The way projects are structured is directly related to the way the entire organization is structured. There are three major organization structures to manage work and people.
In a functional organization, a project team is staffed with people from the same department. All the resources needed for the project team come from the functional organization. For instance, if the project is related to the finance function, the project resources come from the Finance Division. If you need IT, finance and legal resources, they would all be available from within the Finance Division.
A second way that a project is staffed in a functional organization is by executing portions of a project in one functional organization at a time. For example, let’s say that a large project needed resources from the Finance, Purchasing, IT and Manufacturing departments. In a functional organization, the project would be broken down by organizational unit and each unit would do its own part relatively independently. The IT Department would work on its piece. The Finance Department would work on its piece. The Manufacturing and Purchasing Departments would work on its pieces. At the end, all of the independent solutions would be integrated into one final solution.
The biggest advantage of functionally-based projects is that there is usually clear authority, since the project managers tend to also be the functional managers. You also do not need to negotiate with other organizations for resources, since all of the staff needed for your project will come from the same functional organization. Other advantages of this organization are that the team members are usually familiar with each other, since they all work in the same area. The team members also tend to bring applicable business knowledge of the project.
A major disadvantage of the functional organization is that your functional area may not have all of the specialists needed to work on a project. A Finance project with an IT component, for instance, may have difficulty acquiring specialty IT resources such as Database Administrators, since the only people available will work in their own functional department. Another disadvantage is that project team members may have other responsibilities in the functional organization since they may not be needed full-time on a project. They may be assigned to other projects, but it is more typical that they would have support responsibilities that could impact their ability to meet project deadlines.
When projects are large enough, it’s possible to form functional departments within the project team. This is especially practical when a large program has hundreds of people assigned over a long period of time. Advantages include clear authority, since the project manager is also the functional manager, and a clear focus, since everyone on the team has only the project for his primary responsibility.
One disadvantage is duplication of resources, since scarce resources must be duplicated on different projects. For instance, a large project may have its own Human Resources staff, which could duplicate a central Human Resources Department. There can also be concerns about how to reallocate people and resources when projects are completed. In a functional organization, the people still have jobs within the functional department. In a project-based organization it is not so clear where everyone is reassigned when the project is completed.
Matrix organizations allow functional departments to focus on their specific business competencies and allow projects to be staffed with specialists from throughout the organization. For instance, Database Administrators may all report to one functional department, but would be allocated out to work on various projects in other departments. A Legal resource might report to the Legal Department, but be assigned to a project in another department that needs legal expertise. It is common for people to report to one person in the functional organization, while working for one or two project managers from other departments.
The main advantage of the matrix organization is the efficient allocation of all resources, especially scarce specialty skills that cannot be fully utilized by only one project. For instance, data modeling specialists may not be utilized full-time on a project, but can be fully leveraged by working on multiple projects. The matrix-based organization is also the most flexible when dealing with changing business needs and priorities.
The main disadvantage is that the reporting relationships are complex. Some people might report to functional manager for whom little work is done, while actually working for one or more project managers. It becomes more important for staff members to develop strong time management skills to ensure that they fulfill the work expectations of multiple managers. This organization also requires communication and cooperation between multiple functional and project managers that all need time from the same resources.
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