There Are Three Main Project Organization Types. Which Are You?

The way that the project team is organized is directly related to the way the entire organization is structured. There are three major organization structures to manage work and people.

Functionally Based

In a functional organization, a project team is generally staffed with people from the same department. For instance, if the project is related to the finance function, the project resources come from the Finance Division.

Another way a project is staffed in a functional organization is by executing portions of a project in separate functional organizations. 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. 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. 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.

Project Based

When projects are large enough, it's possible to form functional departments around the project team. This is especially practical when a large program has hundreds or thousands 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 their 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 Based

Matrix organizations allow functional departments to focus on their specific business competencies and allow projects to be staffed with specialists from multiple functional organizations. For instance, a Legal resource might report to the Legal Department, but be assigned to a project in another department that needs legal expertise.

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. 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 since many people have multiple work managers - both a functional manager and one or more project managers. Staff members need strong time management skills to ensure that they fulfill the work expectations of multiple managers.

Summary

The matrix-based organization is the most common.