Unformatted text preview: ompany Company Function Function Function Bespoke
Product Bespoke Intermediates Novel Process Novel Process Novel Process Project Organization and Contracts Project
transaction cost Total Cost TC1 (k) TC2 (k) TC3 (k) Markets(1) Networks(2) Integration(3) Degree of
Specificity (k) Project Organization and Project
Evolutions of Organizations
People and hierarchy Low Goals
High Time now Time System hierarchy ? Project Organization and Project
Evolutions of Organizations People and hierarchy Goals and
Control Integration Time Time now ?
New Ways of
sustainability The Knowledgeable
Governance in place
and monitors the performance The Capital investment Project
Operate The Knowledgeable owner
monitors the development
and take action. Abandon e nt The Knowledgeable
Planning of Governance. Dyna
io n in
l e De
investments Market, political, financial
of the Owner’s Project Organization and Project
Evolutions of Organizations
• New strategic systems perspective
• Viewing project organizations as holistic and highly
• Integrating management processes, lifecycle processes
and enabling infrastructure systems
• Balancing needs of multiple stakeholders working across
boundaries Project Organization and Project
Questions 1. What are the main drivers in the process of selecting a type
of project organization?
2. What are the main success criteria for contract execution models? 3. What typical conflicts can develop in,: matrix org, integrated
org., and alliances?
4. What do you consider being critical success factors in
order to achieve an effective integrated/alliance project
organization? Project Organization and Project
goals and incentives (traditional setting) Client
Profit during operation
Optimize operation Contractor
Profit during execution
Contractor does not participate
Optimize within the framework
of the contract scope
Contractual arrangements and principles founded on the assumption
that the parties “objectives” are fully coherent may be counterproductive
and create conflicts during execution. Project Organization and Project
Contract, goals and incentives
Lessons learned • Establish individual objectives and goals in order to agree a
realistic setting of common goals for the contract.
• Agree on behavior and actions.
• How to manage conflicts.
• Communicate both common and conflicting goals to the team. • Establish and implement change control systems.
• Know the rights and obligations of both parties. Project Organization and Project
Lessons Learned (Statcon report) Summary •More attention to formal business principles, commercial aspects.
•Common goals should be reconsidered.
•Contractor maximizes profit, and client NPV.
•Contractor profit is Client expenses.
In EPCI Contracts
•Lack of strategic balance.
•The Contract terms do not reflect the EPCI Concept.
•The compensation format does not reflect the technical definition at contract award.
•Client influence (integration).
•Contractor risk is not fully reflected in the pricing format.
•Imbalance between project execution model and scope of work. Project Organization and Project
Contract, goals and incentives “Trust”
• One can not commit oneself to “trust”
Trust can only be earned. Act in a trustworthy way Project Organization and Contracts
Contract and Risk
Definition and management of risk Definition
(important part of the Contract) Contract)
Offer Clear picture of risk and
sharing of risk between
supplier & customer
before entering into a
Contract Estimating and Control of Risk Project Organization and Project
Contracts Contracts Selection of Compensation format (simplified)
definition High High Medium Low Low Low The Client’s
involvement None Low None High High High Market
capability High High High Medium Low Low Compensation format
Sum Unit Rate Neutral DayWork Reimbursable Project Organization and Project
Parametric ⎛ Q1 ⎞ ⎛ C1 ⎞
⎜ ⎟ =⎜ ⎟
⎝ Q2 ⎠ ⎝ C2 ⎠ +/- 40% n Definition
build up +/- (30 to 10) % Execution
Unit rates x Quantities +/-5% MIT OpenCourseWare
http://ocw.mit.edu 1.040 Project Management
Spring 2009 For information about citing...
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- Spring '12
- Project Management, Project Organization