 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:

n 1) The price and effect of term discounts...price may be determined by life cycle costing if so indicated in the invitation to bid

n 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.

n 3) The ability, capacity, and skill of the bidder to perform the contract or provide the services required.

n 4) The character, integrity, reputation, judgement, experience, and efficiency of the bidder.

n 5) Whether the bidder can perform the contract with the time specified.n 6) The quality of performance on previous contracts for purchased goods or services.n 7) The previous and existing compliance by the bidder with the laws relating to the

contract for goods and services.n 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 GoldblattDepartment of Building

ConstructionUniversity of WashingtonThe 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)

A

B

C

D

Start End

Precedence DiagrammingStandard 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 A7 months

Task B3 months

End

Task C

11 months

Start

Critical Path Method (CPM): Basic Concepts

Start

Task A7 months

Task B3 months

Task C11 months

End

ESStart = 0LFStart = 0

ESA = 0LFA = 8

ESB = 7LFB = 11

ESC = 0LFC = 11

ESEnd = 11LFEnd = 11

ESj = Earliest starting time for task (milestone) j

LFj = Latest finish time for task (milestone) j

AON Precedence Network: Microsoft Project

Start

1 0d

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

Task A

2 7d

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

Task C

4 11d

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

End

5 0d

Wed 1/3/01 Wed 1/3/01

Task B

3 3d

Fri 12/29/00 Tue 1/2/01

Critical Path Method (CPM): Example 2

Task A 14 wks

Task D 12 wks

Task E 6

wks

Task B 9 wks

Task C 20 wks

Task F 9

wks

START END

ESF =LFF =

ESD =LFD =

ES START = 0LFSTART = 0

ESA =LFA =

ESB =LFB =

ESEND =LFEND =

ESC =LFC =

ESE =LFE =

Example 2: Network Paths

Path TasksExpected

Duration (wks)1 START-A-D-F-END 352 START-A-D-E-END 323 START-B-D-F-END 304 START-B-D-E-END 275 START-C-E-END 26

Example 2: CPM Calculations

E A R L I E S T L A T E S T

Task or Milestone

Duration ( )

Start Time (ESi) Finish Time Start Time

Finish Time (LFi)

START 0 0 0 0 0A 14 0 14 0 14B 9 0 9 5 14C 20 0 20 9 29D 12 14 26 14 26E 6 26 32 29 35F 9 26 35 26 35

END 0 35 35 35 35

ti

Example 2: Calculating Total Slack (TSi)

Task or Milestone

Duration ( )

Earliest Start Time

(ESi)

Lastest Finish Time

(LFi)Total Slack

(TSi)Critical Task?

START 0 0 0 0 Yes

A 14 0 14 0 Yes

B 9 0 14 5 No

C 20 0 29 9 No

D 12 14 26 0 Yes

E 6 26 35 3 No

F 9 26 35 0 Yes

END 0 35 35 0 Yes

ti

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

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 for all tasks i that immediately precede task j

STARTj ≥ 0 for all tasks j in project

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

Example #2: Excel Solver Model

Gantt Chart

ID Task Name

1 Start

2 Task A

3 Task B

4 Task C

5 Task D

6 Task E

7 Task F

8 Task G

9 Task H

10 Task J

11 End

3/1

Workers[5]

Workers[7]

Workers[3]

Workers[12]

Workers[2]

Workers

Workers[2]

Workers[5]

Workers[6]

5/10

21 24 27 1 4 7 10 13 16 19 22 25 28 31 3 6 9 12 15 18 21 24 27 30 3 6 9 12 15 18

February March April May

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 (cont’d)

• 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

Task A 14 wks

Task D 12 wks

Task E 6

wks

Task B 9 wks

Task C 20 wks

Task F 9

wks

START END

ESF = 26LFF = 35

ESD = 14LFD = 26

ES START = 0LFSTART = 0

ESA = 0LFA = 14

ESB = 0LFB = 14

ESEND = 35LFEND = 35

ESC = 0LFC = 29

ESE = 26LFE = 35

Project Budget Example

Task or Milestone

Duration (tj)

Early Start Time (ESj)

Latest Start Time (LSj)

No. of Resource A

workers

No. of Resource B

workersMaterial

CostsDirect Labor

Cost/wkLabor +

Materials

START 0 0 0 - - - - -

A 14 0 0 2 0 340$ 800$ 1,140$

B 9 0 5 4 12 125$ 8,800$ 8,925$

C 20 0 9 3 14 -$ 9,600$ 9,600$

D 12 14 14 0 8 200$ 4,800$ 5,000$

E 6 26 29 1 0 560$ 400$ 960$

F 9 26 26 4 10 90$ 7,600$ 7,690$

END 0 35 35 - - - - -

Cost for Resource A worker = $400/week

Cost for Resource B worker = $600/week

Project Budget Example (cont’d)Early Start Times

Task 1 2 3 4 5 6 7 8 9 10 11 12

A 1140 800 800 800 800 800 800 800 800 800 800 800

B 8925 8800 8800 8800 8800 8800 8800 8800 8800

C 9600 9600 9600 9600 9600 9600 9600 9600 9600 9600 9600 9600

DEF

Weekly Subtotals 19665 19200 19200 19200 19200 19200 19200 19200 19200 10400 10400 10400

Cumulative 19665 38865 58065 77265 96465 115665 134865 154065 173265 183665 194065 204465

Late Start Times

Task 1 2 3 4 5 6 7 8 9 10 11 12

A 1140 800 800 800 800 800 800 800 800 800 800 800

B 8925 8800 8800 8800 8800 8800 8800 8800

C 9600 9600 9600 9600

DEF

Weekly Subtotals 1140 800 800 800 9725 9600 9600 9600 19200 19200 19200 19200Cumulative 1140 1940 2740 3540 13265 22865 32465 42065 61265 80465 99665 118865

W e e k

W e e k

Cumulative Costs

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

1 3 5 7 9

11

13

15

17

19

21

23

25

27

29

31

33

Week

Cu

mu

lati

ve

Co

st

Early Start Schedule Late Start Schedule

Range of feasible budgets

Weekly Costs (Cash Flows)

0

5000

10000

15000

20000

25000

1 3 5 7 9

11

13

15

17

19

21

23

25

27

29

31

33

Week

Week

ly C

osts

Early Start Schedule Late Start Schedule

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

M1

END

START

Task B 8 mos

Receive payment of $3000

Receive payment of $3000

Make payment of $5000

Task C 4 mos

Task A 2 mos

M2

Task D 8 mos

Task E 3 mos

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

Task A 4 wks

Task B 8 wks

Task C 5 wks

Task D 6 wks

Task E 2 wks

Task F 3 wks

EndStart 2 units

30 units

LSA = 0 LSB = 4 LSC = 12

LSD = 6 LSE = 12 LSF = 14

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 2 3 4 5 6 7 8 9 10 11 12

Demand: 2 30

Order option #1: 32

Order option #2: 2 30

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