Ecte 333

ECTE350
Engineering Design and Management 3

Project Management
Lecture 2
Reducing Project Duration
(Organisational Structures - Chapter 3)
ECTE350 Lecture 2 Slide 1 © P. A. J. Larkin 2013
This Lecture - Chapter 9
ECTE350 Lecture 2 - Page 1 of 31

Introduction
• This lecture addresses strategies for reducing project
duration.
• The choice of options to achieve this is based on the
constraints surrounding the project.
• For example, there are many more options available for
reducing project time if you are not resource constrained
than if you cannot spend more than your original budget.
• It examines reasons for reducing project duration and
different options for accelerating project completion.
• The lecture concludes with the classic time-cost
framework for selecting which activities to "crash."
Establishing Project Priorities

Quality and the ultimate success of a project are
traditionally defined as meeting and/or exceeding the
expectations of the customer and/or upper management in
terms of the work required (scope), cost (budget) and time
(schedule) of the project (see Figure 4.1 below).

• The interrelationship among these criteria varies.
• For example, sometimes it is necessary to compromise
project performance and scope to reduce time or cost.
• Often the longer a project takes, the more expensive it
becomes.
• However, a positive correlation between cost and schedule
may not always be true.
• Project costs may be reduced by using cheaper, less
efficient labour or equipment that extends project duration.
• As will be seen in this lecture, project managers are often
forced to expedite or "crash" certain key activities by
adding additional labour, thereby increasing project costs.

• One of a project manager's primary jobs is to manage the
trade-offs among time, cost, scope and quality.
• To do so, project managers must define and understand
the nature of the priorities of the project.
• They need to have a candid discussion with the project
customer and upper management to establish the relative
importance of each criterion.
• For example, what happens when the customer keeps
adding requirements?
• Or if, during project execution, a trade-off must be made
between cost and expediting, which criterion has priority?

• One technique found in practice useful for this purpose is
completing a priority matrix (Figure 4.2 following) for
the project to identify which criterion is constrained,
which should be enhanced, and which can be accepted:
• Constrain: One criterion is fixed, i.e., must meet the
completion date, specifications and scope, or budget.
• Enhance: Given one criterion, which criterion should
be optimised?
• Accept: For which criterion is it tolerable not to meet
the original parameters?
• (See Chapter 4.)

Figure 4.2 Priority Matrix

Rationale for Reducing Project Duration
• There are few circumstances in which a project manager
or owner would not wish to reduce the time to complete a
project.
• Reducing (crashing) the time of a critical activity in a
project can be done but almost always results in a higher
direct cost; thus, the manager faces a cost-time trade-off
problem.
• Is the reduction in time worth the additional cost?
• Cost-time situations focus on reducing the critical path
that determines the project completion date.
Rationale for Reducing Project Duration

Reasons for reducing the project duration:
1. Customer requirements and contract commitments
2. The market imposes a project duration date
3. Incentive contracts in partnering arrangements
4. Unforeseen delays midway in the project
5. Sometimes very high overhead or goodwill costs are
recognised before the project begins
6. There are times when it is important to reassign key
equipment and/or people to new projects
• These situations are very common in practice and are
known as cost-time trade-off decisions

Options When Resources
Are Not Constrained
• Adding Resources
• Outsourcing Project Work
• Scheduling Overtime
• Establishing a Core Project Team
• Do It Twice: Fast and Correctly …
Adding Resources
• The most common method for shortening project time is
to assign additional staff and equipment to activities.
• However, there are limits to how much time can be saved.
• Doubling the workforce won't necessarily halve the time.
• This would only be correct when activities can be
partitioned so minimal communication is needed between
workers, as in harvesting a crop or repaving a highway.
• Most projects aren't set up that way; extra staff increase
communication requirements to coordinate their work.
• For example, doubling a team by adding two workers
requires six times as much pair-wise intercommunication
than is required in the original two-person team.

Adding Resources
• Not only is more time needed to coordinate and manage a
larger team; there is the additional delay of training the
new people and getting them up to speed on the project.
• The end result is captured in Brooks' law: Adding
manpower to a late software project makes it later.
• Frederick Brooks formulated this principle based on his
experience as a project manager for IBM's System/360
software project during the early 1960s.
• Later research shows that adding more people to a late
project does not necessarily cause the project to be later.
• The key is, "Is there sufficient time to make up for lost
ground once the new staff have been fully assimilated?"
Outsourcing Project Work

• A common method for shortening the project time is to
subcontract an activity.
• The subcontractor may have access to superior
technology or expertise that will accelerate the
completion of the activity.
• E.g., contracting for a backhoe may accomplish in two
hours what it takes a team of labourers two days to do.
• Subcontracting also frees up resources that can be
assigned to a critical activity and will ideally result in a
shorter project duration.

Scheduling Overtime
• The easiest way to add more labour to a project is not to
add more people, but to schedule overtime.
• If a team works 50 hours a week instead of 40, it might
accomplish 25% more.
• By scheduling overtime you avoid the additional costs of
coordination and communication encountered when new
people are added.
• If people involved are salaried workers, there may be no
real additional cost for the extra work.
• Another advantage is that there are fewer distractions
when people work outside normal hours.
Scheduling Overtime
• Overtime has disadvantages and must be used judiciously.
• First, hourly workers are normally paid overtime rates,
which can vary greatly between sectors and regions.
• Sustained overtime by salaried employees may incur
intangible costs such as divorce, burnout and turnover.
• Turnover is a key concern when there are staff shortages.
• Also, it is an oversimplification to assume that, over an
extended period of time, a person is as productive during
their eleventh hour at work as during their third.
• There are natural limits to what is humanly possible, and
extended overtime may actually lead to an overall decline
in productivity when fatigue sets in.

Establish a Core Project Team
• One of the advantages of creating a dedicated core team
to complete a project is speed. (See Chapter 3)
• Assigning professionals full time to a project avoids the
hidden cost of multitasking in which people are forced to
juggle the demands of multiple projects.
• Professionals are allowed to devote their undivided
attention to a specific project.
• This singular focus creates a shared goal that can bind a
diverse set of professionals into a highly cohesive team
capable of accelerating project completion.
• Factors contributing to the emergence of high-performing
project teams are discussed in Lecture 4 and Chapter 11.
Do It Twice: Fast and Correctly

• If you are in a hurry, try building a "quick and dirty"
short-term solution, then go back and do it the right way.
• The textbook gives the example of the Rose Garden
stadium in Portland, Oregon, which was supposed to be
completely finished in time for the start of the 1995-
1996 National Basketball Association season.
• Delays made this impossible, so the construction crew
set up temporary bench seats to accommodate the
opening-night crowd.
• The additional costs of doing it twice are often more than
compensated for by the benefits of satisfying the
deadline.

Options When Resources
Are Constrained
• A project manager has fewer options for accelerating
project completion when additional resources are either
not available or the budget is severely constrained.
• This is especially true once the schedule has been
established.
• There are some options:
• Fast-Tracking
• Critical-Chain Project Management
• Reducing Project Scope
• Compromise Quality …
Fast-Tracking
• Sometimes it is possible to rearrange the logic of the
project network so that critical activities are done in
parallel (concurrently) rather than sequentially.
• If the project situation is right, this is a good alternative.
• As noted in Chapter 6, one of the most common methods
for restructuring activities is to change a finish-to-start
relationship (dependency) to a start-to-start relationship,
i.e., changing activities from sequential to parallel. (See
the end of the Lecture 1 for dependency relationships.)
• Changing activities from sequential to parallel usually
requires closer coordination among those responsible for
the activities affected but can produce huge time savings.

Critical-Chain Project Management
• Critical-Chain Project Management (CCPM) is designed
to accelerate project completion (textbook Appendix 8.1).
• However, the jury is still out in terms of its applicability.
• CCPM principles appear sound and worthy of
experimentation if speed is essential, but it would be
difficult to apply CCPM midstream in a project.
• CCPM requires considerable training and a shift in habits
and perspectives that take time to adopt.
• Although there have been reports of immediate gains,
especially in terms of completion times, a long-term
management commitment is probably necessary to reap
full benefits.
Reducing Project Scope

• The most common response for meeting unattainable
deadlines is to reduce or scale back project scope.
• This invariably leads to a reduction in the functionality of
the project.
• While scaling back the scope of the project can lead to
big savings in both time and money, it may come at a cost
of reducing the value of the project.
• The key to reducing a project's scope without reducing
value is to reassess the true specifications of the project.
• Often requirements are added under best-case, blue-sky
scenarios and represent desirables, but not essentials.

Reducing Project Scope
• It is important to explain the situation to customers and/or
sponsors - "You can get it your way, but not until May."
• This may force them to accept an extension or to add
money to expedite the project.
• If not, then a healthy discussion of what the essential
requirements are and what items can be compromised in
order to meet the deadline needs to take place.
• Savings calculations start with the WBS.
• Reducing functionality means certain tasks, deliverables,
or requirements can be reduced or even eliminated.
• These tasks need to be found and the schedule adjusted.
• Focus should be on changes in critical path activities.
Compromise Quality
• Reducing quality is always an option, but it is rarely
acceptable or used.
• If quality is sacrificed, it may be possible to reduce the
time of an activity on the critical path.
• In practice the methods most commonly used to crash
projects are scheduling overtime, outsourcing, and adding
resources.
• Each of these maintains the essence of the original plan.
• Options that depart from the original project plan include
do it twice and fast-tracking.
• Rethinking of project scope, customer needs, and timing
become major considerations for these techniques.

Project Cost-Duration Graph (PCDG)
• What is needed, but is lacking, is a quick, logical method
to compare the benefits of reducing time with the cost.
• Without a method it is difficult to isolate activities that'll
have the greatest impact on reducing time at least cost.
• Following is a procedure for identifying the costs so that
comparisons can be made with the benefits.
• The method requires gathering direct costs and indirect
costs for specific project durations to produce a PCDG.
• Critical activities are searched to find the lowest direct-
cost activities that will shorten the project duration.
• Total cost for specific project durations are calculated and
then compared with the benefits of reducing project time,
before the project begins or while it is in progress.
Project Indirect Costs

• Indirect costs generally represent overhead costs such as
supervision, administration, consultants and interest.
• Indirect costs cannot be associated with any particular
work package or activity, hence the term.
• Indirect costs continue for the life of the project.
• Indirect costs vary directly with time, i.e., any reduction
in time should result in a reduction of indirect costs.
• If indirect costs are a significant percentage of total
project costs, reductions in project time can represent
very real savings (assuming the indirect resources can be
utilised elsewhere).

Project Direct Costs
• Direct costs commonly represent labour, materials,
equipment and subcontractors.
• Direct costs are assigned directly to a work package and
activity, hence the term.
• The ideal assumption is that direct costs for an activity
time represent normal costs, which typically mean low-
cost, efficient methods for a normal time.
• When project durations are imposed, direct costs may no
longer represent low-cost, efficient methods.
• Costs for the imposed duration date will be higher than
for a project duration developed from ideal normal times.

• Because direct costs are assumed to be developed from
normal methods and time, any reduction in activity time
should add to the costs of the activity.
• The sum of the costs of all the work packages or activities
represents the total direct costs for the project.

Figure 9.1 Project Cost-Duration Graph
• The general nature
of project costs is
illustrated in Figure
9.1 opposite.
• The total cost for
each duration is the
sum of the indirect
and direct costs.

• The major plight faced in creating the information for a
graph similar to Figure 9.1 is calculating the direct cost of
shortening individual critical activities and then finding
the total direct cost for each project duration as project
time is compressed; the process requires selecting those
critical activities that cost the least to shorten.
• (Note: The graph implies that there is always an optimum
cost-time point. This is only true if shortening a schedule
has incremental indirect cost savings exceeding the
incremental direct cost incurred. However, in practice
there are almost always several activities in which the
direct costs of shortening are less than the indirect costs.)

Constructing a PCDG
There are three major steps required to construct a PCDG:
1. Find total direct costs for selected project durations.
2. Find total indirect costs for selected project durations.
3. Sum direct and indirect costs for these selected
durations to determine the total costs.
• The graph is then used to compare additional cost
alternatives for benefits.
• Details of these steps are as follows.
Determining the Activities to Shorten

• The most difficult task in constructing a PCDG is finding
the total direct costs for specific project durations over a
relevant range.
• The central concern is to decide which activities to
shorten and how far to carry the shortening process.
• Basically, managers need to look for critical activities,
i.e., activities on the critical path, that can be shortened
with the smallest increase in cost per unit of time.
• The rationale for selecting critical activities depends on
identifying the activity's normal times and crash times
and corresponding costs.

• Normal time for an activity represents low-cost, realistic,
efficient methods for completing the activity under
normal conditions.
• Shortening an activity is called crashing.
• The shortest possible time an activity can realistically be
completed in is called its crash time.
• The direct cost for completing an activity in its crash time
is called its crash cost.
• Both normal and crash times and costs are collected from
personnel most familiar with completing the activity.
• Figure 9.2 following depicts a hypothetical cost-duration
graph for an activity.
Figure 9.2 Activity Graph

• The normal time for the activity is 10 time units, and the
corresponding cost is $400.
• The crash time for the activity is five time units and $800.
• The intersection of the normal time and cost represents
the original low-cost, early-start schedule.
• The crash point represents the maximum time an activity
can be compressed.
• The heavy line connecting the normal and crash points
represents the slope, which assumes the cost of reducing
the time of the activity is constant per unit of time.

• The assumptions underlying the use of the PCDG are as
follows:
1. The cost-time relationship is linear.
2. Normal time assumes low-cost, efficient methods to
complete the activity.
3. Crash time represents a limit, i.e., the greatest time
reduction possible under realistic conditions.
4. The slope represents cost per unit of time.
5. All accelerations must occur within the normal and
crash times.

• Knowing the slope of activities allows managers to
compare which critical activities to shorten.
• The less steep the cost slope of an activity, the less it
costs to shorten one time period; a steeper slope
means it will cost more to shorten one time unit.
• The cost per unit of time or slope for any activity is
calculated by the following equation:
Rise Crash cost - Normal cost
Cost slope = = Normal time - Crash time
Run
CC - NC $800 - $400
= = 10 - 5
NT - CT
$400 = $80 per unit of time
=
5

• In Figure 9.2 the rise is the y axis (cost) and the run is the
x axis (duration).
• The slope of the cost line is $80 for each time unit the
activity is reduced; the limit reduction of the activity time
is five time units.
• Comparison of the slopes of all critical activities allows
us to determine which activity(ies) to shorten.
• Given the project schedule with all activities set to their
early-start times, the process of searching critical
activities as candidates for reduction can begin.
• The total direct cost for each specific compressed project
duration must be found.

Constructing a PCDG
Simplified Example
• Figure 9.3(A) (following) presents:
• Normal and crash times and costs for each activity
• The calculated slope and time reduction limit
• The total direct cost
• The project network with a duration of 25 time units
• Note the total direct cost for the 25-period duration is
$450
• This is an anchor point to begin the procedure of
shortening the critical path(s) and finding the total direct
costs for each specific duration less than 25 time units.
• The maximum time reduction of an activity is simply the
difference between its normal and crash times.
Figure 9.3 Cost-Duration Trade-off Example

Figure 9.3(A) Cost-Duration Trade-off Example
Constructing a PCDG
Simplified Example
• For example, activity D can be reduced from a normal
time of 11 time units to a crash time of 7 time units, or a
maximum of 4 time units.
• The positive slope for activity D is calculated as follows:
Crash cost - Normal cost
Cost slope =
Normal time - Crash time
$150 - $50
=
11 - 7
$100
=
4
= $25 per period reduced

Constructing a PCDG
Simplified Example
• The network shows a critical path of activities A-D-F-G.
• It's impossible to shorten activity G
• Activity A is circled because it is the least-cost candidate,
i.e., its slope ($20) is less than D and F slopes ($25, $30).
• Reducing activity A one time unit cuts the project
duration to 24 time units but increases the total direct
costs to $470 ($450 + $20 = $470).
• Figure 9.3(B) following reflects these changes.
• Activity A's duration has been reduced to two time units;
the "x" indicates A cannot be reduced any further.
• Activity D is circled because it costs the least ($25) to
shorten the project to 23 time units.
Figure 9.3(B) Cost-Duration Trade-off Example
The total direct

cost for a project
duration of 23 time
units is $495, see
Figure 9.4(A).

Constructing a PCDG
Simplified Example
• Observe that the project network in Figure 9.4(A) below
now has two critical paths A-C-F-G and A-D-F-G.
• Reducing the project to 22 time units will require that
activity F be reduced; thus, it is circled.
• This change is reflected in Figure 9.4(B) following.
Constructing a PCDG
Simplified Example
• The total direct cost for 22 time units is $525.
• Now a 3rd critical path A-B-E-G; all activities are critical.
• The least-cost method for reducing the project duration to
21 time units is the combination of the circled activities
C, D, E which cost $30, $25, $30, respectively, and
increase total direct costs to $610.

Constructing a PCDG
Simplified Example
• The results of these changes are depicted in Figure 9.4(C)
• Although some activities can still be reduced (those
without the "x" next to the activity time), no activity or
combination of activities will result in a reduction in the
project duration.
Constructing a PCDG
Simplified Example
• With the total direct costs for the array of specific project
durations found, the next step is to collect the indirect
costs for these same durations.
• These costs are typically a rate per day and are easily
obtained from the accounting department.
• Figure 9.5 following presents the total direct costs, total
indirect costs, and total project costs.
• These same costs are plotted in Figure 9.6 following.

Figure 9.5 Summary Costs by Duration
Figure 9.6 Project Cost-Duration Graph

Constructing a PCDG
Simplified Example
• This graph shows that the optimum cost-time duration is
22 time units and $775.
• Assuming the project will actually materialise as planned,
any movement away from this time duration will increase
project costs.
• The movement from 25 to 22 time units occurs because,
in this range, the absolute slopes of the indirect costs are
greater than the direct cost slopes.
Practical Considerations
Using the Project Cost-Duration Graph …
• This graph is valuable to compare any proposed
alternative or change with the optimum cost and time.
• More importantly, the creation of such a graph keeps the
importance of indirect costs in the forefront of decision
making.
• Indirect costs are frequently forgotten in the field when
the pressure for action is intense.
• Finally, such a graph can be used before the project
begins or while the project is in progress.

Using the Project Cost-Duration Graph
• Creating the graph in the pre-project planning phase
without an imposed duration is the first choice because
normal time is more meaningful.
• Creating the graph in the project planning phase with an
imposed duration is less desirable because normal time is
made to fit the imposed date and is probably not low cost.
• Creating the graph after the project has started is the least
desirable because some alternatives may be ruled out of
the decision process.
Crash Times
• Collecting crash times for even a moderate-size project
can be difficult.
• The meaning of crash time is difficult to communicate.
• What is meant when you define crash time as "the
shortest time you can realistically complete an activity"?
• Crash time is open to different interpretations and
judgments, and some estimators feel very uncomfortable
providing crash times.
• Regardless of the comfort level, the accuracy of crash
times and costs is frequently rough at best, when
compared with normal times and costs.

Linearity Assumption
• Because the accuracy of compressed activity times and
costs is questionable, the concern of some theorists, that
the relationship between cost and time is not linear but
curvilinear, is seldom a concern for practicing managers.
• Reasonable, quick comparisons can be made using the
linear assumption.
• The simple approach is adequate for most projects.
• There are rare situations in which activities cannot be
crashed by single time units.
• Instead, crashing is "all or nothing."
Choice of Activities to Crash Revisited
• The cost-time crashing method relies on choosing the
cheapest method for reducing the duration of the project.
• There are other factors that should be assessed beyond
simply cost:
1. The inherent risks involved in crashing particular
activities need to be considered.
2. The timing of activities needs to be considered.
3. The impact crashing would have on the morale and
motivation of the project team needs to be assessed.

Time Reduction Decisions and Sensitivity …
• Should the project owner or project manager go for the
optimum cost-time? The answer is, "It depends."
• Risk must be considered (see Chapter 7 for Project Risk).
• The project direct-cost line near the normal point is
usually relatively flat.
• Because indirect costs for the project are usually greater
in the same range, the optimum cost-time point is less
than the normal time point.
• The logic of the cost-time procedure suggests managers
should reduce the project duration to the lowest total cost
point and duration.
• How far to reduce the project time from the normal time
toward the optimum depends on the sensitivity of the
project network.
• A network is sensitive if it has several critical or near-
critical paths, and it requires careful analysis.
• Slack reduction in a project with several near-critical
paths reduces scheduling flexibility and increases the risk
of being late.

• A project network is insensitive if it has a dominant
critical path, i.e., no near-critical paths.
• When the network is insensitive moving toward the
optimum time can result in very real, large savings.
• Movement from the normal time point toward the
optimum time won't create new or near-critical activities.
• The bottom line is that the reduction of the slack of non-
critical activities only slightly increases the risk of their
becoming critical when compared to a sensitive network.
• Insensitive networks hold the greatest potential for real,
sometimes large, savings in total project costs with a
minimum risk of non-critical activities becoming critical.
Time Reduction Decisions and Sensitivity
• Insensitive networks are not a rarity in practice; they
occur in perhaps 25% of all projects.
• Insensitive networks with high indirect costs can produce
large savings.

• Ultimately, deciding if and which activities to crash is a
judgment call requiring careful consideration of:
• The options available
• The costs and risks involved
• The importance of meeting a deadline
What if Cost, Not Time, is the Issue?

• In today's fast-paced world, there appears to be a greater
emphasis on getting things done quickly.
• Still, organisations are always looking for ways to get
things done cheaply.
• This is especially true for fixed-bid projects, where the
profit margin is derived from the difference between the
bid and actual cost of the project.
• Every dollar saved is a dollar in your pocket.
• Sometimes, in order to secure a contract, bids are tight,
which puts added pressure on cost containment.
• In other cases, there are financial incentives tied to cost
containment.

What if Cost, Not Time, is the Issue?
• Even in situations where cost is transferred to customers
there is pressure to reduce cost.
• Cost overruns make for unhappy customers and can
damage future business opportunities.
• Budgets can be fixed or cut, but when contingency is
exhausted, cost overruns have to be made up with
remaining activities.
• Some more commonly used options for cutting costs:
• Shortening/Extending Project Duration
• Reduce Project Scope
• Have Owner Take on More Responsibility
• Outsourcing Project Activities or Entire Project
• Brainstorming Cost Savings Options …
Shortening/Extending Project Duration

• As discussed earlier, shortening project duration may
come at the expense of overtime, adding additional
personnel, and using more expensive equipment and/or
materials.
• Conversely, sometimes cost savings can be generated by
extending the duration of a project.
• This may allow for a smaller workforce, less-skilled (less
expensive) labour, and even cheaper equipment and
materials to be used.

Reduce Project Scope
• Just as scaling back the scope of the project can gain time,
delivering less than what was originally planned also
produces significant cost savings.
• Again, calculating the savings of a reduced project scope
begins with the WBS.
• However, since time is not the issue, you do not need to
focus on critical activities.
Have Owner Take on More

Responsibility
• One way of reducing project costs is identifying tasks that
customers can do themselves.
• On IS projects, a customer may agree to provide in-house
training or take responsibility for testing equipment.
• This arrangement is best negotiated before the project
begins as customers are less receptive to this idea if you
suddenly spring it on them.
• An advantage of this method is that, while costs are
lowered, the original scope is retained.
• Clearly this option is limited to areas in which the
customer has expertise and the capability to do the tasks.

Outsourcing Project Activities or
Even the Entire Project
• When estimates exceed budget, it not only makes sense to
re-examine the scope but also search for cheaper ways to
complete the project.
• It may be more cost effective to outsource segments or
even the entire project, opening up work to competition.
• Specialised subcontractors often enjoy unique
advantages, such as material discounts for large
quantities, as well as equipment that not only gets the
work done more quickly but also less expensively.
• They may have lower overhead and labour costs.
• However, outsourcing means having less control over the
project and the need to have clearly defined deliverables.
Brainstorming Cost Savings Options

• Just as project team members can be a rich source of
ideas for accelerating project activities, they can offer
tangible ways for reducing project costs.
• Project managers should not underestimate the value of
simply asking if there is a cheaper, better way.

Organisational Structures
• Challenges to Organising Projects:
• The uniqueness and short duration of projects relative
to ongoing longer-term organisational activities
• The multidisciplinary and cross-functional nature of
projects creates authority and responsibility dilemmas
• Choosing an Appropriate Project Management Structure:
• The best system balances the needs of the project
with the needs of the organisation
• The purpose of an organisation is to coordinate the efforts
of many to accomplish goals.
• Organisational structure shows reporting relationships.
• Organisational structure impacts on projects in two ways:
1. The organisational structure of the customer organisation
2. The organisational structure of the project team itself
• Chapter 3 reviews the primary types of organisation used
for projects and the reasons they are designed that way.
• It discusses the framework which must be established and
well understood by all involved at the start of the project.
• If not, it will be impossible to get important decisions made
and adhered to, and the project will most likely fail.

• Organisational structures represent the hierarchical
reporting and official communications networks within
organisations.
• The organisation's management hierarchy consists of
reporting relationships, the official chain of authority.
• This chain of authority deals with official activities, such
as hiring, firing and promotion.
• It also includes directing the activities of subordinates.
• Organisations can be grouped into major subdivisions on
the basis of a number of frameworks.
• Galbraith described three basic forms of organisation:
1. Functional
2. Project
3. Matrix
• Each form of organisation has its own benefits, and each
works well in certain types of environments.
• The appropriate organisational structure depends on the
goal of the organisation, the type of work it is supposed to
do, and the environment within which it operates.
• There are many variations to the three basic structures.
• The textbook also describes the Network structure.

1. Functional
• A functional structure is the most basic and probably the
most common form of organisation (see Figure 3.1).
• Functional differentiation organises elements by
specialisation and works well in repetitive, stable
environments.
• This form of organisation relies more on formal rules,
procedures, and coordinated plans and budgets to control
operations.
• Note: In a project context, the project is divided into
segments that are assigned to the appropriate functional
groups, with each functional group head responsible for
his or her segment of the project.
1. Functional
Advantages Disadvantages
• No Structural Change • Lack of Focus
• Flexibility • Poor Integration
• In-Depth Expertise • Slow
• Easy Post-Project • Lack of Ownership
Transition

2. Project
• Pure project organisation involves creating a separate,
independent organisation specifically for accomplishing a
particular project, e.g., the Olympics (see Figure 3.3).
• On project completion the organisation ceases to exist.
• The project centre is linked to the parent organisation to
draw resources and personnel as needed.
• A task force is a temporary group of diverse specialists
to accomplish a specific task that operates independently.
• Some are stand-alone organisations created for a specific
mission, drawn from several organisations.
• Partial project organisations are a common arrangement
where the project manager is responsible for some
activities, while others are more support-oriented.
2. Project
• The great advantage of the project structure is focus:
everyone on the project team is there for one purpose.
• However, there are some problems as well:
• Team members may get out of touch with what is going
on in their "home" departments, including important and
useful technical developments.
• Functional managers may feel they have little control or
influence over what project teams are doing and this
makes it difficult to impose functional policies.
• Perhaps the biggest problem is that project teams can be
inefficient in their use of resources, especially people.

2. Project
• Simple • Expensive
• Fast • Internal Strife
• Cohesive • Limited Technological
• Cross-Functional Expertise
Integration • Difficult Post-Project
Transition
3. Matrix
• If an organisation continually operates in a project mode
(many do in construction, IS/IT and consulting), there is a
need to quickly create large project groups.
• The matrix organisation form is a grid-like structure of
reporting and authority relationships overlaying
traditional functional organisation (see Figure 3.4).
• It is used within organisations that make more than
minimal use of project teams or product groups.
• The improved coordination obtained from project
organisation is combined with the strengths for each
specialty that are provided by functional forms of
organisation and is more resource-efficient.

3. Matrix
• The key feature of a matrix organisation is its multiple
lines of authority.
• Specialists report to their functional managers with
respect to issues involving their specialty and report to
their project managers for specific assignments.
• Functional specialists are assigned to the project, which is
usually physically located wherever the project is being
implemented.
• Specialists make personal career decisions on the basis of
their permanent functional homes, e.g. project accountant.
3. Matrix
• Weak Form:
• The authority of the functional manager predominates
and the project manager has indirect authority.
• Balanced Form:
• The project manager sets the overall plan and the
functional manager determines how work to be done.
• Strong Form:
• The project manager has broader control and functional
departments act as subcontractors to the project.

3. Matrix
• Efficient • Dysfunctional Conflict
• Strong Project Focus • Infighting
• Easier Post-Project • Stressful
Transition • Slow
• Flexible
Network
• An alliance of several organisations for the purpose of
creating products or services.
• A "hub" or "core" firm with strong core competencies
outsources key activities to a collaborative cluster of
satellite organisations.
• Cost Reduction • Coordination of
• High Level of Expertise Breakdowns
• Flexible • Loss of Control
• Conflict

Informal
• An informal organisation can exist in parallel to the
official organisational structure.
• It consists of the network of personal contacts within the
organisation, and it may also consist of cliques and
groups of people who work well together and who may
not work well with those outside of their subgroup.
• In organisations with high levels of professionalism
informal networks can be very powerful and positive
forces.
• Informal communication is socially motivated and very
fast, but it is not necessarily thorough or dependable.
Choosing the Appropriate Project

Management Structure
Organisational Considerations
• How important is the project to the firm’s success?
• What percentage of core work involves projects?
• What level of resources (human/physical) are available?
Project Considerations
• Size of project
• Strategic importance
• If novel and need for innovation
• Need for integration (number of departments involved)
• Environmental complexity (number of external interfaces)
• Budget and time constraints
• Stability of resource requirements

Organising the Project Team
Levels of Project Organisation
• Projects involve high levels of uncertainty and change, so
project organisations need to be flexible and adaptive.
• In the traditional form, people can enhance their
professional training and development.
• Many project contractor organisations typically adopt a
functional form for permanent assignments, drawing
people for individual projects from their permanent
assignments to temporarily work on specific projects.
• Careers with such organisations involve a great deal of
relocation because individuals leave their home base for
the duration of projects to which they are assigned.
• Between projects, the organisation may value their
specialty skills enough to keep them on the payroll.

Levels of Project Organisation
• Other criteria that bear on the project type include
uncertainty, cost/time criticality, and project uniqueness.
• If high stakes, a matrix or pure project form is better.
• If high levels of certainty, task forces and teams are
appropriate because they involve less investment.
• If time/cost not critical, task forms and teams are better.
• If the project is unique, a full project form is appropriate.
• The level of project organisation control used should vary
with the level of difficulty of the problems expected.

The Nature of the Project
• There are many ways to divide up a project so relatively
independent teams can work on different pieces:
• By Technology
• By Operations
• By Function
• The particular type of division you select is not as
important as the fact that you select one and that you
organise your project in a manner that provides a mix of
different technical and business resources to each team.

The Culture of the Organisation
• Usually, customers and management don't care about the
structure of projects and, as long as the work gets done,
will leave the project organisation as your responsibility.
• In some companies hierarchy is a potent force and you
may find resistance to combining junior and senior staff.
• If you meet this resistance, it is doubly important that you
create your team structure.
• In these situations, you will need to use all your team-
building skills.
• You will also need to be insistent that on your projects,
you will decide the type of organisation that will prevail.
§

Summary
• The need for reducing the project duration occurs for
many reasons such as imposed duration dates, time-to-
market considerations, incentive contracts, key resource
needs, high overhead costs, or simply unforeseen delays.
• These situations are very common in practice and are
known as cost-time trade-off decisions.
• We examined a logical, formal process for assessing the
implications of situations that involve shortening the
project duration.
• Crashing the project duration increases the risk of being
late.
Summary
• How far to reduce the project duration from the normal
time toward the optimum depends on the sensitivity of the
project network.
• A sensitive network is one that has several critical or
near-critical paths.
• Great care should be taken when shortening sensitive
networks to avoid increasing project risks.
• Conversely, insensitive networks represent opportunities
for potentially large project cost savings by eliminating
some overhead costs with little downside risk.

Summary
• Managers may choose not to use the formal procedure
examined.
• However, regardless of the method used, the principles
and concepts inherent in the formal procedure are highly
applicable in practice and should be considered in any
cost-duration trade-off decision.
• Alternative strategies for reducing project time were
discussed within the context of whether or not the project
is resource limited.
• Time spent up front considering alternatives and
developing contingency plans during the planning phase
will lead to time savings in the end.
References
Cadle, J. and Yeates, D. (2008), Project Management for Information
Systems, 5th ed., Pearson Education Limited, Harlow, England.
Larson, E. W. and Gray, C. F. (2011), Project Management: The
Managerial Process, 5th ed., McGraw-Hill/Irwin, New York.
(Textbook)
Turner J. R. (2009), The Handbook Of Project-Based Management:
Leading Strategic Change in Organisations, McGraw-Hill, London.
Yardley, D. (2002), Successful IT Project Delivery: Learning the
Lessons of Project Failure, Pearson Education Ltd., Edinburgh Gate.
For other references see the textbook.

Next Lecture
Being an Effective Project Manager

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ECTE350

Engineering Design and Management 3

(Organisational Structures - Chapter 3)

ECTE350 Lecture 2 Slide 1 © P. A. J. Larkin 2013

This Lecture - Chapter 9

ECTE350 Lecture 2 Slide 2 © P. A. J. Larkin 2013

ECTE350 Lecture 2 - Page 1 of 31

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Establishing Project Priorities

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Establishing Project Priorities

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Establishing Project Priorities

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Rationale for Reducing Project Duration

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Outsourcing Project Work

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Do It Twice: Fast and Correctly

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Reducing Project Scope

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Project Indirect Costs

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Project Direct Costs

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Project Direct Costs

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Determining the Activities to Shorten

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Figure 9.2 Activity Graph

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Determining the Activities to Shorten

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Determining the Activities to Shorten

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Figure 9.3 Cost-Duration Trade-off Example

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Figure 9.3(B) Cost-Duration Trade-off Example

The total direct

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