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MODULE 2 Construction Project Organization PDF
MODULE 2 Construction Project Organization PDF
MODULE 2 Construction Project Organization PDF
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
CONSTRUCTION COMPANY
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
Sole Proprietorship
This kind of organization is owned by a single person. The owner is licensed
with the government. This form of organization is widely used in service industries.
No formal charter of operation is required in such arrangements. Also, there are
few government regulations to which such organizations are subjected. Such
organizations do not have to pay corporate income taxes and their earnings are
subject to personal income tax. The proprietor of such organizations has unlimited
personal liability for debts and they also find it difficult to obtain a large sum of
money for the business. The organization lasts as long as the proprietor lasts.
Partnership
When two or more persons associate to conduct business, a partnership is
said to exist. This ranges from informal oral understandings to a formal agreement
filed with the respective ministry/body. Similar to proprietorship, in partnership
there is ease and economy of formation as well as freedom from special
government regulations. The profits generated out of the business are taxed as
personal income tax in proportion to the partners’ claims, whether they are
distributed or not. In the event that a new partner joins the business, the old
partnership ceases and a new one is created. In case of dissolution due to disputes,
the distribution of assets can be made based on the agreement formulated while
forming the partnership organization. The major disadvantage in such organization
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
Corporation
A corporation is an artificial being, invisible, intangible and existing only in
contemplation of the law (Marshall 1819, available at http://www.1700s.com).
Being a mere creation of the law, it possesses only those properties that the charter
of its creation confers upon it either expressly or as incidental to its very existence.
It exists as a separate legal entity and apart from its owners. Consequently, owner’s
liability is limited to his or her investment. Also, the capital required for business
can be raised in the name of the corporation, without exposing owners to unlimited
liability. The ownership is evidenced by shares of stocks that are transferable, and
so is the ownership. Thus the organization continues to exist even if the owner dies
or sells his stock. One of the major disadvantages of such organizations is the
double taxation that they are subjected to. While company pays tax on the income
it earns, the stockholders are also taxed when they receive income in the form of
dividend.
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
bylaws, and are meant to prevent any hostile takeover attempt. The major
restrictions are:
Government Enterprises
A government-owned corporation, a state-owned enterprise, or a
government business enterprise is a legal entity created by a government to
undertake commercial or business activities on behalf of an owner government.
The defining characteristics are that they have a distinct legal form and they are
established to operate in commercial affairs. While they may also have public-
policy objectives, government companies should be differentiated from other
forms of government corporation or entity established to pursue purely non-
financial objectives that have no need or goal of satisfying shareholders with return
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
Joint Ventures
According to Shreshtha (Shreshtha 1993, cited in Ogunlana et al. 2003),
construction joint ventures combine certain attributes of one venture with
complementary features of another, for the purpose of engaging in a specific
individual or multiple construction undertakings either as a one-team project or
on long-term basis. The enterprise is co-owned and co-managed by the JV
partners. Joint ventures between contractors from developed and developing
countries are recognized mechanisms for technology transfer and, therefore, one
way of improving the skills that are lacking (Ofori 1994). In the construction
industry, creation of joint ventures may mostly result from complementary needs
of technology, capital management and human resource. A number of JVs
operated in the construction of Delhi Metro. Another variant of joint venture is
unincorporated joint venture, in which the legal means of dividing the project’s
equity is by shareholdings in a company.
The organizational structure is about how to use one of the basic resources, people,
and how to facilitate overcoming the communication barriers at organizational interfaces
(Enshassi 1997). It refers to the organizational and administrative patterns. For example,
the organizational structure indicates the arrangement of different departments and the
division of labour. The arrangement has a bearing on the response time for delivering
decisions.
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
FORMS OF ORGANIZATION
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
Advantages:
Disadvantages:
There is a lot of expectation from the person holding the authority. The efficiency
of the structure is heavily dependent on the person in authority.
The advice of a smart employee at the bottom of the hierarchy may go
unheeded, as there is no communication from an employee belonging to a lower
hierarchy.
The structure suffers from lack of specialized skill of experts. For example,
Foreman 1 may not be skilled in all aspects of work; yet, he is supposed to give
guidance to workers 1 and 2 under him. Also, there may be chances of
favouritism creeping in such a structure.
When the construction companies started getting relatively bigger projects, the
owners realized that they would not be able to handle such projects with the traditional
line- or military-type organization. The owners felt the need to consult specialists on
occasions. Thus, there were additions of people with staff responsibilities, and that led to
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
the ‘line and staff’ type of organization. The staff specialists advise the line managers in
performing their duties. These staff positions are purely advisory. The staff personnel can
recommend but they do not have authority to implement those recommendations. For
example, manager-safety plays the role of staff. In practice, it is very difficult to make a
distinction between staff and line departments.
Advantages:
In the line and staff structure, line employees are responsible for execution while
staff employees play the advisory role.
The line and staff structure offers ample opportunity for the growth of
employees. It also offers good training opportunity to the employees.
The quality of decisions arrived at in a problem situation is high, as careful
thought is given to arriving at the decision.
Disadvantages:
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
There is always a possibility of conflict arising out of various reasons, which may
prove to be detrimental for the growth of the company.
The distinction between line function and staff function is difficult to make.
With the increase in size and complexity of projects, the line and staff type of
organization fails to deliver. This is because line and staff organization tends to load a few
men at the top of the hierarchy with more duties than they can handle efficiently. This
eventually gave rise to adoption of the departmental organization. One typical
departmental organization is shown in Figure above. The departmental or functional
organization has departments with department heads. The department heads have
control of the functions allocated to them and they are free to communicate directly with
the field forces. In this organization structure, the top-hierarchy people are relieved from
much of the heavy burden. The structure combines the best of the military- or line-type
structure and the ‘line and staff’ structure. It also leaves functional managers in direct
charge of the work and ensures them the support of a highly trained technical staff.
C. Departmental Organization
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
I. Centralized Functional
In this form, the centre of power is concentrated at the top of the organization. The
departments are arranged by important functions, each headed by a manager who
reports to a chief executive officer. The chief executive officer coordinates the activities of
functional departments.
Advantage:
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
Disadvantage:
In this arrangement, the departments are separated on the basis of the project
market or region. Each unit is relatively self-contained in that it has the resources to
operate independently of other divisions. The division manager has almost total authority
to establish division strategy and to manage internal operation. It is like dividing a
company into a number of smaller companies, except that each division manager is
generally subject to some degree of evaluation and control by the central corporate office.
Advantage:
The decision-making is quicker and simpler. The various divisions can take
advantage of their own functional organization.
The divisional focus is on the end result rather than the work required to produce
the end result. The management can react to changing business conditions
quickly and adapt to it.
The output and responsibility can be easily identified.
In this arrangement, each of the divisions can be operated as a profit centre.
Corporate executives can be removed from the operating details to concentrate
on overall corporate matters and long-range planning.
Motivation and development prospects of project managers are enhanced, and
there is greater likelihood of innovation and creativity.
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
Disadvantage:
Owing to its various disadvantages, the departmental organization is now giving way
to the matrix organization. In the matrix organization, as we shall see later, the normal
vertical hierarchy is overlaid by some form of lateral authority and communication. This,
in turn, allows maximum efficiency in the utilization of resources as opposed to the
departmental organization.
One of the distinct features of the matrix organization is that a dual rather than a single
chain of command is followed. For example, some of the managers under matrix structure
may report to two superiors instead of a single superior.
There are two alternatives through which a construction company can create a matrix
organization. In the first alternative, the company can abandon the departmental
groupings and adopt a structure solely on a project basis. In the second alternative, it can
overlap construction/project management on top of the existing departmental
organization. Most of the construction companies follow the second alternative.
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
the same. Construction companies follow different organizational forms at project level.
It is not an easy task to integrate the project management structure into a corporate
structure. The inherent challenge here is to organize people from different specializations
and different departments into an effective project team. The challenge gets further
compounded when a number of different organizations with different objectives are
involved in the project. Depending on the extent to which the authority is delegated to a
project manager and the mode in which the power is delegated, the project management
structure can be divided into categories such as—
(1) functional,
(2) matrix, and
(3) project forms of organization.
While in the first form the project manager has virtually nil authority, in the third
form complete authority is vested with the project manager. The matrix method is a
compromise between the two extremes.
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
1. Functional Organization
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
Advantage:
The degree of efficiency is high since the employees have to perform a limited
number of activities.
There is a greater division of labour and, thus, the advantages of functional
organizations are inherent in this structure.
The specialized groups can enhance the possibility of mass production.
Disadvantage:
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
Advantage:
The project manager maintains complete authority over the project and has
maximum control over the project.
The lines of communication are strong and open, and the system is highly
flexible and capable of rapid reaction times. Thus, the structure can react quickly
to the special and changing project needs.
The project is the only real concern of the project employees. The pure project
structure provides a unity of purpose in terms of effectiveness. It brings together
all the administrative, technical and support personnel needed to bring a project
from the early stages of development through to operational use.
The appraisal of employees is based upon the performance of the project.
The focus of resources is towards the achievement of organization goals rather
than the provision of a particular function.
Disadvantage:
The pure project or product organizations are unusual in the construction industry
(Newcombe et al. 1990, cited in Uher and Toakley 1999). In order to address some of the
disadvantages of the pure project structure, ‘partial projectization’ has been used in some
cases. Here, the critical functions such as engineering and construction are assigned to
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
the project manager, while functions such as procurement and accounting are performed
within the functional departments.
The project manager can spend more time directing the project-related activities
of the major functional group.
The project manager need not be an expert in all functional areas, as is the case
with the pure project structure.
3. Matrix Organizations
The matrix organizations have evolved from the classical functional model. They
combine the advantages of both the classical and the pure project/product structures. A
matrix organization can take on a wide variety of specific forms, depending on which of
the two extremes (functional or pure project) it most resembles.
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
In the matrix organization, the human resources are drawn from within various
functional departments to form specific project teams. Every functional department has a
pool of specialists. For example, the plant and machinery functional department may have
the experts P1, P2, P3, P4, and so on. Similarly, the safety department may have experts S1,
S2, S3, S4, and so on. When the project team for executing a project X is organized, the
experts from different functional departments join together under the leadership of a
project manager. For example, P1 and S1 may represent plant and machinery department
and safety department, respectively. Similarly, depending on the requirement, personnel
from different functional departments may join the project manager. The functional
representatives such as P1 and S1 are referred to as the project engineers. On completion
of projects, the project engineers return to their functional units within the vertical
organization structure.
The matrix organization recognizes the dynamic nature of a project and allows for
the changing requirements. Such structures can cater to the varying workload and
expertise demanded by the project. For example, if at any stage it is found that the services
rendered by P1 are inadequate and needs strengthening in the form of more persons, the
project manager can request the functional head of plant and machinery department to
send a few more persons such as P2, P3, and so on. Similarly, during less workload the
project manager can request for demobilization of these project engineers. The project
engineers P1, P2, P3, and so on usually contact their parent functional departments for
getting advice on complex technical matters or when they encounter unusual problems.
Otherwise, for all practical purposes the project engineers are under the control of the
project manager. One of the features of the matrix organization is that the knowledge
gained by the project engineers P1, P2, and others while executing projects can be shared
vertically upwards for the benefit of future projects.
Advantage:
The structure facilitates quick response to changes, conflicts and project needs.
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
Disadvantages:
1. Functional matrix:
A person is formally designated to oversee the project across different
functions. This person has limited authority over the functional people
involved, and primarily plans and coordinates the project. The functional
managers retain prime responsibility for their specific segments of the
project.
2. Balanced matrix:
A person is assigned to oversee the project and interacts on an equal
basis with functional managers. This person and the functional managers
jointly plan and direct workflow segments and approve technical and
operations decisions.
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
3. Project matrix:
A manager is assigned to plan, direct and oversee the project, and is
responsible for the completion of the project. The functional managers’
involvement is limited to assigning personnel as needed and providing
advisory expertise.
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
setting plans,
formulating objectives, and
deciding among different courses of action.
The three basic types of information required at this level to perform the above functions
are:
environmental information,
competitive information, and
the company’s financial status and general performance data.
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
The primary functions at this level are acquiring business and formulating the
company’s immediate objective, in line with the board’s plans and strategies. This level
requires a much more detailed and departmentalized format of the environmental,
competitive and internal information. It also requires progress reports that summarize, for
each project, its status, current and future cost and schedule performance, and problems,
with management actions underway to resolve them.
The major functions at this level are—obtaining and monitoring work for the
company at the district or divisional level. This level requires summary formats of the three
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
basic types of information (environmental, competitive and internal) that apply to the
geographic areas. In addition, this level requires a clear and straightforward summary
format of information on general progress, financial status, schedule status, procurement
status and engineering status on each project under their jurisdiction.
The information needs of this level are the same as those of the construction
management level, backed up with the following details—
field costs,
summary and/or detail construction schedules,
list of critical or near-critical items in the network,
detailed prediction of future accomplishments,
current working estimates, and
cash-flow summaries..
Engr.Jerome M. Galam
Insturctor - I
Aurora State College of Technology (ASCOT)
DEPARTMENT OF ENGINEERING
Brgy.Zabali, Baler, Aurora
Course: BSCE-5
Engr.Jerome M. Galam
Insturctor - I