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1. Projects in Organisations

Introduction

The common business model is highly structured, stable and predictable. Well-defined lines of responsibility and authority exist, usually organised in a hierarchical manner. A change is occurring as projects become a major component of organisational activities. According to Bredillett et al. (2008, referenced in Aubry et al. 2010), World Bank data shows that 21 per cent of the world's gross domestic product is tightly related to projects. To take maximum advantage of projects, vertically structured organisations are flattened so that they can respond quickly and efficiently to fast-changing market conditions. Old-style bureaucracies are increasingly being replaced by flexible, project-oriented structures.

Project-versus Product-Based Organisations

The questioning of traditional organisational arrangements has resulted in a preference for project-based approaches. This new structure is termed the project-based organisation (PBO) or multi-project organisation, and first emerged in the 1990s. For a PBO, the project is the basic form for organising its operations. It is particularly suited for entrepreneurial action and innovation since the nature of projects allows the organisation to respond quickly to an emerging market opportunity.

The key dimensions that distinguish the 'project-based organisation' and the 'product-based organisation' are business operations, technical processes and organisation structures (Du and Shi 2007). From a project management perspective, the key differences of the PBO when compared with product-based organisations are in the following two areas. First, production only occurs when the order is received and hence the project itself has to be flexible in the way it responds. For example, it may need a skillset different from previously completed projects. Second, high-level decisions have to be made as to whether or not to go ahead with the project. Projects compete with each other for funds and other resources within a portfolio of projects. To be included, the project has to contribute a net benefit to the organisation.

Table 1.1 highlights a number of differences that distinguish project- based from product-based organisations. In the former, projects are initiated and completed in agreement with the customer. They are made-to-order at a negotiated price and require a variety of skills, since each project is unique. The organisation structure is flexible and responsive to market needs, but concerns exist about the temporary and impermanent nature of the work. Product-based organisations, on the other hand, make stock for their inventory from which customers are supplied and charged according to a published price list. Production is largely automated and requires specialised skills. The organisation structure is hierarchical and recognises functional units and their strategic objectives.

Table 1.1 Dimensions of product-based organisations and project-based organisations

Dimensions

Project-Based

Product-Based

Production

Make-to-order

Make-to-stock

Demand

Unpredictable

Predictable

Volume

Low

High

Price

Negotiated

Fixed

Output

Customised product

Standard product

Delivery

On completion

From inventory

Process

Negotiated

Mechanical

Skill

Variety

Specialised

Organisation structure

Flexible, integrated

Fixed, hierarchical

Strategy

Add business value

Achieve business efficiency

While the PBO has the advantage of flexibility, it has a number of weaknesses compared to product-based Functional Matrix Organisation (FMO). Where there are multiple and unique projects, business costs are higher since there is little scope for routine work and hence a lower average cost of production. Each project potentially presents new technological and skill challenges for which little corporate memory exists. The dynamic nature of project work consistently exposes the project team to new environments. It is easier within an FMO than within a PBO to co-ordinate resources because of the high level of production predictability and centralised control. Within a PBO projects often run quite independently and parallel with each other and may compete for the same skills and financial resources. The allocation of scarce resources across projects will have to be determined by their projected contribution to business value, a difficult task.

FMOs tend to conduct centralised activities such as research and development (R&D) that benefit the organisation as a whole. This is generally lacking within PBOs since the organisation has been flattened so that it can respond quickly and efficiently to fast-changing market conditions. More emphasis is placed on 'eyeballing' the market than on internal activities. In a similar way support functions such as human resource management, finance and accounting, and legal services may receive less attention within the PBO than within the FMO.

An interesting approach is to classify types of projects by their broad governance paradigms. According to Mueller (2009) three paradigms can be identified. The 'conformist' paradigm requires that projects strictly comply with existing processes and rules. Experienced project managers are needed to decide the processes that will deliver the most economic results, i.e. the lowest cost possible. The paradigm applies to projects that are relatively homogeneous and subjected to tight regulations, such as can be found in the construction industry.

The 'versatile artist' paradigm requires a balancing of a diverse set of project requirements arising from the particular needs of different stakeholders. Organisations working with heterogeneous projects, such as those applying leading-edge technology, use this paradigm. Versatile and experienced project managers are needed to manage this dynamic environment.

Under the 'agile' paradigm, projects have a core functionality to which features are progressively added. The project sponsor prioritises the components of the project to be developed. An example is a software development project where the core is available for immediate use and additional modules are added over time.

 
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