Governance rules! The principles of effective project governance

Team Principle, QPM Ireland

Abstract

Project governance appears to be an elusive concept, which is further complicated by the fact that there is a lack of an agreed on, generally accepted definition for “project governance.” Consequently, this means that individuals are left to develop their own understanding of what project governance means or else try to find an implicit meaning from the context in which the term is used. So, in the absence of an explicit or agreed on definition, each person is left to infer what is meant when the term “project governance” is used.

To reduce this ambiguity, this paper will investigate the concepts of governance from a corporate viewpoint and project governance from a project level perspective. This paper will provide tools the reader can use to understand the essence of implementing a new or improving an existing system of project governance.

Introduction

According to the Harvard Business Review, “Decisions are the coin of the realm in business. Every success, every mishap, every opportunity seized or missed stems from a decision someone made or failed to make. Yet, in many firms, decisions routinely stall inside the organization, hurting the entire company’s performance. The culprit? Ambiguity over who’s accountable for which decisions.” (Rogers and Blenko, 2006)

Good project governance is the secret weapon of effective project-based organizations. A key element of project governance addresses how decision rights and accountabilities are disseminated and assigned between the project team and executives.

Poor governance can put the organization at risk of commercial failure, pecuniary and regulatory problems, or allow the organization to lose sight of its objectives and responsibilities to its stakeholder, who benefit from its success.

Project governance extends the premise of governance into both the management of individual projects via governance structures and the management of projects at the business level through coordination, planning, and control.

What is Governance?

The first challenge to gaining an understanding of project governance is that few of those who combine the words “governance” and “project” into the term “project governance” define what they mean. Even those who do define the term do not agree on what that definition is (see Exhibit 6). Furthermore, the term “governance” is used in a variety of ways and, as a consequence, has a multiplicity of meanings (Rhodes, 1996; Stoker, 1997). This causes significant confusion; so, in order to reduce this confusion, it is necessary to investigate the definitions for governance and project governance.

The word governance derives from the Greek verb κυβερνάω [kubernáo], which gave rise to “gubernare” in Latin, which means “to steer.” The Oxford English Dictionary defines governance as the “action, manner or fact of governing” and “the function or power of governing,” whereas “govern” is inter alia, defined as “rule with authority, conduct the policy, actions, and affairs of (a State, subjects).”

The United Nations defines “good governance” as the process of decision making and the process by which decisions are implemented (or not implemented). Furthermore, the United Nations suggests that there are eight characteristics of good governance (Exhibit 1) and these are:

  1. Participatory - Participation is a key cornerstone of good governance and as such needs to be informed and organized.
  2. Consensus oriented - There are several actors and as many view points. Good governance requires mediation of the different interests.
  3. Accountable - Who is accountable to who varies, depending on whether decisions or actions taken are internal or external to an organization. In general, an organization is accountable to those who will be affected by its decisions or actions.
  4. Transparent - Transparency means that decisions taken and their enforcement are done in a manner that follows rules and regulations. It also means that information is freely available and directly accessible to those who will be affected by such decisions and their enforcement. It also means that enough information is provided and that it is provided in easily understandable forms and media.
  5. Responsive - Good governance requires that institutions and processes try to serve all stakeholders within a reasonable timeframe.
  6. Effective and efficient - Good governance means that processes and institutions produce results that meet the needs of stakeholders while making the best use of resources at their disposal.
  7. Equitable and inclusive - A society’s well-being depends on ensuring that all its members feel that they have a stake in it and do not feel excluded from the mainstream of society. This requires all groups, but particularly the most vulnerable, have opportunities to improve or maintain their well-being.
  8. Follows a rule of law - Good governance requires fair legal frameworks that are enforced impartially.
Characteristics of Good Governance (UNESCAP, 2008)

Exhibit 1 – Characteristics of Good Governance (UNESCAP, 2008)

Governance plays a pivotal role in determining how organizations function, which is why we have witnessed a proliferation of governance concepts in diverse contexts. From IT governance to e-governance, from public governance to the most popular derivative, corporate governance and as a result, governance can mean different things to different people.

To gain an appreciation of governance from an organizational setting, and the fact that projects operate within such confines, it is necessary to review the concept of “corporate governance.” Also, the basis for the majority of project governance definitions stems from reports that focus on corporate governance structures and policies.

Corporate Governance

Corporate governance can be seen to entail the relationships between a company’s management, its board, its shareholders, and other stakeholders and to provide the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined (OECD, 2004).

The OECD definition aligns itself with the properties of good governance, as outlined by UNESCAP above. Specifically, it addresses the following areas:

  1. Roles and responsibilities
  2. Accountability
  3. Disclosure and transparency
  4. Risk management and control
  5. Decision making
  6. Ethics
  7. Performance and effectiveness
  8. Implementation of strategy

Corporate governance systems are organic and they develop piecemeal over time in an evolutionary process. Many governance mechanisms have developed because corporate activities were found to be inefficient, ineffective, or allowed behavior that society, management, or owners found unacceptable.

This is particularly evident in the small sample of international definitions (Exhibit 2) that follows, which suggests that there is a broad range in the understanding of the term “corporate governance.” An interesting observation, however, is that they appear to either encompass an external governance framework and/or internal governance mechanisms.

Corporate Governance Definitions

Exhibit 2 – Corporate Governance Definitions

This supports Weir, Laing, and McKnight’s (2002) proposition that governance mechanisms can be split into two categories: internal and external. It is, therefore, necessary to differentiate between “external” and “internal” governance, because these are different sets of governance mechanisms and the authority for their management belongs to different groups.

Weir et al indicate that the external governance framework sets standards, actions, and other requirements that society expects a company to follow. In other words, the external governance framework seeks to produce standards of behavior and actions within organizations, for example, legislation.

As for internal governance, this is a set of mechanisms and processes that organizations use to organize, coordinate, and govern internally. In other words, internal governance seeks to guide actions and produce standards from within an organization, for example, internal auditing committee.

Organizations use different types of internal governance mechanisms, and they deploy these in many and various ways. Internal governance mechanisms are parts of an organizational system and need to be viewed as part of the whole if they are to be understood and managed effectively. Exhibit 3 summarizes some uses for various internal governance mechanisms.

Applications of internal governance mechanism

Exhibit 3 – Applications of internal governance mechanism

Project Governance

Project governance prescription and theory have only just begun to address the connection between internal governance and the achievement of the intended objectives.

Turner (2006) suggests that governance of a project involves a set of relationships between the project’s management, its sponsor (or executive board), its owner, and other stakeholders. Furthermore, he proposes that project governance provides the structure through which the objectives of the project are set, and the means of attaining those objectives and monitoring performance are determined.

Turner further contends that within the project-based organization, there are three levels of governance (Exhibit 4):

  1. There is the level of the board and the extent to which they take an interest in projects. Under modern governance regimes, boards of directors should take a much greater interest in projects being undertaken in the business than they have in the past. This level identifies corporate governance.
  2. There is the context within which projects take place. Part of creating the means of achieving the objectives in the project-based organization, is to ensure the organizational infrastructure exists to undertake projects effectively and there are two components of this. The first component creates an infrastructure of program and portfolio management to link projects to corporate strategy, which ensures the right projects are done. The second component ensures the capability exists within the organization to deliver projects successfully, so that projects are done right. This level identifies project governance.
  3. There is the level of the individual project. The project itself is a temporary organization and therefore needs governing; so, under the principle of fractal management, governance structures should exist at the level of the individual project. This level identifies delivery capability.
Linking project governance to corporate governance and delivery capability (Turner, 2006)

Exhibit 4 – Linking project governance to corporate governance and delivery capability (Turner, 2006)

This view is also expressed by the Association of Project Management (APM). Exhibit 5 also shows that the Governance of Project Management (GoPM) is a subset of corporate governance but that most of the “methodologies and activities involved with the day-to-day management of individual projects lie outside the direct concern of corporate governance.”

Governance of Project Management in Context (APM, 2004)

Exhibit 5 – Governance of Project Management in Context (APM, 2004)

Samples of “project governance” definitions are outlined in Exhibit 6. This small sample of explicit definitions varies from “related to project activities ....aligned to the organization’s objectives,” the APM definition, to the Swee Han definition, which defines project governance as concerned with the “infrastructure and processes put in place by organizations under which projects must function and the mechanisms by which compliance will be assured.”

Such broad variations in definitions have negative implications. Boards of management who are responsible for project governance policy will have developed their own individual mental models behind the language of project governance. Directors who are responsible for ensuring that organizations achieve the expectations mandated, and managers who are expected to plan and implement governance efforts, must decide about the nature of the mandated subject, what is to be achieved, and the specifics that need to be addressed to do so. The problems this may cause are best illustrated by using a metaphor and an example.

For example, in the familiar fable about the blind men and the elephant (see Appendix), each “blind man” “sees” a different aspect of the elephant and forms a mental model about the beast, called an elephant from that aspect alone. In other words, every person may see a different aspect of something and form the idea of what it is from that aspect alone. So, when the blind men talk about the issue, each one may be talking about an “elephant,” but each is actually referring to something different. So, the fable proposes that they will “rail on in utter ignorance of what each other mean. And prate about an elephant, not one of them has seen.”

Project Governance Definitions

Exhibit 6 – Project Governance Definitions

The APM has developed eleven principles of project governance (Exhibit 7), which it suggests will help an organization avoid the following causes of project failure:

  • Lack of a clear link with key strategic priorities
  • Lack of clear senior management and, in government projects, ministerial ownership and leadership
  • Lack of effective engagement with stakeholders
  • Lack of skills and proven approach to project and risk management
  • Lack of understanding of, or contact with, supply industry at senior levels
  • Evaluation of proposals driven by initial price, rather than long-term value for money
  • Too little attention to breaking down development and implementation into manageable steps
Principles of Project Governance (APM, 2004, p 6)

Exhibit 7 – Principles of Project Governance (APM, 2004, p 6)

These eleven principles are supported in the ”Directing change: A guide to governance of project management” document, by 42 key questions, which focus on four key areas:

  • The effectiveness and efficiency of the portfolio direction processes
  • The sponsorship of projects
  • The management of projects
  • Disclosure and reporting

This ensures that all projects are identified within one portfolio, roles and responsibilities are aligned to decision-making capacity, the teams responsible for projects are capable of achieving the projects’ objectives, and that information to support the decision-making processes is delivered in a timely, relevant, and reliable manner.

But for project governance to be truly effective, the following principles are necessary:

  1. Involve senior managers. Senior managers are the decision makers, and such initiatives should encourage their input and buy-in.
  2. Prioritize governance goals. Reduce complexity, confusion, and conflict by selecting the most appropriate goals.
  3. Assign ownership and accountability for project governance. More than an individual, a select group of experienced resources should be assigned to deliver, monitor, and control any governance initiative. It is recommended that the company’s board of directors own the governance process.
  4. Design governance at the portfolio, program, and project levels. Consistency and synergy lead to adoption and successful implementation.
  5. Provide transparency. Visibility is vital because it builds confidence and understanding of the process.
  6. Learn, then adopt any redesign. Governance is an evolutionary process. Learn from mistakes and new or improved knowledge.
  7. Educate and be educated. It is important to review and analyze new and improved governance mechanisms and debate their appropriateness.

Conclusion

As Einstein put it “It is not the mistake that causes the serious damage. It is the mistake that you make of defending the first mistake that causes it.”

It is common knowledge that one bad apple can spoil a whole barrel of fruit. Likewise, it does not take many project failures, especially spectacular or audacious ones, to do enormous harm to the practice of project management by destroying trust in the reliability of project reporting, its tools, and techniques.

If more people begin to question why and how governance is achieved, and how different elements of a governance system interact, we may begin to see a significant influence on project governance. This will improve our understanding of what differentiates the next generation of practice from its predecessors and how organizations can move forward to deliver a better standard of performance.

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Appendix

The Blind Men and the Elephant, by John Godfrey Saxe (1816–1887)

img

It was six men of Indostan

To learning much inclined,

Who went to see the Elephant

(Though all of them were blind),

That each by observation

Might satisfy his mind.

The First approach’d the Elephant,

And happening to fall

Against his broad and sturdy side,

At once began to bawl:

“God bless me! but the Elephant

Is very like a wall!”

The Second, feeling of the tusk,

Cried, -“Ho! what have we here

So very round and smooth and sharp?

To me ‘tis mighty clear

This wonder of an Elephant

Is very like a spear!”

The Third approached the animal,

And happening to take

The squirming trunk within his hands,

Thus boldly up and spake:

“I see,” quoth he, “the Elephant

Is very like a snake!”

The Fourth reached out his eager hand,

And felt about the knee.

“What most this wondrous beast is like

Is mighty plain,” quoth he,

”‘Tis clear enough the Elephant

Is very like a tree!”

The Fifth, who chanced to touch the ear,

Said: “E’en the blindest man

Can tell what this resembles most;

Deny the fact who can,

This marvel of an Elephant

Is very like a fan!”

The Sixth no sooner had begun

About the beast to grope,

Then, seizing on the swinging tail

That fell within his scope,

I see,” quoth he, “the Elephant

Is very like a rope!”

And so these men of Indostan

Disputed loud and long,

Each in his own opinion

Exceeding stiff and strong,

Though each was partly in the right,

And all were in the wrong!

MORAL.

So oft in theologic wars,

The disputants, I ween,

Rail on in utter ignorance

Of what each other mean,

And prate about an Elephant

Not one of them has seen!

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

© 2010, Éamonn V. Kelly
Originally published as a part of 2010 PMI Global Congress Proceedings – Washington, DC

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