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What organizational structure should be used for contracting and purchasing?

The answer to this question depends on the type of project and scope. This essay will briefly discuss which project management organizational structures are best for a decentralized procurement function; which would offer a Project Manager the greatest authority to purchase; which has less flexibility in contract and subcontract management; and which has more chaotic changes to the project. A projectized organizational structure has a decentralized procurement function. In a projectized structure, the procurement is tailored to fit the customer. That means each business unit, functional area, or geographic location within a business is responsible for its own purchases (Glossary, 2011). This has an advantage in that functional areas have control over their own processes, which can improve satisfaction in the procurement process. Since procurements are unique in this organizational structure, there is a disadvantage in that it is difficult to improve the process from project to project. Another disadvantage is that it does not allow leveraging of corporate spending or alignment to overall objectives of the corporation (Glossary, 2011). Under a decentralized procurement function, operating costs are often higher. A projectized organization structure has a great deal of Project Manager authority to purchase items on a procurement plan. According to the PMBOK (2008) guide, in a projectized organizational structure the Project Manager controls the budget, and has almost total control. Projectized management is used when projects are considered critical, or when time and money are limited. Thus, when the Project Manager needs to have a great deal of authority to purchase, a projectized organizational structure should be used. A matrix organization structure particularly, a weak matrix - has less flexibility in contract and subcontract management. Project Managers are responsible for the work, but functional managers still have controls over resources and budgets in a weak matrix organization. In a balanced and strong matrix organization, the Project Manager gains more control over the resources and budgets. In a matrix organization, there is less flexibility in contracts and subcontracts management because all functional areas must collaborate on decisions. Flexibility in contract management must be limited. If one functional area asks for some flexibility in the contract, it could hinder the efforts of other functional areas. Thus, a matrix organization should be used if flexibility in contracts and subcontracts management needs to be limited. The functional organization structure has more chaotic changes to the project than a matrix or projectized structure. In a functional organizational structure, all work for a project is done in functional areas. A disadvantage to this system is that functional areas have a propensity to have different work styles and a lack of communication they become autonomous. If a change is made in one functional area and is not communicated to other areas working on the same project, then major set-backs can occur that jeopardize the scope and schedule. Thus, progress to completing the project can become chaotic. Choosing the correct organizational structure for procurement planning depends on the type of project, its scope, and budget. If budget and schedules are tight, a projectized organizational structure should be used so that the Project Manager has the most control. A functional organizational structure should be used if the project is small and includes only adjacent functional areas. A matrix organization should be used for large projects with many functional

areas to limit contract flexibility that may cause chaotic changes. Regardless of the organizational structures chosen, the Project Manager should carefully understand the scope of the project and plan procurements appropriately. PMBOK, (2008). A Guide to the Project Management Body of Knowledge (PMBOK Guide). Newton Square, PA: PMI. Glossary. In Efficient Purchasing. Retrieved Oct 29, 2011, from http://www.efficientpurchasing.com/?id=3180