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
Project fully managed
by functional managers
Project Matrix
Balanced Matrix
Project Team
Organization
Project fully managed by
project team manager
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 1960’s as an
alternative to traditional means of project
teams
• Became
• Still
•
popular in 1970’s and early 1980’s
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
Cos t
Ave (SD)
Meeting
Schedule
Ave (SD)
Technical
Performance
Ave (SD)
Overall
Results
Ave (SD)
A
Functional
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 Results
A,B < C,D,E
E<D
Organizational Structure
*Statistically significant at a p<0.01 level
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
n
Cost Plus Contract
u
n
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
n
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)
A
C
Start
End
B
D
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 = a): Job B cannot start until a days after Job A is
finished
Start-to-start (SS = a): Job B cannot start until a days after Job A has
started
Finish-to-finish (FF = a): Job B cannot finish until a days after Job A
is finished
Start-to-finish (SF = a): Job B cannot finish until a 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
Task B
2
7d
3
3d
Wed 12/20/00
Thu 12/28/00
Fri 12/29/00
Tue 1/2/01
Start
1
0d
Wed 12/20/00
Wed 12/20/00
End
Task C
4
11d
Wed 12/20/00
Wed 1/3/01
5
0d
Wed 1/3/01
Wed 1/3/01
Critical Path Method (CPM): Example 2
ES A =
LFA =
TaskA
14 wks
ES START = 0
LF START = 0
ES B =
LFB =
START
Task B
9 wks
ES C =
LFC =
Task C
20 wks
ES F =
LFF =
ES D =
LFD =
Task F
9 wks
Task D
12 wks
ES END =
LFEND=
END
ES E =
LFE =
Task E
6 wks
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
EARLI EST
Task or
Milestone
Duration
( ti )
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
LATES T
Finish Time
0
14
9
20
26
32
35
35
Start Time
0
0
5
9
14
29
26
35
Finish Time
(LFi)
0
14
14
29
26
35
35
35
Example 2: Calculating Total Slack (TSi)
Total Slack for task i = TSi = LFi - ESi - ti
Task or
Milestone
START
A
B
C
D
E
F
END
Duration
( ti )
0
14
9
20
12
6
9
0
Earliest
Start Time
(ES i)
0
0
0
0
14
26
26
35
Lastest
Finish Time
(LFi)
0
14
14
29
26
35
35
35
Total Slack
(TSi)
Critical
Task?
0
0
5
9
0
3
0
0
Yes
Yes
No
No
Yes
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
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
ES A = 0
LFA = 14
TaskA
14 wks
ES START = 0
LF START = 0
ES B = 0
LFB = 14
START
Task B
9 wks
ES C = 0
LFC = 29
Task C
20 wks
ES F = 26
LFF = 35
ES D = 14
LFD = 26
Task F
9 wks
Task D
12 wks
ES END = 35
LFEND= 35
END
ES E = 26
LFE = 35
Task E
6 wks
Project Budget Example
Task or
Milestone
Duration
(tj)
Early Start
Time (ESj)
Latest Start
Time (LSj)
No. of
Resource A
workers
START
0
14
9
20
12
6
9
0
0
0
0
0
0
5
2
4
0
12
$
$
340
125
$
$
800
8,800
$
$
1,140
8,925
0
14
26
9
14
29
3
0
1
14
8
0
$
$
$
200
560
$
$
$
9,600
4,800
400
$
$
$
9,600
5,000
960
26
26
4
10
$
90
$
7,600
$
7,690
35
35
-
-
A
B
C
D
E
F
END
No. of
Resource B
workers
Material
Costs
Direct Labor
Cost/wk
-
-
-
Cost for Resource A worker = $400/week
Cost for Resource B worker = $600/week
-
Labor +
Materials
-
Project Budget Example (cont’d)
Week
Early Start Times
Tas k
1
A
1140
B
8925
C
9600
D
E
F
2
3
4
800
8800
9600
800
8800
9600
800
8800
9600
800
8800
9600
800
8800
9600
800
8800
9600
800
8800
9600
800
8800
9600
19665
19665
19200
38865
19200
58065
19200
77265
19200
96465
19200
115665
19200
134865
19200
154065
19200
173265
Wee kly Su btotals
Cumul ative
5
Wee kly Su btotals
Cumul ative
7
8
9
10
11
12
800
800
800
9600
9600
9600
10400
183665
10400
194065
10400
204465
Week
Late Start Times
Tas k
A
B
C
D
E
F
6
1
2
3
4
5
6
7
8
1140
800
800
800
800
8925
800
8800
800
8800
800
8800
1140
1140
800
1940
800
2740
800
3540
9725
13265
9600
22865
9600
32465
9600
42065
9
10
11
12
800
8800
9600
800
8800
9600
800
8800
9600
800
8800
9600
19200
61265
19200
80465
19200
99665
19200
118865
Cumulative Costs
Range of
feasible budgets
Weekly Costs (Cash Flows)
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
Task A
2 mos
Task D
8 mos
Receive payment
of $3000
Task C
4 mos
START
END
Task B
8 mos
Task E
3 mos
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
LS A = 0
LS B = 4
LS C = 12
Task A
4 wks
Task B
8 wks
Task C
5 wks
2 units
Start
LS D = 6
LS E = 12
LS F = 14
Task D
6 wks
Task E
2 wks
Task F
3 wks
30 units
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
2
3
Demand:
4
2
5
6
7
8
9
10
11
12
30
Order option #1: 32
Order option #2:
2
30
Choose the option that minimizes inventory cost = order cost + holding
cost of raw materials