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Wage and Salary Administration

It is very difficult for the true benefits of project management to be realized unless project management is integrated into the wage and salary administration program. Some companies view project management as a career path position while others view it simply as a part time profession.

The situation becomes even more complex when dealing with functional employees who report to multiple bosses. When employees are notified that they are being assigned to a new project, their first concern is what is in it for them? How will they be evaluated? How will their boss know whether or not they did a good job? Project managers must have either a formal or informal input into the employee’s performance review.

Photolite Corporation (A)

Photolite Corporation is engaged in the sale and manufacture of cameras and photographic accessories. The company was founded in Baltimore in 1980 by John Benet. After a few rough years, the company began to flourish, with the majority of its sales coming from the military. By 1985, sales had risen to $5 million.

By 1995, sales had increased to almost $55 million. However, in 1996 competition from larger manufacturers and from some Japanese and German imports made itself felt on Photolite’s sales. The company did what it could to improve its product line, but due to lack of funds, it could not meet the competition head-on. The company was slowly losing its market share and was approached by several larger manufacturers as to the possibility of a merger or acquisition. Each offer was turned down.

During this time period, several meetings took place with department heads and product managers regarding the financial health of Photolite. At one of the more recent meetings, John Benet expressed his feelings in this manner:

I have been offered some very attractive buyouts, but frankly the companies that want to acquire us are just after our patents and processes. We have a good business, even though we are experiencing some tough times. I want our new camera lens project intensified. The new lens is just about complete, and I want it in full-scale production as soon as possible! Harry Munson will be in charge of this project as of today, and I expect everyone’s full cooperation. This may be our last chance for survival.

With that, the meeting was adjourned.


The new lens project was an innovation that was sure to succeed if followed through properly. The innovation was a lens that could be used in connection with sophisticated camera equipment. It was more intense than the wide-angle lens and had no distortion. The lens was to be manufactured in three different sizes, enabling the lens to be used with the top selling cameras already on the market. The lens would not only be operable with the camera equipment manufactured by Photolite, but also that of their competitors.

Management was certain that if the manufactured lens proved to be as precise as the prototypes, the CIA and possibly government satellite manufacturers would be their largest potential customers.


Harry Munson was a young project manager, twenty-nine years of age, who had both sales and engineering experience, in addition to an MBA degree. He had handled relatively small projects in the past and realized that this was the most critical, not only to his career but also for the company’s future.

Project management was still relatively new at Photolite, having been initiated only fifteen months earlier. Some of the older department heads were very much against letting go of their subordinates for any length of time, even though it was only a sharing arrangement. This was especially true of Herb Wallace, head of the manufacturing division. He felt his division would suffer in the long run if any of his people were to spend much time on projects and reporting to another manager or project leader.

Harry Munson went directly to the personnel office to review the personnel files of available people from the manufacturing division. There were nine folders available for review. Harry had expected to see at least twenty folders, but decided to make the best of the situation. Harry was afraid that it was Herb Wallace’s influence that had reduced the number of files down to nine.

Harry Munson had several decisions to make before looking at the folders. He felt that it was important to have a manufacturing project engineer assigned full-time to the project, rather than having to negotiate for part-time specialists who would have to be shared with other projects. The ideal manufacturing project engineer would have to coordinate activity in production scheduling, quality control, manufacturing engineering, procurement, and inventory control. Because project management had only recently been adopted, there were no individuals qualified for this position. This project would have to become the training ground for development of a manufacturing project engineer.

Due to the critical nature of the project, Harry realized that he must have the most competent people on his team. He could always obtain specialists on a parttime basis, but his choice for the project engineering slot would have to be not only the best person available, but someone who would be willing to give as much extra time as the project demanded for at least the next 18 months. After all, the project engineer would also be the assistant project manager since only the project manager and project engineer would be working full-time on the project. Now, Harry Munson was faced with the problem of trying to select the individual who would be best qualified for this slot. Harry decided to interview each of the potential candidates, in addition to analyzing their personnel files.


  1. What would be the ideal qualifications for the project engineering slot?
  2. What information should Harry look for in the personnel files?
  3. Harry decided to interview potential candidates after reviewing the files. Thisis usually a good idea, because the files may not address all of Harry’s concerns. What questions should Harry ask during the interviews? Why is Harry interviewing candidates? What critical information may not appear in the personnel files?

Photolite Corporation (B)

On October 3, 1998, a meeting was held between Jesse Jaimeson, the director of personnel, and Ronald Ward, the wage and salary administrator. The purpose of the meeting was to discuss the grievances by the functional employees that Photolite’s present employee evaluation procedures are inadequate for an organization that supports a project management structure.

Jesse Jaimeson: “Ron, we’re having a lot of trouble with our functional employees over their evaluation procedures. The majority of the complaints stem from situations where the functional employee works closely with the project manager. If the functional manager does not track the work of this employee closely, then the functional manager must rely heavily upon the project manager for information during employee evaluation.”

Ron Ward: “There aren’t enough hours in a day for a functional manager to keep close tabs on all of his or her people, especially if those people are working in a project environment. Therefore, the functional manager will ask the project manager for evaluation information. This poses several problems. First, there are always situations where functional and project management disagree as to either direction or quality of work. The functional employee has a tendency of bending toward the individual who signs his or her promotion and evaluation form. This can alienate the project manager into recommending a poor evaluation regardless of how well the functional employee performs.”

In the second situation, the functional employee will spend most of this time working by her or himself, with very little contact with the project manager. In this case, the project manager tends to give an average evaluation, even if the employee’s performance is superb. This could result from a situation where the employee has perhaps only a one to two week effort on a given project. This doesn’t give that employee enough time to get to know anybody.

In the third situation, the project manager allows personal feelings to influence his or her decision. A project manager who knows an employee personally might be tempted to give a strong or weak recommendation, regardless of the performance. When personalities influence the evaluation procedure, chaos usually results.

Jaimeson: “There’s also a problem if the project manager makes an overly good recommendation to a functional manager. If the employee knows that he or she has received a good appraisal for work done on a given project, that employee feels that he or she should be given an above average pay increase or possibly a promotion. Many times this puts severe pressure upon the functional manager. We have one functional manager here at Photolite who gives only average salary increases to employees who work a great deal of time on one project, perhaps away from view of the functional manager. In this case, the functional manager claims that he cannot give the individual an above average evaluation because he hasn’t seen him enough. Of course, this is the responsibility of the functional manager.

“We have another manager who refuses to give employees adequate compensation if they are attached to a project that could eventually grow into a product line. His rationale is that if the project grows big enough to become a product line, then the project will have its own cost center account and the employee will then be transferred to the new cost center. The functional manager thus reserves the best salary increases for those employees who he feels will stay in his department and make him look good.”

Ward: “Last year we had a major confrontation on the Coral Project. The Coral Project Manager took a grade 5 employee and gave him the responsibilities of a grade 7 employee. The grade 5 employee did an outstanding job and naturally expected a large salary increase or even a promotion. Unfortunately, the functional manager gave the employee an average evaluation and argued that the project manager had no right to give the employee this added responsibility without first checking with the functional manager. We’re still trying to work this problem out. It could very easily happen again.”

Jaimeson: “Ron, we have to develop a good procedure for evaluating our employees. I’m not sure if our present evaluation form is sufficient. Can we develop multiple evaluation forms, one for project personnel and another one for nonproject personnel?”

Ward: “That might really get us in trouble. Suppose we let each project manager fill out a project evaluation form for each functional employee who works more than, say, 60 hours on a given project. The forms are then given to the functional manager. Should the project manager fill out these forms at project termination or when the employee is up for evaluation?”

Jaimeson: “It would have to be at project termination. If the evaluation were made when the employee is up for promotion and the employee is not promoted, then that employee might slack off on the job if he or she felt that the project manager rated him or her down. Of course, we could always show the employee the project evaluation sheets, but I’m not sure that this would be the wise thing to do. This could easily lead into a situation where every project manager would want to see these forms before staffing a project. Perhaps these forms should be solely for the functional manager’s use.”

Ward: “There are several problems with this form of evaluation. First, some of our functional employees work on three or four projects at the same time. This could be a problem if some of the evaluations are good while others are not. Some functional people are working on departmental projects and, therefore, would receive only one type of evaluation. And, of course, we have the people who charge to our overhead structure. They also would have one evaluation form.”

Jaimeson: “You know, Ron, we have both exempt and nonexempt people charging to our projects. Should we have different evaluation forms for these people?”

Ward: “Probably so. Unfortunately, we’re now using just one form for our exempt, nonexempt, technical, and managerial personnel. We’re definitely going to have to change. The question is how to do it without disrupting the organization.”

Jaimeson: “I’m dumping this problem into your lap, Ron. I want you to develop an equitable way of evaluating our people here at Photolite Corporation, and I want you to develop the appropriate evaluation forms. Just remember one thing—I do not want to open Pandora’s Box. We’re having enough personnel problems as it is.”


  1. Can a company effectively utilize multiple performance evaluation formswithin an organization? What are the advantages and disadvantages?
  2. If we use only one form, what information should be evaluated so as to beequitable to everyone?
  3. If multiple evaluation forms are used, what information should go into theform filled out by the project manager?
  4. What information can and cannot a project manager effectively evaluate?Could it depend upon the project manager’s educational background and experience?

Photolite Corporation (C)

On December 11, 1998, after more than two months of effort, Ron Ward (the wage and salary administrator for Photolite Corporation) was ready to present his findings on the most equitable means of evaluating personnel who are required to perform in a project management organizational structure. Jesse Jaimeson (the director of personnel) was eagerly awaiting the results.

Ron Ward: “Well, Jesse, after two months of research and analysis we’ve come to some reasonable possibilities. My staff looked at the nine basic performance appraisal techniques. They are:

  1. Essay appraisal
  2. Graphic rating scale
  3. Field review
  4. Forced choice rating
  5. Critical incident appraisal
  6. Management by objectives
  7. Work-standards approach
  8. Ranking methods
  9. Assessment centers

(Exhibit I contains a brief description of each technique.)

We tried to look at each technique objectively. Unfortunately, many of my people are not familiar with project management and, therefore, had some difficulties. We had no so-called ‘standards of performance’ against which we could evaluate each technique. We, therefore, listed the advantages and disadvantages that each technique would have if utilized in a project management structure.”

Jesse Jaimeson: “I’m not sure of what value your results are in this case because they might not directly apply to our project management organization.”

Ward: “In order to select the technique most applicable to a project management structure, I met with several functional and project managers as to the establishment of a selection criteria. The functional managers felt that conflicts were predominant in a project organization, and that these conflicts could be used as a comparison. I, therefore, decided to compare each of the appraisal techniques to the seven most commonly mentioned conflicts that exist in project management organizational forms. The comparison is shown in Exhibit II.

“Analysis of Exhibit II shows the management by objectives technique to be the most applicable system. Factors supporting this conclusion are as follows:

Essay Appraisal: This technique appears in most performance appraisals and is characterized by a lack of standards. As a result, it tend to be subjective and inconsistent.

Graphic Rating Scale: This technique is marked by checking boxes and does not have the flexibility required by the constantly changing dynamic structure required in project management.

Field Review: This system would probably account for the majority of performance appraisal problems. However, it is costly and provides for another management overlay, as well as an additional cost (time) factor.

Forced-Choice Rating: This technique has the same problems as the essay technique with the added problem of being inflexible.

Critical Incident Appraisal: This technique centers on the individual’s performance and does not take into account decisions made by one’s superiors or the problems beyond the individual’s control. Again, it is time-consuming.

Management by Objectives (MBO): This technique allows all parties, the project manager, the functional manager, and the employee, to share and to participate in the appraisal. It epitomizes the systems approach since it allows for objectives modification without undue or undeserved penalty to the employee. Finally, it uses objective data and downplays subjective data.

Work-Standards Approach: This technique lends itself easily to technical projects. Though not usually recognized formally, it is probably the most common project management performance appraisal technique. However, it is not flexible and downplays the effect of personality conflicts with little employee input.

Ranking Method: This method allows for little individual input. Most conflict possibilities are maximized with this technique.

Assessment Centers: This method is not utilizable on site and is very costly. It is probably most applicable (if not the best technique) for selecting project management human resources.

“In summary, MBO appears to be the best technique for performance appraisal in a project management organization.”

Jaimeson: “Your conclusions lead me to believe that the MBO appraisal technique is applicable to all project management appraisal situations and should be recommended. However, I do have a few reservations. A key point is that the MBO approach does not eliminate, or even minimize, the problems inherent in project and matrix management organizations. MBO provides the technique through which human resources can be fairly appraised (and, of course, rewarded and punished). MBO has the weakness that it prohibits individual input and systems that employ poorly trained appraisers and faulty follow-up techniques. Of course, such weaknesses would kill any performance appraisal system. The MBO technique most exemplifies the systems approach and, even with its inherent weaknesses, should be considered when the systems approach to management is being employed.”

Ward: “There is another major weakness that you have omitted. What about those situations where the employee has no say in setting the objectives? I’m sure we have project managers, as well as functional managers, who will do all of the objective-setting themselves.”

Jaimeson: “I’m sure this situation either exists now or will eventually exist. But that’s not what worries me. If we go to an MBO approach, how will it affect our present evaluation forms? We began this study to determine the best appraisal method for our organization. I’ve yet to see any kind of MBO evaluation form that can be used in a project management environment. This should be our next milestone.”

Exhibit I. Basic appraisal techniques

Essay Appraisal

This technique asks raters to write a short statement covering a particular employee’s strengths, weaknesses, areas for improvement, potential, and so on. This method is often used in the selection of employees when written recommendations are solicited from former employers, teachers, or supervisors. The major problem with this type of appraisal is the extreme variability in length and content, which makes comparisons difficult.

Graphic Rating Scale

A typical graphic rating scale assesses a person on the quality and quantity of his or her work and on a variety of other factors that vary with the specific job. Usually included are personal traits such as flexibility, cooperation, level of selfmotivation, and organizational ability. The graphic rating scale results in more consistent and quantifiable data, though it does not provide the depth of the essay appraisal.

Field Review

As a check on reliability of the standards used among raters, a systematic review process may be utilized. A member of the personnel or central administrative staff meets with small groups of raters from each supervisory unit to go over ratings for each employee to identify areas of dispute and to arrive at an agreement on the standards to be utilized. This group judgment technique tends to be more fair and valid than individual ratings, but is considerably more time-consuming.

Forced-Choice Rating

There are many variations of this method, but the most common version asks raters to choose from among groups of statements those that best fit the person being evaluated and those that least fit. The statements are then weighted and scored in much the same way psychological tests are scored. The theory behind this type of appraisal is that since the rater does not know what the scoring weight of each statement is, he or she cannot play favorites.

Critical Incident Appraisal

Supervisors are asked to keep a record on each employee and to record actual incidents of positive and negative behavior. While this method is beneficial in that it deals with actual behavior rather than abstractions, it is time-consuming for the supervisor, and the standards of recording are set by the supervisor.

Management by Objectives

In this approach, employees are asked to set, or help set, their own performance goals. This approach has considerable merit in its involvement of the individual in setting the standards by which he or she will be judged, and the emphasis on results rather than on abstract personality characteristics.

Work-Standards Approach

Instead of asking each employee to set his or her own performance standards, many organizations set measured daily work standards. The work-standards technique establishes work and staffing targets aimed at increasing productivity. When realistically used and when standards are fair and visible, it can be an effective type of performance appraisal. The most serious problem is that of comparability. With different standards for different people, it is difficult to make comparisons for the purposes of promotion.

Ranking Methods

For purposes of comparing people in different units, the best approach appears to be a ranking technique involving pooled judgment. The two most effective ranking methods include alternation-ranking and paired-comparison ranking. Essentially, supervisors are asked to rank who is “most valuable.”

Assessment Centers

Assessment centers are coming into use more for the prediction and assessment of future potential. Typically, individuals from different areas are brought together to spend two or three days working on individual and group assignments. The pooled judgment of observers leads to an order-of-merit ranking of participants. The greatest drawback to this system is that it is very time-consuming and costly.


  1. Do you agree with the results in Exhibit II? Why or why not? Defend youranswers.
  2. Are there any other techniques that may be better?

Exhibit II. Rating evaluation techniques against types of conflict

Rating Evaluation Technique



Critical Manage- Work


Type of





Incident ment by Standards

Ranking ment






Appraisal Objectives Approach

Medthods Center

Conflict over schedules

Conflict over


Conflict over technical issues

Conflict over administra-




Conflict over


Note: Shaded circles indicate areas of difficulty.

Photolite Corporation (D)

On June 12, 1999, Ron Ward (the wage and salary administrator for Photolite Corporation) met with Jesse Jaimeson (the director of personnel) to discuss their presentation to senior management for new evaluation techniques in the recently established matrix organization.

Jesse Jaimeson: “I’ve read your handout on what you’re planning to present to senior management, and I feel a brief introduction should also be included (see Exhibit I). Some of these guys have been divorced from lower-level appraisals for over 20 years. How do you propose to convince these guys?”

Ron Ward: “We do have guidelines for employee evaluation and appraisal. These include:

  1. To record an individual’s specific accomplishments for a given period of time.
  2. To formally communicate to the individual on four basic issues:
    1. What is expected of him/her (in specifics).
    2. How he/she is performing (in specifics).
    3. What his/her manager thinks of his/her performance (in specifics).
    4. Where he/she could progress within the present framework.C. To improve performance.
  3. To serve as a basis for salary determination.
  4. To provide a constructive channel for upward communication.

“Linked to the objectives of the performance appraisal, we must also consider some of the possible negative influences impacting on a manager involved in this process. Some of these factors could be:

  • A manager’s inability to control the work climate.
  • A normal dislike to criticize a subordinate.
  • A lack of communication skills needed to handle the employee interview.
  • A dislike for the general mode in the operation of the business. A mistrust of the validity of the appraisal instrument.

“To determine the magnitude of management problems inherent in the appraisal of employees working under the matrix concept, the above-mentioned factors could be increased four or five times, the multiplier effect being caused by the fact that an employee working under the project/matrix concept could be working on as many as four or five projects during the appraisal period, thereby requiring all the project managers and the functional manager to input their evaluation regarding a subordinate’s performance and the appraisal system itself.”

Jaimeson: “Of course, managers cannot escape making judgments about subordinates. Without these evaluations, Photolite would be unable to adequately administer its promotion and salary policies. But in no instance can a performance appraisal be a simple accept or reject concept involving individuals. Unlike the quality appraisal systems used in accepting or rejecting manufactured units, our personnel appraisal systems must include a human factor. This human factor must take us beyond the scope of job objectives into the values of an individual’s worth, human personality, and dignity. It is in this vein that any effective personnel appraisal system must allow the subordinate to participate fully in the appraisal activities.”

Ward: “Prior to 1998, this was a major problem within Photolite. Up to that time, all appraisals were based on the manager or managers assessing an individual’s progress toward goals that had been established and passed on to subordinates. Although an employee meeting was held to discuss the outcome of an employee’s appraisal, in many instances it was one-sided, without meaningful participation by the person being reviewed. Because of such a system, many employees began to view the appraisal concept as inconsistent and without true concern for the development of the individual. This also led many to believe that promotions and salary increases were based on favoritism rather than merit.

“Problems inherent in these situations are compounded in the matrix organization when an individual is assigned to several projects with varying degrees of importance placed on each project, but knowing that each project manager will contribute to the performance appraisal based on the success of their individual projects. Such dilemmas can only be overcome when the individual is considered as the primary participating party in the appraisal process and the functional manager coordinates and places prime responsibility of the subordinate contributor in the project for which prime interest has been focused by the company. Other project contributions are then considered, but on a secondary basis.”

Jaimeson: “Although we have discussed problems that are inherent in a matrix organization and can be compounded by the multiple performance determination, a number of positives can also be drawn from such a work environment. It is obvious, based on its design, that a project/matrix organization demands new attitudes, behavior, knowledge, and skills. This in turn has substantial implications for employee selection, development, and career progression. The ultimate success of the individual and the project depends largely on the ability of the organization to help people learn how to function in new ways.

“The matrix organization provides an opportunity for people to develop and grow in ways and rates not normally possible in the more traditional functional organizational setting. Although the project/matrix organization is considered to be high tension in nature, it places greater demands on people but offers greater development and career opportunities than does the functional organization.

“Because of the interdependencies of projects in a matrix, increased communications and contact between people is necessary. This does not mean that in a functional organization interdependency and communication are not necessary. What it does say, however, is that in a functional setting, roles are structured so that individuals can usually resolve conflicting demands by talking to their functional manager. In a matrix, such differences would be resolved by people from different functions who have different attitudes and orientations.”

Ward: “From the very outset, organizations such as Photolite ran into conflict between projects involving such items as:

  • Assignment of personnel to projects
  • Manpower costs
  • Project priority
  • Project management status (as related to functional managers)
  • Overlap of authority and power in the matrix

If not adequately planned for in advance, these factors could be significant factors in the performance appraisal of matrix/project members. However, where procedures exist to resolve authority and evaluation conflicts, a more equitable performance appraisal climate exists. Unfortunately, such a climate rarely exists in any functioning organization.

“With the hope of alleviating such problems, my group has redefined its approach to Exempt Performance Appraisals (see Exhibits I and II). This approach is based on the management by objectives technique. This approach allows both management and employees to work together in establishing performance goals.

Beyond this point of involvement, employees also perform a self-evaluation of their performance, which is considered a vital portion of the performance appraisal. Utilization of this system also opens up communication between management and the employee, thereby allowing two-way communication to become a natural item. Although it is hoped that differences can be reconciled, if this cannot occur, the parties involved have at least established firm grounds on which to disagree. These grounds are not hidden to either and the employee knows exactly how his/her performance appraisal was determined.”

Jaimeson: “O.K. I’m convinced we’re talking the same language. We won’t have any problem convincing these people of what we’re trying to do.”

Exhibit I. Recommended approach

  1. Prework
    • Employee and manager record work to be done using goals, work plans, position guide.
    • Employee and manager record measurements to be used.

Note: This may not be possible at this time since we are in the middle of a cycle. For 1999 only, the process will start with the employees submitting a list of their key tasks (i.e., job description) as they see it. Manager will review that list with the employee.

  1. Self-Appraisal
    • Employee submits self-appraisal for key tasks. It becomes part of the record.
  • Managerial Appraisal
    • Manager evaluates each task.
    • Manager evaluates total effort.
    • Skills displayed are recorded.
    • Development effort required is identified.

Note: Appraisals should describe what happened, both good and bad.

  1. Objective Review
    • Employee relations reviews the appraisal.
    • Assure consistent application of ratings.
    • Assist in preparation, if needed. Be a sounding board.
  2. One-over-One Review
    • Managerial perspective is obtained.
    • A consistent point of view should be presented.
  1. Appraisal Discussion
    • Discussion should be participative.
    • Differences should be reconciled. If this is not possible, participants must agree to disagree.
    • Work plans are recycled.
    • Career discussion is teed-up.
    • Employee and manager commit to development actions.
  • Follow-up
    • Checkpoints on development plan allow for this follow-up.

Exhibit II. Performance summary

When writing the overall statement of performance:

  • Consider the degree of difficulty of the work package undertaken in addition to the actual results.
  • Reinforce performance outcomes that you would like to see in the future by highlighting them here.
  • Communicate importance of missed targets by listing them here.
  • Let employees know the direction that performance is taking so that they can make decisions about effort levels, skill training emphasis, future placement possibilities, and so on.

When determining the overall rating number:

  • Choose the paragraph that best describes performance in total, then choose the number that shades the direction it leans.
  • Use the individual task measurements plus some weighting factor— realistically some projects are worth more than others and should carry more weight.
  • Again, consider the degree of difficulty of the work package undertaken.

Strong points are:

  • Demonstrated in the accomplishment of the work.
  • Found in the completion of more than one project.
  • Relevant—avoid trivia.
  • Usually not heard well by employees.
  • Good subjects for sharpening and growing.

Areas requiring improvement usually:

  • Show up in more than one project.
  • Are known by subordinate.
  • Limit employee effectiveness.
  • Can be improved to some degree.

Areas of disagreement:

  • Can be manager or subordinate initiated.
  • Need not be prepared in advance.
  • Require some effort on both parts before recording.
  • Are designed to keep problems from hiding beneath the surface.

Your review of the self-appraisal may surface some disagreement. Discuss this with the employee before formally committing it to writing.


  1. If you were an executive attending this briefing, how would you react?
  2. Are there any additional questions that need to be addressed?

First Security Bank of Cleveland

The growth rate of First Security of Cleveland had caused several executives to do some serious thinking about whether the present organizational structure was adequate for future operations. The big question was whether the banking community could adapt to a project management structure.

Tom Hood had been the president of First Security for the past ten years. He had been a pioneer in bringing computer technology into the banking industry. Unfortunately, the size and complexity of the new computer project created severe integration problems, problems with which the present traditional organization was unable to cope. What was needed was a project manager who could drive the project to success and handle the integration of work across functional lines.

Tom Hood met with Ray Dallas, one of the bank’s vice presidents, to discuss possible organizational restructuring:

Tom Hood: “I’ve looked at the size and complexity of some twenty projects that First Security did last year. Over 50 percent of these projects required interaction between four or more departments.”

Ray Dallas: “What’s wrong with that? We’re growing and our problems are likewise becoming more complex.”

Hood: “It’s the other 50 percent that worry me. We can change our organizational structure to adapt to complex problem-solving and integration. But what happens when we have a project that stays in one functional department? Who’s going to drive it home? I don’t see how we can tell a functional manager that he or she is a support group in one organizational form and a project manager in the other and have both organizational forms going on at the same time.

“We can have either large, complex projects or small ones. The small ones will be the problem. They can exist in one department or be special projects assigned to one person or a task force team. This means that if we incorporate project management, we’ll have to live with a variety of structures. This can become a bad situation. I’m not sure that our people will be able to adapt to this changing environment.”

Dallas: “I don’t think it will be as bad as you make it. As long as we clearly define each person’s authority and responsibility, we’ll be all right. Other industries have done this successfully. Why can’t we?”

Hood: “There are several questions that need answering. Should each project head be called a project manager, even if the project requires only one person? I can see our people suddenly becoming title-oriented. Should all project managers report to the same boss, even if one manager has thirty people working on the project and the other manager has none? This could lead to power struggles. I want to avoid that because it can easily disrupt our organization.”

Dallas: “The problem you mentioned earlier concerns me. If we have a project that belongs in one functional department, the ideal solution is to let the department manager wear two hats, the second one being project manager. Disregarding for the moment the problem that this manager will have in determining priorities, to whom should he or she report to as to the status of the work? Obviously, not to the director of project management.”

Hood: “I think the solution must be that all project managers report to one person. Therefore, even if the project stays in one functional department, we’ll still have to assign a project manager Under project management organizational forms, functional managers become synonymous with resource managers. It is very dangerous to permit a resource manager to act also as a project manager. The resource manager might consider the project as being so important that he or she will commit all the department’s best people to it and make it into a success at the expense of all the department’s other work. That would be like winning a battle but losing the war.”

Dallas: “You realize that we’ll need to revamp our wage and salary administration program if we go to project management. Evaluating project managers might prove difficult. Regardless of what policies we establish, there are still going to be project managers who try to build empires, thinking that their progress is dependent upon the number of people they control. Project management will definitely give some people the opportunity to build a empire. We’ll have to watch that closely.”

Hood: “Ray, I’m a little worried that we might not be able to get good project managers. We can’t compete with the salaries the project managers get in other industries such as engineering, construction, or computers. Project management cannot be successful unless we have good managers at the controls. What’s your feeling on this?”

Dallas: “We’ll have to promote from within. That’s the only viable solution. If we try to make project management salaries overly attractive, we’ll end up throwing the organization into chaos. We must maintain an adequate salary structure so that people feel that they have the same opportunities in both project management and the functional organization. Of course, we’ll still have some people who will be more title-oriented than money-oriented, but at least each person will have the same opportunity for salary advancement.”

Hood: “See if you can get some information from our personnel people on how we could modify our salary structure and what salary levels we can pay our project managers. Also, check with other banks and see what they’re paying their project managers. I don’t want to go into this blind and then find out that we’re setting the trend for project management salaries. Everyone would hate us. I’d rather be a follower than a leader in this regard.”


  1. What are the major problems identified in the case?
  2. What are your solutions to the above question and problems?

Jackson Industries

“I wish the hell that they had never invented computers,” remarked Tom Ford, president of Jackson Industries. “This damn computer has been nothing but a thorn in our side for the past ten years. We’re gonna resolve this problem now. I’m through watching our people fight with one another. We must find a solution to this problem.”

In 1982, Jackson Industries decided to purchase a mainframe computer, primarily to handle the large, repetitive tasks found in the accounting and finance functions of the organization. It was only fitting, therefore, that control of the computer came under the director of finance, Al Moody. For two years, operations went smoothly. In 1984, the computer department was reorganized in three sections: scientific computer programming, business computer programming, and systems programming. The reorganization was necessary because the computer department had grown into the fifth largest department, employing some thirty people, and was experiencing some severe problems working with other departments.

After the reorganization, Ralph Gregg, the computer department manager, made the following remarks in a memo distributed to all personnel:

The Computer Department has found it increasingly difficult to work with engineering and operations functional departments, which continue to permit their personnel to write and document their own computer programs. In order to maintain some degree of consistency, the Computer Department will now assume the responsibility for writing all computer programs. All requests should be directed to the department manager. My people are under explicit instructions that they are to provide absolutely no assistance to any functional personnel attempting to write their own programs without authorization from me. Company directives in this regard will be forthcoming.

The memo caused concern among the functional departments. If engineering wanted a computer program written, they would now have to submit a formal request and then have the person requesting the program spend a great deal of time explaining the problem to the scientific programmer assigned to this effort. The department managers were reluctant to have their people “waste time” in training the scientific programmers to be engineers. The computer department manager countered this argument by stating that once the programmer was fully familiar with the engineering problem, then the engineer’s time could be spent more fruitfully on other activities until the computer program was ready for implementation.

This same problem generated more concern by department managers when they were involved in computer projects that required integration among several departments. Although Jackson Industries operated on a traditional structure, the new directive implied that the computer department would be responsible for managing all projects involving computer programming even if they crossed into other departments. Many people looked on this as a “baby” project management structure within the traditional organization.

In June 1992, Al Moody and Ralph Gregg met to discuss the deterioration of working relationships between the computer department and other organizations.

Al Moody: “I’m getting complaints from the engineering and operations departments that they can’t get any priorities established on the work to be done in your group. What can we do about it?”

Ralph Gregg: “I set the priorities as I see fit, for what’s best for the company. Those guys in the engineering and operations have absolutely no idea how long it takes to write, debug, and document a computer program. Then they keep feeding me this crap about how their projects will slip if this computer program isn’t ready on time. I’ve told them what problems I have, and yet they still refuse to let me participate in the planning phase of their activities.”

Al Moody: “Well, you may have a valid gripe there. I’m more concerned about this closed shop you’ve developed for your department. You’ve built a little empire down there and it looks like your people are unionized where the rest of us are not. Furthermore, I’ve noticed that your people have their own informal organization and tend to avoid socializing with the other employees. We’re supposed to be one big, happy family, you know. Can’t you do something about that?”

Ralph Gregg: “The problem belongs to you and Tom Ford. For the last three years, the average salary increase for the entire company has been 7.5 percent and our department has averaged a mere 5 percent because you people upstairs do not feel as though we contribute anything to company profits. My scientific programmers feel that they’re doing engineering work and that they’re making the same contribution to profits as is the engineer. Therefore, they should be on the engineering pay structure and receive an 8 percent salary increase.”

Al Moody: “You could have given your scientific programmers more money. You had a budget for salary increases, the same as everyone else.”

Ralph Gregg: “Sure I did. But my budget was less than everyone else’s. I could have given the scientific people 7 percent and everyone else 3 percent. That would be an easy way to tell people that we think they should look for another job. My people do good work and do, in fact, contribute to profits. If Tom Ford doesn’t change his impression of us, then I expect to lose some of my key people. Maybe you should tell him that.”

Al Moody: “Between you and me, all of your comments are correct. I agree with your concerns. But my hands are tied, as you know.

“We are contemplating the installation of a management information system for all departments and, especially, for executive decision making. Tom is contemplating creating a new position, Director of Information Services. This would move the computer out of a department under finance and up to the directorate level. I’m sure this would have an impact on yearly salary increases for your people.

“The problem that we’re facing involves the managing of projects under the new directorate. It looks like we’ll have to create a project management organization just for this new directorate. Tom likes the traditional structure and wants to leave all other directorates intact. We know that this new directorate will have to integrate the new computer projects across multiple departments and divisions. Once we solve the organizational structure problem, we’ll begin looking at implementation. Got any good ideas about the organizational structure?”

Ralph Gregg: “You bet I do. Make me director and I’ll see that the work gets done.”

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