Organizational alternatives for project management


Economic Development Institute

World Bank

In the past 10 years there has been a growing interest in techniques and approaches for the management of temporary projects (in contrast to the management of on-going operations). There has been an explosion of literature dealing with various techniques and strategies for project management. More recently, we have seen the beginnings of organized academic research on various aspects of project management.

However, in discussions and in the literature we still seem to have confusion over the meaning of terms. This is particularly true in the area of alternative organizational approaches for the management of projects. This paper will define the Functional, Projectized, and Matrix types of organization and describe the strengths and weaknesses of each.

The Functional Organization

The most prevalent organizational structure in the world today is the basic hierarchical structure (Figure 1). This is the standard pyramid with top management at the top of the chart and middle and lower management spreading out down the pyramid. The organization is usually broken down into different functional units such as, engineering, research, accounting, or administration. This hierarchical structure was based on management theories such as specialization, line and staff relations, authority and responsibility, and span of control. The major functional sub-units are staffed by disciplines such as engineering or accounting according to the doctrine of specialization. It is considered easier to manage specialists if they are grouped together and if the department head has training and experience in that particular discipline.



The strength of functional organization is in its centralization of similar resources. For example, the engineering department provides a secure and comfortable organizational arrangement with well-defined career paths for a young engineer. Mutual support is provided by physical proximity.

The weaknesses of the functional organization are the converse of its strengths. When a functional organization is concerned with multiple projects, conflicts invariably arise over the relative priorities of different projects in the competition for resources. Also, the functional department based on a technical specialty often places more emphasis on its own specialty rather than on the goals of the project. Lack of motivation and inertia are also problems.

However, many companies use the functional organization for the accomplishment of their project work as well as for their standard operations. The world is a complicated place. In addition to discipline and function, other nuclei for organizational structures include products, technologies, customers, and geographical location.

Project Organizations

The opposite of the hierarchical, functional organization is the single-purpose project or vertical organization. In a projectized organization all of the resources necessary for the accomplishment of a specific objective are separated from the regular functional structure and set up as a self-contained unit headed by a project manager. The project manager is given considerable authority over the project and may acquire resources from either inside or outside the overall organization. All of the personnel on the project are under the direct authority of the project manager for the duration of the project. In effect, a large organization sets up a smaller, temporary, special purpose structure for the accomplishment of a specific objective. It is interesting to note that the internal structure of the project organization is functional. That is, that the project team is divided into various functional areas (Figure 2).



Please note that our term for this is “project organization” not “project management”. You can manage projects with all three types of organizational structures. The advantages of the project organization come from the singleness of purpose and the unity of command. An esprit de corps is developed through the clear understanding of and focus on, the single objective. Informal communication is effective in a close-knit team. The project manager has all the necessary resources under his direct control.

The project organization is not, however, a perfect solution to all project management problems as has been suggested. Setting up a new, highly visible temporary structure upsets the regular organization. There is also duplication of facilities arid inefficient use of resources. Another serious problem with the project organization is the question of job security upon termination of the temporary project. Oftentimes the project personnel lose their “home” in the functional structure while they are off the project.

The functional, hierarchical organization is organized around technical inputs such as engineering and marketing. The project organization is a single purpose structure organized around project outputs such as a new dam or a new product. Both of these are uni-dimensional structures in a multi-dimensional world. The problem in each of these organizational structures is to get a proper balance between the long term objective of functional departments in building technical expertise and the short term objectives of the project (Figure 3).



Matrix Organization

The matrix organization is a multi-dimensional structure that tries to maximize the strengths and minimize the weaknesses of both the project and the functional structures. The matrix organization combines the standard vertical hierarchical structure with a super-imposed lateral or horizontal structure of a project co-ordinator (Figure 4).

The major benefits of the matrix organization are the balancing of objectives, the co-ordination across functional department lines and the visibility of the project objectives through the project co-ordinator’s office. The major disadvantage is that the man in the middle is working for two bosses. Vertically, he reports to his functional department head; horizontally, he reports to the project co-ordinator or project manager. In a conflict situation he can be caught in the middle.

The project manager often feels that he has little authority with regard to the functional departments. On the other hand, the functional department head often feels that the project co-ordinator is interfering in his territory.

The solution to this problem is to clearly define the roles and responsibility and authority of each of the actors. The project co-ordinator specifies what is to be done and the functional department is responsible for how it is to be done (Figure 5).

Criteria For Selecting An Organizational Structure (Functional — Project — Or Matrix)

In the field of management, zealots like to say that their particular model is best. Neophytes want a simple and unambiguous answer. Experienced and thoughtful observers, however, know that there is no one particular approach that is perfect for all situations. The current vogue in management literature is the contingency model. This theory states that the best solution is contingent upon the key factors in the environment in which the solution will have to operate.





The same is true for the choice of an organizational structure. What we need then is a list of key factors that will help us to choose the right organizational structure for the given conditions on a specific project with a given organization and particular environment. A set of such factors is listed in Figure 6. The use of this table will help you to decide which structure is best for your situation. For example, an organization developing many new projects consisting of small projects with standard technology would most likely find a functional structure best. On the other hand, a company with a long, large complex and important project would find that the project organizational structure would be best. A company in the pharmaceutical business with many complicated technologies would probably find a matrix structure best.



It is possible to use all three structures in the same company on different projects. It is also possible to use all three structures on the same project at different levels. For example, an overall matrix structure for the project, with a functional substructure in engineering and a project organization in another funcitonal sub-area.

Before we can make a final choice, however, we must consider the following additional factors:

a. What is the relationship between organizational design, the skills of the project manager and the project planning and reporting system?

b. Are there ways that we can improve co-ordination and commitment in the functional structure without moving to a project or matrix structure?

c. What are the different variations of the matrix structure and what are the advantages of each variation?

Project Manager

It is not possible to make the organizational design decision without also considering decisions on the selection of the project manager and on the design of the planning and reporting systems (Figure 7). These decisions are closely interrelated. For example, a successful project organization requires a project manager with the broad skills of a general manager. He usually must combine technical knowledge of the subject matter with management abilities for the leadership of the entire project team. It makes no sense to select a project organization form if such a project manager is not available.



The planning and reporting system in a project organization can be fairly simple because the team is in close proximity. The opposite is true in the management of projects through a functional organization. Information in the form of plans, schedules, budgets, and reports is the key medium for integrating a functional organization. Therefore, a more sophisticated planning and reporting system is required with a functional organization than with a project organization.

Improving Lateral Communications in the Functional Structure

Organizations typically turn to a project organization or a matrix organization because the normal functional structure has failed on a series of projects. It is not necessary, however, to “throw the baby out with the bath water.” Rather than give up on the functional organization, you should first analyze the real problems and see if other steps can be taken short of reorganization. While some results of a reorganization may be favorable, there are certain to be other unintended but logical consequences that are not favorable.

What is needed is to develop methods of lateral or horizontal communication across functional department boundaries. Alternative approaches for lateral communication include:

a. Procedures such as plans, budgets, schedules, and review meetings.

b. Direct contact between managers.

c. Informal liaison roles.

d. Teams.

These are integrating mechanisms short of the establishment of a matrix organization. They are useful for breaking down the barriers that seem to separate different disciplines, different departments, and different geographical locations.

Weak To Strong Matrix — A Continuum

The three major organizational forms, functional, matrix, and project, may be presented as a continuum ranging from functional on one end to project on the other end (Figure 8). Matrix falls in between and includes a wide variety of structures, from a weak matrix near functional to a strong matrix near project. The continuum in Figure 8 is based on the percent of the personnel who work in their own functional department versus the percent of personnel who are full-time members of the project team. You will note that in a functional organization there are no personnel on the project team. The dividing line between functional and matrix is when some individual is appointed with part-time responsibility for coordination across functional department lines.



The bottom line of Figure 8 shows that a weak matrix has a part-time co-ordinator and the matrix gets stronger as you move from full-time co-ordinator and then to a full-time project manager and finally to a project office that would include personnel such as systems engineers, cost analysts, and schedule analysts. The difference between a co-ordinator and a manager is the difference between mere integration and actual decision making.

On the far right we have the project organization. Ordinarily, there is a clear distinction between a strong matrix in which most of the work is still being performed in the functional departments contrasted with a project organization where the majority of the personnel are on the project team.

It is rare that a project organization would have all of the personnel on its team. Usually some functions such as accounting or maintenance would still be performed by the functional structure.

Some persons have taken issue with the use of the term “strong matrix.” They say that a strong matrix comes from an even balance of power between the functional departments and the project office. That may be true in some instances but not in all situations.

Strong and weak are not used in the sense of good and bad. Rather, they refer to the relative size and power of the integrative function in the matrix.

Measuring Project Authority

Another way to differentiate between a strong matrix and a weak matrix is to analyze the relative degree of power between the functional departments and the project staff. We can again construct a continuum with functional on the left and project on the right (Figure 9). For a given project we can decide where the power rests on the continuum for a number of factors such as selection of personnel and liaison with top management. On any given project for some factors the power will be strongly functional and for some the power will be strongly project. However, a profile line can be drawn from top to bottom which will indicate whether the trend is to the left (weak) or to the right (strong).



Making Matrix Management Work

Matrix management is a controversial concept. Some persons have had bad experiences operating in a matrix. On the other hand, some organizations have had a great deal of success with matrix management. It does require careful definition of authority and responsibility as well as strenuous efforts towards coordination and diplomacy. The matrix is basically a balance of power between the goals of the functional structure and the objectives of a specific project.

Overloaded Functional Departments

One key problem with matrix organizations is the overloading of work on the functional departments. If a functional department makes a commitment to more work on projects than it has man-hours available, there will inevitably be conflicts over priorities between projects. This problem, however, can be alleviated, if not solved, by better planning.

A matrix organization will not work effectively unless there is also a matrix strategic plan setting priorities on objectives and a matrix budget allocating resources. For example, in Figure 10, the project manager for Project A will add horizontally across functional departments to get his total budget of 100%. In a similar manner, the Vice. President of Manufacturing must add up vertically all of the projects for which he has committed funds and resources as well as his strictly departmental efforts. The matrix budget must add up to 100% in both directions. The usual picture is that the functional departments are over-committed and they show required man-hours of perhaps 120% of actual man-hours available. Politics and disappointment become inevitable.

The golden rule in matrix management states, “He who has the gold makes the rules.” This means that if a project manager does not control the budget he can only beg for handouts from the functional departments. A matrix budget assigns resources to the project manager for purchases from the functional departments. This takes careful work during long range planning and yearly budgeting. It also requires regular updating of the matrix plan and budget.



Survival Techniques In The Matrix

A common picture of the project coordinator in a matrix organization is a frustrated diplomat struggling to cajole the functional departments into performing the work on schedule and within the budget. It is a difficult position but the following approaches can help:

a. It is important to have a charter from top management defining responsibilities and authority for the project manager as well as the role of the functional departments.

b. The project coordinator or manager must anticipate conflicts in the matrix. Conflict is inevitable with dual authority but it can be constructively channeled.

c. Since conflict is inevitable, it is important to take positive steps for developing team work. For example, regular lunches or social gatherings will help develop a team spirit. In recent years, the behavioral sciences have developed a number of specific techniques for alleviating or using conflict effectively. Training programs for matrix managers should include experiences with such techniques.

d. The project coordinator’s main power comes from the approved objectives, plans, and budgets for the project. Use these documents to hold departments to their commitments.

e. It is vital that the functional department heads be committed to the plans and schedules for the project as well as the lower level task leaders. Functional managers should review and sign off on these documents.

f. It is usually best to avoid direct conflict with the functional department heads. The matrix manager should use his boss when he is caught in between.

g. It is important to remember that the project coordinator is concerned with the “what” is to be done, not the “how” it is to be done. Use a management by objectives approach and do not supervise the functional departments (Figure 5) too closely.

h. Many of the problems of matrix management flow from the uncertainty inherent in the project environment. By definition, a project is a “new” effort to some extent. Careful and continuous planning can help reduce uncertainty.


There is no one perfect organizational structure for managing projects. The functional, the projectized, or any of the various forms of matrix structures each have strengths and weaknesses. The final choice depends on a weighing of the various factors of the nature of the task, the needs of the organization and the environment of the project.

The functional structure will work for many projects in many organizations, if lateral communications can be improved through integrating mechanisms and procedures short of a matrix coordinator.

When a matrix approach is chosen, it takes a good deal of effort of the entire organization to make it work. In particular, the project coordinator or project manager in the matrix must be carefully chosen and trained. His interpersonal skills are more important than his technical knowledge.

In many situations, a projectized organization may appear to be the simplest solution from the viewpoint of the project manager. However, from the viewpoint of the functional managers or top management a projectized organization may not be the best longer range or strategic decision.


Delbecq, Andre; Filley, Alan. Program and Project Management in a Matrix Organization: A Case Study. Bureau of Business Research and Service, Graduate School of Business, University of Wisconsin — Madison.

Filley, Alan. Interpersonal Conflict Resolution. Scott, Foresman & Company, 1975.

Galbraith, Jay. Designing Complex Organizations. Addison-Wesley Publishing Co., Inc., 1973.

Lawrence, Paul; Lorsch, Jay. Organization and Environment. Harvard Business School 1967.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI.



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