Projects are identified, appraised and implemented.  They may be successful, challenged or outright failure. The experience gained in the process is used in the next round for better identification, appraisal and implementation.  When a project enters an implementation stage, the first question would be:  what form and what structure.  While form refers to nature of business, partnership or corporation, the structure refers to organizational setup like process or product. Sometimes, a new problem is confronted whether to implement the project as a part of the existing setup or as a separate legal entity.

1.      Brownfield or greenfield project?

2.      What factors should be considered for giving autonomy to a project?

3.      What forms of business are available?

4.      Which is the best form for a project?

5.      What are the choices for an organizational structure

6.      Which structure would suit which project?

7.      What is culture?

8.      What is the role of culture in success of an organizational structure?

Projects come in varieties. Some increase the capacity and are classified as new or expansion. Other names are greenfield for new and brownfield for expansion projects. Some do not increase basic capacity but simply improve operations. These are classified under BM&R (Balancing, Modernization & Replacement). A balancing project removes production bottlenecks, a modernization improved quality following a change in technology while replacement is for old plants or equipments which have out-lived their normal life.

Many other terms are used such as "Addition" which means that an entirely new type of plant has been added in the existing setup like a spinning plant in the existing pipe-making plant. Similarly, there are vertical integration when new capacities are added either to produce in-house raw materials or move towards final consumers like adding a garment plant in a textile mills.

Expansion and BM&R would no doubt be handled by the same entity. However, greenfield projects can be implemented under a separate legal entity as an autonomous unit. If a project is of a large size, strategically important, has strict time and cost constraint, it must be made as autonomous to ensure its smooth completion. Some time, culture of the existing setup does not warrant carrying a new project where strict discipline is required. Furthermore, novelty and environmental complexity are another two factors which lend support to autonomy.

When considering form of business, a lot of choices are available like sole-proprietorship, partnership and limited liability companies. These are briefly discussed as under:

• Sole Proprietorship suits small projects. It does not require any legal formalities and is in-expensive. But the owner would be personally responsible for all liabilities or in other words, there would be unlimited liability. In a worst case scenario, personal property of the owner can be attached for satisfying a debt claim or breach of contract.

Generally, banks are hesitant to give loans to sole-proprietorships. They can, however, avail financing facilities from Micro-Finance Banks to finance projects like tailor shops, laundries, tuition centers or sugar cane juicers.

• Partnership is not different from sole-proprietorship except that there is more than one owner. In this way, funds can be combined or skills can be pooled. Variants of partnerships may be cooperatives, clubs, associations, societies or some sort of non-profitable institutions.
• Corporation is owned by a number of stockholders, managed by a board of directors elected by the stockholders, and run day-to-day by a chief executive appointed by the board of directors. The liability of share-holders is limited and no amount can be claimed from them over and above their contribution. The corporation may be in the form of a private limited company or a public limited company, the main difference being disclosure requirements which are very strict in case of the public limited company.

From the above, it is clear that there is a proprietorship vis-à-vis a public limited company. Their advantages and dis-advantages are given below:

Apart from the foregoing, there are many other forms notably Cooperatives and Non-Profit Organization.  These are mix type of forms more near to partnership.  In Cooperative, a member’s liability if limited to the amount of the share held.  A member is entitled to only one vote and no proxy voting is allowed.  Non-Profit Organizations further differ in that there is no ownership.  Anyone may become a member as long as purpose of the organization is supported.

Still there are other categories like consortium, syndicates and joint-ventures. These have limited life and a sort of collaborations.  A member may assume a liability to the extent of total project or only to the extent of its own exposure. Modarba is also a form of business in which there are two distinct classes: manager and financer.  This is like mutual funds where people entrust their funds to an investment bank for investment and profitability. 

If the project sponsors are of small means, they should form a proprietorship or partnership as it is in-expensive. It takes lot of fund, as much as 8% of project cost, to form a limited company. But if one wants to avoid unlimited liabilities, corporation is the only choice.

Another consideration is management control. If one desires to retain ownership all the time, one should not go for public limited which are subject to a hostile take-over.

As against a hostile taker, a friendly takeover makes an offer for a company after informing the Board of Directors. If they feel that accepting the offer serves shareholders better than rejecting it, it recommends the offer be accepted by the shareholders.

There is some consideration for taxes. Except proprietorship and partnership, all other forms are fraught with double taxation, once at corporate profit level and again on dividends in the hands of owners.

To summarize, choice depends upon resources, liabilities, management control and taxation aspects of a project.

The remaining topics relating to Organizational Structure and Organizational Culture would be covered in the next hub.

PREVIOUS -  Project Management made easy