CONSTRUCTION ECONOMICS &

MANAGEMENT

Chapter 1  PROJECT ORGANIZATION

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Chapter – 1 PROJECT ORGANIZATION
INTRODUCTION
• It is a structure that facilitates and motivates in the coordination & implementation of the

project.

• The organization of a company is the conceptual framework of the resources that carries out

the functions of a construction company. The common functions of a construction company

are general administration, estimating, managing contracts and personnel, design,

engineering, purchasing/procurement, accounting, and managing field construction.

• The main purpose is to create an environment that encourages interaction between team

members with very less amount of disruption, overlaps and conflicts.

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FORMS OF BUSINESS ORGANIZATIONS

• Sole proprietorship

• Partnership

• Corporation

• Limited Liability Company (LLC)

• Private Limited Company

• Public Limited Company

• Government Enterprise

• Joint Venture

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SOLE PROPRIETORSHIP (Single Ownership/Single Proprietorship)

• It is a form of business that is owned, managed & controlled by an individual. He is entitled to

profits and has to bear the loss of business.
• It is the simplest & most easily formed business organization with not much legal formalities.

MERITS LIMITATIONS
• Individual Initiative • Limitation of management skills
• Risk bearing • Limitation of Resources
• Decision making & Control • Unlimited liability
• Minimum government • Lack of continuity
regulations • Not Suitable for Large Scale Operations
• Secrecy
• Inexpensive Management

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PARTNERSHIP
• It is an association of persons who agree to combine their financial resources and
managerial abilities to run a business and share profits in an agreed ratio.
• A partnership firm can be formed with a minimum of two partners and it can have a
maximum of twenty partners.

MERITS: LIMITATIONS:
• Ease in formation • Uncertainty of existence
• Pooling of financial resource • Risks of implied authority
• Pooling of managerial skills • Risks of disharmony
• Balanced business decisions • Difficulty in withdrawal from
• Sharing of risks the firm
• Non-transferability of share
• Possibility of Conflicts

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CORPORATION
• A corporation is a legal entity having existence separate and distinct from its owners and they
exists only in contemplation of law.
• The ownership of corporation is subdivided among its shareholders in the form share &
stocks. Corporation is managed by Directors and officers who are appointed by shareholders
and are responsible for operations & management.
• It is the corporation who owns the business not the shareholders.
MERITS: LIMITATIONS
• Unlimited life span • Complex and expensive to form and
• Easy to transfer ownership (Buy/sell dissolve
shares) • Public disclosure of business
• Limited liability to owners information
• Can raise money in capital market • Double Taxation
• Specialized management and work skills • Slow decision making process

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LIMITED LIABILITY COMPANY (LLC)
• It is the combination of corporation and partnership.
• It provides its owners with corporate-style limited liability and the tax treatment of a partnership.
• Suitable for small and medium-sized firms.
• Complete transfer of ownership and interest is usually subject to approval of at least a majority
of the other LLC members.

MERITS: LIMITATIONS
• Limits liability to the company • Ownership is limited by certain state laws
owners for debts or losses • Agreements must be comprehensive and
• The profits of the LLC are shared complex.
by the owners without double-
taxation

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 PRIVATE AND PUBLIC LIMITED COMPANY
• A private company is a one which:
o Minimum of 2 and a maximum of 200 members
o Restricts the right of members to transfer its shares
o Does not invite public to subscribe to its securities
• A public company is a one which:
o Minimum of 7 members and no limit on maximum members
o Has no restriction on transfer of shares
o It is not prohibited from inviting the public to subscribe to its securities.
o However, a private company which is a subsidiary of a public company is also treated
as a public company.

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BASICS PUBLIC COMPANY PRIVATE COMPANY

Members Minimum - 7 Minimum - 2

Maximum - unlimited Maximum – 200

Minimum no. of directors 3 2

Index of members Compulsory Not compulsory

Transfer of shares No restriction Restriction on transfer

Invitation to public to Can invite the public to Cannot invite the public
subscribe to shares subscribe to its shares or to subscribe to its
debentures securities

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GOVERNMENT ENTERPRISE
• It is a legal entity created by a government to undertake commercial or business activities on
behalf of an owner government.
• They have a distinct legal form and they are established to operate in commercial affairs.
• A government company gets its funding from government shareholding and other private
shareholdings. The company can also raise money from the capital market.

MERITS: LIMITATIONS
• Easy formation • Board of Directors Packed with ‘Yes-Men’
• Internal Autonomy • Autonomy only in name
• Private Participation • Lack of expertise.
• Easy to alter
• Discipline
• Professional Management

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JOINT VENTURE
• It is not like a partnership agreement, it has a definite end to it as it focuses on a single project
or undertaking.
• It does pose a great sense of benefit for both companies, but it also as its share of side effects
as well.

MERITS:
• New insights and expertise LIMITATIONS
• Better resource • Unclear and unrealistic objectives
• It is a temporary agreement • No equal involvement and responsibilities
• Both parties bear the risk of • Leads to imbalance
profit and loss
• Clash of culture
• Ways to exit a JV
• Lack of communication
• Leads to long term
relationships and network
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STRUCTURE OF CONSTRUCTION ORGANIZATION

• An organizational structure is a standard hierarchy of operations. It defines how you can divide,
coordinate, and direct groups.
• It is carefully planned to ensure the right expert resources are available in the areas required.
• The key elements that contribute to a proper organizational structure are as follows:
o Departmentalization
TYPES OF STRUCTURE ORGANIZATION
o Chain of command 1) Organic or Simple
2) Line
o Span of control
3) Line and staff
o Centralisation and decentralisation 4) Functional
5) Divisional
o Work specialisation
6) Project
o Formulation 7) Matrix

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ORGANIC/SIMPLE ORGANIZATION
• It is very flexible and able to adapt well to market changes.
• It deals well with a rapidly changing environment. People work side-by-side to
communicate quickly and often solving unforeseen problems, issues and requirements.
• Also know as Flat or Horizontal Organization structure.

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Organic/Simple Organization

Characteristics Merits Demerits

• Decentralized • Flexible Approach • Confusion and
• Flexible • Free flow of information uncertainties
• Broadly defined jobs • Responsive and • Incomplete task
• Interdependence teamwork • Lack of coordination
amongst units and • Decentralized authority • Lack of communication
employees • Fluid workforce • Unpredictable process
• Employee Initiative • Feeling of ownership
• Easy Communication • Enhance to creativity

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LINE ORGANIZATION
•  It is the simplest form of organizational structure that you will find across small companies.
It has well-defined authority levels in the hierarchical structure.
• The hierarchical structure clearly defines authority, responsibility, and accountability at
each level.
• Communication is fast and easy because employees get quick feedback and respond fast.

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LINE ORGANIZATION
Characteristics
• Direct vertical
relationship
• Simple & flexible
operating system
• No provision for staff
specialist
• Direct instruction to the
subordinates
Merits Demerits
• Simple to work • Over reliance on
• Economical and effective reporting authority
• Unity of command/control • Lack of specialisation
• Strong sense of discipline • Lack of coordination with
• Fixed roles & other departments
responsibility for • Lack of communication
employees • Instability of work in the
• Prompt decision absence of key person.
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 LINE AND STAFF ORGANIZATION
• It is a modification of the Line Organization, functional specialists work with line managers
to guide and advise them.
• It establish goals and directives, that are then fulfilled by staff and other workers.
• A line-staff organizational structure attempts to render a large and complex enterprise more
flexible without sacrificing managerial authority.

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 Line and Staff Organization
Characteristics Merits Demerits
• Two types of staff - • Benefits of • Lack of understanding
Assistant & Supervisor specialisation • Line & staff conflicts
• Two Line of authority – • Better coordination • Assumption of authority
Line & Staff • Benefits of research & • Expensive in hiring
• Division of work development specialist
• Specialised staff for • Unity of action
different functional • Balanced Decision
areas

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FUNCTIONAL ORGANIZATION (CLASSICAL ORGANIZATION)
• It groups the workers based on their area of specialization. This structure is an extension
of the Line Organization. The functional manager leads the team and manages all the
operations or businesses.
• The manager enforces directives within a clearly defined scope of authority.
• It collectively help the organization control quality and uniformity.

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Functional Organization

Characteristics Merits Demerits

• Task divided into • Specialization and • Employees get bored with the

functions departmental routine and lose enthusiasm.

• Functions performed competence • It limits the management skills

by specialists • Operational speed and of functional managers.

• Overseen by the clarity Hence, they face restrictions

functional heads • Scope of expansion on their growth path.

• Better control
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• Expensive due hiring of high-
skilled employees.
• It causes conflicts in making
critical decisions as a result of
bureaucratic hierarchy.
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 DIVISIONAL ORGANIZATION
• It often resembles as Functional Organization. The team members work in different
departments. This setup splits the employees into segments based on products, markets,
or services.
• They work independently on divisional goals. But all divisions collectively meet the
organizational policies and business objectives.

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Divisional Organization

Characteristics Merits Demerits

• Organization function • Accountability • Not applicable for small
grouped into divisions • Team culture organization
• Divisional resource to • Responsive to external • Difficulty in integrating
support product line changes divisions
• Multiple subsidiary • Better strategies & • Cruel competition
companies under a decisions by leaders • Segmentation creates
parent company boundaries among divisions
• Low impact of failure and may lead to poor inter-unit
coordination

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PROJECT ORGANIZATION
• Project organization is a temporary setup formed for specific projects. It's also called
“projectized organizational structure.” The project manager assigned for the project is the
head of this structure.
• The manager assigns clearly defined tasks to each of the team members, along with the
complete schedule.
• These types of organizations are useful when
o The project scope is complete, and objectives are clearly defined
o The project is unique and independent

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Project Organization
Characteristics Merits Demerits
• Temporary setup for • Easy communication • No clear growth path
specific project • Strong sense of • Expensive
• Headed by the project identity • All specialists dedicated to one
manager • Efficient and effective single project.
• Dismantle upon project use of resource
completion
• Works well for projects
with clearly defined
objectives

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 MATRIX ORGANIZATION

• It is the combination of a project and functional organization. This hybrid organization

overcomes the limitations of each organization.
• Project managers are generally responsible for Overall integration, Project planning,
Execution of the project, and Completion of project activities
• The functional managers are concerned with the operational aspects of the project.
They’re also responsible for providing technical guidance.
• Project managers manage the project staff and functional managers control the
process.
• This type of organization is most useful when workers must share available resources.
The combination achieves high efficiency and better usage of available resources.

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Matrix Organization

Characteristics Merits Demerits

• Focuses attention on • Efficient and • Violates unity of command
specific projects specialised skill • Complicated problem of
• Transfer personnel employees coordination with project
from various • Flexible in nature manager and functional
department • Motivates personnel • Not homogenous and compact
• Functional manager engage in the project • Costly to maintain as it has
responsible for • Balanced time, cost many managers
functional integrity and performance • Need to maintain resources
• Project objective are of throughout the project, no
paramount importance matter how long it takes

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MANAGEMENT LEVELS
A position in management that is formed differentiable layer/levels in terms of power,
authority, responsibility, and accountability over resources required to achieve defined
objective.

Five management levels:

1) Board of directors level
2) President level
3) Construction management level
4) Project management level
5) Functional management level

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Directors Level
• The different functions at this level are: setting plans, formulating objectives, and
deciding among different courses of action.
• The basic 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.
President Level
• 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.
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Construction Management Level
• The major functions at this level are—obtaining and monitoring work for the company at
the district or divisional level.
• It 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.

Project Management Level

• The major functions of the project management level are:
o Managing the day-to-day operations of all aspects of a project.
o Monitoring the development of the project as per scheduled.
• The information required for this level are similar as those of the construction management
level - field costs, summary or detail construction schedules, list of critical items/activities in
the network, detailed prediction of future accomplishments, current working estimates and
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Functional Management Level
• The functional management level directly organizes, supervises and coordinates the
workers, materials, equipment and services, to ensure that the project is constructed
within the required time, budget and safety and quality standards.
• Data collected at this level to be used for costing, estimating and scheduling purposes.
• The functional management level requires performance and productivity information on
the organizational units that each manager or supervisor handles, as well as detailed
analyses of the problem areas.

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PROJECT MANAGER
• PM is a person formally appointed to manage a project with specific accountability for
achieving defined project objectives with allocated resources.

• Collaborating with engineers, architects etc. to determine the specifications of the project
and negotiate with external vendors to reach profitable agreements.

• Plan all construction operations and schedule intermediate phases to ensure deadlines
will be met Evaluate progress and prepare detailed reports

• Ensure adherence to all health and safety standards at project site.

• The Project Manager is also responsible for keeping the lines of communication open
between the team and the client. Regular updates and reports about the responsibilities
mentioned above ensure a transparent and smooth operation.

• Managing the possible risk and keep the client informed.

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TRAITS OF A PROJECT MANAGER

 Human Skills  Ability to Stay Calm Under Pressure

 Conceptual Skills  Fairness

 Technical Skills  Commitment

 Attitude  Conflict resolution

 Common Sense  Ability to prioritise the task

 Open minded
 Adaptability
 Inventive
 Prudent risk taken

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PROJECT COORDINATOR
• A project coordinator who helps a company with administrative tasks for specific projects
and makes sure that everything is running smoothly so that the project manager can
achieve the company's goals.
• Project coordinators often take care of following task -
o Ordering new supplies and materials
o Keeping track of budgeting details
o Finding alternative ways to reduce expenses
o Keeping track of changes in the long- and short-term goals for projects
o Communicating with coworkers
o Training new staff members
o Data entry works

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TRAITS OF A PROJECT COORDINATOR

 Organization
 Clear communication
 Problem-solving
 Conflict resolution
 Time management
 Data entry
 Knowledge of Word, Excel, PowerPoint, Access, Skype and other computer programs
commonly used by businesses in your industry

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FACTORS BEHIND THE SUCCESS OF A CONSTRUCTION
ORGANIZATION
 Supportive top management
 Acquiring proper and adequate equipment for construction
 Acquiring new and up-to-date technology for construction
 Availability of resource
 Effectiveness of the project management in improving schedule, cost and quality of the
project
 Developing team-working approach
 Implementing an effective quality assurance and control programme
 The clarity of customer/client requirements
 Achievement of goals set by the organization
 Providing training to staff to enable them to perform their roles effectively
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 Continued…

 Assessment of the ‘value’ for money and ‘quality’ for customers.

 Competitive strategies used by the organization which keep it apart from others in a market.
 Effectiveness of human resource (HR) in its functioning (such as recruitment and monitoring of
performance).
 The clarity of the responsibilities towards organization’s success
 Constant motivation to staff by the managers.
 Regular review of the feedback from employees, customers and all stakeholders, and
continuous monitoring of their satisfaction levels.
 Developing an appropriate organization structure.
 Regular monitoring of organizational strengths, weaknesses, opportunities and threats.
 Identifying and continuously developing management skills and linking them to the
organization’s objectives.
 Adopting latest project-execution techniques.
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 Continued…
 Regular and systematic evaluation for operational staff. Presence of effective risk-
management capabilities in the organization.
 Benchmarking the procedures and construction productivity, and improving them.
 Developing relevant technology
 Clear identification of the critical actions that are to be taken in business.
 The extent of knowledge the employees have regarding the key purpose of the
organization.
 Relationship with customers, material suppliers and subcontractors.
 Considering the scope for growth in organization and the need for change
 Award system by the organization to show appreciation for good work.
 Flexibility of the organization towards implementation of latest trends
 Proper selection of projects/type of projects (keeping in mind political, environmental,
technical and social issues). Regular and systematic evaluation for administrative staff
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 Continued…

 Arranging and managing additional sources of finance.

 Capability of organization in pulling out of unprofitable regions
 Dealing with organizational, departmental and individual conflicts openly rather
than ignoring them
 Offering the option of variable compensation to employees, and the same
should be decided on the basis of performance as the main criterion
 Proper selection of clients
 Flexibility of working hour

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THANK
YOU
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