A project operates in with people, process and technology of an organization. Projects have an impact on the culture, policies, procedures and other aspects of an organization. The organizational structure has a major influence on the execution of the project. The organizational structure decides the resources, communication methods and other aspects of project management.
Different types of organizational structures include:
This is the most common form of an organization. Organizational departments are grouped by areas of specialization within different functions. In these organizations, the project generally occurs in a silo environment, i.e. within the same function. Team members complete the project work over and above their responsibilities to normal departmental work. Communication primarily occurs within the same function.
In a projectized environment, the entire company is organized by projects, and the project manager is in control of the projects. Individuals or employees are assigned to projects and report to a project manager. One’s the project is over, they need to be assigned to another project. Communication primarily occurs within the same project.
In a matrix organization, the team members report into two bosses: the functional manager and the project manager. Communication goes from team members to both bosses. The matrix organization is created to get the best potential from both functional and projectized type of organizational structure. Team members have departmental work and they also do project work.
Depending on the strength of the matrix organization, the power or level of authority varies between the project manager and the functional manager. In a strong matrix organization, the power remains with the project manager. In a weak matrix organization, the power remains with the functional manager. The project manager is considered to be a coordinator or an escalator. In a balanced matrix, the power is equally balanced between the project manager and the functional manager.
In the PMP exam, if the organizational structure is not defined, please assume it is a Matrix organization structure. Similarly, if you see a term “tight matrix organization”, please remember it has nothing to do with matrix organization. It simply refers to locating offices of the project team in one room.
Apart from the above, there are more organization types as follows:
Organic or simple which is a flexible organization
Virtual, in which the project manager makes a connection to others thereby a network of people is created
Multi-divisional, wherein functional groups are decentralized across geographies
Note: The projectized organization is also called a project-oriented organization. Sometimes this may be derived from a composite (a mix of organization types, or a hybrid organization)