PMI’s 2013 ‘Pulse of the Profession’ Survey

PMI’s 2013 ‘Pulse of the Profession’ Survey makes interesting reading, particularly given most of the world is in or near recession. PMI predicts that between 2010 and 2020, 15.7 million new project management roles will be created globally across seven project-intensive industries. China and India will lead the growth in project management, generating approximately 8.1 million and 4 million project management roles through 2020, respectively.

Along with job growth, there will be a significant increase in the economic footprint of the project management profession which is expected to grow by USD$6.61 trillion. This enormous anticipated growth, along with higher-than average salaries, will make the next seven years an opportune time for professionals and job-seekers to build project management skills.

The squeeze on talent has already started! PMI’s Pulse of the Profession shows that high-performing organizations don’t just emphasise strategy and improve efficiency. They cultivate talent resources to deliver successful projects and programs. With that talent, they can reduce risk, increase stability, improve growth and build a strong competitive advantage.

In contrast, poorly performing organisations that don’t see talent as part of the success equation – they believe the job market is a bottomless pit of skilled people that can be bought in as needed. This puts their projects and their organizations at risk! Whilst more and more successful organisations have adopted talent management as a core competency, many others fail to invest in skilled project management talent and talent development initiatives, and this shows in their performance.

The contrast is stark – high performing organisations are likely to find some $20 million at risk for every 1$billion invested in projects, whereas low performing organisations place $280 million at risk, over 10 time the amount.

The low-performing organizations – those which complete 60% or fewer projects on time, on budget and within scope – are significantly less likely to provide a defined career path for project managers, a process to develop project management competency, and / or training on project management tools and techniques. Poaching talent is a zero sum game that simply drives up costs for everyone.

As a result of this lack of investment, a talent gap exists in project management. A large number of skilled practitioners are reaching retirement age, organisations that train staff hold onto staff and the rest are going to find recruitment becoming increasingly difficult. Talent simply does not grow on trees – skills need developing and nurturing within the organisations that need them.

The reason this matters is that at a time when project success rates are declining and risks are increasing, organisational leadership needs to fill an anticipated 15.7 million new project management roles worldwide by 2020. If they don’t, $344.08 billion in GDP will be at risk – and that’s not even counting the $135 million that organizations already risk for every $1 billion spent on projects.

The ‘high performers’ achieve their results through a combination of good governance and good management. They see project, program and portfolio management as strategic capabilities needed to invest in their organisation’s future. They recognise process improvement and talent management are the two key elements that need investment to deliver outcomes. And they use well proven governance and management processes such as requiring active sponsors (79% of project have active sponsors in high performing organisations -v- 43% in low performing organisations).

Talent management needs investments in selection, training, mentoring and coaching; ideally from internal resources but when necessary using external help to kick-start the development of the internal capabilities. (see more on mentoring and training)

Are you and your team ready to make talent management a strategic priority? Download:
PMI’s Pulse of the Profession™ In-Depth Report: Talent Management,  and
PMI’s Project Management Skills Gap Report, and see how you can build your organization’s success – one project manager at a time. To help PMI have developed a sophisticated career framework, see: http://www.mosaicprojects.com.au/Training-PMI_Framework.html#CareerCentral

Project Governance and Controls Symposium

Canberra hosted the inaugural Governance and Controls Symposium this week – it was a relatively small event packed with highlights.

The first PTMC (Project Time Management Certificate) workshop to be held in Australia – based on feedback from the attendees, this will grow to become a very popular training.

A free networking evening looking at the future of ‘project controls’ in Australasia. During the meeting the final wind-up of the Australian Performance Management Association was completed.

The main symposium included three outstanding key note addresses supported by stream papers and an engaging panel session.

The two days of concentrated learning and discussion were finished with animated networking sessions. All together an intense and enjoyable two days for both project controls professionals, and the executive managers responsible for governing this area of an organisation’s business. Two of the key outcomes from the Symposium were:

• Gary Troop, the President of the newly independent College of Performance Management (CPM) and symposium key note speaker announced a limited time offer to anyone in Australia to join the for US$25.  The CPM was a part of PMI from 1999 to 2012 but has reverted to an independent status to better serve the needs of the Earned Value community.  The College has a major on-line library of EV publications and plans to develop its conferences and webinars on a global basis – there is even talk of establishing an Australian Chapter – to be part of the exciting new development visit www.mycpm.org/aus and become part of the worlds leading EV community.
  
• The project controls professionals present in Canberra expresses a strong desire to see a network established to link all of the various ‘controls focused’ components within professional associations such as AIPM and PMI, independent bodies such as CPM and Planning Planet and individual controls professionals to help raise the profile of project controls, amplify the message from any one component member, and through the network assist in career development and finding the ‘right person’ for work when needed.

To help with this initiative, PM Global are starting to plan the second Symposium to be held in Canberra at around the same time in 2014 and discussions are underway to frame a proposal for a ‘no cost’ network designed to meet the needs of the ‘controls community’.

There’s a lot to do to maximise the gains made this week – watch this space……

In the meantime, if EV and /or ES is your ‘thing’ the US$25 offer is limited and needs prompt attention!  And to understand the link between controls and project governance see: http://www.mosaicprojects.com.au/Resources_Papers_172.html

Defining Governance

In a previous post, we defined management; this post seeks to achieve a similar definition of governance.

Governance is the act of governing. It is the way rules are set and implemented, and relates to the way decisions are made that define expectations, grant power, and verify the performance of people within the entity being governed.

To distinguish the term governance from government, governance is what a governing body does. It might be the governing body of a geo-political entity (nation-state – typically referred to as the government), a corporate entity (typically the Board of Directors), or another type of organisation. When looking at organisations and corporations (Corporate Governance), the governing body may be the individual that owns an organisation, but more typically is a small group of people at the apex of the organisation’s hierarchy.

Sir Adrian Cadbury (2002) defined the aim of corporate governance as aligning as nearly as possible the interests of individuals, organisations and society. Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. It is the system by which business corporations are directed and controlled.

Stewardship is an important governance concept. It includes:
- Fealty: A propensity to view the assets at ones command as trust for future generations rather than available for selfish exploitation.
- Charity: A willingness to put the interests of others ahead of ones own.
- Prudence: A commitment to safeguard the future even as one takes advantage of the present.

The governance framework, set by the governing body, specifies the distribution of rights and responsibilities among different participants in the corporation, such as the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and defines the means of attaining those objectives and of monitoring performance.

The Functions of Governance
The governance function has two key aspects; the first is deciding what the organisation should be and how it should function. These governance decisions are communicated to management for implementation and the primary outputs from this part of the governance system are:

• The strategic objectives of the organisation framed within its mission, values and ethical framework.
• The policy framework the organisation is expected to operate within.
• The appointment of key managers to manage the organisation.

These aspects are best developed using a principle-based approach that recognises and encourages entrepreneurial responses from all levels of management.

The second aspect of the governance system is oversight and assurance. The governing body should pro-actively seek assurance from its management that the strategic objectives and policies are being correctly achieved or implemented. The assurance and oversight functions include:

• Agreeing the organisations current strategic plan (in conjunction with executive management). The strategic plan describes how the strategic objectives will be achieved.
• Suggesting or approving changes to the strategic plan to respond to changing circumstances.
• Requiring effective assurance from management that the organisations policy framework is being adhered to.
• Requiring effective assurance from management that the organisations resources are being used as efficiently as practical in pursuit of its strategic objectives.
• Communicating the relevant elements of the assurances received from management to appropriate external stakeholders.
• Assurance to the organisation’s owners the strategy and policies are being adhered to by management and the organisation as a whole.
• Assurance to a wider stakeholder community (including regulatory authorities) the organisation is operating properly.

The role of management is the mirror image of governance:

• Providing input to develop the strategic plan
• Implementing the approved strategic plan within the policy guidelines set by the governing body.
• Providing assurance to the governing body that the management structure is:
  • Operating ethically and accountably
  • Providing effective stewardship of the resources available to the organisation
• Providing timely and accurate information on achievements and issues.

Managing the organisation and making the executive level and operational level decisions needed to implement the agreed strategy and run the organisation within the ethical and policy framework set by the governing body are the core skills and responsibility of management.

Governance and sustainability
The key challenge for the governing body is balancing the competing needs of the organisations stakeholders, including but not limited to its owners, employees, suppliers, customers and society at large, so as to align as nearly as possible the interests of each stakeholder, the organisation and ‘society’ in a sustainable way.

The four elements of sustainability are the three depicted above plus time. The current governors of an organisation need to be cognisant of sustaining the organisation into the future and governing so that the organisation can continue as a valuable contributor to the needs of its stakeholders in the medium and long term, as well as the current short term.

The Governance of PPP
Within this overall framework, the governance of project, program and portfolio management (PPP) is simply an integral part of the overall governance process. Whilst there are specific skills and elements associated with governing PPP these are governance requirements, the responsibility of the governing body.

Similarly the management of the organisation’s portfolios, programs and projects at both the overall enterprise level and the operational level is an integral part of the management process. So whilst there are specific skills and elements associated with the overarching management of the PPP domain at the enterprise level, these are management skills, and are the responsibility of the management team. In short, Governors govern, Managers manage.

Some final thoughts on Governance
Governance is a holistic process that requires careful balance. Decisions in any one aspect of the organisation being governed affect all of the others, some examples include:

• A project failure can affect the organisations reputation and share price;
• An accident to an employee may have direct personal liability implications for the Directors;
• A poorly worded press release may damage the organisation’s reputation and have direct personal liability implications for the Directors.
• There are a range of legislative requirement that impose significant ‘duties’ on the governors of commercial and other organisations including financial reporting and disclosure requirements, environmental, OH&S and employment requirements and taxation and superannuation requirements (eg, CLERP9, SOX, etc.). The governors are legally required to govern!

Because of this interconnectedness, governance operates at the organisational level which means you govern an organisation that does projects; you do not govern the individual projects; if the project teams are part of the overall organisational structure – you manage them! There is no effective difference between temporary project teams and permanent teams within the organisation.

Exceptions to this are when a project is set up as a temporary organisation external to the main organisation either as an isolated ‘skunk works’ or ‘major project team’ focused on developing something independent of the work of the main organisation, or as a joint venture between two different organisations. Then, as with any subsidiary, if the project organisation is operating as a largely autonomous entity, it becomes an organisation in its own right that requires governing and any parent organisation is one of the key stakeholders the governing body of the project has to consider.

To access our other papers looking at different aspects of governance see: http://www.mosaicprojects.com.au/PM-Knowledge_Index.html#OrgGov

Defining Management

A consistent theme in these posts is the assertion that governance and management are different processes undertaken by different entities within an organisation. In short, Directors or their equivalent govern, Managers manage.

This assertion is supported by the unequivocal view of governments, the OECD, stock exchanges world-wide, various ISO Standards, various Institutes of Company Directors and the Association for Project Management in the UK. The various laws, standards, definitions and guidelines published by these bodies all agree the Board has the exclusive responsibility to govern all aspects of the organisation and this includes the governance of project and program management activities.

The governance function has two key aspects; the first is deciding what the organisation should be and how it should function. These governance decisions are communicated to management for implementation and the primary outputs from this part of the governance system are:

• The strategic objectives of the organisation framed within its mission, values and ethical framework.
• The policy framework the organisation is expected to operate within.
• The appointment of key managers to manage the organisation.

The second aspect of the governance system is oversight and assurance. The governing body should pro-actively seek assurance from its management that the strategic objectives and policies are being correctly achieved or implemented. The assurance and oversight functions include:

• Agreeing the organisations current strategic plan (in conjunction with executive management). The strategic plan describes how the strategic objectives will be achieved.
• Suggesting or approving changes to the strategic plan to respond to changing circumstances.
• Requiring effective assurance from management that the organisations policy framework is being adhered to.
• Requiring effective assurance from management that the organisations resources are being used as efficiently as practical in pursuit of its strategic objectives.
• Communicating the relevant elements of the assurances received from management to appropriate external stakeholders.
• Assurance to the organisation’s owners the strategy and policies are being adhered to by management and the organisation as a whole.
• Assurance to a wider stakeholder community (including regulatory authorities) the organisation is operating properly.

From the list above, it is obvious that the governance system cannot operate without the effective support of the organisation’s management system. And, if governance and management are different systems within an organisation, they should have different functions creating different outputs. We believe this is the case and the purpose of this post is to define what management is and does.

The functions of management were defined by Henri Fayol (1841 – 1925) in his general theory of business administration and surprisingly, this is still seen as a one of the basic definitions of management. He proposed that there were five primary functions of management and 14 principles of management:

Fayol’s Functions of Management

1. to forecast and plan,
2. to organise
3. to command or direct
4. to coordinate
5. to control (French: contrôller: in the sense that a manager must receive feedback about a process in order to make necessary adjustments and must analyse the deviations.).

Inherent in these functions is decision making!  The primary role of management is to make decisions and value judgements within the framework set by the governing body to achieve the objectives set by the governing body. The primary output from management can be defined as information and instructions that have to be communicated to others.

The communication is firstly to the workers so they understand what has to be produced, where and when; secondly to the governing body to provide assurance that the right decisions have been made and the right things are being produced in the right ways applying the organisation’s policy framework correctly.

Fayol’s Principles of Management

The principles of management define some of the ways the functions of management can be implemented – some of theses principles need adjusting to remain effective in modern organisations but the concepts are still valid:

1. Division of work. This principle is the same as Adam Smith’s ‘division of labour’. Specialisation increases output by making employees more efficient.
2. Authority. Managers must be able to give orders. Authority gives them this right. Note that responsibility arises wherever authority is exercised.
3. Discipline. Employees must obey and respect the rules that govern the organisation. Good discipline is the result of effective leadership, a clear understanding between management and workers regarding the organisation’s rules, and the judicious use of penalties for infractions of the rules.
4. Unity of command. Every employee should receive orders from only one superior, from top to bottom in an organisation (not practical in matrix organisations).
5. Unity of direction. Each group of organisational activities that have the same objective should be directed by one manager using one plan.
6. Subordination of individual interests to the general interest. The interests of any one employee or group of employees should not take precedence over the interests of the organisation as a whole.
7. Remuneration. Workers must be paid a fair wage for their services.
8. Centralisation. Centralisation refers to the degree to which subordinates are involved in decision making. Whether decision making is centralized (to management) or decentralized (to subordinates) is a question of proper proportion. The task is to find the optimum degree of centralisation for each situation.
9. Scalar chain. The line of authority from top management to the lowest ranks represents the scalar chain. Communications should follow this chain. However, if following the chain creates delays, cross-communications can be allowed if agreed to by all parties and superiors are kept informed.
10. Order. People and materials should be in the right place at the right time.
11. Equity. Managers should be kind and fair to their subordinates.
12. Stability of tenure of personnel. High employee turnover is inefficient. Management should provide orderly personnel planning and ensure that replacements are available to fill vacancies.
13. Initiative. Employees who are allowed to originate and carry out plans will exert high levels of effort.
14. Esprit de corps. Promoting team spirit will build harmony and unity within the organisation.

Whilst some authorities have added to and changed some aspects of Fayol’s work in the intervening 100 years, these additions and changes have generally expanded and clarified the concepts outlined above. In general terms Fayol’s work has stood the test of time, has been shown to be relevant and appropriate to contemporary management and defines what management is and does. A person undertaking any of the five functions, or employing any of the 14 principles is engaged in management (not governance).

What I believe this post makes crystal clear though is the difference between governance and management – when a manager is deciding the best options or seeking information on actual performance to use in decisions the manager is managing.

Be careful what you govern for!

Governance is an interesting and subtle process which is not helped by confusing governance with management or organisational maturity. A recent discussion in PM World Journal on the subject of governance and management highlighted an interesting issue that we have touched on in the past.

The Romans were undoubtedly good builders (see: The Roman Approach to Contract Risk Management). They also had effective governance and management processes, when a contractor was engaged to build something, they had a clear vision of what they wanted to accomplish; assigned responsibilities and accountability effectively; and failure had clearly understood, significant consequences.

Roman bridge builders were called pontiff. One of the quality control processes used to ensure the effective construction of bridges and other similar structures was to ensure the pontiffs were the first to cross their newly completed construction with their chariots to demonstrate that their product was safe.

An ancient Roman bridge

This governance focus on safety and sanctions created very strong bridges some of which survive in use to the present day but this governance policy also stymied innovation. Roman architecture and engineering practice did not change significantly in the last 400 years of the empire!

No sensible pontiff would risk his life to test an innovative approach to bridge design or construction when the governance systems he operated under focus on avoiding failure. Or in more general terms; the management response to a governance regime focused on ‘no failure’ backed up by the application of sanctions is to implement rigid processes. The problem is rigid process prevents improvement.

To realise the significance of this consider the technology in use in the 17th century compared to the modern day – the vast majority of the innovations that have resulted in today’s improved living standards are the result of learning from failure (see: How to Suffer Successfully).

But the solution is not that simple, we know that well designed and implemented, processes are definitely advantageous. There is a significant body of research that shows implementing methodologies and processes using CMMI, OPM3, PRINCE2, P3M3 and other similar frameworks has a major impact on improving organisational performance and outcomes.

However, organisational maturity is a similar ‘two edged sword’ to rigid governance and management requirements. We know organisational maturity defined as the use of standardised processes and procedures creates significant benefits in terms of reduced error and increased effectiveness compared to laissez-faire / ad hoc systems with little or no standardisation. But these improvements can evolve to become an innovation-sapping straightjacket.

Too much standardisation creates processes paralysis and a focus on doing the process rather than achieving an outcome. In organisations that that have become fixated on ‘process’, it is common to see more and more process introduced to over come the problem of process paralysis which in turn consume more valuable time and resources until Cohn’s Law is proved: The more time you spend in reporting on what you are doing, the less time you have to do anything. Stability is achieved when you spend all your time doing nothing but reporting on the nothing you are doing.

Avoiding this type of paralysis before a review is forced by a major crisis is a subtle, but critical, governance challenge. The governing body sets the moral and ethical ‘tone’ for the organisation, determines strategy and decides what is important. Executive Management’s role is to implement the governing body’s intentions, which includes determining the organisation’s approach to process and methodology, and middle and lower level management’s role is to implement these directives (for more on this see: Governance Systems & Management Systems). The governance challenge is working out a way to implement efficient systems that also encourage an appropriate degree of innovation and experimentation. The ultimate level in CMMI and OPM3 is ‘continuous improvement’. But improvement means change and change requires research, experimentation and risk taking. As Albert Einstein once said, “If we knew what it was we were doing, it would not be called research, would it?”

To stay with the Roman theme of this post: Finis origine pendet (quoting 1st century AD Roman poet and astronomer Marcus Manilius: The end depends upon the beginning). The challenge of effective governance is to encourage flexibility and innovation where this is appropriate (ie, to encourage the taking of appropriate risks to change and improve the organisation) whilst ensuring due process is followed when this is important. The challenge is knowing when each is appropriate and then disseminating this understanding throughout the organisation.

Organisations that follow the Roman approach to governance and avoid taking any form risk are doomed to fade into oblivion sooner or later.

_______________

Note: According to the usual interpretation, the term pontifex literally means “bridge-builder” (pons + facere). The position of bridge-builder was an important one in Rome, where the major bridges were over the Tiber, the sacred river (and a deity). Only prestigious authorities with sacral functions could be allowed to ‘disturb’ it with mechanical additions.

However, the term was always understood in its symbolic sense as well: the pontifices were the ones who smoothed the ‘bridge’ between gods and men. In ancient Rome, the Pontifex Maximus (Latin, literally: greatest pontiff) was the high priest of the College of Pontiffs (Collegium Pontificum), the most important religious role in the republic. The word pontifex later became a term used for bishops in the early Catholic Church and the Bishop of Rome, the Pope, the highest of bridge-builders sumus pontiff.

Lessons from a vineyard

We are at the end of a long lazy ‘members weekend’ enjoying the hospitality of our favourite local winery Pfeiffer’s of Rutherglen. Reflecting on the discussions around their range of fortified wines and the way modern business and projects are focused raises an interesting paradox.

When you are taught to drive fast, the key lesson is the faster you go, the further in front of the car you need to be ‘driving’. Quick reactions are not enough, you need to be planning and positioning the car now to be in the right place to two or three curves down the track.

Modern business is going faster and faster and pressures are on projects to complete quicker and better but unlike racing drivers, no one seems to be planning ahead – if there is a panic on the current project, everyone forgets about transiting staff onto the next project sensibly. Rather than optimising the overall outcome to benefit the business ‘down the track’, the short term focus outweighs the long term benefits and produces suboptimal results.

This destructive short term focus is encouraged because most business management and directors seem to concentrate on satisfying the demands of short term speculators rather than the needs of the organisations stakeholders. Commercial companies are driven by the needs of the high speed traders operating second by second, day traders and other short term speculators who are only focused on movements in the share price, not the long term health of the organisation and its ability to meet the needs of the majority of its stakeholders. Consequently, the daily and quarterly share price movements seem to mean more than long term plans future growth.

A classic example is the regular announcement by major corporations that they are sacking 100 or 200 staff. This creates an immediate boost in the share price and makes management look good to the short term speculators whilst destroying the organisations relationship with all of its staff. In reality, the monthly staff turnover is more than enough to make this type of adjustment in a smooth way that looks after the interests of this group of key stakeholders, the employees that actually do the work needed to allow the organisation to operate. But few managers seem to even ask what’s more important – share movements over the next couple of days or maintaining and enhancing the relationship with the organisation’s “most important asset”, its people??? Apparently the speculators win every time in the mind of management.

The situation is not much different in government organisations where the focus seems to be a combination of the 24 hour news cycle and short term personal advantage, a focus on ‘petty politics’ rather than long term policy and the good of the organisation. Different drivers but the same outcome, a prioritisation of immediate gratification over long term best outcomes.

But what has all of this got to do with fortified wines??

The simple fact is you cannot develop world class fortified wines in a generation. Pfeiffer’s are now into their 40th vintage and in the last three years have succeeded in rounding out their range of both Muscat and Topaque to include a good example of all four classifications of these wine types. The classifications below are defined by the characteristics of the wine, not by age, but in general terms:
The ‘Rutherglen’ classification is blended from wines that are on average 5 years old;
The ‘Classic’ classification is on average 12 to 13 years old;
The ‘Grand’ classification is on average 18 years old; and
The ‘Rare’ classification is on average 23 to 24 years old.

But the average age is misleading, all four classifications include some of the original blend created 30 or 40 years ago, that has been topped up and enhanced every year since. Obviously there is a far higher percentage of old wines in the ‘Rare’ compared to ‘Rutherglen’ classification but all of the wines have the same origins. In short, the characteristics of the current wine are based on decades of decisions ranging from how to manage the vines and the vineyard, how to develop each barrel of wine and what to add to the residual ‘base’ carried forward from last year to create each year’s release across all four classifications.

The decisions of 5, 10 and 30 years ago have an influence on the wines of today which puts a relatively new winery like Pfeiffer’s at a disadvantage when competing with some of their Rutherglen neighbours such as the Morris family who have stocks that have been developed over more than 100 years.

The current generation of winemakers do not see themselves so much as the ‘owners’ of the current stock of fortified wines, rather the custodians of a heritage that they hope will go on developing and improving for generations into the future. This is true of all types of blended fortified wines and is one of the reasons old world wine regions such as the Ports of Portugal and Sherries of Spain have characteristics that are hard to replicate in newer countries such as Australia that only have 100 to 150 years of development.

In many ways organisations are similar to a wineries stock of fortified wine. The current group of managers are the custodians of a complex set of capabilities, facilities and cultural beliefs, behaviours and relationships that have been created by the thousands of decisions and actions made by their predecessors and their decisions will create the organisation that will be passed onto their successors.

For example, a new ‘culture change’ initiative by current management does not start from a blank canvass, the outcome will inevitably be coloured by everything that has gone before that has created the current culture, and will inevitably influence everything that happens later. It is impossible to erase the past without erasing the organisation!

The paradox is that far too many managers seems to act as owners with a focus that extends days or months into the future and their directors look at reports focused on the past, whilst the organisation needs a focus that is long term and future focused to meet the needs of its stakeholders.

Perhaps a weekend at a winery that produces a world class range of fortified wines could pay real dividends…..

Governance is seen differently by Directors and Managers

A survey undertaken as part of our work developing a paper on ‘project governance’ highlights a distinct difference between the views held by managers and directors. To gather data, we ran a short survey between 23rd January and 9th February 2013 on four closed Linked-In groups; two of the groups were for project management association members, two for company directors. In all cases you had to be a member of the association to be a member of the group ensuring the sample communities were quite distinct.

The survey question was:
Who is responsible for the governance of an organisation? This poll is focused on governing, rather than implementing policy unless you feel implementation of policy is itself a governance function.

The four options included in the survey were:
- The Board of Directors or equivalent:
– The Directors plus Senior Executives:
– The Senior Management group:
– All managers in governance roles eg PCBs: (project control boards)

Whilst the total number of responses were low a significant difference of views emerged between the two communities.

The overwhelming majority of directors, 86% see governance as the exclusive responsibility of the Board of Directors or its equivalent.

Whereas more than 70% of the project managers see ‘governance’ as the responsibility of either ‘The Directors plus Senior Executives’ or ‘The Senior Management group’ and less then 30% agree with the proposition that governance is the exclusive responsibility of the Board of Directors or their equivalent.

Whilst it would be useful to validate these findings with a larger sample, the stark difference between the two communities is consistent with our observations and other anecdotal evidence. The project management community perspective that ‘governance’ is a management function is simply not supported by other managers and directors.

We have been advocating for several years that:
“Governance” is what a “governing body” does. It might be a geo-political entity (nation-state), a corporate entity (business entity), a socio-political entity (chiefdom, tribe, family etc.), or any number of different kinds of governing bodies, but governance is the way rules are set and implemented.
(Source: http://en.wikipedia.org/wiki/Governance)
It is encouraging to see the directors of our businesses have a similar view.

The damage caused by the project management communities’ view of governance is set out in a letter-to-the-editor published in this months PM World Journal, see: http://pmworldjournal.net/article/on-the-subject-of-the-january-series-article-enterprise-project-governance-how-to-manage-projects-successfully-across-the-organization-what-is-enterprise-project-governance-by-paul-dinsmore-luiz/

For more papers on this subject see: http://www.mosaicprojects.com.au/PM-Knowledge_Index.html#OrgGov1

ISO 26000, CSR and Stakeholders

Numerous studies have consistently shown that organisations that support overt corporate social responsibility (CSR) activities, either by allowing staff to participate in voluntary work or by donating to charities, or 100s of similar options for giving back to the wider community do better than organisations that do not. It is an established fact that organisations that embrace CSR have a better bottom line and more sustained growth, however, what has not been clear from the various studies is why!

Two options regularly canvassed are:

• Because the organisation is doing well for other reasons it has the capacity to donate some of the surplus it is generating to the wider community whereas organisations that are not doing so well need to conserve all of their resources. Factor in the effect of taxation and great PR is generated at a relatively low net cost.
• Because the organisation does ‘CSR’ it enhances its reputation and as a consequence becomes a more desirable place to work and therefore attracts better staff at lower costs and is also seen as a better organisation to ‘do business with’ and therefore attracts better long term partners and customers again at a lower cost than other forms of ‘public relations’ and advertising.

Both of these factors have a degree of truth about them and frankly, if an organisation does not seek to maximise any competitive advantage its management are failing in their duties. However, this post is going to suggest these are welcome collateral benefits and the reason CSR is associated with high performance organisations lays much deeper.

We suggest that observable CSR is a measurable symptom of ‘good governance’. The Chartered Institute of Internal Auditors define governance in the following terms:
Governance is about direction, structure, process and control, it also is about the behaviour of the people who own and represent the organisation and the relationship that the organisation has with society. Key elements of good corporate governance therefore include honesty and integrity, transparency and openness, responsibility and accountability.

Consequently, a well governed organisation will generally have a good reputation in the wider community; this is the result of the organisation’s stakeholders giving that organisation credibility and loyalty, trusting that the organisation makes decisions with the good of all stakeholders in mind. It can be summarised as the existence of a: a general attitude towards the organisation reflecting people’s opinions as to whether it is substantially ‘good’ or ‘bad’. And this attitude is connected to and impacts on the behaviour of stakeholders towards the organisation which affects the cost of doing business and ultimately the organisation’s financial performance.

Therefore, if one accepts the concept that the primary purpose of an organisation of any type is to create sustainable value for its stakeholders and that a favourable reputation is a key contributor to the organisation’s ability to create sustainable value. The importance of having a ‘favourable reputation’ becomes apparent, the reputation affects stakeholder perceptions which influence the way they interact with the business – and a favourable reputation reduces the cost of ‘doing business’.

However, whilst a well governed organisation needs, and should seek to nurture this favourable reputation, it is not possible to generate a reputation directly. The organisation’s reputation is created and exists solely within the minds of its stakeholders.

As the diagram below suggests, what is needed and how it is created work in opposite directions!

What the organisation needs is a ‘favourable reputation’ because this influences stakeholder perceptions which in turn improve the stakeholder’s interaction with the organisation, particularly as customers or suppliers which has a demonstrated benefit on the cost of doing business. But an organisation cannot arbitrarily decide what its reputation will be.

An organisation’s ‘real reputation’ is not a function of advertising, it is a function of the opinions held by thousands, if not millions of individual stakeholders fed by all of the diverse interactions, communications, social media comments and other exchanges stakeholders have with other stakeholders. Through this process of communication and reflection the perception of a reputation is developed and stored in each individual’s mind. No two perceptions are likely to be exactly the same, but a valuable ‘weight of opinion’ will emerge for any organisation over time. The relevant group of stakeholders important to the business will determine for themselves if the organisation is substantially ‘good’ or ‘bad’. And because the sheer number of stakeholder-to-stakeholder interactions once an opinion is generally ‘held’, it is very difficult to change.

The art of governance is firstly to determine the reputation the organisation is seeking to establish, and then to create the framework within which management decisions and actions will facilitate the organisation’s interaction with its wider stakeholder community, consistent with the organisations communicated objectives.

Authenticity is critical and ‘actions speak louder than words’ – it does not matter how elegant the company policy is regarding its intention to be the organisation of choice, for people to work at, sacking 500 people to protect profits tells everyone:

1. The organisation places short term profits ahead of people.
2. The organisations communications are not to be trusted.

The way a valuable reputation is created is through the various actions of the organisation and the way the organisation engages with its wider stakeholder community. Experiencing these interactions create perceptions in the minds of the affected stakeholders about the organisation. These perceptions are reinforced by stakeholder-to-stakeholder communication (consistency helps), and the aggregate ‘weight’ of these perceptions generates the reputation.

The role of CSR within this overall framework is probably less important that the surveys suggest. Most telecommunication companies spend significant amounts on CSR but also have highly complex contracts that frequently end up costing their users substantial sums. Most people if they feel ‘ripped off’ are going to weight their personal pain well ahead of any positives from an observed CSR contribution and tell their friends about their ‘bad’ perception.

However, as already demonstrated, actions really do speak louder than words – most of an organisation’s reputation will be based on the actual experiences of a wide range of stakeholders and what they tell other stakeholders about their experiences and interactions. Starting at Board level with governance policies that focus on all of the key stakeholder constituencies including suppliers, customers, employees and the wider community is a start. Then backing up the policy with effective employment, surveillance and assurance systems to ensure the organisation generally ‘does good’ and treats all of its stakeholders well and you are well on the way. Then from within this base, CSR will tend to emerge naturally and if managed properly becomes the ‘icing on the cake’.

In short, genuine and sustained CSR is a symptom of good governance and a caring organisation that is simply ‘good to do business with’.

Unfortunately, the current focus on CSR will undoubtedly tempt organisations to treat CSR as just another form of advertising expenditure and if enough money is invested it may have a short term effect on the organisation’s reputation – but if it’s not genuine it won’t last.

One resource to help organisations start on the road to a sustainable culture of CSR is ISO 26000: 2010 – Social responsibility.  The Standard helps clarify what social responsibility is, helps businesses and organisations translate principles into effective actions and shares best practices relating to social responsibility. This is achieved by providing guidance on how businesses and organisations can operate in a socially responsible way which is defined as acting in an ethical and transparent way that contributes to the health and welfare of society. Figure 1 provides an overview of ISO 26000.

© ISO: https://www.iso.org/obp/ui/#iso:std:iso:26000:ed-1:v1:en

Interestingly, my view that understanding who the organisation’s stakeholders really are and engaging with them effectively is the key to success, is also seen as crucial by the standard developers! For more on stakeholder mapping see: http://www.stakeholdermapping.com

Conclusion

This has grown into a rather long post! But the message is simple: Effective CSR is a welcome symptom of an organisation that understands, and cares about its stakeholders and this type of organisation tends to be more successful than those that don’t!

The need for Governance and Project Controls

Brisconnections’ airport link, the Sydney Cross City Tunnel and 1000s of other projects are set up to fail through bad forecasting and estimating! Professor Bent Flyvbjerg, a leading international expert in the management of major projects, claims ‘the majority of forecasters are fools or liars’ and their forecasts misinform decision makers on projects instead of informing them.

Flyvbjerg’s new paper ‘Quality control and due diligence in project management: Getting decisions right by taking the outside view’ that is ‘in-press’ for publication in the International Journal of Project Management next year, defines the problem and proposes an ‘eight step’ solution.

The governance and control’s failures highlighted in this paper and the Saїd Business School, University of Oxford, press release (read the release) underpins the importance of the Governance and Controls Symposium on the 10th April in Canberra.

It is impossible to govern effectively if the information being provided from the controls systems is inaccurate or incorrect. But it is a governance responsibility to ensure adequate resources are invested in the organisation’s ‘controls systems’ and the organisation’s culture is attuned to requiring good data. The Symposium looks at how these two-sides-of-the-same-coin can be better understood. To be part of this important event either as a presenter, supporter or delegate, visit the symposium website.

Governance System Outputs

In a number of blog posts and White Papers we have argued that:

• Governance and Management are separate systems and have separate functions
• Governance is the exclusive responsibility of the ‘governing board’ of the organisation
• The three functions within any organisation are:
  • the governance functions that establish the objectives for the organisation;
  • the management functions that direct and organise the work needed to achieve the objectives; and
  • the productive functions performed by workers to create the knowledge or products required to fulfil the objectives.
• PPP Governance is an integral part of organisational governance (not something separate)

These systems and functions are discussed in depth in WP1084 – Governance Systems & Management Systems and two linked White Papers on Corporate Governance and PPP Governance.

In my last post I looked at the communication challenges faced by the governing board, this post looks at the unique outputs created by the governance system.

As a starting point for the discussion, if governance and management are different systems, they should have different functions creating different outputs. We believe this is the case.

The functions of management were defined by Henri Fayol’s (1841 – 1925) in his general theory of business administration as:

• Forecasting.
• Planning.
• Organising.
• Commanding.
• Coordinating.
• Controlling.

Inherent in these functions are decision making and the primary output from management can be defined as information and instructions that have to be communicated to others. The communication is firstly to the workers so they understand what has to be produced, where and when; secondly to the governing body to provide assurance that the right decisions have been made and the right things are being produced in the right ways applying the organisation’s policy framework correctly.

The governance system operates at a higher level and is responsible for governing the organisation to create sustainable success for the organisation’s owners. This is of necessity, a multi-faceted process that requires the careful balancing of different, frequently contradictory, objectives from different stakeholder groups.

The governance function has two key aspects; the first is deciding what the organisation should be and how it should function. These governance decisions are communicated to management for implementation and the primary outputs from this part of the governance system are:

• The strategic objectives of the organisation framed within its mission, values and ethical framework.
• The policy framework the organisation is expected to operate within.
• The appointment of key managers to manage the organisation.

These aspects are best developed using a principle-based approach that recognises and encourages entrepreneurial responses from all levels of management.

The second aspect of the governance system is oversight and assurance. The governing body should pro-actively seek assurance from its management that the strategic objectives and policies are being correctly achieved or implemented. The assurance and oversight functions include:

• Agreeing the organisations current strategic plan (in conjunction with executive management). The strategic plan describes how the strategic objectives will be achieved.
• Suggesting or approving changes to the strategic plan to respond to changing circumstances.
• Requiring effective assurance from management that the organisations policy framework is being adhered to.
• Requiring effective assurance from management that the organisations resources are being used as efficiently as practical in pursuit of its strategic objectives.
• Communicating the relevant elements of the assurances received from management to appropriate external stakeholders.
  • Assurance to the organisation’s owners the strategy and policies are being adhered to by management and the organisation as a whole.
  • Assurance to a wider stakeholder community (including regulatory authorities) the organisation is operating properly.

As my previous post suggested, the governance communication challenges are significant! However, by clearly defining the different roles of governance and management the functioning of an organisation will be enhanced, and the communication challenges will be reduced.