Governance frameworks for public project development and estimation
Research Director Concept Programme*
Professor on Management Science**
OLE MORTEN MAGNUSSEN
Researcher Concept Programme*
Post Experience Programmes Director**
Norwegian University of Science and Technology, NTNU, Trondheim, Norway
Concept Research Programme. http://www.concept.ntnu.no
** University of Southampton, Southampton, U.K.
School of Management. http://www.management.soton.ac.U.K.
The governance framework, including government roles, policies, regulations etc., is documented to have vital importance to the planning and management of projects (Morris & Hough, 1987; Berg et al, 1997; Miller & Lessard, 2000; APM, 2002; Flyvbjerg et al, 2003). Several developed countries have started a development process to strengthen the ability to manage and control major public investment projects. Two examples focussed on in this paper are Norway and the U.K.. The Norwegian Ministry of Finance has established a mandatory Quality Assurance Scheme for all large public investment projects (Magnussen & Samset, 2005). This scheme is compared with its equivalents in the U.K.; a framework developed over time by the Office of Government Commerce (OGC) and the new framework implemented by Ministry of Defence (MoD, 2007). The frameworks approach the problems of major public investment projects in very different ways. The consequences of the framework approaches to the cost estimation and planning processes in terms of review or control are important targets for investigation, because they reveal examples of practical steps to reduce cost overruns. This paper sums up some findings of a research project sponsored by the PMI Research Program and the Concept Research Programme. The study is not completed at the time of writing this paper, but at the time of presentation to the PMI Research Conference 2008, the project is expected to be completed and the full report available.
Governance is a term with many meanings: Its rise to prominence stems from the difficulties of hierarchical coordination by firms or by the state (Miller & Lessard, 2000). It covers the complex process of steering multiple coupled firms and agencies. Classical means of governance are regulations (proscriptions/injunctions or prescriptions/orders), economic means (sanctions or incentives) and information (advice or warnings) (Bemelmans-Videc, Rist, & Vedung, 1998). Governance can be defined on many levels. International governance has several institutions established to settle matters where several states are involved, such as the UN, World Bank, OECD, World Trade Organisation and European Union. This reminds us that generally the governing party of public investment projects is not the top of the pyramid; there is a superior purpose above the project. Abbott and Snidal (2001) discuss the use of standards as a mechanism of international governance and show how they can play different roles in different circumstances. They look at different government arrangements, varying combinations of private and public governance, and varying levels of governance (national, regional, and global). Flyvbjerg et al (2003), investigating several international mega-projects, observe the same: governance is relative – the same formula will not work everywhere. “The institutionalist approach aims to identify the various governance modes that enable coordination of major actors in society” (North, 1990). Each society seems to develop its own architecture, and optimal solutions are hard to identify. Among many definitions we have chosen this one as the best for our purpose (given uncited in Wikipedia):
Governance is defined as:
”the use of institutions, structures of authority and even collaboration to allocate resources and coordinate or control activity in society or the economy.”
For public investment projects on the national level, the focus is public governance, which has two parallel subsystems: the political (making decisions and giving priority, not discussed further here) and the administrative. Different authors define (public) governance differently. Traditionally the area in mind is called Public Administration (PA). New Public Management (NPM) has taken over the arena over the last two decades. NPM has introduced many of the same ways of thinking and designing systems in the public sector as is traditionally used in the private sector in Europe (Pollitt & Bouckaert, 2000) and Scandinavia (Bush, Johnsen, Klausen, & Vanebo, 2005). Critical literature (Christensen & Lægreid, 2001 and others, see Klausen in Bush et al., 2005) points out that NPM does not fully take into consideration the specific public sector context. The public sector is increasingly organized through independent public entities, strategic leadership, and contracts; this also increases the importance of projects in the public sector. Because of the NPM reforms' shortcomings, several post-NPM reforms have been introduced to reinstate a more central political/administrative control (Christensen, 2007). Governance frameworks like the ones discussed in this paper are examples of such post-NPM reforms.
Public governance is defined by OECD (2005) as follows:
“’Governance’ refers to the formal and informal arrangements that determine how public decisions are made and how public actions are carried out, from the perspective of maintaining a country's constitutional values in the face of changing problems, actors and environments.”
The most common governance field is corporate governance; “a system [that] shapes who makes investment decisions in corporations, what types of investments they make, and how returns from investments are distributed.” (O'Sullivan, 2000), or “the laws and practices by which managers are held accountable to those who have a legitimate stake in the corporation” (Jacoby, 2005). Corporate governance systems are composed of three areas: internal governance processes (structure, composition and authority of the board: the relationship between board and management; and internal financial and auditing controls), the quality of the independent auditing functions in the national economy, and the nature and quality of the corporate law and regulatory mechanisms designed to shape corporate activity (Monks & Minow, 2004, referred in Detomasi, 2006). Detomasi (2006) emphasizes that despite these common elements, corporate governance systems reflect social, political and economic purposes and differ dramatically between nations with regards to purpose, structure, and function.
Authors like Detomasi (2006), Jacoby (2005), O'Sullivan (2000), and Abbott and Snidal (2001) all discuss differences in the governance systems found in different countries. There seems to be two important categories, the main difference being who are regarded as legitimate stakeholders:
- Shareholder-value systems (U.S., U.K., Canada), where only shareholders are legitimate stakeholders. The US “policy governance” model asks “How can a group of peers, on behalf of shareholders, see to it that a business achieves what it should (normally in terms of shareholder value) and avoids unacceptable situations and actions?” “The model does not prescribe a certain structure, but a set of principles” (Carver, 2001).
- Communitarian systems also hold non-shareholder constituencies such as employees, banks, and the community in general as legitimate stakeholders, in some countries by law (Germany, Norway etc.), and in others with no legal requirement to do so (Japan).
Clarke (2004) makes a similar distinction but divides the latter into “relationship-based” systems (Europe) and “family-based” systems (Asia Pacific). Today, shareholder-value systems seem to be dominating international governance trends, influencing countries like France and Japan to phase out systems of cross-shareholding to make way for international and institutional investors.
When designing public investment projects, decision-makers have to consider the welfare of all relevant stakeholders (users, interest groups, society in general), which seems parallel to the communitarian model. Our chosen definition is useful because it allows both shareholder-value and communitarian models; it also points to structures supporting setting of and achieving of goals. Understanding corporate governance is helpful to understand governance of public investment projects – or governance through projects (since projects are the means to achieve something), and we consider both governance of and governance through (public investment) projects.
Corporate governance is defined thus (OECD, 2004):
“Corporate governance involves a set of relationships between a company's management, its Board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.”
Governance has to cover all levels of the organization. Governance should flow from the government level, through government agencies responsible for execution down to the project level. It should define how resources and risks are distributed among stakeholders (society at large); laws and regulatory mechanisms make up the structure and information. Similarly, accountability flows up the opposite way. The response from organizations and individuals to governance is the use of systems, methods, and tools to comply with the specified goals and demands.
Governance is discussed above without reference to projects. Our setting, however, is major public investment projects. Miller & Hobbs (2005) describe a trend in project management: “Project governance has only recently become an issue of importance in the project management community and literature. Over the last ten years there has been more interest in the governance of projects in general and the governance of large complex public projects in particular.” (p. 47). Patel (2007) calls it a “project governance movement”.
But what does governance of projects mean? APM (2002) defines thus:
“Governance of Project Management (GoPM) concerns those areas of corporate governance that are specifically related to project activities. Effective governance of project management ensures that an organisation's project portfolio is aligned to the organisation's objectives, is delivered efficiently and is sustainable.” (p. 4)
This defines GoPM as explicitly a part of corporate governance, with a clear parallel between the governance of project management and internal corporate governance processes. Not all internal governance processes seem to be included, however. “Project governance provides the structure through which the objectives of the project are set, and the means of attaining those objectives are determined, and the means of monitoring performance are determined” (Turner, 2006).
The focus is that effective governance of project management ensures that an organization's project portfolio is aligned to the organization's objectives, is delivered efficiently, and is sustainable. There are, thus, three main goals: choosing the right projects; delivering the chosen projects efficiently; and ensuring projects are sustainable. The second of these goals - delivering the projects efficiently - is important to avoid wasting (public) resources and involves the framework established around the project execution. This is governance of projects. Choosing the right projects (to ensure the right objectives are achieved), and ensuring the projects (actually the goals and effects of the project) are sustainable, is governance through projects – the context in which the critical decisions are made. This is the true governance of projects on a public or corporate level.
Governance of projects is defined thus (our definition, based on APM (2002)):
“Governance of projects concerns those areas of Governance (Public- or Corporate) that are specifically related to project activities. Good project governance ensures relevant, sustainable alternatives are chosen and delivered efficiently.”
The term “governance framework for (major public) projects” is a key to this study. The initiatives in the U.K. and Norway represent a common framework for all (major) projects. In practice, smaller projects are not included for operational (mostly resource) reasons. Some authors question the idea of having a common framework. For example, Miller and Hobbs (2005, p. 49) say:
“A specific governance regime must adapt to the particular project and its context. The approach taken is, therefore, not the design of a governance regime but rather the identification of design criteria that should be brought to bear when developing a governance regime for a megaproject. Several of the criteria contrast to the traditional conception in that governance is a static, binary, hierarchical process. Governance regimes for megaprojects are time-dependant and self-organizing. They involve a network of actors in a process through which the project concept, the sponsoring coalition, and the institutional framework co-evolve”
Our position is to accept the general form of a “governance framework” applicable to any project. It should be flexible enough to fit projects of all types, sizes, and complexities. Frameworks may have to adjust to specific features of the situation in special cases.
Other phrases include Gareis (1990) “Management by projects” and “Strategic management of projects,” and Winch's (2001) “Governing the project process” (using transaction-cost economics in construction project governance). Winch also points out that “the range of governance options open to any firm is limited by the institutional context within which it trades,” so there is a link between the governance principles on a high level and on lower levels, and a link between the internal processes (company, project) and its surroundings (the trade, the sector, the industry, etc.). Similarly, “The reality that project governance is the context, not the content, must be reinforced. Meaning, project governance is the space in which the day-to-day project activities occur.” (Patel, 2007). Artto, Kujala, Dietrich, & Martinsuo, (2007) further underpin the point of looking at the project in its environment. We are therefore confident that the framework is a key to understand how well projects perform.
Major public projects are complex projects in a complex public context. Amin and Hausner (undated) suggest that “the successful governance of complex economic systems … requires a strategic interactive approach… Such an approach can be summarized as one combining central strategic guidance with decentralized associative governance.” This seems to be quite parallel to Miller & Hobbs (2005). They add that “Any attempt to build effective governance mechanisms should include: Simplifying models and practices which reduce the complexity of the world….Developing the capacity for dynamic social learning about various causal processes….Building methods for coordinating actions across different social forces…..Establishing both a common world view for individual action and a system of meta-governance to stabilize key players' orientation, expectations and rules of conduct.” They also say that “the very processes of governance co-constitute the objects which come to be governed in and through these same processes” (pp. 104-5). This leads us to the idea of the “negotiated economy”—a “third way” between market economics and central planning (p. 117).
Above we have only talked about single projects. Clearly, projects that are inter-linked into a program of projects need to be looked at as a whole entity. But equally clearly, our structures of governance through projects needs to look at the overall portfolio of projects, and see how the corporate strategy is realized through that portfolio (Morris & Jamieson, 2004) or, alternatively, ask how aligned the portfolio is with the overall strategy of the organisation–this reflects the first (and third) point of the APM definition above.
Governance framework is defined like this (our definition):
“Governance framework: an organised structure established as authoritative within the institution, comprising processes and rules established to ensure projects meet their purpose.”
The project meeting its purpose is a way of defining its success. It implies both delivering the relevant solution in an effective way and achieving a sustainable effect.
The aim of this work is to look at how the governance regimes for major investment projects in different countries affects project performance, as well as comparing this with the frameworks' intended effect. We wish to investigate how and why underestimation occurs, rather than simplistically comparing estimates with out-turns, such as the Morris and Hough (1987) work admits but as is also in Flyvbjerg et al (2003), which does not distinguish underestimation in the early governance phase from execution-phase effects such as mismanagement, scope changes and the “double-dip” underestimation effect (Eden, Ackermann, & Williams, 2005). This type of question cannot be properly answered by a positivist approach. It can only be approached by a phenomenological approach, looking in depth at a small number of cases (see, e.g., Flyvbjerg, 2006). We need case studies offering context-dependent knowledge to comprehend fully the platform for expanding theory into this field. Once this step is complete, and initial understanding gained, this could be confirmed or expanded in the future by a wider, positivist study.
There are essentially two types of such study: action research (Eden and Huxham, 2006) in which we could affect the course of the projects under consideration, or case-studies, in which effects are observed by an essentially neutral observer. In this study, we have to take the latter role, although it should be noted that the very existence of the QA regime, of which the Concept research program is an associated part, has a significant effect on the estimation process in the Norwegian projects studied.
While we clearly need empirical study of cases to establish the effects of the governance framework, we are not entering the cases blindly. First, we have already established above underlying theories of what project governance is. Second, since we wish to compare frameworks, we can establish the variations between frameworks to point us to how to carry out the case studies. Therefore, these studies will be pointed and directed, rather than the very open studies carried out under (for example) Grounded Theory. This was a small study undertaken to find initial results. It was, therefore, proposed to analyze a very small number of projects as case studies, in just two countries.
Norway and the U.K. were chosen as having a fairly new public-sector project governance framework and a well-established one, respectively. Two projects were studied in each country. As described below, it was found as part of the U.K. study that defense projects (the largest public projects) were governed under a different framework from other U.K. public projects, so it was decided to study a defence project and a civil project in each country. Similarity between the projects in each country was sought but, as in most case-study research, access was difficult and to a certain extent we had to accept the projects that were available.
The study proceeded as follows:
- The literature gave us a theoretical underpinning for governance in general, as described above.
- This enabled us to draw from the literature, to specify the characteristics of a public project governance framework, and set these characteristics into a clear structure.
- The study studied two specific countries: U.K. and Norway. There are experts in these frameworks who can reflect on them and characterize them. The structure was rephrased into the form of a questionnaire which was sent to the interviewees, and then used as the basis for semi-structured interviews.
- The results of these interviews, being already structured, could then easily be compared to give a structured analysis of their differences, as set out in a later section.
- This analysis then gave the foundations for the case studies. The structure was taken and set out in areas to study, and a brief summary of this was given to the case-study projects prior to the first meetings. While the investigators were not limited to these areas, this structure did give the foundation for the areas to study.
Governance Framework Characteristics
The governance framework defines structures and principles to make the governance of public investment projects possible and effective. Table 1 contains a systematic checklist of framework characteristics.
|Category||Theme||Explanation||Categories of characteristics|
|1. The process of |
|Background – why and how the framework came to be||Setting the stage to understand the context and explain the framework's initiation and development up until current edition.||Political setting; Administrative setting; Social economics; Traditional market mode of operation; Initiators; When the framework was officially introduced|
|Explicitly stated purpose of the framework||Identify the official policy, the statement the framework is funded on.||Any explicit statement of purpose (political), made by the decision makers.|
|Current status & how framework is maintained and developed||Identify how the framework is implemented, improved and developed.||Political & administrative anchoring; Policy/ strategy of implementation; Policy/strategy of further development and assessment; Results of the implemented framework|
|2. Embedded governance principles||Governance principles||Descriptions and characteristics of embedded governance principles.||Establishing a common world view and stabilising rules of conduct. Differentiation between projects based on complexity, etc.; Mechanisms to reduce complexity, distribute risk and trigger governance processes in response to environmental turbulence|
|3. The structure of the framework||Current structure of the framework||Describe and define the current framework structure.||Explicitly stated ends/goals for the framework; Users; Framework elements; Framework structure; Vertical and horizontal integration; Extent and control of independent/outside engagement.|
|4. Detailed governance elements||Framework elements concerning cost estimation and time planning||Descriptions/characteristics of framework elements concerning cost estimation and time planning in early phases of the project.||Elements specifically addressing the development of cost and time estimates; Governance principles concerning cost estimation / control; Systematic analysis of the effect of these principles.|
The characteristics can be divided into four different categories: “The process of development” (why the framework has come to be, and how it is formed); “The structure of the framework” and “Embedded governance principles” describing the framework and the governance principles built into it; and “Detailed governance elements”: a flexible part to address special issues of interest. The version here is designed for this particular study concerning the effect on cost and time planning. In other studies the last part could be different, depending upon the purpose of the study. Using this structure as a framework gives the basis for empirical studies. The list in table 1 contains only the main categories of characteristics; a complete list of characteristics will be in the PMI report.
Governance frameworks in the U.K. and Norway
The following is a systematic comparison of the governance frameworks developed within the U.K. and Norway for large public projects, their history and as they were mid 2007: these things constantly evolve and change.
The context and process of development
(a) The political, social and administrative context
The U.K. and Norway are both monarchies and Western European parliamentary democracies, with long histories and many similarities. The U.K. has a large economy with limitations in public funds, and considerable unemployment in the time period. Norway has a small economy with a great surplus, a very strong national economy, and very low unemployment. The situation in both countries may motivate framework initiatives. In the U.K., there was naturally a motivation for putting emphasis on “value for money” from the start. In Norway, the focus from the beginning was directed against cost overrun – a control measure to ensure realistic budgets and a good basis for project execution. The initiatives in both countries are based on a wish to improve governance in a wide sense. There seems to be quite similar political backgrounds in the two countries – apart from a difference between Nordic/Scandinavian social welfare tradition and the Anglo/American strong market orientation. The U.K. has a strong public administration tradition and a large influential Civil Service. Government business is divided into departments, such as Defence, Home Office etc. Responsibility for a project is entirely within the Department. Wider government responsibility only comes through the minister who reports to the Cabinet. There may be an influence of the U.K. character, which perhaps leans towards a “blame culture:” Gateway reviews are looking to tease out hidden facts. The U.K. Ministry of Defence (MoD) framework came in as the relationship with industry changed; becoming more open and involving industry, with an “industrial strategy” to ensure the whole industrial base is looked at, bearing in mind U.K. sovereign capability. In Norway, the Sectoral Ministry is responsible for large investment projects. The Norwegian State is responsible for the actions of its employees: the state can be sued, but not the person, so bad performance often has no consequence. Building and construction traditions were important in forming the Norwegian framework. The U.K. OGC framework was more based on the IT-sector. One could perhaps say the market is more influential in U.K., and responsibility of the state is more influential in Norway.
(b) The beginning – how the governance frameworks came to be
U.K.: In the late 1990s, Peter Gershon, then at UK defence contractors GEC, was asked by the then-prime minister to look at procurement in government. Gershon wrote an influential report (1999). The prime minister asked Gershon to set up the OGC, which he did in April 2000. This pulled together staff from various other agencies (e.g., the Central Computer & Telecommunications Agency and the Property Advisers to the Civil Estate). The methods in the report covered general commodity procurement and project procurement. It included a “Gateway”-type process and a procurement strategy similar to OGC's “BuyingSolutions.” This led (Harpham & Kippenberger, 2005) to the establishment of the Gateway Process™ (OGC, 2004) and PRINCE2™ project management methodology (OGC, 2002). Later, there was a general concern for better program management, giving rise to the development of “Centres of Excellence” as part of the framework. The espoused aim of the framework is specifically to achieve financial targets of money saved (for OGC combining work on commodities and projects).
The one major section of the U.K. public sector that uses a different framework is the MoD. The MoD has always had an “extended life-cycle,” going back way before the “project” and after. The Downey report (1969) put the emphasis on the early stage. Projects weren't delivering to time/cost performance and technology was increasing in complexity. The main motivations for developing a new framework were towards cost control and reducing risks. A process known as CADMID (a life-cycle of Concept, Assessment, Demonstration, Manufacture, In-service, Disposal), part of so called “SMART” acquisition, came in around 1998 following work by international management consultants McKinsey. Contracting defense budgets gave motivations for value for money (and to getting more accurate predictions). The McKinsey work showed the need for a “stronger customer” within MoD.
The framework is anchored within the MoD Main Board. The user of the projects is known as “Capability Management” led by a Deputy Chief of Defence staff. The supplier is personified by the Chief of Defence Materiel, head of the supplying organization, (called DE&S), following the McKane report (Ministry of Defence, 2006) and the unifying of the procurement and logistics agencies. This enables the other espoused goal of the framework: to manage the MoD's projects as a single portfolio to get the best capability for the MoD as a whole.
In Norway, major investment projects involve big money and tend to draw much attention. The triggering incident in Norway was a series of unsuccessful major projects during the 1980s-90s. Repeated project overspend turned into a political problem. Deputy Secretary General of the Ministry of Finance, Peder Berg, led a government committee investigating a number of project cases and the report documented the problems (Berg et al., 1999). The Ministry of Finance initiated the development of an obligatory quality assurance (QA) scheme in 2000. The goal was to ensure improved quality-at-entry in large public projects. It was a bottom-up process within the ministry, with Peder Berg as a driving force.
It was important to achieve anchoring at a high level within the Ministry. The decision to introduce this governance framework was made by the prime minister's office. For both the first and second generation of the QA-regime the intention was to establish a system where politics and administration is well divided, with the interplay between these two sides well understood. Our interviewee said: “From an administrative point of view, the important thing is to make sure there is always a basis for decision addressing all relevant sides of the issues involved, and an independent assessment confirming its professional quality. The intended effect of such a system is to make the state able to choose the right projects and execute them well.” Compared to the U.K. frameworks, the Norwegian one is new. It should, therefore, be expected to represent the latest developments in project management and project governance. Compared to the U.K., the experience still has to be considered as limited and there is no accompanying “comprehensive toolbox” like Prince2™.
The three initiatives seem to have been prompted by similar developments: uncertainty due to repeated failures of major projects and changes in market; lack of success in public investment projects; strong individual contributions to put focus on the importance of public investment projects; and support at a high political level to act. Better use of public funds may be said to be the aim in both countries. The OGC and Norwegian initiatives are anchored at the top political level and organized under the Ministry of Finance. The process, however, was genuinely different. In Norway, the initiating process was bottom–up, as was the implementation of the improvement and following learning processes. In the U.K., both processes were top–down, as was the implementation of the management system (the toolbox attached to the governance framework).
(c) Developing and implementing the framework
The U.K. OGC Gateway Reviews derived from the 1999 Gershon Report, and the Peer Review concept originated from the “Successful IT” report in 2000. Additional features were introduced in 2004. A later Gershon review (2004) says: “Looking forward, the OGC is committed to achieving £3 billion in value for money gains in the three years to 2005-06, of which around one half will come from the Gateway Review process, which requires independent assessment of projects and programs at key points in their life-cycles.” John Healey, Financial Secretary to the Treasury (HM Treasury, 2007) also points to the delivery of “over £8 billion of efficiency savings from public procurement.” OGC is currently reforming, becoming a smaller, more focused, organization, reducing staff by almost half, and introducing new challenges.
The OGC currently works by influence and recommendation; its recommendations are not mandated. This is the traditional U.K. civil service culture. The OGC does not consider individual project reports once they have reported on them, rather they look for systemic trends. Reports on a particular project go only to the sponsor (the person known in PRINCE2 ™ as the “Senior Responsible Owner” or SRO) and the OGC – so in that sense governance of a project is limited. Responsibility for projects is divided between the OGC, the department and other bodies, such as the Prime Minister's Delivery Unit (for critical projects) and the National Audit Office (for audit purposes). This may give differences in governance across sectors but, hopefully, equally good governance across sectors. There are a substantial number of people involved in implementing the framework, many of them giving advice to users of the tools and methods attached to the framework itself.
Norway: It is stated by the government (prime minister's office) that better projects and better execution of investment projects is a political goal. When QA2 was introduced in 2000 (first generation of the framework), it introduced mandatory external assessment of projects before the financing decision by Parliament. The Norwegian framework is mandatory for all major projects with an expected cost of more than NOK 500 million/£42 million financed by the state (excluding oil and gas). External assessments are performed by consultant companies under a framework contract with the Ministry of Finance. While QA2 had the expected effect, experience through 2000 – 2004 exposed a need to do something at an earlier stage. Some of the projects before Parliament were not mature enough. In 2005 QA1 was introduced (second generation of the framework) and current framework contracts are valid through 2008 with an additional option. QA1 was by far the more difficult arrangement to define and develop. The same entity is responsible for the framework for all sectors (with few exceptions), expected to give the same governance across sectors. This was implemented without organizational changes. Anchoring is the key to this operation. The top-management and leaders of the Ministry of Finance appreciate the benefit of this arrangement, and give support to lower organizational levels.
There are many similarities, but also differences between the U.K. and Norway here:
- In the U.K., OGC framework, goals are more explicit, administratively focused and measured in terms of money. In Norway there are more clearly politically anchored goals, but not specifying the expected effect of implementation.
- The Norwegian framework is mandatory, forced upon agencies/projects (control aspect: top-down), while the U.K. OGC framework works by influence or recommendation. The MoD framework, being in a single department, is mandatory, imposed top-down.
- The Norwegian framework is a bottom-up process of learning from cases – transferring experience to other sectors by coordination and building “the new profession.” The U.K. OGC framework to some extent is a top-down introduction of a common “quality system”. The Centres of Excellence represent the “new profession” aspect in the U.K..
- Both Norway and the U.K. (OGC) have established a support organization looking for systemic trends: in the U.K. as a permanent public administration entity: in Norway as an external research program. The MoD reports on systemic trends at a top level.
- The U.K. (OGC) looks only at systemic trends; Norway and the MoD also look at single cases.
- Norway has a centralized co-ordination arena in the project management forum (ministries, agencies, QA-consultants and researchers meeting to discuss principles and practices), while the OGC has established distributed “Centres of Excellence.” (the MOD is already a single, organized entity).
- The Norwegian development process appears more step-by step; whereas the OGC was straight to full scope. The MoD was a development of structured reorganization of existing agencies.
The two countries seem to have chosen different strategies: Norway breaking with tradition and introducing a mandatory new arrangement, the U.K. building on tradition and improving current processes, through influence.
Structure of the frameworks
In the U.K., the chief elements of the OGC framework are the Gateway Reviews. Later came categorization and Mission Critical Projects, then Centres of Excellence, and now also the Project Initiation Process. The private sector engagement comes from the use of private sector-experienced consultants who have been individually accredited by OGC for Gateways. The 6 Gateways are well defined. They are standardized and documentation is available. Gateways 1 to 5 are at project level:
- Gateway Review 0: Strategic management (several times where appropriate)
- Gateway Review 1: Business Justification
- Gateway Review 2: Procurement Strategy
- Gateway Review 3: Investment Decision
- Gateway Review 4: Readiness for service
- Gateway Review 5: Benefits Realization
Gateways look at the Ministerial level all the way down to suppliers. Parliament/Government level is undertaken by mechanisms outside this study (committees, NAO etc). It is possible that Gateways “rarely come up with any surprises,” tending to highlight things the team already know. Independent reviewers also look at suppliers, as they have relevant experience.
Projects are assessed as to criticality, based on the following criteria: high political significance; riskiness of the program; and the cost (this is actually a lower level criterion). The top level of criticality is the “Top 20” Mission Critical projects (reported to the Prime Minister's office, and the OGC sit on the project board of these projects). The next level is “High Criticality” projects; for these, Gateway reviews have to use senior people or even all independents. Then there are “Medium Criticality” projects, for which departments can call on the OGC for help if there is resource available. “Low criticality projects” are reviewed within departments. Criticality assessment is completed by a department then between the OGC and Permanent Secretaries; the Mission Critical list is also decided between the Head of OGC and the Prime Minister. It may be that the level of external input could reduce due to cost considerations. A further element is the development of small Centres of Excellence, bringing “best practice” to the department, acting as a liaison point within a department for the OGC and reporting directly to the Permanent Secretary. The OGC measures the effect of its efforts and publishes results frequently, stated in terms of money saved (according to procedures laid down by the National Audit Office).
The U.K. MoD system works on four different types of projects, a key one being equipment and support. Each type has a (different) categorization, for example, A-D; for Equipment & Support, based on cost. This gives an overall risk portfolio. There are only two Gates; the first (Initial Gate) to release funds for assessment, the second (Main Gate) to release funds for the main project. Categories A&B go, at the two gates, to the Investment Appraisal Board via two routes simultaneously, from the advocate of the project (the SRO) and via “independent” scrutiny (within MoD but independent of the project). Each project is undertaken by an “integrated project team” (IPT), responsible on the project to the SRO but responsible overall within DE&S. Thus, the MoD considers the whole portfolio of projects; the “Capability” customer considers the program of projects; and the IPT considers the project. To look at DE&S overall performance, the Chief of Defence Materiel reports to corporate targets. Gateways look at the entire project, including the industrial base, so in that sense the system is vertically integrated. The system has a strong basis in trust. The Investment Appraisal Board has to trust the Chief of Defence Materiel (who is governed by overall Agency Targets); he has to trust the IPTs (he will have been looking at the trajectory over time of estimates up to the Main Gate); the IPTs have to trust industry, but have sector management and cost forecasting support and a joint industry management board
In Norway the whole framework is a control measure. Control rules are documented in the framework contracts (between the Ministry of Finance and pre-accepted QA consulting companies) and the control object is the documents assessed in the QA regime. External control and assessment (independent second opinion) of the documents is a key idea. The QA-regime is made up of more or less well-known standard components: good practices in the areas of social economy; planning; and project management. Currently, the sum seems to be quite unique. The framework is simple, consisting of two gateways: QA1: The early choice of concept, the decision to initiate project pre-planning; and QA2: The GO decision, the decision to finance the project. Vertical integration in the value-chain stops downwards at the agency level. Owners traditionally decided what should be delivered and at what cost. This gave an incentive to spend the whole budget, including any contingency. By introducing QA1, focus is put on the rationale of the project, forming a logic sequence starting with the need and ending with the effect.. It gives a good foundation for important decisions at a point in time when there still are alternatives. QA1 and QA2 give a tool for control from the top (Parliament – Government – Ministry – Agency). This works as expectation management, and expectations influence performance. The Norwegian QA framework does not address the private sector (suppliers, contractors), but it is a general assumption that what is learned from this in the public sector will be transferred to the private sector.
QA1 includes the control of four documents, each subject to quality assurance: a needs analysis; an overall objectives/strategy document; an overall requirements specification; and an analysis of alternatives. The project has to pass at all these stages to continue (to be presented to Government for formal decision). No short-cuts are allowed. The important logic in QA1 is to base the project on real needs and to choose a strategy and a concept accordingly at a very early stage – it can look at many alternatives. QA2 includes the control of one document, the project management plan, with several sub-documents (cost estimates, progress plans, risk analysis, contract strategy, organization, etc.). The focus from the beginning was very much on cost, because of the historical background (cost overrun). The format is standardized to include elements such as contracts; pitfalls and success factors; uncertainty analysis; flexibility; scope; and organisation. QA2 includes assessments with a quite narrow perspective – only the chosen alternative. There are several coordination arenas (forums) where the Ministry of Finance gathers key people from ministries, agencies, QA-consultants and researchers for discussions, often resulting in common understanding and definition of terms and professional standards. The Concept Research Programme is supporting the development of the regime and studying the practices of the agencies and QA-consultants. Measuring the effect of the governance framework has some attention, but much less than in the U.K..
Comparing the two framework structures highlights some differences. The vertical integration, as well as the horizontal, is quite different. The Norwegian governance framework goes all the way to the top, but stops above private sector (suppliers). The effect is expected to diffuse down to private sector as results materialize. The U.K. OGC and MoD frameworks, on the other hand, go all the way down, but stop at ministry level. Above this level, committees, NAO etc. supplement necessary governance reports and other functions. Horizontally, the U.K. framework (or its equivalents) is implemented by several responsible parties. The most notable difference or rather the characteristic of the Norwegian framework is its simplicity.
The comparison of the framework components shows some of the same characteristic simplicity on the Norwegian side as the vertical and horizontal integration. The U.K. side is more comprehensive and adequate for more detailed control measures at a lower hierarchical level. Comparing with the literature discussed earlier, it seems as though the Norwegian side is purely a macro-analytic perspective, whereas the U.K. framework also includes the micro-analytic from a PPM point of view. The organization implementing the U.K. governance framework also supplies the management system the answer to the question; “how to achieve…”, whereas the Norwegian framework only answers “what to achieve..” The use of external consultants is quite similar in both countries, but in Norway competent companies are assigned; in the U.K., it is competent individuals. This may suggest that there is a need for more experience and credibility on the individual consultant's side in a framework based on influence and recommendations. The Norwegian framework is mandatory and consultants are thus not the ones that have to persuade the agencies and their project organizations. It is probably important that the Norwegian process is one of breaking with tradition and building “a new profession”. New professions are likely to attract younger professionals with the aspiration to find new ways of doing things, compared with a situation implement-ing best practice. Younger consultants need the support of the company's resource base including seniors, so assigning a company and not individuals may be a good idea. (Also, there are a very limited number of senior experts in Norway with the right knowledge to fill the role defined in the U.K. framework.) One characteristic difference between the two countries is the amount of resources used in performing each assessment. In the U.K., a 4 day assessment is carried out by a senior consultant, planned, performed and reported over 11-12 weeks (Howard, 2007). In Norway, the QA-team performs a complete independent analysis of the project. They may work for 6 months or more, including several meetings. In both countries, the project organization probably spends many more man-hours in preparing and supporting the assessments than is used to perform them.
|Norway:||U.K. (MoD)||U.K. (OGC):|
|No. of Gateways:||2||2||6|
|Control basis||Control rules established by contract||Complete definitive dossier required||Review definitions / guidelines|
|Review (assessor) roles||Agreed in PE-Forum||Defined in detail||Defined in detail|
|Report format||Standard QA-reports defined||Dossier format defined||Standard review report format|
|External/Internal resources||External assessors||Mostly internal assessors||External. Internal assessors used in some sectors.|
|Coordination arenas||Project Owners Forum / Project Management Forum||Co-ordinated in one Ministry||Centres of Excellence|
|Support organization||None |
|Permanent organisations||Permanent administrative organisation|
|Initiation process||-||Foundation Review||Project Initiation Process|
|Process owner||Ministry||Senior Responsible Owner||Senior Responsible Owner|
|Decision makers||Politicians||Investment Board||Senior Responsible Owner|
Embedded governance principles
In both countries, governments have expressed the intention to ensure best practices in planning and execution of projects. Above the structure of the governance frameworks is described: their main elements and how the implementation is organized. To understand how this is actually supposed to work, it is important to understand the governance principles built into the framework. Principles mentioned by interviewees can be summarized:
- (a) Common governance principles (stated by both sides):
- Transparency, openness for scrutiny, maximum openness about basis for decisions.
- Learning, willingness to change.
- Setting common, high professional standards.
- External control, independency.
- Political anchoring of framework on high level.
- QA/Gateway review is non-political.
- Look for big, important trends, not the minor details.
- (b) Expected to be common principles (stated only by one side, but implicitly part of both):
- Base projects on needs of the users.
- Decisions should be made at the appropriate political level.
- Use senior competence as owner representative and in assessment.
- (c) Differences, shown in Table 3.
The most characteristic difference is the simplicity of the Norwegian framework compared to the completeness of the OGC's (taking into account the toolboxes, not only the framework). The MoD appears in between them. The second is the choice of a mandatory system in Norway and the MoD and the persuasive recommendations with the OGC. Another is the focus on the business case (contents and results) in the U.K. vs. the focus on method in Norway. This corresponds with cultural differences mentioned earlier. In Norway, the control measures are focused on cost and risk (initially at least, but moving more towards benefit and value), whereas the U.K. side is focused on the business case/value for money. This may be a measure of the maturity in the frameworks; the Norwegian being all new and the U.K. building on long tradition.
|NO:||U.K. (MoD)||U.K. (OGC):|
|Characteristic:||Simplicity, Robustness||Completeness||Complex system|
|Influence:||Management of expectation||Hurdles to cross||Recommendations|
|Review focus:||Control of input and methods||Output within program (contribution to capability)||Business case|
|Life cycle:||Choose concept early and choose strategy early||Very early gateway. Extended life cycle:||Initial and repeated strategic assessments within program|
|Project focus:||Cost/Risk/[Value]||Value for money||Value for money|
Governance elements focussing cost and time
As expected, the three governance frameworks all have elements focusing cost and time. There are, however, substantial differences as shown in Table 4. The OGC framework is the complex, complete and detailed approach, the MoD framework being the high level approach linked to specific guidelines. The Norwegian approach is the simplistic approach; remarkable at this level being maybe the scarce references to time planning.
|NO:||U.K. (MoD)||U.K. (OGC):|
|Cost & Time Focus:||Control||Lifecycle||Business case|
|Debt of details investigated:||Accuracy and detail||Accuracy and detail||General comments|
|Relative number of elements:||Low||Moderate||High|
|Independent cost estimate:||Yes||No||No|
The Skjold Class Fast Patrol Boat (FPB) project of the Norwegian Defence
The project is planned with four case studies looking for proof, or at least indication, of the differences and consequences pointed out in the theoretic part of the work. The case studies are expected to add nuances and deeper knowledge to the subject studied in this project. As such, it is a vital part of it. However, the time of writing this paper, only one of four case studies is developed far enough to be described in the paper: The Skjold Class Fast Patrol Boat (FPB) of the Norwegian Defence.
The project is an example of a complex defence procurement project. It is complex in many dimensions: the decision making process; the technology; and the contract. The Skjold class FPB project (hereinafter the Skjold project) encompasses the construction of five new Skjold class FPBs. Weapon systems, personnel training and logistics and support are also included. The pre-series vessel, P960 HNoMS Skjold, was completed in 1999 as a separate project terminated at the time of commission of the new ship. Immediately after the commission of the P960 HNoMS Skjold in 1999, preparations for a subsequent delivery of a series of ships was initiated. The planned upgrade and reconstruction of the P960 HNoMS Skjold is, however, also a part of the delivery of the series of new ships, as it will be temporarily returned to the shipyard to be rebuilt to new specifications.
In June 2001 the Norwegian Parliament made the principal decision that 6 Skjold class vessels (5 new plus the P960 HNoMS Skjold) should be phased in as a part of the operational structure of the Royal Norwegian Navy. In October 2003 the final decision to build and finance the ships was made by the Parliament. Budget (upper financial limit): NOK 4675 million / £409 million (price level 2003). A contract was signed in November 2003 with Skjold Prime Consortium (SPC), an umbrella organization for the companies responsible for the design and production of the ships. The series of ships is currently being constructed at the Umoe shipyard in Mandal, Norway. Responsible for the execution of the Skjold project is The Norwegian Defence Logistics Organisation (NDLO). The main tasks of the NDLO is to deliver logistics according to military needs, which includes procurement, investment, support, supply and maintenance of all weapon systems and military material in times of peace, crises and war.
The decision-making process
Quality assurance: The Skjold project was subjected to QA2 in November 2001 (final report March 2002). QA2 supplementary analyses (regarding contractual issues and updated uncertainty analyses of costs) prior to the final decision to finance and execute the project were performed from May to June 2003. The main findings and conclusions from the QA exercises have been compiled in separate reports accessed by the researchers. These reports are our main source of information about the QA process, but semi-structured interviews with key personnel representing the owner, the project organization and the QA consultant were also used. Interviews indicate that the parties involved generally agree on the main characteristics of the process itself. It was characterized by fair and open discussion; the exchange of information was excellent. The basic need for the project was not an issue in the QA-assessment, and could thus be seen as irrelevant in terms of an analysis of the impact of QA. There was, however, a discussion on the political level before the principal decision about whether the project should be prioritized or not, which calls for a short description of the main characteristics of the political process.
The political process: We do not focus on the political process, but a short overview is needed to understand the shaping of the project. The principal decision to establish the Skjold class FPBs as a part of the Norwegian Navy was resolved in a broad political compromise. In 2001 the recommendation from the Ministry of Defence was not to pursue the Skjold project further. The Chief of Defence had in the recent Defence Study 2000 concluded that the investment and operating costs of the proposed fleet of FPBs should not be prioritized, considering other investments1 and current liabilities of the Norwegian Defence. An appeal by the Chief of Defence to the Ministry of Defence that the decision should be postponed until the handling of the Long-Term Plan for the Armed Forces coming up the following year was not successful. In October 2003 the political compromise from the principal decision was sustained and the Parliament authorized start-up of the project and the contract with the supplier followed shortly thereafter. The majority in favor of the project saw the fleet of FPBs as strengthening the capacity of national sovereignty enforcement, territorial security and civil operations support in the Norwegian maritime zones. There is little doubt that regional politics played a major role in the political decision process. There was a desire among politicians on local and central levels to secure employment in the (at that time) troubled shipyard industry. Re-purchase contracts for the Norwegian defense industry worth NOK 1 billion / £90 million were also established (as a direct result of the Skjold class FPB project).
On the impacts of the quality assurance on cost estimation and planning
Members of the project organization stated in interviews that 90% of the mindset in the quality assurance report was based on their judgment. The project organization held nothing against the QA (it was stated in interviews that they actually welcomed it). An objective assessment by third-party experts in project management was seen as a learning opportunity. The report itself is in no way judged to be inadequate or faulty. Still, the project organization's learning from it is characterized as limited. The reason for this was stated to be the particular characteristics of the project in terms of complex technology and contract. The project organization had experience from the pre-project (the ship delivered in 1999) and an upgrade of the existing FPB fleet, the Hauk class, completed some years ahead. The QA-assessment was conducted at a time when the contractor had placed a “price not to exceed” and consisted mainly of uncertainty analysis of costs and risk assessment based on input from the project organization. The initial cost estimate from the project organization, based on background experience from the ship completed in 1999 and the Hauk class upgrade, was raised in response to the result of the uncertainty analysis of costs, although no new risk elements were identified. The project schedule was not revised as a result of the QA. There was a lot of attention concerning the costs of the project, but the increased budget sparked little discussion. It was merely stated as a fact and the budget recommended from the external consultants was subsequently used as a basis for the decision to finance the project.
As of today, the project is on budget and schedule. None of the ships has been delivered, but the construction phase goes on as planned.
Theoretical comparison and conclusion
The previous sections concluded the OGC framework is the complex, complete and detailed approach, the MoD framework being the high level approach linked to concrete guidelines and the Norwegian approach is the simplistic approach. By use of different theories, we try to point to possible explanations for these differences and their consequences. The aim is not to conclude which is the best: each is adapted to its specific “environment” and should be expected to be different. Our aim is to find the significant reasons and consequences, to help learn how a framework should be designed. This is ongoing research. At the time of writing, we have only conducted one of four case studies. Consequently, this paper includes only a theoretical analysis.
The system we analyze is the administrative hierarchical organization that defines, plans and executes major public projects. We are all legitimate interested parties in major public investment projects, and many perspectives are needed to cover the important issues in this discussion.
There is a variety of theoretical perspectives that might help us when we look at governance. We have looked both at theories from political science and economy, mainly based on Clarke (2004) and Christensen (2007).
The economic-rational perspective
- Agency theory (Eisenhardt, 1989) and principal-agent theory (Thatcher, 2005): agents with self interest.
- Public choice theory (Christensen, 2007) and stewardship theory (Clarke, 2004) that allows for agents to have other motivations than self-interest.
- Stakeholder theory – looking at all stakeholders (Clarke, 2004)
- Networking theory (Jones, Heserly, & Borgatti, 1997) and Theory of Transaction Costs (Williamson, 1979) looking at the connections between stakeholders.
- Economic analysis and analysis of political behaviur ((Peltzman, 1998, referred to in Christensen, 2007).
- Bureau-shaping perspective: bureaucrats and experts benefit from decisions (Dunleavy 1985).
The instrumental-structural perspective
- The analytical aspects are important in decision making, but there is only bounded rationality. Importance of structure in the process (Simon, 1957).
The cultural-institutional perspective
- Gradual development of organisations, emergent properties (March & Olsen, 1989)
The environmental perspective
- Organisations dependent on their technical and institutional environment (Meyer & Rowan, 1977).
The garbage can perspective
- Ambiguous and flexible decision making processes: unpredictable (March & Olsen, 1976).
The instrumental-structural perspective is probably the best perspective to describe the core of governance frameworks. It suggests that the formal structure is important for selection, that is, the position and tasks the individual actors have, will pre-select most of the decision-making premises and govern how he or she thinks and acts, making the choice of introducing a governance framework an obvious one. In this perspective, the limitations to rationality are accepted and the importance of the processes and structures become clear. This may be used to argue the need for a framework, the testing of assumptions and the need to tease out the hidden facts. It also delivers arguments for control. Based on theory of political science we recognize these frameworks as post-NPM (New Public Management) reforms, reinstating a more central political and administrative control.
There are major concerns about information asymmetry and opportunistic behavior when agents perform their specialized tasks on behalf of the principal (the owner –the responsible Ministry), according to principal-agent theory. This leads to the control aspects of the frameworks. The three different frameworks are genuinely different in this aspect. The Norwegian framework is clearly a control measure all through: the position of scrutiny is very strong and the gateways are “critical,” meaning you have to meet professional standards to pass them and continue. The U.K. MoD framework includes control measures. The position of scrutiny is less strong than in the Norwegian framework—the assessment is more on the hands of the decision makers themselves (which in this case is more professional) and the gateways are critical. The U.K. OGC framework is not a control measure, but uses independent professionals to tease out hidden facts; gateways are “friendly,” meaning the assessment and good advice of the expert may be followed or not, the professional standards may be met or not, but the project can still continue. Gathering more information is another way of reducing information asymmetry and opportunistic behavior. The three frameworks all use this as a measure, but in different ways.
The public-choice theory gives arguments to choose external assessors to balance out the influence of internal professionals. The arguments really used are more about access to competence and capacity (Norway), additional third-party views (U.K.) but also independency (both countries). This theory also underlines the need for increased transparency and insight into vested interests and competition bias. and clearer definition in contracts of rights and duties for public and private actors.
The bureau-shaping perspective suggests that autonomous public units, like regulatory agencies, begin to set their own standards rather than those formulated by the legislature and the political executive. This theory is highly relevant because an important part of the assessment is checking that the documents of the project are still in keeping with the purpose, objectives and priorities expressed by the decision-makers. The frameworks are similar in these perspectives.
In a jurisdictional perspective, the countries are different. In Norway, the state is the responsible entity. The individual civil servant cannot be sued. In this culture, which allows bad performance to have little consequence, strong control measures have to be put in place. In the U.K. there is much more a culture of individual responsibility. With it also comes, of course, blame: “it is not my fault.” In a culture with strong individual responsibility, everyone has to take the blame themselves – they choose whether or not they want to listen to the external expert's advice.
When people act inside public institutions, they act according to a logic of appropriateness, not according to a logic of consequence, according to the cultural-institutional perspective. Norms and values are important. The function of the frameworks is to clarify better what are the appropriate actions and appropriate choices to make. This theory gives one of the explanations why the governance frameworks actually work. The differences are the result of what is considered appropriate in each country and sector.
The environmental perspective defines that the system (organization, or in this case framework) is dependent upon its technical and institutional environment. This leads the frameworks to have more emphasis on the market in the U.K. and more towards the responsibility of the state in Norway. In the U.K., there is a strong public administration tradition and large influential civil service. In Norway, the civil service has a weaker position and to a larger extent has to bargain its way through difficult decision-making processes where other interests (local government, private sector, public) have strong positions. This is probably one of the explanations for the large degree of flexibility built into the Norwegian framework, whereas the U.K. frameworks can be more decisive and define the premise for the decision-making.
The garbage can perspective suggests collective rationality and instrumentality is low. The decision-making process is ambiguous, shifting and unpredictable, and the decision-making situation is flexible and subject to change. This perspective reinforces that flexibility is important.
We believe readers will have a better understanding of what considerations have to be made in designing or maintaining governance frameworks in the future. In this study, we have discussed the frameworks in two specific western countries. The findings will not be easily transferable to other countries, certainly not outside the developed countries. However, we still believe lines of inquiry followed in this work may be helpful in establishing similar frameworks in other contexts. At least the awareness and theories presented here will be of help to anyone working with governance of major public projects.
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1 It should be noted that the Norwegian Parliament in May 2000 decided upon the largest Norwegian defense investment ever; a NOK 21 billion / £1.9 billion program consisting of the delivery of 5 new multipurpose frigates to the Royal Norwegian Navy. The delivery schedule calls for one new frigate each year from spring 2006.
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