Governance rules!

The principles of
effective project governance

Éamonn V. Kelly MBA PMP PMI-SP

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.

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.
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.

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.

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.”

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.”

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

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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