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BUSINESS FORM & ORGANIZATIONAL STRUCTURE SUITED FOR PROJECTS

Updated on September 19, 2012

Mega Project -ITAIPU DAM Brazil - second largest in the world. Video credit Alex mcquaid

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.

The outlines of the hub for form & stru are:

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?

 

1. Brownfield or greenfield?

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.

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

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.

3. What forms of business are available?

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.

SUGAR CANE JUICER - http://stirfryer.com.cn

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. 

4. Which is the best form for a project?

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.

Hostile takeover by the0hostile0takeover

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.

Comments

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    • hafeezrm profile imageAUTHOR

      hafeezrm 

      6 years ago from Pakistan

      Thanks M. Faryal Azad for your comments.

    • profile image

      M. Faryal Azad 

      6 years ago

      Thank you sir.

    • hafeezrm profile imageAUTHOR

      hafeezrm 

      6 years ago from Pakistan

      Thanks Asma Naz, Muhammad Adil Khan and Muhammad Danish for your comments.

    • profile image

      Muhammad Danish 

      6 years ago

      Thank you sir it is really good notes for preparation

    • profile image

      Muhammad Adil khan 

      6 years ago

      Sir,

      your way of teaching is very awesome.when i opened my inbox & clicked on this URL i was really amazed to see a new way of learning through your hub pages. i must say its easy, more clear and effective way of learning.

      Thanks.

    • profile image

      ASMA NAZ 

      6 years ago

      Very informational, thanks.Thank you very much sir for giving more presise overview on orginizational structures and business forms. Its realy healpful in clearing my concepts over these topics.

    • hafeezrm profile imageAUTHOR

      hafeezrm 

      6 years ago from Pakistan

      Thanks Osamah Reza for your comments.

    • profile image

      Osamah Reza 

      6 years ago

      Very Informative and very refined material.. thank u sir!

    • hafeezrm profile imageAUTHOR

      hafeezrm 

      6 years ago from Pakistan

      Thanks Samina for your comments

    • profile image

      samina khan 

      6 years ago

      thank you sir for such informative article. i hope this will help us in near future Amen. thank you sir

    • hafeezrm profile imageAUTHOR

      hafeezrm 

      6 years ago from Pakistan

      Thanks Tuba for your comments

    • profile image

      Tuba Parvaiz 

      6 years ago

      Thx u sir for providing me lots of information

    • projectplanmanage profile image

      projectplanmanage 

      8 years ago

      A very good article and so informative...approved! :)

    • projectfinancing profile image

      projectfinancing 

      8 years ago

      Your hubs are really informative...i love reading it...i found so many infos with your article...thanks

    • Neil Ashworth profile image

      George Poe 

      8 years ago from United Kingdom

      Very good piece of writing. Love it..

    • profile image

      deliver-project 

      8 years ago

      Thanks for this very informative hub sir....i hope more hubs will be posted coming from you sir..

    • profile image

      Sarah Farooq  

      8 years ago

      Dear Sir,

      when i opened my inbox & clicked on this URL i was really amazed to see a new way of learning through your hub pages. i must say its easy, more clear and effective way of learning. After reading this, my concepts were more clear. If you can take out your precious time for us, we surely will work hard and make up to your efforts !

      Thank You so much :)

    • profile image

      Hira Sami 

      8 years ago

      asalam-u-alaikum sir,

      This is very informative, u have explained all the terms in very easy way it has increased my knowledge thanku sir for teaching us.

    • hafeezrm profile imageAUTHOR

      hafeezrm 

      8 years ago from Pakistan

      Thanks Sundus, Faisal, Arif, Asif and Sana for your comments.

    • profile image

      sana khan 

      8 years ago

      ASALAM O ALAIKUM SIR!

      your lectures are very informative and i understand and learn many things from you....thnku so much sir...

    • profile image

      asif jamal 

      8 years ago

      sir its nice to read and its informative for the management student and also kwnledbale for the enterpernur.

      thanks

    • profile image

      muhammad arif  

      8 years ago

      thanks sir

      for giving a lot of knowledge about structure

    • mohammad faisal profile image

      mohammad faisal 

      8 years ago

      sir your way of teaching is very awesome.you have cleared lot of concepts,which were not clear before.your all lectures are very informative & interesting.

    • profile image

      sundus 

      8 years ago

      Dear Sir,

      I'm very obliged and thankful that you take out time from ur busy schedule and maintain this hub which helps students in a tremendous way.

      Even though u were elaborate enough in ur lecture but this article has made things more clear.

      Looking fwd to more articles.

      Rgds'

      Sundus Fareed.

    • hafeezrm profile imageAUTHOR

      hafeezrm 

      8 years ago from Pakistan

      Thanks Rufi, Maria, Aymen, Farah Teerath for your comment

    • TEERATHMAHESHWARI profile image

      TEERATHMAHESHWARI 

      8 years ago from karachi

      Dear sir

      thanks a lot for explainig all these difficult things in simplw way and clear concept by giving realistic example.

    • profile image

      Syeda Farah Nishat Zaidi 

      8 years ago

      very informative sir i got clear understanding of all terms

    • profile image

      aymen noor 

      8 years ago

      thank you so much sir. everything about form and structure is explained very beautifully :)

    • profile image

      maria arif 

      8 years ago

      sir it is very clear and a quick revision for us.

    • Rufi Shahzada profile image

      Rufi Shahzada 

      8 years ago from Karachi

      Dear Sir,

      Thanks a lot for explaining each and everything so precisely about FORMS and STRUCTURE.

      Looking Forward for some more...

      Best Regards,

      RUFI SHAHZADA

    • profile image

      Birjis Imdad 

      9 years ago

      Respected Sir,

      Thanks for up grading my knowledge, regarding Forms & Structure.

      Hope to be benefited in future also.

      Regards,

      Birjis. (MBA 4 B)

    • profile image

      usman alvi 

      9 years ago

      thank you sir for such an informative article. its really gave me gr8 help during my preparation of PM paper

    • profile image

      fatima_iqbal_BU 

      9 years ago

      Thank you sir! i got it.

    • profile image

      fatima_iqbal_BU 

      9 years ago

      Thank you sir! i got it.

    • profile image

      Malik Tahir 

      9 years ago

      Very informative and interesting article.

      same guidance and knowledgeable articles are expected in future as well.

      rgds

      Tahir

    • hafeezrm profile imageAUTHOR

      hafeezrm 

      9 years ago from Pakistan

      It would be posted in a few days, stay in touch.

    • profile image

      Qamar 

      9 years ago

      Dear Sir,

      As-salamualekum

      I am very much thankful to you for posting this article and making my concepts clearer and revising what we have learned from you before midterm .

      Sir you have discussed about the form only i would b thankful to you if you post the STRUCTURE also .

      Regards,

      Qamar

    • profile image

      MUHAMMAD DANIAL 

      9 years ago

      ASSALAMUALKUM

      THIS ARTICLE IS HELPFUL AND REVIEWING MY PREVIOUS CONCEPT. THANKS A lot SIR.

    • hafeezrm profile imageAUTHOR

      hafeezrm 

      9 years ago from Pakistan

      It is demand pull and cost push. It relates to inflation. In Ramadan, there is a heavy demand for fresh fruits and prices of fruits go up. This is demand pull. Since Asif Zardari time, cost of manufacture is going up due to load shedding which results in lower productivity and wastage. It would in turn increase the cost of those who use raw materials say a restaurant. It would be cost-push.

    • profile image

      Farhana Rajput 

      9 years ago

      Dear Sir

      Thank you for immediately reply and clearing out my point.

    • profile image

      Kiran Mehtab 

      9 years ago

      Thank you very much sir for giving more presise overview on orginizational structures and business forms. Its realy healpful in clearing my concepts over these topics.

    • profile image

      fatima_iqbal_BU 

      9 years ago

      Dear Sir, I have a confusion related to " Demand Pull" vs " Demand Push" strategy? is that demand push or Cost push? kindly supplement your answer with the help of an example.

    • hafeezrm profile imageAUTHOR

      hafeezrm 

      9 years ago from Pakistan

      Dummy activity is used when we draw the net work on Activity on Arrow and not on Activity-on-Node basis. A dummy is just a link represented by dotted line. It has no time or cost. It is just to point out a precedent-link.

    • profile image

      Farhana Rajput 

      9 years ago

      Dear Sir,

      Thanks a lot for ur support and appricaition,itz an easiest way to review all points.Sir i forget about dummy activity ill you please explain it coz i lost my notes.

    • hafeezrm profile imageAUTHOR

      hafeezrm 

      9 years ago from Pakistan

      Thanks Sana Rao for your comments.

    • profile image

      Sana Rao 

      9 years ago

      Dear Sir

      Thank you Sir,it can be helpful for revewing these topic and managing hub page in a tremendous way.

    • hafeezrm profile imageAUTHOR

      hafeezrm 

      9 years ago from Pakistan

      Thanks Fahad & Shir for your comments.

    • profile image

      SHIR ATTIQ-UR-REHMA 

      9 years ago

      THANKS ONCE AGAIN THAT YOU ALWAYS SHARE A lot OF KNOWLEDGE WITH ME. THE ALL ARTICLES HELP ME AND MY OTHER CLASS FRIENDS A lot FOR UNDERSTANDING THE ASSPECTS OF PROJECT MANGEMENTAND ALWAYS HELP OUT ME AND MY OTHER FRIENDS.

      GOD BLESS YOU:

      THANK AGAIN.

      THANK YOU FOR SHARING ALL WONDERFUL ARTICLES AND HOPE TO SEE ALL OTHERS SOON.

      THANK YOU. MAY GOD BLESS YOU. SIR HELP ME IN MY FUTURE LIFE IF I NEED SO.

    • Fahad_Khan profile image

      Fahad_Khan 

      9 years ago from Karachi

      Thanks a lot Mr. Hafeez for all the effort that you are putting in for us. I'll be highly thankful to you. This really means a lot for students who want to study in depth.

    • hafeezrm profile imageAUTHOR

      hafeezrm 

      9 years ago from Pakistan

      Dear Fatima Khan, it takes atleast 10-12 hours to add a hub. I would keep on adding. Please stay in touch.

    • hafeezrm profile imageAUTHOR

      hafeezrm 

      9 years ago from Pakistan

      Dear Khalid Akhter, Bahria has added a medical university in its existing campus. This is a brownfield project. Had the same university been on own plot i.e. started from scratch, this would have been greenfield project. The terminology is more popular with software project where there are entirely new software (green-fields) and modification of the existing software (brownfield).

    • profile image

      fatima khan 

      9 years ago

      dear sir,

      thanx for giving info in question answer form..would u plz add more questions related to resource managemnet and managing risk.i;l b greatful to u!

    • khalid AKhter profile image

      khalid AKhter 

      9 years ago from KARACHI

      very informative ...wud u plz eleborate GREEN FIELD n BROWN FIELD ???

    • hafeezrm profile imageAUTHOR

      hafeezrm 

      9 years ago from Pakistan

      Thanks Gypsy Willow and Fatima Iqbal for your nice comments.

    • Gypsy Willow profile image

      Gypsy Willow 

      9 years ago from Lake Tahoe Nevada USA , Wales UK and Taupo New Zealand

      Interesting breakdown of business tems. Very informational, thanks

    • profile image

      fatima_iqbal_BU 

      9 years ago

      Thank You Sir, It helped me a lot to revise the previous sections what we had discussed before Mid Term. I found Greenfield, Brownfield and BM & R quite intersting and easy to understand. I am waiting for the next hub. hope to see them Before Monday June 8, 2009.

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