Governance in Project Environments

Miles Shepherd

AgendaIntroductions

Analysis Framework

Practicalities

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February 2016 © Miles Shepherd Projects Ltd 2

Analysis Framework

2

Just So stories (1902)


Analysis FrameworkFactor

What – is Governance

Why – is it needed

When – is it applied

Where – does it fit in the project lifecycle

Who – is responsible

How – is it done


What?Definitions

ISO 21503

PMI

APM

Others


DictionaryOED

The action or manner of governing a state, organization, etc.

Derivation:

Plato


Project Management InstituteProject Governance

The alignment of project objectives with the strategy of the larger organisation by the project sponsor and project team. A project’s governance is defined by and is required to fit within the larger context of the program or organisation sponsoring it, but is separate from organisational governance.

PMBOK (2013) p553


APM Definition

Governance refers to the set of policies, regulations, functions, processes, procedures and responsibilities that define the establishment, management and control of projects, programmes and portfolios.

APM Body of Knowledge (2012) p8


ISO 21500Governance is the framework by which an organisation is directed and controlled. Project Governance includes but is not limited to, those areas of organisational governance that are specifically related to project activities.

ISO 21500: 2012 p6, §3.6


Others OECD – Principles for Corporate Governance (2015)

Revised 2014 – 2015 – Some significant changes.

British Standards Institute – BS 13500: 2013

Both documents do not specifically refer to Governace in relation to Project Management


ContextOrganisation

ProjectManagement

CorporateGovernance

GoPM


Why Governance is NeededPublic Pressure Nature of Projects

Enron Worldcom BP Gulf disaster

Temporary organisationsSeparate structuresResponsibility splits


Theories supporting GovernanceShareholder theory

Stakeholder theory

Agency Theory

Transaction Cost Economics


Shareholder Theory Assumes the main purpose of the organisation is

to maximise shareholder Return on Investment (ROI).

Organisation is the property of the shareholders.

Structures needed to assure managerial action must always be in the best interest of the shareholders.

Value system privileges shareholders over other stakeholders.


Shareholder Theory - CriticismGood for:

Clear focus

Relatively simple to establish compliance regime

Weaknesses:

Ignores other stakeholders

Often results in poor financial results


Stakeholder Theory Takes broader view of social responsibility

Views Firm as a system of stakeholders

Recognises wider environment

Purpose of Firm is to create wealth and value for all stakeholders


Stakeholder Theory - CriticismGood for:

Longer term view of objectives

Traditional financial objectives

CSR

Public Image

Coordination of corporate knowledge

Weaknesses:

Often difficult to balance stakeholder needs


Transaction Cost Economics Often associated with front end management of projects

Focuses on individual transactions which converts inputs to desired outputs

Based on Make of Buy decision

Regards Firm as governance structure rather than a production function

Make Buy

Pro Better control of fit for purposeCosts for poor adaption are minimised

Lower price through economies of scale & market place competition

Con Higher cost Adaption costs higher


TCE - CriticismGood for:

Simple relationships

Buyer – Seller situations

Flexibility of governance structures (recognises that stakeholder –shareholder views are a continuum)

Weaknesses:

Crude models

Underdeveloped trade-offs

Severe measurement issues

Too much freedom of action


Agency Theory Occurs when an Agent acts on behalf of a Principal

e.g. a PM as Agent, Project Sponsor as Principal in most situations!

Supports shareholder theory

Expects both parties to have their own interests

Agent and Principal will try to maximise own interests

Requires balance of reward and performance systems


Agency Theory Issues Interests of Principal and Agent often diverge

Principal cannot easily monitor performance of the Agent

Principal cannot easily gain information held by the Agent

Difficulty of appointing appropriate Agent (ex ante or adverse selection problem)

Information asymmetries caused by incomplete information (ex post or moral hazard problem)


Agency Theory - Criticisms Takes an inherent investor view

Assumes humans are mainly motivated by financial gain

Costs arising from:

Creating and structuring contracts between Principals and Agents

Monitoring expenditure by the Principal

Bonding expenditure by the Agent

Residual losses resulting from self interest actions


Trust and ControlDifferent relationships between governance and trust can exist:

Trust may enhance impact of governance on performance

Governance may reduce the level of trust between agent and principal

Ex ante trust in projects may influence the level of governance complexity


Where in the Life Cycle


When is governance applied?


How – Practicalities System view of governance

Basic principles

Roles


February 2016

Wider System Boundry

WIDER SYSTEM

provides

resources and

legitimates

area of operation

formulates

initial

design of

makes known

expectations

supplies

performance

information

disturbsattempts

to influence

SYSTEM

Decision - makingsubsystem

decides ontransformationsimplementedby designstedset of

providesresourcesand legitimatesoperations

reports

to

expectationsknownmakes

provide

performance information

Subsystemsand components

that carry outtransformations

Performancemonitoringsubsystem

System Boundry

Environment Environment

The Formal System Paradigm

© Miles Shepherd Projects Ltd 32

Basic Principles - 1No GOPM Principle

1 The Board has overall responsibility for governance of PM

2 The organisation differentiates between project and non-project activities

3 Roles and responsibilities for governance of PM are clearly defined


Basic Principle - 2


No GoPM Principle

4 Disciplined governance arrangements, supported by appropriate methods, resources & 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 & the project portfolio

6 All projects have an approved plan containing authorisation points at which the business case, including costs, benefits & risk are reviewed. Decisionsmade at decision points are recorded & communicated

Basic Principles - 3No GoPM Principle

7 Members of delegated authorisation bodies have sufficient representation, competence, authority & resources to enable them to make appropriate decisions

8 Business cases are supported by relevant & 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 PM systems is required & implement such assurance accordingly


Basic Principles – 4


No GoPM Principle

10 There are clearly defined criteria for reporting project status, escalation of risks and issues to appropriate levels in the organisation

11 The organisation fosters a culture of improvement & of frank internal disclosure of PM information

12 Stakeholders are engaged at a level commensurate with their importance to the organisation and in a way the fosters trust

Basic Principles – 5No GoPM Principle

13 Projects are closed when they are no longer justified as part of the organisation’s portfolio


APM Core Components Portfolio Direction

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

Project SponsorshipSeeks to ensure that project sponsorship is effective

Project Management CapabilityAims to ensure that project teams are capable of achieving the objectives defined by the Firm

Disclosure and ReportingAims to achieve timely, accurate and relevant for decision making


Who – Organisational LevelsStandard Developers:

Consultants – e.g. Big Four firms

The Firm – internally developed to meet own situation

Professional Bodies – APM, PMI, ACCA etc

Governmental Bodies – e.g. Financial Controls Authority (FCA)

Supra National Bodies – e.g. OECD, World Bank, UN etc


Who is Involved? Board of Directors

Project Sponsor

Project Management Office


Issues for Discussion1. What is the difference between governance of

projects and governance of project management?

2. What impact does the trend towards GOVERNACE have on the notion of profession in project management?

3. How does trust impact on Agency Theory?

4. How does Governance work in an AGILE development?

5. What governance issues arise when a CONSORTIUM operate a project?


ConclusionsGovernance is needed because of the nature of project

management, especially the ex ante issues of agency theory

Closely associated with Corporate Social Responsibility

Needs careful thought BEFORE embarking on a project.

Consider how portfolios of projects should be governed

Consortium projects require very careful consideration


ReferencesAPM (2011) Directing Change: a guide to governance of

project management. APM

APM (2012) Body of Knowledge (6th Edn). APM

APM (2007) Co-Directing Change – a guide to the governance of projects in multiple ownership. APM

PMI (2013) Guide to the Project Management Body of Knowledge (5th Edn). PMI, Newtown Sq, USA

FCA (2014) UK Corporate Governance Code. Available at https://www.frc.org.uk accessed 2o Jan 15

ISO 21500:2012 Guidelines for Project Management. BSI, London


References – cont’dMüller, R. (2009) Project Governance. Gower, Farnham,

UK

Müller, R. (2011) Project Governance in Morris, P.G.W., Pinto, J.K. and Söderlund, J. (Eds) Oxford Handbook of Project Management (2011). OUP, Oxford, England

OECD (2015) Principles of Corporate Governance. Available on line at www.oecd.corporate. Accessed 12 Feb 16

Sarbanes-Oxley Act (2002). House: H.R. 3763, H. Rept. 107–414, H. Rept. 107–610


And finally…


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Governance in Project Environments

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