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Project Management
 

01) The Owners' Perspective

Page 02 of 02 Chapter 01

02) Organizing For Project Management

Page 02 of 02 Chapter 02

03) The Design And Construction Process

Page 02 of 03 Chapter 03
Page 03 of 03 Chapter 03

04) Labor, Material, And Equipment Utilization

Page 02 of 03 Chapter 04
Page 03 of 03 Chapter 04

05) Cost Estimation

Page 02 of 03 Chapter 05
Page 03 of 03 Chapter 05

06) Economic Evaluation of Facility Investments

Page 02 of 03 Chapter 06
Page 03 of 03 Chapter 06

07) Financing of Constructed Facilities

Page 02 of 03 Chapter 07
Page 03 of 03 Chapter 07

08) Construction Pricing and Contracting

Page 02 of 03 Chapter 08
Page 03 of 03 Chapter 08

09) Construction Planning

Page 02 of 03 Chapter 09
Page 03 of 03 Chapter 09

10) Fundamental Scheduling Procedures

Page 02 of 03 Chapter 10
Page 03 of 03 Chapter 10

11) Advanced Scheduling Techniques

Page 02 of 03 Chapter 11
Page 03 of 03 Chapter 11

12) Cost Control, Monitoring, and Accounting

Page 02 of 03 Chapter 12
Page 03 of 03 Chapter 12

13) Quality Control and Safety During Construction

Page 02 of 03 Chapter 13
Page 03 of 03 Chapter 13

14) Organization and Use of Project Information

Page 02 of 03 Chapter 14
Page 03 of 03 Chapter 14

 
Folder 2. Organizing for Project Management-02

2.5 Organization of Project Participants

The top management of the owner sets the overall policy and selects the appropriate organization to take charge of a proposed project. Its policy will dictate how the project life cycle is divided among organizations and which professionals should be engaged. Decisions by the top management of the owner will also influence the organization to be adopted for project management. In general, there are many ways to decompose a project into stages. The most typical ways are:

  • Sequential processing whereby the project is divided into separate stages and each stage is carried out successively in sequence.
  • Parallel processing whereby the project is divided into independent parts such that all stages are carried out simultaneously.
  • Staggered processing whereby the stages may be overlapping, such as the use of phased design-construct procedures for fast track operation.
  • It should be pointed out that some decompositions may work out better than others, depending on the circumstances. In any case, the prevalence of decomposition makes the subsequent integration particularly important. The critical issues involved in organization for project management are:

  • How many organizations are involved?
  • What are the relationships among the organizations?
  • When are the various organizations brought into the project?
  • There are two basic approaches to organize for project implementation, even though many variations may exist as a result of different contractual relationships adopted by the owner and builder. These basic approaches are divided along the following lines:

    1. Separation of organizations. Numerous organizations serve as consultants or contractors to the owner, with different organizations handling design and construction functions. Typical examples which involve different degrees of separation are:
    2. Traditional sequence of design and construction
    3. Professional construction management
    4. Integration of organizations. A single or joint venture consisting of a number of organizations with a single command undertakes both design and construction functions. Two extremes may be cited as examples:
    5. Owner-builder operation in which all work will be handled in house by force account.
    6. Turnkey operation in which all work is contracted to a vendor which is responsible for delivering the completed project

    Since construction projects may be managed by a spectrum of participants in a variety of combinations, the organization for the management of such projects may vary from case to case. On one extreme, each project may be staffed by existing personnel in the functional divisions of the organization on an ad-hoc basis as shown in Figure 2-4 until the project is completed. This arrangement is referred to as the matrix organization as each project manager must negotiate all resources for the project from the existing organizational framework. On the other hand, the organization may consist of a small central functional staff for the exclusive purpose of supporting various projects, each of which has its functional divisions as shown in Figure 2-5. This decentralized set-up is referred to as the project oriented organization as each project manager has autonomy in managing the project. There are many variations of management style between these two extremes, depending on the objectives of the organization and the nature of the construction project. For example, a large chemical company with in-house staff for planning, design and construction of facilities for new product lines will naturally adopt the matrix organization. On the other hand, a construction company whose existence depends entirely on the management of certain types of construction projects may find the project-oriented organization particularly attractive. While organizations may differ, the same basic principles of management structure are applicable to most situations.

    Figure 2-4: A Matrix Organization

    Figure 2-4:  A Matrix Organization

    Figure 2-5: A Project-Oriented Organization

    Figure 2-5:  A Project-Oriented Organization

    To illustrate various types of organizations for project management, we shall consider two examples, the first one representing an owner organization while the second one representing the organization of a construction management consultant under the direct supervision of the owner.

    Example 2-3:  Matrix Organization of an Engineering Division

    The Engineering Division of an Electric Power and Light Company has functional departments as shown in Figure 2-6. When small scale projects such as the addition of a transmission tower or a sub-station are authorized, a matrix organization is used to carry out such projects. For example, in the design of a transmission tower, the professional skill of a structural engineer is most important. Consequently, the leader of the project team will be selected from the Structural Engineering Department while the remaining team members are selected from all departments as dictated by the manpower requirements. On the other hand, in the design of a new sub-station, the professional skill of an electrical engineer is most important. Hence, the leader of the project team will be selected from the Electrical Engineering Department.

    Figure 2-6: The Matrix Organization in an Engineering Division

    Figure 2-6:  The Matrix Organization in an Engineering Division

    Example 2-4:  Example of Construction Management Consultant Organization

    When the same Electric Power and Light Company in the previous example decided to build a new nuclear power plant, it engaged a construction management consultant to take charge of the design and construction completely. However, the company also assigned a project team to coordinate with the construction management consultant as shown in Figure 2-7.

    Figure 2-7: Coordination between Owner and Consultant

    Figure 2-7:  Coordination between Owner and Consultant

    Since the company eventually will operate the power plant upon its completion, it is highly important for its staff to monitor the design and construction of the plant. Such coordination allows the owner not only to assure the quality of construction but also to be familiar with the design to facilitate future operation and maintenance. Note the close direct relationships of various departments of the owner and the consultant. Since the project will last for many years before its completion, the staff members assigned to the project team are not expected to rejoin the Engineering Department but will probably be involved in the future operation of the new plant. Thus, the project team can act independently toward its designated mission.

    2.6 Traditional Designer-Constructor Sequence

    For ordinary projects of moderate size and complexity, the owner often employs a designer (an architectural/engineering firm) which prepares the detailed plans and specifications for the constructor (a general contractor). The designer also acts on behalf of the owner to oversee the project implementation during construction. The general contractor is responsible for the construction itself even though the work may actually be undertaken by a number of specialty subcontractors.

    The owner usually negotiates the fee for service with the architectural/engineering (A/E) firm. In addition to the responsibilities of designing the facility, the A/E firm also exercises to some degree supervision of the construction as stipulated by the owner. Traditionally, the A/E firm regards itself as design professionals representing the owner who should not communicate with potential contractors to avoid collusion or conflict of interest. Field inspectors working for an A/E firm usually follow through the implementation of a project after the design is completed and seldom have extensive input in the design itself. Because of the litigation climate in the last two decades, most A/E firms only provide observers rather than inspectors in the field. Even the shop drawings of fabrication or construction schemes submitted by the contractors for approval are reviewed with a disclaimer of responsibility by the A/E firms.

    The owner may select a general constructor either through competitive bidding or through negotiation. Public agencies are required to use the competitive bidding mode, while private organizations may choose either mode of operation. In using competitive bidding, the owner is forced to use the designer-constructor sequence since detailed plans and specifications must be ready before inviting bidders to submit their bids. If the owner chooses to use a negotiated contract, it is free to use phased construction if it so desires.

    The general contractor may choose to perform all or part of the construction work, or act only as a manager by subcontracting all the construction to subcontractors. The general contractor may also select the subcontractors through competitive bidding or negotiated contracts. The general contractor may ask a number of subcontractors to quote prices for the subcontracts before submitting its bid to the owner. However, the subcontractors often cannot force the winning general contractor to use them on the project. This situation may lead to practices known as bid shopping and bid peddling. Bid shopping refers to the situation when the general contractor approaches subcontractors other than those whose quoted prices were used in the winning contract in order to seek lower priced subcontracts. Bid peddling refers to the actions of subcontractors who offer lower priced subcontracts to the winning general subcontractors in order to dislodge the subcontractors who originally quoted prices to the general contractor prior to its bid submittal. In both cases, the quality of construction may be sacrificed, and some state statutes forbid these practices for public projects.

    Although the designer-constructor sequence is still widely used because of the public perception of fairness in competitive bidding, many private owners recognize the disadvantages of using this approach when the project is large and complex and when market pressures require a shorter project duration than that which can be accomplished by using this traditional method.

    2.7 Professional Construction Management

    Professional construction management refers to a project management team consisting of a professional construction manager and other participants who will carry out the tasks of project planning, design and construction in an integrated manner. Contractual relationships among members of the team are intended to minimize adversarial relationships and contribute to greater response within the management group. A professional construction manager is a firm specialized in the practice of professional construction management which includes:

  • Work with owner and the A/E firms from the beginning and make recommendations on design improvements, construction technology, schedules and construction economy.
  • Propose design and construction alternatives if appropriate, and analyze the effects of the alternatives on the project cost and schedule.
  • Monitor subsequent development of the project in order that these targets are not exceeded without the knowledge of the owner.
  • Coordinate procurement of material and equipment and the work of all construction contractors, and monthly payments to contractors, changes, claims and inspection for conforming design requirements.
  • Perform other project related services as required by owners.
  • Professional construction management is usually used when a project is very large or complex. The organizational features that are characteristics of mega-projects can be summarized as follows:

  • The overall organizational approach for the project will change as the project advances. The "functional" organization may change to a "matrix" which may change to a "project" organization (not necessarily in this order).
  • Within the overall organization, there will probably be functional, project, and matrix suborganizations all at the same time. This feature greatly complicates the theory and the practice of management, yet is essential for overall cost effectiveness.
  • Successful giant, complex organizations usually have a strong matrix-type suborganization at the level where basic cost and schedule control responsibility is assigned. This suborganization is referred to as a "cost center" or as a "project" and is headed by a project manager. The cost center matrix may have participants assigned from many different functional groups. In turn, these functional groups may have technical reporting responsibilities to several different and higher tiers in the organization. The key to a cost effective effort is the development of this project suborganization into a single team under the leadership of a strong project manager.
  • The extent to which decision-making will be centralized or decentralized is crucial to the organization of the mega-project.
  • Consequently, it is important to recognize the changing nature of the organizational structure as a project is carried out in various stages.

    Example 2-5:  Managing of the Alaska Pipeline Project

    The Alaska Pipeline Project was the largest, most expensive private construction project in the 1970's, which encompassed 800 miles, thousands of employees, and 10 billion dollars.

    At the planning stage, the owner (a consortium) employed a Construction Management Contractor (CMC) to direct the pipeline portion, but retained centralized decision making to assure single direction and to integrate the effort of the CMC with the pump stations and the terminals performed by another contractor. The CMC also centralized its decision making in directing over 400 subcontractors and thousands of vendors. Because there were 19 different construction camps and hundreds of different construction sites, this centralization caused delays in decision making.

    At about the 15% point of physical completion, the owner decided to reorganize the decision making process and change the role of the CMC. The new organization was a combination of owner and CMC personnel assigned within an integrated organization. The objective was to develop a single project team responsible for controlling all subcontractors. Instead of having nine tiers of organization from the General Manager of the CMC to the subcontractors, the new organization had only four tiers from the Senior Project Manager of the owner to subcontractors. Besides unified direction and coordination, this reduction in tiers of organization greatly improved communications and the ability to make and implement decisions. The new organization also allowed decentralization of decision making by treating five sections of the pipeline at different geographic locations as separate projects, with a section manager responsible for all functions of the section as a profit center.

    At about 98% point of physical completion, all remaining activities were to be consolidated to identify single bottom-line responsibility, to reduce duplication in management staff, and to unify coordination of remaining work. Thus, the project was first handled by separate organizations but later was run by an integrated organization with decentralized profit centers. Finally, the organization in effect became small and was ready to be phased out of operation.

    Example 2-6:  Managing the Channel Tunnel Construction from Britain to France

    The underground railroad tunnel from Britain to France is commonly called the Channel Tunnel or Chunnel. It was built by tunneling from each side. Starting in 1987, the tunnels had a breakthough in 1990.

    Management turmoil dogged the project from the start. In 1989, seven of the eight top people in the construction organization left. There was a built in conflict between the contractors and government overseers: "The fundamental thing wrong is that the constractors own less than 6% of Eurotunnel. Their interest is to build and sell the project at a profit. (Eurotunnel's) interest is for it to operate economically, safely and reliably for the next 50 years." (Alastair Morton, Eurotunnel CEO, quoted in ENR, 12/10/90, p. 56).

    2.8 Owner-Builder Operation

    In this approach an owner must have a steady flow of on-going projects in order to maintain a large work force for in-house operation. However, the owner may choose to subcontract a substantial portion of the project to outside consultants and contractors for both design and construction, even though it retains centralized decision making to integrate all efforts in project implementation.

    Example 2-7:  U.S. Army Corps of Engineers Organization

    The District Engineer's Office of the U.S. Army Corps of Engineers may be viewed as a typical example of an owner-builder approach as shown in Figure 2-8.

    Figure 2-8: Organization of a District of Corps of Engineers

    Figure 2-8:  Organization of a District of Corps of Engineers

    In the District Engineer's Office of the U.S. Corps of Engineers, there usually exist an Engineering Division and an Operations Division, and, in a large district, a Construction Division. Under each division, there are several branches. Since the authorization of a project is usually initiated by the U.S. Congress, the planning and design functions are separated in order to facilitate operations. Since the authorization of the feasibility study of a project may precede the authorization of the design by many years, each stage can best be handled by a different branch in the Engineering Division. If construction is ultimately authorized, the work may be handled by the Construction Division or by outside contractors. The Operations Division handles the operation of locks and other facilities which require routine attention and maintenance.

    When a project is authorized, a project manager is selected from the most appropriate branch to head the project, together with a group of staff drawn from various branches to form the project team. When the project is completed, all members of the team including the project manager will return to their regular posts in various branches and divisions until the next project assignment. Thus, a matrix organization is used in managing each project.

    2.9 Turnkey Operation

    Some owners wish to delegate all responsibilities of design and construction to outside consultants in a turnkey project arrangement. A contractor agrees to provide the completed facility on the basis of performance specifications set forth by the owner. The contractor may even assume the responsibility of operating the project if the owner so desires. In order for a turnkey operation to succeed, the owner must be able to provide a set of unambiguous performance specifications to the contractor and must have complete confidence in the capability of the contractor to carry out the mission.

    This approach is the direct opposite of the owner-builder approach in which the owner wishes to retain the maximum amount of control for the design-construction process.

    Example 2-8:  An Example of a Turnkey Organization

    A 150-Mw power plant was proposed in 1985 by the Texas-New Mexico Power Company of Fort Worth, Texas, which would make use of the turnkey operation. Upon approval by the Texas Utility Commission, a consortium consisting of H.B. Zachry Co., Westinghouse Electric Co., and Combustion Engineering, Inc. would design, build and finance the power plant for completion in 1990 for an estimated construction cost of $200 million in 1990 dollars. The consortium would assume total liability during construction, including debt service costs, and thereby eliminate the risks of cost escalation to rate payers, stockholders and the utility company management.

    2.10 Leadership and Motivation for the Project Team

    The project manager, in the broadest sense of the term, is the most important person for the success or failure of a project. The project manager is responsible for planning, organizing and controlling the project. In turn, the project manager receives authority from the management of the organization to mobilize the necessary resources to complete a project.

    The project manager must be able to exert interpersonal influence in order to lead the project team. The project manager often gains the support of his/her team through a combination of the following:

  • Formal authority resulting from an official capacity which is empowered to issue orders.
  • Reward and/or penalty power resulting from his/her capacity to dispense directly or indirectly valued organization rewards or penalties.
  • Expert power when the project manager is perceived as possessing special knowledge or expertise for the job.
  • Attractive power because the project manager has a personality or other characteristics to convince others.
  • In a matrix organization, the members of the functional departments may be accustomed to a single reporting line in a hierarchical structure, but the project manager coordinates the activities of the team members drawn from functional departments. The functional structure within the matrix organization is responsible for priorities, coordination, administration and final decisions pertaining to project implementation. Thus, there are potential conflicts between functional divisions and project teams. The project manager must be given the responsibility and authority to resolve various conflicts such that the established project policy and quality standards will not be jeopardized. When contending issues of a more fundamental nature are developed, they must be brought to the attention of a high level in the management and be resolved expeditiously.

    In general, the project manager's authority must be clearly documented as well as defined, particularly in a matrix organization where the functional division managers often retain certain authority over the personnel temporarily assigned to a project. The following principles should be observed:

  • The interface between the project manager and the functional division managers should be kept as simple as possible.
  • The project manager must gain control over those elements of the project which may overlap with functional division managers.
  • The project manager should encourage problem solving rather than role playing of team members drawn from various functional divisions.
  • 2.11 Interpersonal Behavior in Project Organizations

    While a successful project manager must be a good leader, other members of the project team must also learn to work together, whether they are assembled from different divisions of the same organization or even from different organizations. Some problems of interaction may arise initially when the team members are unfamiliar with their own roles in the project team, particularly for a large and complex project. These problems must be resolved quickly in order to develop an effective, functioning team.

    Many of the major issues in construction projects require effective interventions by individuals, groups and organizations. The fundamental challenge is to enhance communication among individuals, groups and organizations so that obstacles in the way of improving interpersonal relations may be removed. Some behavior science concepts are helpful in overcoming communication difficulties that block cooperation and coordination. In very large projects, professional behavior scientists may be necessary in diagnosing the problems and advising the personnel working on the project. The power of the organization should be used judiciously in resolving conflicts.

    The major symptoms of interpersonal behavior problems can be detected by experienced observers, and they are often the sources of serious communication difficulties among participants in a project. For example, members of a project team may avoid each other and withdraw from active interactions about differences that need to be dealt with. They may attempt to criticize and blame other individuals or groups when things go wrong. They may resent suggestions for improvement, and become defensive to minimize culpability rather than take the initiative to maximize achievements. All these actions are detrimental to the project organization.

    While these symptoms can occur to individuals at any organization, they are compounded if the project team consists of individuals who are put together from different organizations. Invariably, different organizations have different cultures or modes of operation. Individuals from different groups may not have a common loyalty and may prefer to expand their energy in the directions most advantageous to themselves instead of the project team. Therefore, no one should take it for granted that a project team will work together harmoniously just because its members are placed physically together in one location. On the contrary, it must be assumed that good communication can be achieved only through the deliberate effort of the top management of each organization contributing to the joint venture.

    2.12 Perceptions of Owners and Contractors

    Although owners and contractors may have different perceptions on project management for construction, they have a common interest in creating an environment leading to successful projects in which performance quality, completion time and final costs are within prescribed limits and tolerances. It is interesting therefore to note the opinions of some leading contractors and owners who were interviewed in 1984.

    From the responses of six contractors, the key factors cited for successful projects are:

  • well defined scope
  • extensive early planning
  • good leadership, management and first line supervision
  • positive client relationship with client involvement
  • proper project team chemistry
  • quick response to changes
  • engineering managers concerned with the total project, not just the engineering elements.
  • Conversely, the key factors cited for unsuccessful projects are:

  • ill-defined scope
  • poor management
  • poor planning
  • breakdown in communication between engineering and construction
  • unrealistic scope, schedules and budgets
  • many changes at various stages of progress
  • lack of good project control
  • The responses of eight owners indicated that they did not always understand the concerns of the contractors although they generally agreed with some of the key factors for successful and unsuccessful projects cited by the contractors. The significant findings of the interviews with owners are summarized as follows:

  • All owners have the same perception of their own role, but they differ significantly in assuming that role in practice.
  • The owners also differ dramatically in the amount of early planning and in providing information in bid packages.
  • There is a trend toward breaking a project into several smaller projects as the projects become larger and more complex.
  • Most owners recognize the importance of schedule, but they adopt different requirements in controlling the schedule.
  • All agree that people are the key to project success.
  • From the results of these interviews, it is obvious that owners must be more aware and involved in the process in order to generate favorable conditions for successful projects. Design professionals and construction contractors must provide better communication with each other and with the owner in project implementation.

    2.13 References

    1. Barrie, Donald S. and Boyd C. Paulson, Jr., Professional Construction Management, McGraw-Hill Book Company, 2nd Ed., 1984.
    2. Halpin, Daniel W. and Ronald W. Woodhead, Construction Management, John Wiley and Sons, 1980.
    3. Hodgetts, R.M., Management: Theory, Process and Practice, W.B. Saunders Co., Philadelphia, PA, 1979.
    4. Kerzner, H. Project Management: A Systems Approach to Planning, Scheduling and Controlling. 2nd. Ed., Van Nostrand Reinhold, New York, 1984.
    5. Levitt, R.E., R.D. Logcher and N.H. Quaddumi, "Impact of Owner-Engineer Risk Sharing on Design Conservatism," ASCE Journal of Professional Issues in Engineering, Vol. 110, 1984, pp. 157-167.
    6. Moolin, F.P., Jr., and F.A. McCoy: "Managing the Alaska Pipeline Project," Civil Engineering, November 1981, pp. 51-54.
    7. Murray, L., E. Gallardo, S. Aggarwal and R. Waywitka, "Marketing Construction Management Services," ASCE Journal of Construction Division, Vol. 107, 1981, pp. 665-677.
    8. Project Management Institute, A Guide to the Project Management Body of Knowledge, Newtown Square, Pennsylvania, 2000.
     
     
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    Organizing for Project Management-02