Project Management for Construction: Organizing for Project Management Page 1 of 22

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Contents
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Chapter 3
Chapter 1
(The Design
(The
and
Owners'
Construction
Perspective)
Process)
Organizing for Project
Management
What is Project
Management?
Trends in Modern
Management
Strategic Planning and
Project Programming
Effects of Project Risks
on Organization
Organization of Project
Participants
Traditional Designer-
Constructor Sequence
Professional
Construction
Management
Owner-Builder
Operation
Turnkey Operation
Leadership and
Motivation for the Project
Team
Interpersonal Behavior
in Project Organizations
Perceptions of Owners
and Contractors
References
Footnotes

2. Organizing for Project Management

2.1 What is Project Management?
The management of construction projects requires knowledge of modern management as well as an
understanding of the design and construction process. Construction projects have a specific set of
objectives and constraints such as a required time frame for completion. While the relevant technology,
institutional arrangements or processes will differ, the management of such projects has much in
common with the management of similar types of projects in other specialty or technology domains such
as aerospace, pharmaceutical and energy developments.

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Generally, project management is distinguished from the general management of corporations by the
mission-oriented nature of a project. A project organization will generally be terminated when the
mission is accomplished. According to the Project Management Institute, the discipline of project
management can be defined as follows: [1]

Project management is the art of directing and coordinating human and material resources
throughout the life of a project by using modern management techniques to achieve
predetermined objectives of scope, cost, time, quality and participation satisfaction.

By contrast, the general management of business and industrial corporations assumes a broader outlook
with greater continuity of operations. Nevertheless, there are sufficient similarities as well as differences
between the two so that modern management techniques developed for general management may be
adapted for project management.

The basic ingredients for a project management framework [2] may be represented schematically in
Figure 2-1. A working knowledge of general management and familiarity with the special knowledge
domain related to the project are indispensable. Supporting disciplines such as computer science and
decision science may also play an important role. In fact, modern management practices and various
special knowledge domains have absorbed various techniques or tools which were once identified only
with the supporting disciplines. For example, computer-based information systems and decision support
systems are now common-place tools for general management. Similarly, many operations research
techniques such as linear programming and network analysis are now widely used in many knowledge
or application domains. Hence, the representation in Figure 2-1 reflects only the sources from which the
project management framework evolves.

Figure 2-1: Basic Ingredients in Project Management

Specifically, project management in construction encompasses a set of objectives which may be

accomplished by implementing a series of operations subject to resource constraints. There are potential
conflicts between the stated objectives with regard to scope, cost, time and quality, and the constraints
imposed on human material and financial resources. These conflicts should be resolved at the onset of a
project by making the necessary tradeoffs or creating new alternatives. Subsequently, the functions of

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project management for construction generally include the following:

1. Specification of project objectives and plans including delineation of scope, budgeting,

scheduling, setting performance requirements, and selecting project participants.
2. Maximization of efficient resource utilization through procurement of labor, materials and
equipment according to the prescribed schedule and plan.
3. Implementation of various operations through proper coordination and control of planning,
design, estimating, contracting and construction in the entire process.
4. Development of effective communications and mechanisms for resolving conflicts among the
various participants.

The Project Management Institute focuses on nine distinct areas requiring project manager knowledge
and attention:

1. Project integration management to ensure that the various project elements are effectively
coordinated.
2. Project scope management to ensure that all the work required (and only the required work) is
included.
3. Project time management to provide an effective project schedule.
4. Project cost management to identify needed resources and maintain budget control.
5. Project quality management to ensure functional requirements are met.
6. Project human resource management to development and effectively employ project personnel.
7. Project communications management to ensure effective internal and external communications.
8. Project risk management to analyze and mitigate potential risks.
9. Project procurement management to obtain necessary resources from external sources.

These nine areas form the basis of the Project Management Institute's certification program for project
managers in any industry. Back to top

2.2 Trends in Modern Management

In recent years, major developments in management reflect the acceptance to various degrees of the
following elements: (1) the management process approach, (2) the management science and decision
support approach, (3) the behavioral science approach for human resource development, and (4)
sustainable competitive advantage. These four approaches complement each other in current practice,
and provide a useful groundwork for project management.

The management process approach emphasizes the systematic study of management by identifying
management functions in an organization and then examining each in detail. There is general agreement
regarding the functions of planning, organizing and controlling. A major tenet is that by analyzing
management along functional lines, a framework can be constructed into which all new management
activities can be placed. Thus, the manager's job is regarded as coordinating a process of interrelated
functions, which are neither totally random nor rigidly predetermined, but are dynamic as the process
evolves. Another tenet is that management principles can be derived from an intellectual analysis of
management functions. By dividing the manager's job into functional components, principles based
upon each function can be extracted. Hence, management functions can be organized into a hierarchical
structure designed to improve operational efficiency, such as the example of the organization for a
manufacturing company shown in Figure 2-2. The basic management functions are performed by all
managers, regardless of enterprise, activity or hierarchical levels. Finally, the development of a
management philosophy results in helping the manager to establish relationships between human and

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material resources. The outcome of following an established philosophy of operation helps the manager
win the support of the subordinates in achieving organizational objectives.

Figure 2-2: Illustrative Hierarchical Structure of Management Functions

The management science and decision support approach contributes to the development of a body of
quantitative methods designed to aid managers in making complex decisions related to operations and
production. In decision support systems, emphasis is placed on providing managers with relevant
information. In management science, a great deal of attention is given to defining objectives and
constraints, and to constructing mathematical analysis models in solving complex problems of
inventory, materials and production control, among others. A topic of major interest in management
science is the maximization of profit, or in the absence of a workable model for the operation of the
entire system, the suboptimization of the operations of its components. The optimization or
suboptimization is often achieved by the use of operations research techniques, such as linear
programming, quadratic programming, graph theory, queuing theory and Monte Carlo simulation. In
addition to the increasing use of computers accompanied by the development of sophisticated
mathematical models and information systems, management science and decision support systems have
played an important role by looking more carefully at problem inputs and relationships and by
promoting goal formulation and measurement of performance. Artificial intelligence has also begun to
be applied to provide decision support systems for solving ill-structured problems in management.

The behavioral science approach for human resource development is important because management
entails getting things done through the actions of people. An effective manager must understand the
importance of human factors such as needs, drives, motivation, leadership, personality, behavior, and
work groups. Within this context, some place more emphasis on interpersonal behavior which focuses

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on the individual and his/her motivations as a socio-psychological being; others emphasize more group
behavior in recognition of the organized enterprise as a social organism, subject to all the attitudes,
habits, pressures and conflicts of the cultural environment of people. The major contributions made by
the behavioral scientists to the field of management include: (1) the formulation of concepts and
explanations about individual and group behavior in the organization, (2) the empirical testing of these
concepts methodically in many different experimental and field settings, and (3) the establishment of
actual managerial policies and decisions for operation based on the conceptual and methodical
frameworks.

Sustainable competitive advantage stems primarily from good management strategy. As Michael Porter
of the Harvard Business School argues:

Strategy is creating fit among a company's activities. The success of a strategy depends on
doing many things well - not just a few - and integrating among them. If there is no fit
among activites, there is no distinctive strategy and little sustainability.

In this view, successful firms must improve and align the many processes underway to their strategic
vision. Strategic positioning in this fashion requires:

Creating a unique and valuable position.

Making trade-offs compared to competitors
Creating a "fit" among a company's activities.

Project managers should be aware of the strategic position of their own organization and the other
organizations involved in the project. The project manager faces the difficult task of trying to align the
goals and strategies of these various organizations to accomplish the project goals. For example, the
owner of an industrial project may define a strategic goal as being first to market with new products. In
this case, facilities development must be oriented to fast-track, rapid construction. As another example, a
contracting firm may see their strategic advantage in new technologies and emphasize profit
opportunities from value engineering (as described in Chapter 3).

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2.3 Strategic Planning and Project Programming

The programming of capital projects is shaped by the strategic plan of an organization, which is
influenced by market demands and resources constraints. The programming process associated with
planning and feasibility studies sets the priorities and timing for initiating various projects to meet the
overall objectives of the organizations. However, once this decision is made to initiate a project, market
pressure may dictate early and timely completion of the facility.

Among various types of construction, the influence of market pressure on the timing of initiating a
facility is most obvious in industrial construction. [3] Demand for an industrial product may be short-
lived, and if a company does not hit the market first, there may not be demand for its product later. With
intensive competition for national and international markets, the trend of industrial construction moves
toward shorter project life cycles, particularly in technology intensive industries.

In order to gain time, some owners are willing to forego thorough planning and feasibility study so as to
proceed on a project with inadequate definition of the project scope. Invariably, subsequent changes in
project scope will increase construction costs; however, profits derived from earlier facility operation

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often justify the increase in construction costs. Generally, if the owner can derive reasonable profits
from the operation of a completed facility, the project is considered a success even if construction costs
far exceed the estimate based on an inadequate scope definition. This attitude may be attributed in large
part to the uncertainties inherent in construction projects. It is difficult to argue that profits might be
even higher if construction costs could be reduced without increasing the project duration. However,
some projects, notably some nuclear power plants, are clearly unsuccessful and abandoned before
completion, and their demise must be attributed at least in part to inadequate planning and poor
feasibility studies.

The owner or facility sponsor holds the key to influence the construction costs of a project because any
decision made at the beginning stage of a project life cycle has far greater influence than those made at
later stages, as shown schematically in Figure 2-3. Moreover, the design and construction decisions will
influence the continuing operating costs and, in many cases, the revenues over the facility lifetime.
Therefore, an owner should obtain the expertise of professionals to provide adequate planning and
feasibility studies. Many owners do not maintain an in-house engineering and construction management
capability, and they should consider the establishment of an ongoing relationship with outside
consultants in order to respond quickly to requests. Even among those owners who maintain engineering
and construction divisions, many treat these divisions as reimbursable, independent organizations. Such
an arrangement should not discourage their legitimate use as false economies in reimbursable costs from
such divisions can indeed be very costly to the overall organization.

Figure 2-3: Ability to Influence Construction Cost Over Time

Finally, the initiation and execution of capital projects places demands on the resources of the owner and
the professionals and contractors to be engaged by the owner. For very large projects, it may bid up the

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price of engineering services as well as the costs of materials and equipment and the contract prices of
all types. Consequently, such factors should be taken into consideration in determining the timing of a
project.

Example 2-1: Setting priorities for projects

A department store planned to expand its operation by acquiring 20 acres of land in the
southeast of a metropolitan area which consists of well established suburbs for middle
income families. An architectural/engineering (A/E) firm was engaged to design a shopping
center on the 20-acre plot with the department store as its flagship plus a large number of
storefronts for tenants. One year later, the department store owner purchased 2,000 acres of
farm land in the northwest outskirts of the same metropolitan area and designated 20 acres
of this land for a shopping center. The A/E firm was again engaged to design a shopping
center at this new location.

The A/E firm was kept completely in the dark while the assemblage of the 2,000 acres of
land in the northwest quietly took place. When the plans and specifications for the southeast
shopping center were completed, the owner informed the A/E firm that it would not proceed
with the construction of the southeast shopping center for the time being. Instead, the owner
urged the A/E firm to produce a new set of similar plans and specifications for the
northwest shopping center as soon as possible, even at the sacrifice of cost saving measures.
When the plans and specifications for the northwest shopping center were ready, the owner
immediately authorized its construction. However, it took another three years before the
southeast shopping center was finally built.

The reason behind the change of plan was that the owner discovered the availability of the
farm land in the northwest which could be developed into residential real estate properties
for upper middle income families. The immediate construction of the northwest shopping
center would make the land development parcels more attractive to home buyers. Thus, the
owner was able to recoup enough cash flow in three years to construct the southeast
shopping center in addition to financing the construction of the northeast shopping center,
as well as the land development in its vicinity.

While the owner did not want the construction cost of the northwest shopping center to run
wild, it apparently was satisfied with the cost estimate based on the detailed plans of the
southeast shopping center. Thus, the owner had a general idea of what the construction cost
of the northwest shopping center would be, and did not wish to wait for a more refined cost
estimate until the detailed plans for that center were ready. To the owner, the timeliness of
completing the construction of the northwest shopping center was far more important than
reducing the construction cost in fulfilling its investment objectives.

Example 2-2: Resource Constraints for Mega Projects

A major problem with mega projects is the severe strain placed on the environment,
particularly on the resources in the immediate area of a construction project. "Mega" or
"macro" projects involve construction of very large facilities such as the Alaska pipeline
constructed in the 1970's or the Panama Canal constructed in the 1900's. The limitations in
some or all of the basic elements required for the successful completion of a mega project
include:

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engineering design professionals to provide sufficient manpower to complete the

design within a reasonable time limit.
construction supervisors with capacity and experience to direct large projects.
the number of construction workers with proper skills to do the work.
the market to supply materials in sufficient quantities and of required quality on time.
the ability of the local infrastructure to support the large number of workers over an
extended period of time, including housing, transportation and other services.

To compound the problem, mega projects are often constructed in remote environments
away from major population centers and subject to severe climate conditions. Consequently,
special features of each mega project must be evaluated carefully.

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2.4 Effects of Project Risks on Organization

The uncertainty in undertaking a construction project comes from many sources and often involves
many participants in the project. Since each participant tries to minimize its own risk, the conflicts
among various participants can be detrimental to the project. Only the owner has the power to moderate
such conflicts as it alone holds the key to risk assignment through proper contractual relations with other
participants. Failure to recognize this responsibility by the owner often leads to undesirable results. In
recent years, the concept of "risk sharing/risk assignment" contracts has gained acceptance by the
federal government. [4] Since this type of contract acknowledges the responsibilities of the owners, the
contract prices are expected to be lower than those in which all risks are assigned to contractors.

In approaching the problem of uncertainty, it is important to recognize that incentives must be provided
if any of the participants is expected to take a greater risk. The willingness of a participant to accept
risks often reflects the professional competence of that participant as well as its propensity to risk.
However, society's perception of the potential liabilities of the participant can affect the attitude of risk-
taking for all participants. When a claim is made against one of the participants, it is difficult for the
public to know whether a fraud has been committed, or simply that an accident has occurred.

Risks in construction projects may be classified in a number of ways. [5] One form of classification is as
follows:

1. Socioeconomic factors
Environmental protection
Public safety regulation
Economic instability
Exchange rate fluctuation
2. Organizational relationships
Contractual relations
Attitudes of participants
Communication
3. Technological problems
Design assumptions
Site conditions
Construction procedures
Construction occupational safety

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The environmental protection movement has contributed to the uncertainty for construction because of
the inability to know what will be required and how long it will take to obtain approval from the
regulatory agencies. The requirements of continued re-evaluation of problems and the lack of definitive
criteria which are practical have also resulted in added costs. Public safety regulations have similar
effects, which have been most noticeable in the energy field involving nuclear power plants and coal
mining. The situation has created constantly shifting guidelines for engineers, constructors and owners
as projects move through the stages of planning to construction. These moving targets add a significant
new dimension of uncertainty which can make it virtually impossible to schedule and complete work at
budgeted cost. Economic conditions of the past decade have further reinforced the climate of uncertainty
with high inflation and interest rates. The deregulation of financial institutions has also generated
unanticipated problems related to the financing of construction.

Uncertainty stemming from regulatory agencies, environmental issues and financial aspects of
construction should be at least mitigated or ideally eliminated. Owners are keenly interested in achieving
some form of breakthrough that will lower the costs of projects and mitigate or eliminate lengthy delays.
Such breakthroughs are seldom planned. Generally, they happen when the right conditions exist, such as
when innovation is permitted or when a basis for incentive or reward exists. However, there is a long
way to go before a true partnership of all parties involved can be forged.

During periods of economic expansion, major capital expenditures are made by industries and bid up the
cost of construction. In order to control costs, some owners attempt to use fixed price contracts so that
the risks of unforeseen contingencies related to an overheated economy are passed on to contractors.
However, contractors will raise their prices to compensate for the additional risks.

The risks related to organizational relationships may appear to be unnecessary but are quite real.
Strained relationships may develop between various organizations involved in the design/construct
process. When problems occur, discussions often center on responsibilities rather than project needs at a
time when the focus should be on solving the problems. Cooperation and communication between the
parties are discouraged for fear of the effects of impending litigation. This barrier to communication
results from the ill-conceived notion that uncertainties resulting from technological problems can be
eliminated by appropriate contract terms. The net result has been an increase in the costs of constructed
facilities.

The risks related to technological problems are familiar to the design/construct professions which have
some degree of control over this category. However, because of rapid advances in new technologies
which present new problems to designers and constructors, technological risk has become greater in
many instances. Certain design assumptions which have served the professions well in the past may
become obsolete in dealing with new types of facilities which may have greater complexity or scale or
both. Site conditions, particularly subsurface conditions which always present some degree of
uncertainty, can create an even greater degree of uncertainty for facilities with heretofore unknown
characteristics during operation. Because construction procedures may not have been fully anticipated,
the design may have to be modified after construction has begun. An example of facilities which have
encountered such uncertainty is the nuclear power plant, and many owners, designers and contractors
have suffered for undertaking such projects.

If each of the problems cited above can cause uncertainty, the combination of such problems is often
regarded by all parties as being out of control and inherently risky. Thus, the issue of liability has taken
on major proportions and has influenced the practices of engineers and constructors, who in turn have
influenced the actions of the owners.

Many owners have begun to understand the problems of risks and are seeking to address some of these

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problems. For example, some owners are turning to those organizations that offer complete capabilities
in planning, design, and construction, and tend to avoid breaking the project into major components to
be undertaken individually by specialty participants. Proper coordination throughout the project duration
and good organizational communication can avoid delays and costs resulting from fragmentation of
services, even though the components from various services are eventually integrated.

Attitudes of cooperation can be readily applied to the private sector, but only in special circumstances
can they be applied to the public sector. The ability to deal with complex issues is often precluded in the
competitive bidding which is usually required in the public sector. The situation becomes more difficult
with the proliferation of regulatory requirements and resulting delays in design and construction while
awaiting approvals from government officials who do not participate in the risks of the project.

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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:
Traditional sequence of design and construction
Professional construction management
2. 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:
Owner-builder operation in which all work will be handled in house by force account.

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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

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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.

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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.

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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.

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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

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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.

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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

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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:[6]

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

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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).

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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.

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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.

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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.

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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. [7] 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.

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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

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drawn from various functional divisions.

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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.

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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. [8]

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

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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.

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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.

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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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2.14 Footnotes
1. See R. M. Wideman, "The PMBOK Report -- PMI Body of Knowledge Standard," Project
Management Journal, Vol. 17, No. 3, August l986, pp. l5-24. Back
2. See L. C. Stuckenbruck, "Project Management Framework," Project Management Journal, Vol.
17, No. 3, August 1986, pp. 25-30. Back
3. See, for example, O'Connor, J.T., and Vickory, C.G., Control of Construction Project Scope, A
Report to the Construction Industry Institute, The University of Texas at Austin, December 1985.
Back
4. See, for example, Federal Form 23-A and EPA's Appendix C-2 clauses. Back
5. See E. D'Appolonia, "Coping with Uncertainty in Geotechnical Engineering and Construction,"
Special Proceedings of the 9th International Conference on Soil Mechanics and Foundation
Engineering, Tokyo, Japan, Vol. 4, 1979, pp. 1-18. Back
6. These features and the following example are described in F.P. Moolin, Jr. and F.A. McCoy,
"Managing the Alaska Pipeline Project," Civil Engineering, November 1981, pp. 51-54. Back
7. "Private Money Finances Texas Utility's Power Plant" Engineering News Record: July 25, 1985,
p. 13. Back
8. See J.E. Diekmann and K.B. Thrush, Project Control in Design Engineering, A Report to the
Construction Industry Institute, The University of Texas at Austin, Texas, May 1986. Back

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