The Framework of Project Governance

Revision as of 20:27, 24 February 2018

Abstract

Project governance is the establishment of organizational comprehension and circumstances under which delivering and organizing successful projects.^[1] Establishing project governance for all projects is an essential element in defining responsibilities and accountabilities in organizational control. Project governance provides a framework for consistent, robust and repeatable decision making. Hence, this offers a structured approach towards assuring businesses to conduct project activities, "business as usual" activities, as well as organizational changes.^[2] Project success is the primary objective of all projects; thus the systematic application of suitable methods and a stable relationship with project governance is of vital importance to reach an optimal project success.^[3] According to the research article "Project Governance – The Definition and Leadership Dilemma"; a majority of authors on project governance have a background in project management, where they attempt to create the project governance framework through a bottom-up approach. Due to a variety of projects in the industry, the range of stakeholders interest, different values and types, and complexity spectrum, the bottom-up strategy has its limitations when providing concise guidance to managers when executing and enforcing project governance.^[4] Based on these observations, the objective of this article sections into three parts; firstly the big idea of project governance will be described including the main pillars of project governance and its core principles. Secondly, three different approaches towards project governance will be identified along with the core principles. Lastly, the limitations concerning the different approach towards project governance will be analyzed.

The Big Idea

Project Stakeholders and Governance

Figure 1: Project Stakeholders, inspired from the ISO 21500 International Standard ^[5]

According to the PMBOK® guide, "a stakeholder is an individual, group, or organization who may affect, be affected by, or perceive itself to be affected by a decision, activity, or outcome of a project." Stakeholders are often interested in the project or actively involved in it which may have a positive or negative effect on the performance or completion of the project. Various stakeholders may have competing expectations which could create conflicts within the project. Project governance is the alignment of the project with stakeholders' requirements or goals which is a vital element to the successful management of stakeholder engagement and the execution of organizational goals. Project governance enables organizations to consistently manage projects, maximize the value of project outcomes and align the projects with business strategy. It presents a framework in which the project manager and sponsors can make decisions that satisfy stakeholder needs and expectations, as well as the organizational strategic objectives.^[6] Figure 1 provides an overall view of the project stakeholders which are divided into three groups, the project governance stakeholders, the project organization stakeholders and the additional stakeholders. For the purpose of this article, the primary focus will be on the project governance stakeholders.

Introduction to Project Governance

The purpose of the framework of project governance, according to the PMBOK® guide, is to provide structure, processes, decision-making models and tools for the project manager and team members to manage a project while supporting and controlling the project for successful delivery.^[6] According to Patric S. Renz, project governance is defined as "a process-oriented system by which projects are strategically directed, integratively managed, and holistically controlled, in an entrepreneurial and ethically reflected way. Appropriate to the singular, time-wise limited, interdisciplinary, and complex context of projects."^[7] The three pillars of project governance are Structure, People, and Information. The project governance structure refers to the formation of the governance committee, project steering committee or board. People participating in the committees are the ones that decide the nature of projects and its effective structure. Information regarding the project is escalated by the project manager to the governance committee, which includes regular project reports, issues or risks.^[2] Effective governance of project management ensures that the project portfolio of an organization is aligned to its objective, delivered efficiently and is sustainable. It also supports the corporate board and project stakeholders receiving timely, relevant and reliable information.^[8] The project governance framework provides a comprehensive and consistent approach towards controlling the project and assuring its success by documenting, defining and communicating project activities. It includes a framework for making project decisions which include defining roles, responsibilities, and accountabilities for project success as well as determining the effectiveness of the project manager.^[6] Additionally, the framework of project governance involves documented policies, procedures, standards and authorities. As illustrated in Figure 1, the project sponsor is needed in the project governance and is the person who authorizes the project, makes executive decisions, solves problems and conflicts beyond the authority of the project manager. Additionally, the project steering committee or board, which provide senior level guidance to the project, are also involved in the project governance, which can be seen in Figure 1. Examples of the elements of the project governance framework includes the following:^[6][9]

• Project success and deliverable acceptance criteria;
• Special process to identify, escalate, and resolve issues that arise during the project;
• Established relationship between the project team, organizational groups, and external stakeholders;
• Project organizational chart which identifies project roles;
• Procedures and processes for communicating information;
• Project decision-making processes;
• Guidelines for the alignment of project governance and organizational strategy;
• Project life-cycle approach;
• Specific process for stage gate or phase reviews;
• Process special for review and approval of budget changes, scope, quality and schedule that are beyond the authority of the project manager;
• Process to align internal stakeholders with project process requirements.

It is the responsibility of the project manager and the project team to decide the appropriate method of executing the project within the constraints listed above, as well as the additional limitation of time and budget. While the project governance framework includes the activities in which the project team performs, the team is responsible for planning, executing, controlling, and closing the project. Included in the project governance framework is the decision regarding who will be involved in the project, escalation procedure, what resources are required and the overall approach towards completing the project. Additionally, the consideration of whether more than one project phase will be involved and if so, what the life-cycle of the project should be.^[6]

The Framework of Project Governance

To reach a deeper understanding of how the framework of project governance is conducted, firstly, the core principles of project governance will be explained. Secondly, the illustration of the project governance model will be introduced and finally, different approached towards project governance will be demonstrated. The stakeholder groups within project governance will be the primary focus of this framework including definitions of their roles, responsibilities, and accountabilities.

Core Principles

Principle 1

The first principle of effective project governance is the concept of a single point of project's accountability. Regarding project success, it is required to have a single point of accountability. However, the nomination of someone to be accountable is not enough, the correct person must be made accountable. This person should fulfill the requirement of having sufficient authority within the organization which assures the empowerment of making necessary decision to reach a project success. Additionally, this person should have the correct knowledge within the organization to be held accountable for the actions and decisions made for the project. Without a clear understanding of who assumes accountability for the projects' success, there is no clear leadership. Thus, no one person drives the solution of difficult issues which all projects deal with at some point in their life-cycle.^[2]

Principle 2

This principle argues that the project owner should be independent of the asset owner, the service owner or other stakeholder groups. The tool of ensuring that projects meet customer and stakeholder needs, while optimizing the value of money, is to choose a project owner who is a specialist and not a stakeholder in the project. This way, the project owner engages under clear terms that outline the organizations' key result areas and the organization's sense of the key project stakeholders. In some cases, organizations establish governance projects committee, which identifies the occurrence of projects and selects project owners a the beginning of the project's life-cycle. Additionally, this committee establishes project councils which create the foundation of customer and stakeholder engagement, as well as establishing the key result areas for a project consistent with the organization's values and oversees the project performance. ^[2]

Principle 3

The third principle claims that the project governance should separate the stakeholder management from the project decision-making activities. The effectiveness of the decision-making committee is often connected to its size. When project-decision forum grows in size they tend to change into stakeholder management groups. Consequently, the detailed understanding of each person of the issues relating to the project reduces. Furthermore, everyone involved in the decision-making will not have the same level of understanding of the issues and therefore, time is wasted bringing everyone up to speed on a particular issue. Hence, large project committees are established more as a stakeholder management forum rather than project decision-making forum. This creates an issue when a project depends on the committee to make timely decisions. That is why the stakeholder management needs to be separated from the project decision-making activities to reach a successful project.^[2]

Principle 4

The main focus of this principle is to ensure separation between project governance and organizational governance structures. The establishment of project governance structures needs to be executed due to the fact that organizational structures do not provide the necessary framework to deliver a project. The characteristics of projects are speed and flexibility in its decision making and the organizational structure does not support that. The organizational structure has requirements of reporting and stakeholder involvement. However, by adopting this principle of separation, it will result in reducing multi-layered decision making, time delays, and inefficiencies. This ensures that project decision-making is executed in a timely manner. Thus, the established project governance framework for a project needs to be separated from the organizational structure.^[2]

Principle 5

This is a complementary governance principle which lists various elements that are of great importance for the governance of project management. The board's responsibilities include the definition of roles, responsibilities, and performance indicators for the governance of project management. Arranging disciplined governance is supported by appropriate methods and the project control is applied throughout the project life-cycle. An important responsibility of the board is the establishment of a coherent and supportive relationship between the overall business strategy and the project portfolio. It is expected that projects should have an approved schedule containing authorization points in which the business case is reviewed and approved, and decisions made are recorded and communicated. As illustrated in principle 1, people with authority should have sufficient representation, competence, and resources to enable appropriate decisions. There should be clearly defined criteria for reporting project status and for the escalation of risks and issues to the required organizational levels. Additionally, it is important for the organization to foster a culture of improvement and internal disclosure of project information.^[2]

Principle 6

This last principle focuses on multi-owned projects, which is defined as being a project where the board shares ultimate control with others owners. In this case, a formal governance agreement needs to be established with a single point of decision-making for the project. Additionally, a clear allocation of authority which represents the project to owners, stakeholders, and third parties. Regarding the business case, it should include definitions of project objectives, the role of owners, as well as their inputs, authority, and responsibility. The leadership of the project should escape synergies that arise from multi-ownership and should manage potential sources of conflict or inefficiency. A formal agreement is required which defines the processes and consequences for assets and owners when a material change of ownership is considered. It is important that reports during the project and the realization of benefits contain honest, timely, realistic, and relevant data on progress, achievements, forecasts, and risks to establish good governance by project owners.^[2]

Project Governance Approaches

According to Michiel C.Bekker's article, three main categories of project governance have been identified, which are called the "school of thought." The focus of the first category, the single-firm school, is analyzing a single firm's governance scheme when projects are selected and managed. The second category, the multi-firm school, examines multi-firm projects where different companies engage in contractual arrangements. The third category, the large capital school, considers projects that involve multiple interconnected participants that rely on the presence of one supreme hierarchical authority, usually the lead sponsor. These projects often involve the diverse accumulation of participants with opposing interests and agendas towards the management and outcome of the projects. Project management in an institutional context is viewed in three functional levels, which are the basis of the three project governance "school of thought", and are stated in the table below:^[4]

Single-Firm School

The application of project governance in this category is driven by projects in a single and autonomous company. Usually, practitioners in this category are IT companies and organizations involved with internal projects with minimal external client engagements. The levels of project governance are at a strategic and technical level due to its top-down nature. IT project management relates to selecting correct internal projects and that they are implemented according to company's standards. In the single-firm school, the project value is of secondary nature whereas large capital projects could reside under the category if projects are under the organization's single control, influence, and authority. Corporate governance could handle the project governance only with the sponsor as a separate corporate entity.^[4]

Multi-Firm School

The multi-firm school focuses on the relationship between different organizations engaging in single or multiple projects. One argument about the three critical project management perspectives, particularly socio-technical, organization, environment and project management perspectives is that it contains no formal framework for analyzing and managing the different interests between different participating organizations.^[4]

Large Capital School

From this approach, projects are often viewed as temporary organizations that need to define the appropriate governance framework where decisions can be made. The focus is to create an environment which is shielded from the external environment, political, and strategic influences, in which for project management activities can thrive. Decision making is the main focus instead of management and control. Therefore, project governance framework is considered to consist of an authoritative and organized structure within a sponsoring institution, including processes and rules, to ensure that projects meet their purpose. Many large capital projects including private, public and public-private partnership projects, have inherent complexities that lie in their international, cross-country borders of different contracting companies. These projects deal with challenges of governing an internal supply chain of multiple, multi-national organizations as well as the network of external actors. For large capital projects, the focus is on a higher level compared to the other approaches, which includes institutional issues that interact with the external and macro environment.^[4]

The Project Governance Model

The project governance model consists of six modules which establish the six key responsibilities. Each module outlines the objective of its key responsibility. Furthermore, a number of particularities shape the context of its key responsibility. Subsequently, for each key responsibility, a model is developed from theoretical foundations and best practices. ^[7]

System Management

Systemic thinking (the "software")

The importance of systemic or system-oriented thinking is well known around the world. According to Hans Ulrich, systemic thinking needs to become a cultural element of a development project, which he defines as the "Philosophy of how to approach the solution of the complex problem". Hans Ulrich identified five characteristics of systemic thinking which are listed here below: ^[7]

1. Holistic thinking in open system;
2. Analytical and synthetical thinking;
3. Dynamic thinking in circled processes;
4. Thinking in structures and information processes;
5. Interdisciplinary thinking.

A system model (the "hardware")

Systemic thinking based on the foundation of a holistic system-oriented model, allows projects to be configured in accordance with the system-specific circumstances. Also, to be managed efficiently and effectively based on an enhanced system understanding. The six key areas of the system model are listed below: ^[7]

1. Environmental spheres;
2. Stakeholders;
3. Issues of interaction;
4. Structuring forces;
5. Processes;
6. Modes of development.

Mission Management

The critical responsibility of the mission management is that the governance board directs and controls the strategy, structure and the cultural elements of a project. Hence, the mission management is the representation of the strategic, support, and control roles of governance. Mission management is argued to be the governance function of strategical direction, support, and control of a project and its management. Thus, the primary structuring forces of the mission management are strategy, structure, and culture. Collectively with the governance roles of strategic direction, support, and control, they compose the below matrix.

Integrity Management

The objective of integrity management is to provide an integrated platform to deal with integrity challenges on a fundamental level as well as on a level regarding integrity issues.

Extended stakeholder Management

Risk Management

Audit Management

Limitations

Conclusion

Annotated Bibliography

Project Management Institute, Inc. (2013). A guide to the project management body of knowledge (PMBOK® Guide) - Fifth edition.: This guide provides relevant theories and concepts related to project management. Moreover, it provides general knowledge about project governance and the main elements of a project governance framework.

Patric S. Renz. Project Governance - Implementing Corporate Governance and Business Ethics in Nonprofit Organizations. Springer (2007)

References

1. ↑ Rod Beecham. (2011). Project Governance : The Essentials. IT Governance Ltd
2. ↑ ^{2.0 2.1 2.2 2.3 2.4 2.5 2.6 2.7} Xuan Liu, Hai Xie. (2014). Pillars and Principles of the Project Governance. Trans Tech Publications.
3. ↑ Werner Robbert Titus DEENEN. (2007). Project governance - phases and life cycle. Universitaria Press Craiova.
4. ↑ ^{4.0 4.1 4.2 4.3 4.4} Michiel C Bekker. (2015). Project Governance – The Definition and Leadership Dilemma. Procedia - Social and Behavioral Sciences.
5. ↑ Danish Standards Foundation. (2012). International Standard ISO 21500 - Guidance on project management. Danish Standards Foundation.
6. ↑ ^{6.0 6.1 6.2 6.3 6.4} Project Management Institute, Inc. (2013). A guide to the project management body of knowledge (PMBOK® Guide) - Fifth edition. Project Management Institute, Inc
7. ↑ ^{7.0 7.1 7.2 7.3} Patric S. Renz. Project Governance - Implementing Corporate Governance and Business Ethics in Nonprofit Organizations. Springer (2007).
8. ↑ Great Britain. Office of Government Commerce. (2009). Managing successful projects with PRINCE2. TSO.
9. ↑ J. Geraldi, C. Thuesen, J. Oehmen, V. Stingl. (2017). How to DO projects. A Nordic flavor to managing projects. Danish Standards Foundation