Managing projects in a functional organization

Abstract
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Functional organizations, where the employees are grouped based on skills and job type, are useful to increase knowledge sharing within the groups. I.e. a functional group with programmers allows the programmers to help and learn from one another during working hours. This results in more specialized groups with self-increasing skills, though limiting the connection between people with different skill sets. Divisional organizations, where the employees are divided into groups based on location, product or market instead, have a broad variety of people with different skills in each group. This allows for better interactions among the different skill sets during working hours but takes away the knowledge sharing with like-minded people.

This article highlights the common challenges that a project manager must deal with when doing projects in a functional organization. Projects are generally complex and require people with various skills to be done. Thus, the divisional organization structure seems like the better fit for projects, as the need for inter-group communication is far less crucial. In a functional organization, all groups involved with the project have to be in close communication with one another in order to maintain a common direction for the project. This is where the project manager becomes important.
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Introduction and background

Managers deal with numerous different challenges and problems when supervising the employees and trying to set and achieve departmental goals while also complying with the goals and strategy of the organization. This applies to both functional managers and divisional managers. In this article, the focus is on the challenges that follow with doing projects in functional organizations. The well-renowned standard for project management, PRINCE2, states that "Projects often cross the normal functional divisions within an organization [...]". This means that in a functional organization, projects may sometimes be purely functional projects and can be contained within a functional group and supervised by the functional manager. In this case, there is no room for a project manager. However, most projects will be cross-functional and will often span every department of the organization and perhaps even external workforce.

In order to discuss the role of the project manager in a functional organization, it is necessary to understand what a functional organization is. The next section introduces the general types of organizational structures along with the roles of the project manager in each structure.

Organizational structure

The term "organizational structure" covers the formal system of task and job reporting relationships between employees and how the organization's resources should be spent to obtain its goals. The structure is determined by managers, typically based on the four factors described by the contingency theory; organizational environment, strategy, technology, and human resources. This process is described by the term "organizational design" which includes job design (the division of the tasks required to run the organization into jobs) and design of the organizational structure. Overall, there are two distinct types of organizational structures; divisional and functional. However, large and complex organizations can create matrix structures which combine divisional and structural elements (see Figure 1). The final design is determined so that it maximizes the efficiency and effectiveness of the organization.

Figure 1: A) Model displaying the structure of a functional organization, B) Model displaying the structure of a divisional organization, C) Model displaying the matrix structure of a functional organization with cross-functional project teams. Each organization has to define a balance between managers to ensure a clear line of power. The models are created by the author of this article and are based on content from "Essentials of Contemporary Management"

Functional structure

Grouping the jobs in the organization based on skill requirements, so that employees with resembling skill sets work together, is the idea of the functional structure (see Figure 1A). A functional organization is composed of all the departments that are required for the organization to deliver its products, being goods or services. This structure makes it easy for functional managers to evaluate the performance of the employees in their respective departments since all their employees can be evaluated on the same factors. Furthermore, each department can be more specialized due to knowledge-sharing among the employees.

A vehicle manufacturing company with a functional structure would include a marketing department, a procurement department, a production department, and an engineering department etc. The performance of each department in this structure would be higher compared to the divisional structure. Another benefit is that tasks or projects which are completed within functional departments might often share common attributes and will be completed faster due to increased collaboration among like-minded employees.

Divisional structure

In larger organizations, which begin to produce a wider range of goods or services and deal with a larger variety of customers, functional managers might become so busy supervising their departments and keeping up with departmental goals, that they lose sight of the organizational goals and strategy. This reduces efficiency and effectiveness and this is where the divisional structure becomes useful (see Figure 1B). Rather than having large functional units dealing with large numbers of different tasks, divisional departments can be implemented to split the number of tasks out to i.e. product specific departments.

Instead of having a marketing department that sells all types of products from the organization, there would be departments for each product type employing a limited number of marketing experts along with production-, engineering-, and procurement experts specialized in the product of their department. The product manager would then have a more manageable amount of tasks to supervise. Though, the cost of this structure is the lack of knowledge-sharing which results in departments with reduced skill performance.

However, it is a necessary structure to keep the departments aligned with the organizational strategy and to provide the highest possible level of efficiency and effectiveness. As a side benefit, doing cross-functional projects in a divisional structure can be easier, since a project can be contained within a department instead of being cross-departmental. An organization that is built entirely upon cross-functional projects rather than day-to-day operations can thus also be viewed as a divisional organization.

Matrix structure

Somewhere in between the functional and divisional structures lies a loosely defined matrix structure as described by PMI. The matrix structure is an arbitrary combination between the functional and the divisional structures and has its benefits and disadvantages. According to PMI, there is no "better" structure generally speaking, but some organizational forms have better chances for working than others. Which one it will be is also affected by the type of tasks the organization will be performing. A classic matrix structure is a functional organization with cross-functional projects and project managers (see Figure 1C). The main concern with the matrix structure is, that each employee involved with a project will answer to two managers - the functional manager and the project manager.

Managing projects in functional organizations

Now that the functional structure is presented, this section deals with projects and how they exist in functional organizations and how they are managed. The PMI standard provides an extensive overview of projects and project management. A summary is presented below to highlight the basic practices.

Projects in functional structures

According to the PRINCE2 standard, the definition of a project is: “A temporary organization that is created for the purpose of delivering one or more business products according to an agreed business case”. It is important to distinguish between the term 'organization' when used in this article and when used in the standard. When used in this article, the term refers to a permanent business-like organization such as a company. When used in the PRINCE2 standard, it refers to the temporary concept of a project. So, the standard’s definition of a project is a temporary team created to deliver business products according to a business plan. The key point here is 'product'. If a team in a functional organization is to deliver a product, it would require people from all the departments in the organization. Thus, all projects in functional organizations are cross-functional and involve most, if not all, departments of the organization and will require project managers. An organization, that can do a project and deliver a product within a single department, will by definition be a product divisional organization.

Table 1: Overview of the six performance aspects of projects. Based on content from the PRINCE2 standard. "

Performance aspects	Description
Costs	As projects are uncertain and that knowledge is gained throughout the project, the initial costs budget cannot possibly be fulfilling. Managing costs during the projects to avoid overspending or to save resources is, therefore, an important aspect.
Timescales	All projects have defined start and end dates which are linked with deadlines or promises to relevant stakeholders. Unforeseen risks or opportunities have major impacts on this aspect and it must be monitored to keep potential promises or deadlines.
Quality	Considering the Iron Triangle model, the two formerly mentioned aspects can sometimes only be satisfied by compromising the quality of the delivered product. However, sometimes strict criteria apply to the project deliverables which then have to be considered and managed.
Scope	In large organizations with many different functional departments that each have their own goals and view, it is vital for the project to maintain a well-defined scope. Otherwise, the project might not deliver the requested product in the end or it might go beyond the scope and be delayed and over budget.
Benefits	Each project is aimed at providing some benefit when it is done. The project deliverables are not always the benefits themselves but perhaps tools or elements required to obtain those benefits. Thus, the project scope must lie within the purpose of the project so that it achieves the desired return.
Risks	This is perhaps the most important aspect. What can go wrong with the project – delays, overspending, loss of scope, market change etc. Before launching a project, it must be evaluated how much risk the project entails and how much the owner is willing to accept. Risks can ruin projects if not managed properly.

According to the standard, there are six project performance aspects that need to be managed. Since all departments are involved, this can become quite substantial. The performance aspects are listed in Table 1. Since projects are cross-functional and all departments of the functional organization are involved, it becomes quite crucial to every project that there is a plan and that things are managed. Thus, project managers are essential in functional organizations, even if the structure complicates that job.

Project managers in functional organizations

The before mentioned standard for project management, PRINCE2, has defined the role of the project manager as follows:

"The project manager is responsible for the day-to-day management of the project within the constraints set out by the project board.
The project manager's prime responsibility is to ensure that the project produces the required products in accordance with the time,
cost, quality, scope, benefits and risk performance goals."

As explained in the structure section, functional organizations have grouped the workers based on skill sets. In these organizations, the functional managers are given almost total authority of the workers and resources in their departments. The project manager typically has very little, if any, authority towards the workers and has to coordinate with the functional managers. The role of the project manager typically diminishes to the role of a project coordinator since the actual 'management' falls into the hands of the functional managers.

Nevertheless, PMI has described 10 areas of knowledge, which are an extension of the six project performance aspects, that a project manager must deal with in every project. These knowledge areas are listed in table 2.

Table 2: Overview of the 10 knowledge areas that project managers deal with. Based on content from the PMI standard.

Knowledge areas	Description
Integration	Processes and activities that identify, define, unify and coordinate the processes of the Project Management Process Groups (which are presented in the next paragraph).
Scope	Making sure that the project includes all the required work, and no excessive work, to complete the project successfully.
Schedule	Managing the timing of the tasks in the project and ensuring that the project is completed in time.
Cost	Planning, estimating, budgeting, financing, funding, managing, and controlling the costs of the project so it can be completed on budget.
Quality	Planning, managing, and controlling the project and product quality to ensure that the project deliverables meet the stakeholders' expectations.
Resource	Identify, acquire, and manage the resources needed to complete the project successfully.
Communications	Planning, collection, creation, distribution, storage, retrieval, management, control, monitoring, and ultimate disposition of project information.
Risk	Planning, identification, analysis, response planning, response, implementation, and monitoring risk on a project.
Procurement	Purchase/acquire products, services, or results needed from outside the project.
Stakeholder	Identify people, groups, or organizations that could impact or be impacted by the project, analyze expectations, develop management strategies for engaging the stakeholders in project decisions and execution.

With 10 areas to focus on, the project manager has quite a lot to manage and to make sure things go smoothly as planned, it would be best if the project manager had as much control and authority of the workers as possible in order to delegate the work as needed. However, the functional structure complicates this even further since the project manager has to delegate the work to the functional managers who in return will decide how the work is to be done in their departments. This points toward the next paragraph that discusses the complications in project management in the functional organization structure.

Project management in functional organizations

Common challenges

Organization structural challenges

From an ideal point of view, the functional structure provides the best performing departments. When doing cross-functional projects, however, challenges appear in the functional structure. Every employee is used to respond to their functional manager and is possibly occupied with certain departmental tasks that the functional manager has planned. When the employee is assigned to a project with a project manager, the employee now responds to two managers. According to the PRINCE2 standard, this can be a source of conflict within organizations if there is no clear hierarchy among the managers or if the managers cannot come to an agreement regarding the division of the employee's working hours. This often results with the project manager having to answer to the functional manager, and that affects the level of required management for the involved employees.

Common practices

According to the PMI standard, the definition of project management is "the application of knowledge, skills, tools, and techniques to project activities to meet project requirements. Project management is accomplished through the appropriate application and integration of the project management processes identified for the project".

The standard describes five essential process groups of project management that project managers use to drive projects through their life-cycles as:

Table 3: Overview of the five process groups that project managers drive projects with. Based on content from the PMI standard.

Process Groups	Description
Initiating	This process group involves defining the project and obtaining authorization to start it by creating a project charter. This is done by creating the initial scope, identifying stakeholders, a project manager is assigned and initial resources are committed. Since authorization to the project and its scope has to be granted in this first process, the organizational benefit is that only projects which are aligned with the organization's strategic objectives will be allowed to exist. Also, the project can be aligned with the stakeholders' expectations and demands from the very beginning.
Planning	When the project is authorized, the details of the project have to be defined. This is a process group that initially involves a heavy workload for the manager. A project management plan has to be created, involving numerous planning processes such as project scope-, schedule-, cost-, quality-, resource-, communications-, procurement-, risk-, and stakeholder management. Once the project is started, increasing knowledge, risks or opportunities might change the circumstances of parts of the project. Thus, the manager might need to perform progressive elaboration as the project progresses.
Executing	When the planning has delivered a project management plan, the actual work on the project deliverables starts. For the manager, this involves continuously coordinating resources, managing stakeholders, and integrating and performing the project activities in accordance with the project management plan to ensure that the project will meet its requirements.
Monitoring and Controlling	This process group consists of project tracking-, viewing-, and regulating processes. It is necessary to identify areas of the project in which changes to the plan are required, and then to react and initiate relevant regulations or corrections. This is done by collecting performance data during the project and reporting it in form of performance measures. It is important to compare the performance measures to the planned performance from the project management plan, and dealing with possible variances by doing appropriate corrective actions. The purpose is to make sure that the project progresses and performs as planned from start to end.
Closing	The last process group only contains one process that closes the project appropriately. This is to make sure that all phases and all process groups are finished and to formally sign off the project.

Limitations of pure functional and of matrix organizations

In most projects, the project manager is deeply involved with all of the process groups. However, in strong functional organizations the functional managers, who have more authority, are responsible for the execution and monitoring processes by managing their employees. Here, the project manager's task is to coordinate between the functional groups and to make agreements with the functional managers so the project progresses. The project manager is still mainly responsible for the initiation, planning, controlling and closing processes, but he/she cannot manage and monitor the workers. Thus, a portion of the project management is out of the project manager's hands, and communication and cooperation with the functional managers become crucial. This way of doing projects is linked with a risk regarding the workers involved with the project. Since they are not working alongside other people assigned to the project, they might lose focus or sight of scope on the project. Furthermore, the functional managers might be caught up with their own department, and tend not to prioritize resources on the project which will potentially cause delays in the project.

This can be resolved by breaking away from the functional structure by giving the project manager more authority. However, if the functional managers and the project manager have equal authority, they might start arguing and fighting for resources. The functional manager might convince himself that the tasks within his department are of higher priority than the project, while the project manager has it the other way around. This can put stress on the employees since they would not know who to answer to which might reduce their overall performance and job satisfaction. Also, their focus would be split in two directions which further reduces their performance.

If the project manager is given the most authority, the organization has transformed into a divisional structure with cross-divisional function groups or with no functional groups at all. As mentioned in the top of the article, this removes the knowledge-sharing among like-minded employees, since they will spend their working-hours with a diverse project team. The overall performance of the organization will then drop, but the project manager gets full control of the project. Thus, the benefit is that projects can be managed more easily.

Sometimes, organizations can temporarily put authority in the hands of the project manager by partly or entirely designating people from the functional groups temporarily to the project, removing them from their respective groups and bringing them together. They are then to only answer to the project manager for the duration of the project and their focus is restored. This also puts the executing and monitoring processes back in the hands of the project manager. However, organizations with shorter projects will tend to move the employees around a lot, which can cause frustration and cause the employees to lose their feeling of affiliation toward any part of the organization. Organizations with longer projects will obtain greater benefits from this solution, as long as the employees agree to join the projects.

Each organization has to determine a clear strategy for prioritizing authority between functional tasks and projects. This can vary from department to department and between projects. Thus, organizations who want to perform well most of the time, has to stay flexible with respect to the managerial hierarchy.

Annotated bibliography

The Essentials of Contemporary Management, Chapter 7 (Sixth Edition)

This chapter describes the process of which managers choose organizational structures and what these structures are. It describes benefits and disadvantages to the common structure types and why managers need to solve related issues.