Organizational Breakdown Structures
Organizational Breakdown Structures
- Understand various types of organizational structures
- Learn to define the project’s organizational structure
- Understand the linkages between Organizational Breakdown Structure (OBS) and the Work Breakdown Structure (WBS)
Effort required – 30 minutes
The planning, organizing and delivery of large projects are extremely complex. The success or failure of such projects are determined by the project strategy.
Large projects also involve many different stakeholders entering and exiting the project life cycle at different stages with different roles and responsibilities. Some of them can have conflicting interests.
The complexity of large projects requires division and allocation of work among highly specialized stakeholders such as contractors, sub-contractors, suppliers. But, it also leads to significant interface risks among the various stakeholders throughout the project life cycle.
Investing time in defining the appropriate project strategy, project organization and the definition of roles and responsibilities upfront enables better project execution speed and control when the rubber meets the road.
The definition of roles and responsibilities in context of a project, is effectively captured in a ‘Organization Breakdown Structure’ OBS for that project.
The 7 steps to effective organization breakdown structures
- Scope the project management environment and key stakeholders
- Develop the project execution strategy
- Develop the Organization Breakdown Structure for the project (OBS)
- Identify the project control requirements
- Link the OBS to Work Breakdown Structure (WBS)
- Develop the Responsibility Assignment Matrix (RAM)
- Optimize the WBS, OBS and Control accounts
1 . Scoping the project management environment and key stakeholders
Always start by asking if this project is part of a larger program / portfolio or if it is a standalone project. Evaluate the business case of the project, known risks, geographical location, availability of resources, organizations involved, their structures, cultures, climatic and political conditions, standards to be followed, technologies to be used.
A clear understanding of these factors will set us on a correct path for subsequent steps in developing the organization breakdown structure. After understanding the project environment, you can better identify the key project stakeholders.
Typical project stakeholders include;
- The owner
- Government bodies
- Industry bodies
- Portfolio managers
- Program managers
- Project managers
- Project teams
2 . Developing the project execution strategy
After having identified the key stakeholders of the project and the work breakdown structure (WBS), it is time to think about ‘How to perform?’ the work in the WBS.
There are multiple factors influencing the project’s execution strategy such as – make or buy decisions, sub-contracting, scheduling flexibility, constructability, time-cost-scope constraints, alternatives analysis, value analysis, value engineering, concurrent engineering, the triple constraints of time, cost and scope, agility, skills, knowledge, experience, risk transference. These factors heavily influence the decisions that shape project’s development life cycle.
Investing time and effort to develop a project execution strategy pays huge dividends during project execution. This is evident from the following lessons shared by fellow project managers.
“When we completed the WBS of a very large project, we realized that we do not have access to the right skilled engineers to develop some of the complex work packages. Multiple rounds of project strategy development brainstorming helped us to identify a sub-contractor who had the right skills to do those complex work packages, which helped us to complete the complex project which had a huge penalty clause for delay. That professional association matured to a strategic partnership which helped us to deliver multiple projects successfully.” – Senior project manager
“It is the project strategy based on prefabricated construction which helped us to shorten the schedule and deliver the project ahead of schedule” – A Project Manager
“The decision to do distributed concurrent engineering across five engineering teams from five locations helped us to reduce the engineering time” – Engineering project manager
Every project is unique. Time spent in project strategy and project planning is a wise investment. A good project strategy is the foundation for project success, because it helps us address most of the risks upfront.
3 . Developing the organization breakdown structure (OBS) for the project
Organization Breakdown Structure (OBS) is a hierarchical relationship of the organization, including subcontractors, responsible for managing a designated scope of work within the work breakdown structure (WBS).
A project OBS is a depiction of the project organization. It indicates the reporting relationships within a project. A project OBS reflects the way the project is functionally organized.
It is a direct representation of the hierarchy and organization within a project. The project organization breakdown structure provides resources for the work identified in the Work Breakdown Structure (WBS).
Further, a project OBS helps management to establishing the most efficient organization, by considering the availability and capability of management and technical staff, including subcontractors, to achieve project objectives.
For example, consider a project for construction of a warehouse. The project team can be broken down into owner, project management and procurement, contractor engineering, and subcontractor construction organizations. Furthermore, the contractor engineering organization may include disciplines such as civil, mechanical, and electrical.
Different types of organization breakdown structures
- Individuals are assigned to work according to functions such as engineering, procurement, design, quality, accounts etc.
- Individuals in these functional groups are then assigned to multiple projects and at the same time they will remain part of the function – for example, accounts.
- In most of the functional organizations, the functional managers command more power than the project managers.
Client based organization
Organized to handle different types of clients based on their nature of work (energy, solar, automobile, aviation, transportation, hospitals, etc.) The structuring can also be according to geographic lines like North America, Latin America, Middle East and North Africa (MENA).
Dedicated Project / Program Organization
For those who don’t know the difference between a projects and programs; Programs are a collection of interrelated projects, which when done together provides more value than doing them one after the other.
For example, an integrated metro transport program will have projects like metro rail, water metro, road quality improvement, cycling tracks, improved bus services, road safety awareness projects as part of the program. When all these projects are successfully done, the programs objective is accomplished. Project managers manage the individual projects and all of them report to the program manager.
- The project managers build, develop and manage their project teams
- The program managers develop the program management teams. In some cases, they may even appoint the project managers.
- In this type of organizations, the project / program managers have very high degree of decision-making authority
Whenever the team members have more than one boss to report to (dual reporting), you are in a matrix organization. In these organizations, a project team member remains a member of their functional organization, but is assigned to a specific project, and is given assignments by the project manager rather than by the functional manager.
Control account managers (CAMs) on a project can also fulfill a role as functional managers. There are three flavors of matrix organizations;
- Strong matrix – Project / Program managers have more authority than the functional managers
- Weak matrix – Functional managers have more authority than the project / program managers
- Balanced matrix – Both the project manager and the functional managers have same level of authority
By definition, self-organizing teams organize themselves to get the work done. Instead of the manager allocating work to the team members, the team decides who will do what. These kind of teams are often seen in agile environments where projects have very short milestones to accomplish and are performed by inter disciplinary teams.
These are various possible organizational breakdown structures used for project execution. Based on the nature of the project, the nature of the stakeholders and organizational types, we have to develop the project’s organizational breakdown structure which can be a mix of all team flavors discussed above (composite in nature).
4 . Identifying the project control requirements
Code Of Accounts (COA) is the unique accounting identification number provided for work packages. When different organizations work on the same project (design, construction, project management consultants, procurements, plumbing and electrical) developing a commonly agreed upon COA is crucial for effective project accounting.
Designing the Code of Accounts (COA) in alignment to the project control requirements of the key stakeholders upfront is the key for effective project control.
A well-defined code of accounts caters to;
Classifying estimate items, budgets and expenditures for cost control and capitalization
- Facilitating estimating and analysis of project cost data
- Summarizing cost data
- Assigning responsibility for budgets
- Complying with accounting, taxation and regulatory requirements
- Providing a means to link accounting, cost reporting, cost and schedule control
- Performance and productivity measurement analysis
- Cost and schedule forecasting
- Facilitating audits and reporting accuracy
Account code content characteristics
Account content characteristic
Discipline, Cost Type
WBS, work type, activity type, discipline
Budget year, Fiscal year, quarter
Reference : RP 20R-98 Project Code of Accounts of TCM framework by AACE
5 . Linking the OBS and the WBS
At this stage, the project’s work breakdown structure is ready and the project’s organizational breakdown structure is also ready, the accounting categories (Code of Accounts) are agreed upon and the next step is to link the WBS and OBS.
In other words, it is time to decide which project organization is going to perform which work package.
6 . Developing the responsibility assignment matrix
Translating the WBS-OBS linkages of step-5 into a tabular format gives us the Responsibility Assignment Matrix (RAM). There are multiple variants of RAM like the RACI (Responsible, Accountable, Consultative, Information), RASCI (Responsible, Accountable, Sign off, Consultative, Information. Costs may also be included in the RAM. This is often found in EVM systems and is called a monetized RAM.
7 . Optimizing the WBS, OBS and the Control accounts
While the code of accounts coding structure is organization-specific, the WBS and OBS definitions are project-specific. The code of accounts acts as the interface to financial accounting and budget control.
The monitoring and control need of several stakeholders must be met. To achieve this, maintaining alignment of WBS, OBS, Code of accounts and the interfaces to other organizational systems is very important. This calls for splitting and merging of work packages and the organizational charts. Doing that, further requires collective wisdom and commitment of the stakeholders.
Once the Work Breakdown Structure (WBS) is done, the next logical step is to define the Organization Breakdown Structure (OBS) of the project. There are different organizational types like;
- Functional organization
- Client based organization
- Dedicated project / program organization
- Matrix organization
- Self organizing teams
Once the OBS of the project is decided, it is time to decide who will do which work package. To facilitate cost accounting, each work package is associated with Code Of Accounts (COA). At this stage, we have sufficient details to define the project’s Responsibility Assignment Matrix (RAM).
Define the Organizational Breakdown Structure (OBS) for any one of your projects.