The importance of project governance and tactful decision-making
Thursday, November 02, 2017
Project governance is a topic applicable to all projects, large or small. The difference is that the scale and formality will grow as the project increases in size.
Commonalities of good project governance structures include signing the owner's representative first, establishing a project leadership team early, following defined criteria for success, managing stakeholders effectively, resolving conflict in a positive manner and using vendor resources.
All projects, regardless of size, should establish an appropriate governance structure and commit the leaders of the individual firms to the project's success.
Establishing governance structures
Governance commences once the first external party to the owner signs a contract. Ideally, the first signing party would be the owner's representative, although architects and construction managers are usually selected first.
Once the first signature is in place, project governance moves to a multiparty process merging differing ideals and project success factors. During the early stages of a project, the project leadership team (PLT) should be established.
In my experience, a project struggles in the initial phase because a PLT isn't established until all parties have been engaged. However, total party engagement is not necessary to create a successful PLT.
The PLT's role is multifaceted, but the core of this group's identity is decision-making around risk management, cost management, stakeholder expectations, commercial alignment of all parties and reporting back to the respective parent organizations on the project's success.
On a small project (less than $20 million), the PLT may be three people representing the owner, architect and construction manager. On a large project (more than $50 million), the PLT may be a formally selected board with multiple members from each party.
There is no magic formula for the governance structure. The important thing is that the PLT is empowered to make tactical project decisions in a quick and flexible way and is held accountable for the success of the project.
Common project issues no matter the size
An overlooked facet of project governance is the need for project decisions to be made based on what is best for the project, not what is best for the parent organizations. This misconception can cause conflict for PLT members as they manage project and organizational roles, and as they leave the project to return to their parent organizations.
A simple example would be using unfamiliar software packages. A more complex example would be agreeing to project financing models an individual organization would not accept. Design and construction PLT members should be mindful of an owner with multiple business units represented on the PLT with competing agendas.
Speed and flexibility in project governance can also be a differentiating factor compared to organizational processes. Projects move fast in both design and construction. When the daily cost of a project is high, decision-making must follow. For this reason, PLT members must not be hampered by seeking approval for decisions from individuals outside of the PLT. If they do, delay to the project and cost could result.
There will be defined criteria for reporting back to parent organizations and for the escalation of risk and decision-making beyond the PLT's level of authority. Defining these criteria clearly and disclosing reporting expectations among PLT members is important to understand the constraints each individual member of the PLT is tasked with.
Contractual agreements among the organizations represented on the PLT may require more thought. Commonly, each external party will be contracted to the owner. However, in certain situations, PLT parties can be contracted to each other.
It is important that the PLT structure allows each member to have equal participation and accountability to the project. In some cases, the PLT may have to reserve decision-making to the determination of the owner alone. Good governance will recognize potential conflicts and provide a transparent path to success.
As projects start to be influenced by stakeholders, effective stakeholder management will absorb time of the PLT members. Many interactions will be minor, perhaps social, but the PLT must separate stakeholder requests for the benefit of the project outcomes.
If separating the stakeholders' agenda cannot be achieved, decision-making may become suboptimal. In a worst-case scenario, perceptions of preferential treatment can be apparent. Efficient and transparent stakeholder management by the PLT must extend to governmental authorities having jurisdiction.
It is important to ensure consistency in how the project manages these groups. Consistency will provide a lower risk to the project by meeting authority time frames for permits, not breaching requirements prior to permits being issued, and not placing undue pressure on authorities for project approvals ahead of time.
Setbacks can be a governance issue
When a project reaches distress and suboptimal outcomes are outweighing successes, it is common for the project management team's performance to be brought into question. The reality is the project management team is only able to engage the resources being allocated to the project.
If the parent organizations are not able to contribute to the agreed-upon staffing model, the project requirements will begin to overwhelm a small project management team and lead to missed milestones, staff turnover and uncontrolled processes. In this instance, the project manager must be comfortable to approach the PLT, explain the situation and then ask for further resources.
Staff resourcing can become a focus of the PLT when a typical capital project enters implementation and demand rises. Without a PLT, the project manager is typically pursuing the management team of the individual organization and asking for resources that may not be available.
Another common sign of a project in distress is scope rising above the financial limits of the project. This issue can be evidence of poor risk management leading to contingency usage, poor cost estimating or stakeholder expectation growth.
Accurate and well-maintained risk management techniques are necessary and should be reinforced by the PLT, which understands risk is not a "set and forget" process but is rather a fluid process where the risk, occurrence and outcome can vary weekly. The risk register can easily become an agenda item on all PLT meetings, ensuring the project management team is actively maintaining the register.
Cultivate a no-blame culture
Governance structures must support the notion of no blame and no dispute. This culture is not passing on accountability; rather the notion aims to maintain friendly relationships with professional and respectful challenges and debate.
PLT members need to understand certain events will not support the project success factors and should be dealt with accordingly. Friendly debate should not be considered a sign of weakness.
In fact, the opposite may be true: A project absent of major debate may not be focusing on the project success factors, instead letting the path of least resistance become a management technique. Identifying and resolving conflict and debate in a positive and timely manner is a sign of a healthy PLT.
Price is not value
Focusing on price will not deliver the value a project expects from its vendors and subcontractors. A good governance structure will provide resources and processes for the project management team to select vendors beyond the dollars alone. On IPD projects, many vendors are selected who can best reflect the integrated project values, but on other non-IPD projects, value can also be nonfinancial.
The PLT should challenge the project management team during procurement to ensure vendor requests for proposals are packaged in a way that can deliver both financial and nonfinancial value to the owner. When left alone, project management teams may fall into the trap of simply issuing packages against the AIA divisions.
Conclusion: All projects require a governance structure
Governance is typically assumed to be a "big project" issue, when in fact all projects require a governance structure. Small projects will have a simple governance structure, but it will still contain rules, require monitoring to match the project delivery and have a PLT empowered and willing to accept accountability.
The PLT is crucial to project success and, when established early, can start to define project success factors and establish a project culture of support and innovation.
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