Minimizing Transaction Costs in Project-Based Organizations: A case study on suppliers’ engagements in delivery projects in the Swedish Construction Industry

University essay from Umeå universitet/Handelshögskolan vid Umeå universitet

Abstract:

In this changing world, companies have had to learn how to formulate and implement their strategies through projects and organizational structures in order to successfully face threats and opportunities. However, the management of multiple projects is not easy and due to this complexity, a new type of organization has emerged, called Multiproject organization. Depending to its characteristics, this new organization can be classified in project oriented (POO) or project based (PBO) (Arvidsson, 2009).

Before to execute a project, the organization needs to evaluate its resources and decide if should buy the project through contractors or make it with its own resources (Müller and Turner, 2005). A Project Based Organization (PBO) which manages multiple projects at the same time through contractors requires to keep a good monitoring and controlling project performance, and to create the best project governance structure.

About these subjects, there have been journals and books published since an academic perspective; but, not all of them have described these topics in a real organization. The aim of this research is to learn how these concepts are applied in a real project based organization, as well as the problems that can be faced and how they have solved them.

The purpose of this thesis is to show how a PBO deals with the governance of its contracts, considering how the PBO estimates the cost of the project, how it deals controlling the contractors and their projects, as well as how it minimizes the transaction‟s (i.e. the project‟s) economic and administrative costs. Based in the purpose of the study, the research question is: “How do project minimize transactions costs in supplier engagements in delivery projects in the Swedish construction industry? the construction of a railway in the north of Sweden and due to it has 130 major contracts, can be considered as a multi-project organization. The Unit of Analysis used is the transaction cost in supplier involvement in project. A single case study was chosen to present and analyze the information from the organization. It was analyzed qualitative data collected through semi-structured interviews which were applied inside and outside the company, in order to make a triangulation of the data collected.

The findings explained that the railway company analyzed, achieved to minimize its based organizations (PBOs)” In order to answer, it was selected an organization created for transaction costs on supplier‟s investments during the delivery project phase due to right selection of types of contracts, as well as those process and systems implemented in all the project offices. These process and systems helped it to detect on time potential problems as well as take decisions and covered: the selection of suppliers through the bidding process, the negotiation of contracts, the monitoring, controlling and reporting performance, the closure of the project and the last payments for contractors. The PBO tried to keep a good communication with contractors and at the same time, it developed a team work feeling in which both parts supported each other. It could be observed that : the  it is possible to achieve successfully the organization‟s objectives and minimize the transactions costs during the execution through essential factors as a careful and detailed planning, team work with all the areas involved, communication and hardworking.

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