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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