The Framework of Project Governance

Revision as of 14:37, 26 February 2018

Abstract

Project governance is the establishment of organizational comprehension and circumstances under which delivering and organizing successful projects.^[1] Establishing project governance is an essential element in defining responsibilities and accountabilities in organizational control. The framework of project governance provides a consistent, robust and repeatable decision-making which 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 the project governance framework is of vital importance to reach an optimal project success.^[3] According to the book Project Governance by Patrick S. Renz, the question of how the interests of corporate governance affect the operation of a project has been raised and subsequently defined as the governance gap. Without a clear project direction and control, many problems can occur. The solution for bridging this governance gap has been developed and is the so-called project governance model.^[4] Based on these observations, this article sections into three parts. Firstly the big idea of project governance is introduced including the project stakeholders. Secondly, the framework of project governance is presented describing the core principles of project governance as well as the project governance model. Finally, the last section includes a discussion of the project governance limitations.

The Big Idea

Project Stakeholders and Governance

Figure 1: Project Stakeholders, inspired by the ISO 21500 International Standard book ^[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."^[6] Stakeholders are often interested or actively involved in the project 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 is 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."^[4] 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.^[7] 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][8]

• 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.^[6]

The Framework of Project Governance

The question of how the interests of corporate governance can affect the operation of a project, which has been defined as the governance gap, needs to be answered.^[4] The solution to the governance gap is introduced in the following section providing a guideline to successfully manage a project while fulfilling the requirements of the corporate governance. This section introduces the project governance core principles following the project governance model. These guidelines provide a deeper understanding of the project governance framework including the responsibilities, roles, and accountabilities of its stakeholders.

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 needs to fulfill the requirement of having sufficient authority within the organization which ensures the empowerment of the project manager making necessary decisions to reach a project success. Additionally, this person needs to 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.^[2]

Principle 2

This principle argues that the project owner needs to 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]

The Project Governance Model

According to the project governance book by Patrick Renz, the project governance model consists of six modules which constitute the six key responsibilities of the project governances. The governance model provides a guideline for its stakeholders to increase the possibility of a successful project. Therefore, the purpose of this model is to develop a framework for project managers to follow, in order to successfully lead and control any project.^[4]

System Management

System management "lays the systemic, and systematic foundation for the understanding and influencing of the wider system, and for managing the project system. Thus, system management is argued to be the basic key responsibility of project governance." System management is sectioned into two parts:^[4]

• Systemic thinking (the "software")

System thinking is the "philosophy of how to approach a solution to a complex problem." Five characteristics are listed here below:

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")

The system model related to "the inner dimensions of management" in relation to steering, arranging and developing purpose-oriented and socio-technical organizations. There are six key areas of the system model which are listed here below:

1. Environmental spheres: It covers the society and the perception of nature primarily towards society, technology application, and forms of value creation. The purpose is to make an impact.
2. Stakeholders
3. Issues of interaction: Represents the relationship content of an organization with its environment and its stakeholders.
4. Structuring forces: Consist of orientation strategy, coordination structure, and sense-making culture.
5. Processes: Consist of management, business, and support processes.
6. Modes of development: Renewal and optimization.

Mission Management

The key responsibility of the mission management is that the governance board directs and controls the strategy, structure and the cultural elements of a project. Thus, the mission management is the representation of the strategic, support, and control roles of governance of the project management, which are considered to be the primary structuring forces of the mission management.^[4]

Integrity Management

Integrity management provides integrated principles to handle integrity challenges, on a fundamental level as well as on the level of specific integrity issues. A merged approach towards integrity management is suggested, encompassing Recognition Ethics and Discourse Ethical Guidelines.:^[4]

• Discourse Ethical Guidelines

Four normative guidelines of discourse ethics are described here below:

1. Communicatively oriented attitude: The phrase "let's agree to disagree" applies here. When people discuss a specific topic, they only argue for claims they genuinely think are right, they substantiate their claims without reservation and show genuine interest in arriving at a rational outcome.
2. Interest for legitimate action: A genuine interest towards the people involved in communicative coordination of their actions, with the goal to legitimize them.
3. Differentiated responsibility: A person acting responsibly is when faced up to the demands for justification or solidarity and to all criticism that are affected by this person's intended actions.
4. Public binding: To create in each real communication community the best possible organizational conditions, which adjusts on the regulative idea of each ideal communication community.

• Recognition Ethics

Based on the fact that human beings are dependant upon mutual recognition. People want their loved one to love them, friends and colleagues to recognize them for what they are and do, their employer to honor their achievements, etc. Three terms of mutual recognition are mentioned here below:

1. Emotional recognition: Takes place among partners, friends, family, and colleagues, etc. A non-observation of such recognition represents moral injuries.
2. Legal and political recognition: Is represented by "a set of basic rights as human beings and citizens."
3. Solidarity: Recognizes others as a social person "whose capabilities are of basic value for a concrete community."

Extended stakeholder Management

The essence of stakeholder management is to identify, manage, and monitor the broad variety of stakeholders involved in a project. Extended stakeholder management composes with many key governance responsibilities. This section outlines a systematic approach to such stakeholder management. Four steps of extended stakeholder management are introduced with emphasis on the governance roles:^[4]

1. Stakeholder identification: The relationship with a stakeholder may have the character of either a passive voice or an active voice. Stakeholder identification should be a periodically repeated exercise which adjusts earlier phases of identification. Questions from two different perspectives:

1. Stakeholder classification and assessment: The objective is to build the basis for making decisions and taking actions. From strategic perspective; the influence factor, expected benefits or possible damages need to be assessed. From normatively critical perspective; the levels of concern, legitimacy, and bearableness should be assessed.
2. Stakeholder actions: Two approaches towards stakeholder actions create lines of orientation. Strategic approach assists with deciding whether informing, involving or negotiating is the correct action. From normatively critical approach, helps to decide to differentiate between actions of "opening" toward a discourse-and-recognition oriented relation and actions of “closing” from irresponsible relations.
3. Stakeholder monitoring: To assess for each stakeholder whether the relationship or interaction is within or outside an expected range.

Risk Management

Risk management focuses on the governance board and the top management tasks to define an integrated, future-oriented risk management concept. "The proactive recognition and preparation for possible events and situations in a way that initiative of action is retained within the project, so that project success is maximized and losses are minimized" is considered to be a good risk management. A cycle and a continuous approach is suggested, in which four processes are introduced subsequently:^[4]

1. Risk identification and assessment:
2. Risk mitigation processes:
3. Risk down-side planning:
4. Risk monitoring and controlling:

Audit Management

The objectives of audit management are:

1. Direction and control of internal auditing
2. Direction and control of external auditing
3. Assessment of financial reports and interim reports
4. Legal compliance
5. Liaise with audit-relevant key stakeholders

Limitations

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. ↑ Beecham, Rod. (2011). Project Governance, The Essentials. Ely: IT Governance, pp.
2. ↑ ^{2.0 2.1 2.2 2.3 2.4 2.5 2.6 2.7} Liu, X. and Xie, H. (2014). Pillars and Principles of the Project Governance. Advanced Materials Research,1030-1032(1030-1032), pp. 2593-2596.
3. ↑ Deenen, R. (2007). Project governance - phases and life cycle. Management and Marketing.
4. ↑ ^{4.0 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8} Renz, P. S. (2007). Project Governance - Implementing Corporate Governance and Business Ethics in Nonprofit Organizations. Physica-Verlag: Springer, pp.63-217.
5. ↑ Danish Standards Foundation. (2012). International Standard ISO 21500 - Guidance on project management. København: Danish Standards Foundation, pp.6-7.
6. ↑ ^{6.0 6.1 6.2 6.3 6.4 6.5} Project Management Institute. (2013). A guide to the project management body of knowledge (PMBOK® Guide). 5th ed. Pennsylvania: Project Management Institute.
7. ↑ Office Of Government Commerce. (2009). Managing Successful Projects with PRINCE2™. TSO, p.265.
8. ↑ Geraldi, J. Thuesen, C. Oehmen, J. and Stingl, V. (2017). How to DO projects. A Nordic flavour to managing projects. Göteborg: Danish Standards Foundation, p.99.