We need to understand "Styles of Organizational Design" that exist since they directly impact how easy it will be to manage projects.

The organizational structure of a company and also of a project must both be clearly documented, communicated and understood by all project stakeholders.  An organizational structure defines how employees interact, relate, communicate and express levels of authority.  This will enable the stakeholders to manage expectations and also identify risks of the project due to the type of design that exists. 

A key concept to help identify what type of design structure that exists will relate to the type of managers that have the most authority.  The two main types of mangers defined within organizational structures include:
  • Functional Manager – specializes in a specific area of the organization and the general management skills required to execute on the associated operational goals, manages resources by following operational management practices.
  • Project Manager – has a general understanding of all aspects of general and project management, manages projects and people by following project methodologies and project management practices.
 
Organizations can generally be grouped into three types of organizational structures.
  • Functional; (functional managers have high authority)
  • Projectized; (project managers have high authority)
  • Matrix;


See video link below which discusses all three types:

Org Design Concepts - Jason Tratch



Illustrated below is a Functional organization design:


All resources report into a Functional Manager (focused generally on an Operational Aspect of the Business). This type of design is most prevalent in larger, older, more established organizations.  This design is also known as hierarchical.





Illustrated below is a Projectized organization design:

All resources report into a Project Manager. This design has project staff separated from other departments and only grouped in accordance with projects.  If not on a project, employees may be placed within Human Resources temporarily with a focus on professional development (or also known as “on the bench”). 



Matrix organization design:


The third type of Design is the Matrix Design and can be described as "somewhere in the middle between Functional and Matrix".  The Matrix blends aspects of both designs and thus can also be called Strong Matrix (closer to the Project Concept) or Weak Matrix (closer to the Functional Concept). It is generally identified by having a "project management office" where all the PMs report into.  Resources still report into a functional manager but it is formally recognized that parts of their capacity are managed by the PM and the PM has a level of authority over the resources (e.g. the PM takes gives input that impacts a resources performance review or bonus, etc).




For more support (good amount of detail from a Methodology Book) check out the link:

slideshare-organizational-structures


NOTE:  check out the next/upcoming Post - Organizational Design & PM Interactions Part 2 of 2 to see the Advantages vs Disadvantages of the types of organizational design structures.