Structure of project
The internal and external project
management
The internal project management is
understood as a situation when the project team
works entirely within the framework of the existing
organizational structure.
The external project management, on the
other hand, is a situation when an external project
head manager is brought in, who works as an
external agent on the client’s behalf
Typical external project management
arrangement
Organization
Senior management
Internal Project manager
External project manager
Functional manager
Functional manager
Resource
Resource
Functional team
Functional team
External consultants
External suppliers External contractors External subcontractors
Advantages and disadvantages of internal
project management
Advantages of internal project management:
• a great flexibility in using personnel:
• individual experts can be involved in a number of projects;
• special knowledge is easily accumulating and spreading within
the organization;
Disadvantages of internal project management:
• the project head manager needs much diplomacy in negotiating
with functional managers about resources;
• the violation of the principle of undivided authority;
• making decisions, remuneration, etc. are in the field of tensions
between a functional subdivision and the project team.
Advantages of external project management
the external project head manager can be hired for a required
time;
• the project team is subordinate disciplinarily to the project head
manager;
• functional structures of the organization exercise no influence on
the work of the project team;
• the project reacts quickly to the changes of environment;
• the use of external specialists enriches the organization with
new ideas and approaches;
• jobs which cannot be done by appropriate specialists within the
organization, can be entrusted to external experts;
Disadvantages of the external project
management
• external specialists are usually expensive;
• the communication is carried out through the borders of the
organization (overcoming barriers);
• the external manager’s goals may be far removed from those of
the organization;
• claims to external specialists and organizations are difficult to
carry through, and the level of possible control over them and
management of their activities is limited;
• an additional administrative and controlling system is required
as well as it is necessary to include into the project additional
internal subdivisions (for example, a juridical department);
• a stricter control over communications is required when they
cross the borders of the organization. Communications with
external specialists may lead to contractual complications;
• no experience is accumulated inside the organization;
Project organization
The project within an existing organization
Pure project structure
• Pure project structures are typically used for projects that are difficult
to plan accurately and where resource requirements and provision
levels cannot be accurately established beforehand. Typical
examples would include R&D projects.
• In its simplest form a pure project system would have a “pool” of
available labour resources that is maintained by the organization as
a whole. The individual project managers can dip into this pool and
draw a team of people together to become the project team. In large
research and development organizations, there might also be a
“pool” of project managers.
• Project systems can operate as pure projects within a functional
organization. A pure project would comprise a group of specialists
who where drawn from functional units and have taken the
responsibility for working on the project.
The project within an existing organization
Pure project structure
• Pure project systems may be a “satellite” of a parent that
has been set up specifically to deliver projects and could
be linked to the parent company by a reporting system.
Project organizations often have total freedom within the
limits of final accountability; others have functional
support assigned to them by their parent company.
• Pure project structure can also exist as separate
organization. This type of arrangements tends to exist for
relatively large, one-off projects where project team
members have responsibility solely to the project. The
project itself is usually of relatively long duration.
The project within an existing organization
Pure project structure
• The benefits of the pure project structure:
– The system is flexible and responsive to change.
– The project manager not only has full authority over the project
but has a dedicated project team working under, and reporting
only, to him.
– The project team members report only to the project manager.
They are not responsible to a functional department.
– Pure project systems tend to have shorter and clearer formal
(and informal also) communication linkages as there is no
functional structure to navigate. The project manager reports
directly to senior management.
– These systems can be particularly effective when there are a
number of projects operating at any one time within an
organizations. This allows the project organization to build
specific skills and expertise in these areas, which can result in
distinct competitive advantages.
The project within an existing organization
Pure project structure
– In pure project systems, the project team can develop
a strong sense of identity and motivation; commitment
to the project is often high.
– Authority is centralized and the project team can
therefore make quick decisions and react rapidly to
changing circumstances.
– It is easy to see the project as a whole, with less of a
tendency to focus on sub-systems thus losing touch
with the whole project.
– It is generally much easier to incorporate external
consultants than in a functional structure.
The project within an existing organization
Pure project structure
• From the project’s point of view, the pure project system
appears to be the best supporting structure. However, it
has a number of disadvantages:
– Several projects running concurrently may lead to a duplication
of effort in some areas.
– Staffing costs may be very high because each project has fulltime functional capability whether required or not.
– Some degree of centralized direction is needed and there has to
be some form of command hierarchy. Higher levels of authority
may have difficulty in interfacing with various programs and
projects.
– Project managers (by definitions) tend to think ahead. There is
often a tendency to bring in key resources early in order to
ensure that they will be available when required and with no
delay. This may lead to increased costs.
The project within an existing organization
Pure project structure
– A sense of competition can sometimes develop
between the various project teams.
– Project team members tend to have an underlying
concern about long term commitment. Project
deadlines may create a culture where team members
attempt to “cut corners” in order to maintain good
performance records.
– Pure project staff may become highly competent
project workers, but prolonged absence from a
corresponding functional section could result in their
losing touch with developments within the functional
disciplines. The functional department may be better
positioned to keep up to date with developments.
The functional organization
The project within an existing organization
The functional structure
• Most projects are carried out within the traditional
organization set out along the functional lines.
• Although projects carried out in this environment
might be strategically important to the organization,
they are highly unlikely to be the reason for its
existence. They are likely to be developmental in
nature and would tend to be projects to improve
methods or products.
• The functional structure is typical of large
organization, and it has some well known sufficient
benefits:
– Functional systems offer good flexibility in the use of people.
Staff are primarily employed to perform a functional job but
may be temporarily assigned to a project that requires their
particular expertise.
The project within an existing organization
The functional structure
– Functional systems allow individual experts to be effectively
used on a number of projects. If there is a broad base of
expertise within a functional department, they can be
employed on different projects with relative ease.
– Functional systems allow specialist knowledge to be easily
shared within the function and effectively utilized by the
project team. This assists in the development of continuity in
the sense that expertise, procedures and administration are
maintained within the function despite any personnel
changes that may occur.
– The function provides the most secure carrier path for an
individual. Whilst projects may generate a degree of
satisfaction, the functional department probably offers more
prospect of promotion.
The project within an existing organization
The functional structure
• From a project perspective there are also a number of
disadvantages associated with the functional
structure. The main of them:
– It is inflexible. The strict lines of accountability and
specialization tend to channel approaches and attitudes
toward clearly defined functional roles. As a result functional
units often find it difficult to innovate and respond to change.
– The functional outputs tend to be primary objective of the
organization. Any project structure that attempts to operate
within the functional structure will tend to be considered as of
secondary importance.
– Cross-functional activities are discouraged.
– Functional people tend to see the function as their future.
Their carrier path are nearly always tied to the function rather
than to any individual project.
Matrix organization
Matrix organization
Matrix organization
The project within an existing organization
Matrix structure
• A matrix structure represent a compromise between pure
project and pure functional forms. It attempts to combine the
benefits of the functional organization with those of the pure
project organization, whilst at the same time eliminating the
disadvantages.
• The matrix structure is the pure project structure overlaid on
the functional divisions of the parent organization.
• The matrix structure is suitable for projects of all sizes and
natures, where team members can be employed on, or
assigned to, projects on either a full-time or a part-time basis
whilst retaining their home in the functional discipline.
• This arrangement is often referred to as internal nonexecutive, project management. It is internal because all
aspects are within the organizational boundary. It is nonexecutive in that the project manager has limited (nonexecutive) authority within the system.
The project within an existing organization
Matrix structure
Organizational
boundary
Senior managers
Functional boundary
Power
boundary
Functional manager
Functional manager
Resource
Resource
Project
Manager
Resource
Resource
Project
team
Project
Manager
Resource
Resource
Project
team
Functional team
Functional team
Project
boundary
The project within an existing organization
Matrix structure
• Matrix structures may be very strong or very weak, or
anywhere in between, depending upon the nature of the
projects undertaken.
• Strong matrix structures close to pure project structures
and tend to be used on large projects where employees
are assigned to projects on long-term, full-time basis.
• Weak structures exist where the only full-time employee
on a project is the project manager and everyone else
used on the project is commissioned on short-term
basis. This is common on smaller, shorter-term projects.
The project within an existing organization
Matrix structure
• The main characteristics of an internal project
management structure are:
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functional boundaries;
power or status boundaries;
organizational islands;
a project sponsor;
the project management chair;
interfaces;
interface management;
the process of bidding;
time recording and cost-center charging.
The project within an existing organization
Matrix structure
• Advantages:
– In matrix systems the project has a single person (i.e. the project
manager) responsible for its success.
– The project has reasonable access to the total capability of each of the
functional areas and is well placed to draw on the services of any of the
specialists across all the organization’s departments.
– Team members are generally assured of their place back in the
functional department.
– The project within the matrix structure is flexible and can respond
rapidly to demands of the client.
– Close links to the functional departments ensure that organizational
procedures and systems are well adhered to and are consistent across
all projects.
– Where there are several projects running simultaneously, a matrix
structure enables better balancing of resources to meet the demands of
the organization as well as the demands of each of the projects.
The project within an existing organization
Matrix structure
• Disadvantages and problems:
– In the case of the power struggle between project manager and
functional managers, the project will suffer.
– Team members often do not like having two bosses because it
can lead to confusion and conflict.
– Project management is a complex task in general and the matrix
structure adds a new dimension to that complexity.
– Project team members can sometimes have difficulty in readjusting to working back in a rigid functional unit on completion
of the project.
– Projects tend to be depleted of resources towards the end of the
implementation life cycle. This can make completion very
difficult.
The project external to the existing organization
• External project management tends to be more
applicable to smaller organizations. It is a far more
flexible approach and is much more suited to
organizations with variable workloads.
• External project management structures are sometimes
referred to as “executive” project management
structures. The term “executive” refers to the fact the
project manager in this case is the only team leader and
has full authority and control over all components of the
project team. He does not have to negotiate for
resources with functional managers.
The project external to the existing organization
• An external project management system could comprise only
internal people but be managed by an external project management
consultant; it could also comprise a mixture of internal people and
external consultants, all of whom are managed by the consultant
project manager; or it could comprise only external consultants,
some or all of whom have been appointed by the consultant project
manager.
• In external system, different consultants act as agents on behalf of a
client. Some or all of the consultants could work for different
organizations.
• External project management systems are susceptible to the
problems of differentiation and sentience.
• External project management systems also tend to be subject to
more open and competitive fee structures than internal systems.
The project external to the existing organization
• External project management systems tend to have
much more developed organizational linkages than any
of the internal forms.
• Authority links define the power and control structure that
operates within the system. Authority links are not the
same as contractual links; they need not necessarily
follow the same routes through the organizational
structure.
• Communication links define the lines of communication
in the system. They might follow the same paths as
contractual and authority links, but they may also follow
different paths.
The project external to the existing organization
• External project management systems tend to have a
much wider range of formal contractual arrangements
than internal systems.
• In most cases, there would be a formal interacting body
to act as a gateway between the organization and the
outside world.
• The project manager would generally interface with the
externals through a legal service section. There may be
also a change control section, which would monitor
variation orders and give approval for changes as
required by internal regulations or contracts.
The project external to the existing organization
Senior management
Interface manager
Functional manager
Functional manager
Resource
Resource
Change control
section
Resource
Resource
Legal services
section
Functional team
Functional team
External project manager
External
supplier
Other external
service providers
External
contractors
Domestic
subcontractors
External
subcontractors
Nominated
subcontractors
External
consultant
External
consultant
The project external to the existing organization
• External project management systems have a
number of distinctive characteristics, which can
be summarized as:
– multidisciplinary and shared loyalty group
characteristics;
– fee structures;
– external contractual linkages;
– external non-contractual linkages.
The project external to the existing organization
Multidisciplinary and shared loyalty group characteristics
• This type of a project management structure is usually a
conglomeration of different companies and organizations that are
working together as an alliance to satisfy the project objectives.
• They are usually paid in the form of fees for their project
management systems and therefore tend to be strongly
multidisciplinary.
• They are also susceptible to shared loyalty characteristics. Each
consultant and contractor is working for his own practice or
company.
• The objectives of the practice or company are not the same as the
objectives of the client. There will therefore sometimes be a conflict
between parts of the system.
• External project management systems more susceptible to the
problems of differentiation and sentience than internal project
management systems.
The project external to the existing organization
Fee structures
• External project management systems tend to be subject
to much more open and competitive fee structures than
internal systems.
• Negotiated fees are now generally accepted as normal
for most applications. The client might require the
various consultants to look at the project and make a bid
in the form of a plan or proposal. This plan or proposal
shows the bidder’s intended method of executing the
project, together with a fee breakdown showing what
fees would be payable and on what basis.
The project external to the existing organization
Fee structures
• External fee structures can be based on either hourly
rates or percentages. Percentage fees are usually based
on some predetermined project cost total. Designer fees
are often based on the measured works total.
• Percentage fees may also be based on other totals, such
as final account total, which includes all measured
works, and additionally includes elements such as
variation order totals, expended prime cost and
provisional sums, etc. On large projects, the final
account total can be double the measured works total.
The project external to the existing organization
External contractual linkages
• External project management systems tend to have a
much wider range of contractual arrangements than
internal systems. This is because the external approach
has a wider range of external team members and
therefore a higher degree of risk of non-performance.
• External involvement can be more or less risky
depending on the degree of trust that is present.
• Contracts are the most common approach to controlling
risk where there is a significant external element.
• The types and range of contracts used will depend on
the specific application within the external system.
The project external to the existing organization
External contractual linkages
• Generally, contractual linkages can take one of three
primary forms:
– Completion contracts. Completion contracts are generally
one-off contracts where the contractor agrees to supply
specific goods and services, usually at some kind of agreed
cost and by a specific date.
– Term contracts. Term contracts are long-term agreements.
The supplier agrees to supply goods at an agreed rate to an
agreed standard for a fixed term.
– Service-level agreements. These are contracts where the
level of service is set rather than the performance of a
specific outcome.
– All three forms of contracts can be priced and arranged
through a competitive contract or through negotiation.
Negotiated contracts are often used as extensions to existing
contracts or where the work is highly specialized.
The project external to the existing organization
External contractual linkages
• Within the classifications above, individual contracts may
be of different types:
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Fixed-price contracts.
Cost or cost-plus contracts.
Reimbursement contracts.
Target-price contracts.
• Fixed price and cost contracts account for the majority of
contracts issued in most industries. They represent the
two extremes of risk for clients and contractors. The
client’s risk is clearly greatest in the case of cost-plus
contract, while it is lowest in the case of a fixed-price
contract. The contractor usually compensates for this by
increasing tender prices.
The project external to the existing organization
External contractual linkages
• Individual contract types can take a number of different
forms:
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Standard forms of contract.
Professional services contracts.
Supply contracts.
Subcontract agreements.
• Domestic subcontractor agreements.
• Nominated subcontractor agreements.
– Pro-forma contracts.
The project external to the existing organization
External contractual linkages
• Typical contractual links in an external system would
include the following:
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Client to project manager and other design team members.
Client to main contractor.
Client to service authorities.
Client to nominated subcontractors and suppliers.
Client to local authority. These contracts are primarily regulated
by statutory requirements. They include requirements such as
mandatory inspections and the issue of certification such as a
safety certificate. Most construction projects, for example, will
generate a requirement for some form of planning permission
and other statutory consents.
The project external to the existing organization
External non-contractual linkages
• The contracts form the basic structure of the external system.
However, external management systems cannot work effectively
without additional links. These are authority links and
communication links.
• Authority links define the power and control structure that operates
within the system.
• In most external management structures the client would be at the
head of the structure, and would relate instructions directly to the
project manager.
• In some cases, the client might devolve all authority to the project
manager, in which case responsibility for all authority would be
transferred. In other cases, the client might transfer 90% of
authority, but retain strategic or milestone control over key stages.
External non-contractual linkages
Possible authority, contractual and communication
arrangement for external consultants, with change control
Advantages of the external project management
• It is flexible and adaptive.
• It can respond rapidly to change.
• The use of external specialists can bring new ideas
and approaches into the organization.
• Areas of work where there is no in-house
specialization can be outsourced to appropriate
external specialists.
• An appropriate structure can be established relatively
quickly and easily and it can be staffed with the
optimal range of specialists.
• The team can be disbanded quickly and easily if
workload or demand changes.
• Internal risks such as key people being unavailable
can be avoided.
Disadvantages of the external project
management
• External specialists tend to be expensive.
• External specialists have no loyalty to the organization or
commitment to the project.
• A whole new administrative and control system is required. The
involvement of additional internal sections (such as legal services)
may be required.
• More rigid and controlled communication systems are required where
communications cross the organizational boundary. Communications
with external specialists can have contractual implications.
• The risk profile of the organization in general and the project in
particular changes significantly. There are possibility of arbitration
and litigation.
• The already complex job of the project manager becomes more
complex still.
Criteria for selecting the organizational
structure
• Authority.
– The pure functional form uses a traditional reporting structure
with a clear line of authority running down through the structure.
Everybody has a clear set of objectives and there is a clear
reporting line.
– In the matrix structure individual team members have more than
one reporting line. There is an immediate risk of confusion and
contradiction. This means that more stringent communication
and coordination systems are required. A new level of control
through the project sponsor is required. The performance of
individual sections becomes more difficult to assess.
– In a pure project system it may be difficult to control a number of
projects that are running concurrently.
Criteria for selecting the organizational
structure
• Communication.
– Formal communication is the easiest in a functional structure,
but functional boundaries restrict the informal communication.
Authority boundaries may restrict both formal and informal
vertical communication.
– A matrix structure reduces this blocks to some extent and
particularly opens up formal cross-functional communications.
– A pure project structure makes the greatest use of informal
communications and offers the most flexible communication
solution.
Criteria for selecting the organizational
structure
• Knowledge transfer.
– Functional knowledge is the easiest type of knowledge to store
and use in future operations.
– A matrix structure allows functional knowledge to be used in
projects, and the projects themselves can develop new
knowledge that can be fed back into the functional knowledge
store.
– Knowledge transfer in a pure project structure tends to be
restricted to areas of commonality between individual projects.
Criteria for selecting the organizational
structure
• Loyalty
– A functional structure tends to develop the greatest individual
loyalty, as employees tend to associate their carrier progression
with the functional section. This can lead to situation in which the
project may be seen as secondary.
– In a matrix structure this loyalty can be shared to some extent as
individual project team members remain members of their
functional sections.
– In a pure project structure individual progression may or may not
be related to the success of individual projects. Loyalty may
become a problem.
Criteria for selecting the organizational
structure
Technology
- Functional sections tend to rely on the use of existing
technology in order to manufacture or produce
something.
- In a matrix structure the project teams are more likely to
use existing technology to innovate. In addition, because
project teams tend to look at problems in a different way
they may generate a demand for new technological
innovations or for the use of existing technology that has
not previously been used by the organization.
- Pure project structures tend to produce the greatest
demand for innovative technology.
Criteria for selecting the organizational
structure
• Cost
– Pure functional structures tend to have large fixed costs. They
are inflexible to changes in workload.
– The matrix structure is more flexible in that the project teams can
be increased or decreased in size depending on workload
variations.
– The pure project structure is the most flexible approach and can
produce the lowest running costs.
• Coordination
– Pure functional structures have the most formal reporting
systems and therefore the degree of coordination required is low.
– In a matrix structure enhanced coordination is necessary
because functional boundaries and increased potential for
destructive competition and conflict.
– Pure project structures require similar high levels of coordination
in order to avoid the possibility of duplication of effort.
Criteria for selecting the organizational
structure
• Support functions
- Pure functional structures require well-developed
centralized support functions.
– Matrix structures have a similar requirement. Large projects may
have their own administration and IT support.
– Pure project organizations may require little or no centralized
support.
• In most cases, the organizational structure of the
company is given, and the project manager has to
design the project structure and then incorporate it into
existing structure.
Choice of organizational structure
• A pure functional organizational structure should be chosen where:
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the workload is constant and only varies slightly;
projects are required only infrequently;
there are well developed centralized support functions;
clearly defined authority structures are required;
informal communication systems are not required;
there is adequate back-up for key personnel;
the functional objectives are the primary concern of the organization;
change is unlikely to be a major consideration;
any projects are relatively small or insignificant;
fast project response time is not required.
Choice of organizational structure
• A matrix organizational structure should be chosen where:
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workload is variable;
projects are frequently required;
a degree of research and innovation is required;
centralized support functions are present or partially outsourced;
split authority structure are acceptable;
informal communication systems are acceptable;
projects are secondary but of significant importance;
some degree of change has to be accommodated;
any projects are small to medium size;
fast project response time is not generally required.