Question

Alpha Company, a project-driven organization, pays its department managers a quarterly bonus that is dependent on two factors: the departmental overhead rate and direct labor dollars. The exact value of the bonus is proportional to how much these two factors are underrun. Department man-hours are priced out against the department average, which does not include the department manager’s salary. His salary is included under his departmental overhead rate, but he does have the option of charging his own time as direct labor to the projects for which he must supply resources. What do you think of this method? Is it adequate inducement for a functional manager to control resources more effectively? How would you feel, as a project manager, knowing that the functional managers got quarterly bonuses and you got none?

Answer 1

The departmental overhead rate is suitable for production related business. As Alpha company project driven organisation. So it is better to go for project management cost control methods. But here coming to departmental overhead rate we enjoy some advantages like easy to calculate, easy to identify cost and control the cost.

Yes it is better inducement for a functional manager to control resources more effectively.

Explanation: Under departmental overhead rate method labor and machine hour rates are calculated by department wise. So for functional managers it is easy to calculate, easy to identify cost and easy to take quick decision in controlling cost. Under this method functional managers can take decisions regarding the cost and control. Alpha company is not considering functional manager salary while computing departmental overhead rate, due to this departmental overhead rate will become more effective which induces functional manager to control the resources effectively.

Before going to insert 3rd question latest know about the role of functional manager and project manager.

Functional manager part of management team who have full authority on employees, functional experts and how long run relation with their subordinates.

Where as project manager are general employees who have limited authority on employees till project period ends.

Here Alpha company providing quarterly bonuses to functional manager and not to project managers.

From the above discussion, the role of functional manager is more important than project managers.

In case of project management if the total functions and cost control done by project manager then that manager role will be more in the company. But in a Alpha company as they mentioned, it was founded that functional manager role is more and project manager role is limited. so they are getting quarterly bonus which is reasonable.