Project governance framework

Abstract

The PMI Guide on Project Management defines Project Governance as “the alignment of the project with stakeholders’ needs or objectives”. It is a critical function for the management of stakeholders and furthermore for the achievement of organizational objectives. Project governance provides the project managers and sponsors with a framework on how to make decisions to satisfy both stakeholder needs as well as organizational strategic objectives. A guide by the Association of Project Management (APM) does not only consider single projects but aims to align the organization’s project portfolio to its goals. A paper on a conceptual framework for project governance and the management of project management suggests that it has two key function. The first is to make decisions about which projects an organization should do and by this specify rights and responsibilities of project participants and define rules and procedures for making decisions in the projects. Secondly, project governance has an oversight and assurance function in order to support the organization’s strategy. According to P. Renz, project governance closes the gap between corporate governance and the actual management of projects. It provides the project managers with more strategic and integrative solutions beyond standard project management methodologies and operationalizes the corporate governance strategy. There is not one single definition and approach for a framework that can be taken for each and every specific case. This article will define aspects of a framework, which are presented in the literature on project governance. While the APM bases its framework on adhering to different principles, P. Rentz defines a Project Governance Model based on general governance theories and resulting key responsibilities. This article will define elements of a framework for project governance from different perspectives.

Definition and Background

• What exactly is Project governance? Why is it needed? Who does it? etc.

"Project governance is 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." It has an oversight function which is aligned with the organization's governance model. A project governance framework provides the project manager and team with structure, processes, decision-making models and tools for managing the project, while supporting and controlling the project for successful delivery. This high-level structure helps an organization to align it projects and their objectives with the organizational strategy as well as monitoring their performance. Different actors and activities contribute to project governance and when effectively executed, project governance ensures that projects are delivered efficiently and sustainable while being in line with with the organisation's objectives. It also includes instructions for the board and other major stakeholders on how relevant and reliable information are exchanged between them. Summarizing, project governance helps to:

• assure boards and executives that solid governance requirements are in place across all the past and ongoing projects in an organization
• optimize the project portfolio according to strategy
• avoid common mistakes and failures in project management resulting in insufficient performance
• improve the relationships with staff, customers and suppliers
• minimize risk originating from new projects
• while maximizing the benefits realized through projects
• assure a continuing development of the organization

(02) Why needed?

• Project management needs project governance:
  • How can a project manager be supported in a fundamentally strategic way beyond the help that comes on the executional level?
    • The strategic and integrative nature of project governance bridges the governance gap, going beyond standard project management methodologies.
• Corporate governance operationalized through project governance:
• How – in a project intense organization – can strategy operationalization be supported?
  • system linking governance and operation, based on the roles of governance, carries governance concerns to the operational level, creating a handshake between governance and operations
• How can information and knowledge asymmetry between operation and governance be appropriately resolved?
  • Project governance represents a meaningful, value-adding link between project management and (corporate) governance. It institutionalizes a targeted information flow that enables the building of necessary knowledge.
• Multi-ownership and increasingly strategic orientation of stakeholders
  • The strategic orientation of project governance allows to bridge with multi-ownership, on strategic level.

(01)

• Project governance is process-orientated, for in as much as development is a process, a project is chiefly processual. This fact underlines the value of learning and pedagogy over predefined solutions that would provide all-embracing answer
• Project governance is an integrative and integrating element
• Situational aspects such as multi-organizational contexts will need be taken into consideration in the concrete institutionalization of a project governance board.
• project governance is not project management, nor is it corporate governance; rather, it is the linking pin between them, aiming at resolving the governance gap between project governance and corporate governance

Theoretical Background: Governance Theories

Explaining how general governance theories relate to project governance

- What should such governance look like? - What are the fundamental roles attributed to such project governance? - What concrete tasks and responsibilities are derived from these roles? Organizational theories are considered and will serve as a heuristic tool for the identification of key responsibilities in project governance. Explaining how general governance theories relate to project governance

• Agency Theory (Control role)
  • implies that the principal has difficulties in motivating the agent to act in the principal's best interests (e.g. because of separation of ownership and control)
  • principals need to provide agents with some level of decision-making authority, issues related to conflict of interest and moral hazard, due to asymmetric information, may arise
  • fundamental assumption underlying this theory is that an agent may be self-interested and act opportunistically, rather than purely in the interest of the principal
  • Agents and principals may differ in risk attitudes
  • Need to incentives, monitor and control agents to make them work in principals interest
• Transaction cost economics (Assessment role)
  • concerned with the possibility of opportunistic behavior eventuating, which may be caused by organizational actions being driven by self-interest and an ambition to minimize costs
  • help to understand governance and organizational decision making.
  • Drivers of transaction costs:
    • (i) contingency factors (e.g., frequency and asset specificity);
    • (ii) behavioral factors (e.g., bounded rationality and opportunism), and
    • (iii) context (i.e., institutional context)
• Stakeholder theory (Coordinating role)
  • Stakeholder theory challenges agency assumptions about the primacy of shareholder interests and is based on a socially oriented perspective
  • a company should be managed in the interests of all its stakeholders, such as employees, suppliers, customers, local communities and the environment, as well as society at large
  • suggests that conflicting interests and claims of different organizational stakeholders need to be balanced
  • Following stakeholder theory, project governance is an essential strategy to assist project teams understand, and respond to, various stakeholder groups.
• Stewardship theory (Strategic role)
  • provides an alternative description of human behavior compared to agency theory and is rooted in psychology and sociology
  • assumes that not all human behavior is dictated by self-interest but that some organizational members (stewards) exhibit ‘pro-’ and collectivistic rather than individualistic and self-serving behavior
  • steward believes that his or her value is increased and secured when the organization is performing well and thus tries to improve organizational performance
  • In this context: Shareholders are best served by empowering project managers
• Resource dependency theory (Linking role)
  • offers valuable insights into the allocation, prioritization and facilitation of organizational resource
  • suggests that organizational success depends on the organization's ability to control interdependent external and internal resources
  • views resources as the main driver of an organization's governance structure
  • Here: may help to understand the importance of allocating and prioritizing different resources that are often shared across project programs and portfolios

(03)

• Institutional theory (Maintenance role)
  • can help to understand governance in the context of social and cultural constraints imposed on organizations. Governance gets a maintenance role [in …] identifying with the societal expectations of organization.

Relation to Program, Portfolio and Corporate Governance

How does the Project Governance relate to the Program, Portfolio and Corporate Governance?

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Framework

Principles

Principles to follow in project according to the APM guide on project governance

Principles to follow in project according to the APM guide on project governance

• Principles
  • 1. The board has overall responsibility for the governance of project management.
  • 2. The organisation differentiates between projects and non project-based activities.
  • 3. Roles and responsibilities for the governance of project management are defined clearly.
  • 4. Disciplined governance arrangements, supported by appropriate methods, resources and controls are applied throughout the project life cycle. Every project has a sponsor.
  • 5. There is a demonstrably coherent and supporting relationship between the overall business strategy and the project portfolio.
  • 6. All projects have an approved plan containing authorisation points at which the business case, inclusive of cost, benefits and risk is reviewed. Decisions made at authorisation points are recorded and communicated.
  • 7. Members of delegated authorisation bodies have sufficient representation, competence, authority and resources to enable them to make appropriate decisions.
  • 8. Project business cases are supported by relevant and realistic information that provides a reliable basis for making authorisation decisions.
  • 9. The board or its delegated agents decide when independent scrutiny of projects or project management systems is required and implement such assurance accordingly.
  • 10. There are clearly defined criteria for reporting project status and for the escalation of risks and issues to the levels required by the organisation.
  • 11. The organisation fosters a culture of improvement and of frank internal disclosure of project management information.
  • 12. Project stakeholders are engaged at a level that is commensurate with their importance to the organisation and in a manner that fosters trust.
  • 13. Projects are closed when they are no longer justified as part of the organisation’s portfolio.
• Core Components
  • 1. Portfolio Direction:

This component seeks to ensure that all projects are identified within the one, sustainable portfolio. This portfolio should be evaluated and directed mindful of the organization’s aims, constraints, resources and capacity for change.

• • 2. Project sponsorship

This component seeks to ensure that project sponsorship is the effective link between the organisation’s senior executive body and the management of each project. The sponsoring role has decision making, directing and representational accountabilities.

• • 3. Project management capability

This component seeks to ensure that the teams responsible for projects are capable of achieving the objectives that are defined at project approval points and use that capability to improve governance and outcomes.

• • 4. Disclosure and reporting

This component seeks to ensure that the content of project reports will provide timely, relevant and reliable information that supports the organisation’s decision making processes, without fostering a culture of micro-management. A culture of open and honest disclosure is a key requirement for effective reporting and where internal or external pressures pose threats to this, the value of independent verification of information will be increased. As such threats often present themselves prior to major project approvals or when projects start, there is an opportunity for independent oversight and verification to help avoid serious difficulties. An internal risk and assurance function should plan checks even in the absence of specific threats. There is an opportunity for independent oversight and verification to improve project outcomes and learn lessons. External assurance can often reduce risks further and provide a check on internal risk and assurance functions

Modules

Different Modules in project management that address issues and principles of project governance (model according to P.S. Renz: Project Governance - Implementing Corporate Governance) and their objectives (+tasks, purposes) towards project governance including:

• Mission Management
• Integrity Management
• Extended Stakeholder Management
• Risk Management
• Audit Management
• Systems Management

• Key responsibilities of project governance:
  • 1. System management, assuming the societal embedding role.
    • a. System Management assures institutional embeddedness. It serves to analyze and understand the specific development context through a systemic perspective, laying the groundwork for defining a possible development project as well as creating the know-how to understand the interrelationships and context of a project once it is up and running.
  • 2. Mission management, assuming the strategic direction and support role, as well as the control role.
    • a. Mission Management combines a strategic, a support, and a control role. Based on a system understanding, mission management serves to identify the (strategic) mission for a project. It sets strategic objectives, outlines the fundamental implementation strategy, structure and – to a certain extent – the culture needed to achieve the project objectives or mission. Through mission management, the governance board further supports and controls the project along with the implementation of its mission.
  • 3. Integrity management, assuming a role of normative guidance and as such lending support in downside issues.
    • a. provides a normative foundation, firstly as a basis for certain other key responsibilities (for instance, for mission management, where defining the mission and ‘setting’ cultural elements involves normative reflections). Secondly, integrity management provides support for overcoming most of the summarized downsides of governance roles
  • 4. Extended stakeholder management, covering the linking role, coordination role and partially the control role
    • a. Extended Stakeholder Management comprises the linking between the project and possible stakeholders along with a coordination role. Furthermore, it takes on a negotiation role, in the case of possible dependency interlocks or deadlocks. Extended stakeholder management assures that all possible concerned parties are considered by the project, and are possibly involved in the governance of the project as well.
  • 5. Risk management, contributing to the control role.
  • 6. Audit management, also contributing to the control role.
    • a. Risk Management and Audit Management, finally, are both classic key responsibilities in governance. They stem principally from the control role which governance is expected to exercise over its project to assure its conformance to rules and laws and to manage possible risks pro-actively.

Key References

• Directing Change: APM Guide on Project governance
• Project Governance - Implementing Corporate Governance
• The management of project management: A conceptual framework for project governance