Category Archives: Governance

The governance of project management and organisations

Two ‘Not-to-be missed’ Conferences in May

The PGCS program for 2017 is now complete and offers two overseas speakers as well as Professor Peter Shergold – author of the landmark project management report to government “Learning From Failure”. To see what’s on at PGCS in Canberra between the 1st and 4th May go to:  http://www.pgcs.org.au/program/

In the USA you can attend the Annual Project Management College of Scheduling Conference in Atlanta from May 7th to 10th.  They have a terrific program, with speakers and panel discussions, prepared to give everyone a chance to participate.  In addition, we’re planning something special every evening.  Sunday night is the vendor reception, Monday night is our Gala Dinner and Tuesday night is a night to explore Atlanta.  For more details see: http://www.pmcos.org/

The Profession of Project Management?

Project management has taken another significant step towards becoming a profession.  After several years of debate and decisions in the UK High Court (see: Project Management is a Profession), the Privy Council considered the application by the Association of Project Management (APM) at its meeting on 12 October 2016 and has now issued an Order of Grant, which has triggered a process which will see the association awarded a Charter.

apmcharter-3523This process combines a modern assessment of the ‘worth’ of an organisation and the members it represents, their value to society, with the traditions of the UK Crown going back centuries. In keeping with history, the Charter will be printed on vellum and have the Royal seal attached.  In keeping with the modern age the APM will then need to reconfigure its structure, and how it qualifies project managers.

Once the Charter has been sealed APM will implement the procedural, legal and accounting transition to re-constitute itself as a Chartered body during 2017 including transferring the assets and liabilities of the existing charity to a new Chartered Body Corporate. The new body will then conduct a public consultation on the criteria for admission to its planned register of Chartered project professionals, placing project managers on the same professional level as other professions in the UK.

Achieving Chartered status on behalf of the project management profession is expected to:

  • raise standards through a robustly assessed register of project professionals who are committed to professional development and a code of conduct;
  • enhance the status and recognition of project management as a means of delivering effective change that improves our economy and society;
  • facilitate continued collaboration and research with other professions to develop the practice and theory of delivering successful change across sectors and industries.

Whilst this process is very UK centric, and based on the traditions of the Royal Courts, it has much wider implications. When the transition is complete in 2017, project managers, or at least the newly designated Chartered Project Managers will be on the same professional standing as Architects, Engineers and Surveyors.

Whilst there will still be on-going debate of the nature of ‘professionalism’ in the 21st century in at least one major jurisdiction the concept of placing project management in the same frame as other ‘modern professions’ is close to becoming an accepted fact.  The challenge will be to drive the change in behaviours needed to allow project managers to live up to the code of behaviour and ethical standards expected of a professional – as many of my other posts on ethics show, this will not be easy.

Governmentality – the cultural underpinning of governance

Governmentality1Two major governance failures in recent times highlight the importance of organisational culture in delivering a well-governed entity.  Professor Ralf Müller has adapted the term ‘governmentality’ to describe the systems of governance and the willingness of the people within an organisation to support the governance objectives of the organisation’s governing body. When the willingness to be governed breaks down, as these two examples demonstrate, governance failures follow.

Toyota

The Lexus ‘unintended acceleration problem’ from 2009 has cost  car manufacturer Toyota a staggering $1.2 billion fine to avoid prosecution for covering up severe safety problems and continuing to make cars with parts the FBI said Toyota “knew were deadly.”  In addition to numerous civil actions and costs of reputational damage.  The saga was described as a classic case of corporate culture that favoured the seemingly easy way out instead of paying the cost and doing the right thing.  But, the actions of the people who magnified the problem by attempting to cover up the issues fundamentally contradicts the ‘Toyota Way’ that has guided Toyota since 2001. The Toyota Way has two core principles, respect for people and continuous improvement (kaizen).

Respect for people puts ‘people before profits’, and this is not an idle slogan.  Following an Australian Government decision in 2014, all motor vehicle manufacturing in Australia will cease by 2018 (this affects General Motors Holden, Ford and Toyota). In February 2014 Toyota president Akio Toyoda personally came to Australia to tell his workers of the closure and Toyota’s commitment to its staff through training and other activities has maintained staff commitment at our local Altona plant with everyone working to make the “last car the best global car!”.

The difference between the “people first equals customer first” attitude demonstrated in the approach to closing the Altona plant where people are still being released for paid training to up skill for new roles and the ‘customer last’ approach that dominated the Lexus saga is staggering.  The reaffirmation of the ‘Toyota Way’ may have been driven in part by the Lexus disaster but this does not explain why quality and customer service was allowed to fail so badly in the company that practically invented modern quality.

Volkswagen

A similar dichotomy is apparent in the Volkswagen diesel engine emissions scandal.  A company renowned for engineering excellence, from a country renowned for engineering excellence allowed engineering standards to slip to a point where the cars being sold were illegal.  The actual emissions were only part of the problem, Volkswagen engineers had developed a software program dubbed the ‘diesel dupe’ that could detect when the cars were being tested and change the engine performance to improve results. When the cars were operating under controlled laboratory conditions – which typically involve putting them on a stationary test rig – the device appears to have put the vehicle into a sort of safety mode in which the engine ran below normal power and performance thereby reducing emissions. Once on the road, the engines switched out of this test mode.

Governance issues

Neither of these issues involved ‘a few bad apples’ – the excuse used by most institutions to explain banking and financial scandals. They both required extensive management involvement and cover-ups or acquiescence. A substantial subset of both organisation’s management felt that doing the wrong thing was in the best interests of either themselves or the organisation (or both, at least in the short term). But the governing bodies of both organisations would seem to have maintained a commitment to their overall philosophy, the ‘Toyota Way’ and ‘Engineering excellence’.  So what caused the governance failure?

Governmentality

One element that seems central to both of these failures was a breakdown in the willingness of managers to comply with the overall governance philosophy of the organisation which in turn caused the governance processes to fail; this is the domain of governmentality. Governance cannot be successfully imposed on a population that does not want to be governed!

Governmentality2Governmentality is a term coined by philosopher Michel Foucault around 1980 and refers to the way in which the state (or another governing body) exercises control over, or governs, the body of its populace. The concept involves a complex series of two-way transactions involving:

  • the way governing bodies try to produce the people best suited to fulfil those governments’ policies;
  • the organised practices (mentalities, rationalities, and techniques) through which people are governed, and
  • the techniques and strategies by which a society is rendered governable.

In the same way as governments rely on most people complying with legislation most of the time, organisational governance mechanisms such as ‘project management offices’ and ‘portfolio management’ cannot function effectively without the cooperation of the people being governed. When governmentality breaks down and people no longer support the governance processes they cease to be effective.

The challenge facing every governing body, in every organisation, is in three parts

  1. Creating an authentic vision and mission for the organisation.
  2. Creating an effective governance system that supports the achievement of the vision.
  3. Creating and maintaining an ethical culture that embraces and supports governmentality.

Effective governance systems can weed out the bad apples and correct errors, but they cannot oversee the actions of every manager all of the time if the majority of people do not wish to follow the governance dictates, or actively work to subvert them.

Developing the ‘right culture’ by employing the right people (and importantly offloading the wrong people) starts at the top.  The governing body needs to ‘walk the talk’, their CEO and senior executives need to model the desired behaviours and ‘doing the right thing’ needs to be encouraged throughout the organisation.

Achieving this requires authenticity and a holistic approach to the way the organisation functions; all of the elements need to work together cohesively. Achieving this is the primary responsibility and challenge for the ‘governing body’, in most organisations, the Board of Directors!

If you get the vision, mission and culture right, even major lapses such as the ‘Lexus unintended acceleration problem’ can be overcome.  Despite the damage this caused, Toyota is now the world’s largest automotive manufacturer with a market capitalisation that is nearly double that of Ford and GM combined.  This is also the reason why Objectives, ethics and culture are the top three elements in my model for the ‘Functions of Governance’.

Seeking a definition of a project.

Good definitions are short and unambiguous and are essential for almost every aspect of life. Even something as simple as ordering a snack requires a clear understanding of what’ required – this understanding is the basis of a definition. For example, doughnuts and bagels have a lot in common, they are both round and have a hole (a torus), and are made from dough but they are ‘definitely’ very different commodities! If you need a bagel for breakfast or a doughnut for you coffee everyone involved in the transaction needs to understand your requirements if your expectations are to be fulfilled.

bagel

donut

 

 

 

 

 

The simple fact is if you cannot define something precisely, you have real problems explaining what it is, what it does and the value it offers, and this lack of definition/understanding seems to be a key challenge facing the project management community (by the way, the bagel is on the left…… the other picture is a Krispy Kreme donut).

Definitions serve two interlinked purposes, they describe the subject of the definition in sufficient detail to allow the concept to be recognised and understood and they exclude similar ‘concepts’ that do not fit the definition. Definitions do not explain the subject, merely define it.

Way back in 2002 we suggested the definition of ‘a project’ was flawed. Almost any temporary work organised to achieve an objective could fit into almost all of the definitions currently in use – unfortunately not much has changed since. PMI’s definition of a ‘project’ is still a: temporary endeavour undertaken to create a unique product, service or result. This definition is imprecise, for example, a football team engaged in a match is involved in:

  • A temporary endeavour – the match lasts a defined time.
  • Undertaken to create a unique result – the papers are full of results on the weekend and each match is unique.
  • Undertaken to create a unique product or service – the value is in the entertainment provided to fans, either as a ‘product’ (using a marketing perspective) or as a service to the team’s fans.

Add in elements from other definitions of a project such as a ‘defined start and end’, ‘planned sequence of activities’, etcetera and you still fail to clearly differentiate a team engaged in a project from a football team engaged in a match; but no-one considers a game of football a project. Football captains may be team leaders, but they are not ‘project managers’.

The definition we proposed in 2002 looked at the social and stakeholder aspects of a project and arrived at an augmented description: A project is a temporary endeavour undertaken to create a unique product, service or result which the relevant stakeholders agree shall be managed as a project. This definition would clearly exclude the football team engaged in a match unless everyone of significance decided to treat the match as a project but still suffers from a number of weaknesses. To see how this definition works download the 2002 paper from, www.mosaicprojects.com.au/PDF_Papers/P007_Project_Fact.pdf

 

Updating the definition

Since 2002 there has been a significant amount of academic work undertaken that looks at how projects really function which may provide the basis for a better definition of a project.  The key area of research has been focused on describing projects as temporary organisations that need governing and managing; either as a standalone organisation involving actors from many different ‘permanent organisations’ such as the group of people assembled on a construction site, or as a temporary organisation within a larger organisation such a an internal project team (particularly cross-functional project teams). The research suggests that all projects are undertaken by temporary teams that are assembled to undertake the work and then dissipate at the end of the project.

My feeling is recognising the concept of a project as a particular type of temporary organisation provides the basis for a precise and unambiguous definition of ‘a project’. But on its own this is insufficient – whilst every project involves a temporary organisation, many temporary organisations are not involved in projects.

Another fundamental problem with the basic PMBOK definition is the concept of an ‘endeavour’.  The definition of endeavour used as a noun is: an attempt to achieve a goal; as a verb it is: try hard to do or achieve something.  But, ‘making an effort to do something’ is completely intangible; projects involve people! Hitting a nail with a hammer is an endeavour to drive it into a piece of wood but this information is not a lot of use on its own; you need to know who is endeavouring to drive the nail and for what purpose?

Nail-Quote-Abraham-Maslow

Another issue is the focus on outputs – a product service or result; the output is not the project, the project is the work needed to create the output. Once the output is finished, the project ceases to exist!  A building project is the work involved in creating the building, once the building is finished it is a building, not a project. But confronted with the need to create a new building different people will create different projects to achieve similar results:

  • One organisation may choose to create two projects, one to design the building, another to construct it;
  • A different organisation may choose to create a single ‘design and construct’ project;
  • Another organisation may simply treat the work as ‘business as usual’.

The scope of the work involved in any particular project is determined by its stakeholders – projects are a construct created by people for their mutual convenience, not by some immutable fact of nature.

 

A concise definition of a project

Unpacking the elements involved in a project we find:

  • A temporary organisation is always involved, but not all temporary organisations are project teams.
  •  Projects cause a change by creating something new or different – this objective defines the work to be accomplished and usually includes constraints such as the time and money available for the work. These requirements and scope of work included in a project have to be defined and agreed by the relevant stakeholders at some point – there are no pre-set parameters.
  • The stakeholders have to agree that the work to accomplish the scope will be managed as ‘a project’ for the project to exist; the alternative is ‘business as usual’ or some other form of activity.

Modifying our 2002 definition to incorporate these factors suggests a definition along these lines:

A project is a temporary organisation established to deliver a defined set of requirements and scope of work, which the relevant stakeholders agree shall be managed as a project.

The definition originally proposed has been updated based on discussions with colleagues to:

Project:  A temporary organisation established to accomplish an objective, under the leadership of a person (or people) nominated to fulfil the role of project manager.

Project manager: A person (or people) appointed to lead and direct the work of  a project organisation on behalf of its stakeholders, to achieve its objective. The job title and the degree of authority and autonomy granted to the project manager are determined by the governance arrangements established by the project’s stakeholders.

Project management: The application of knowledge, skills tools and techniques to lead and direct the work of a project organisation.

This definition overcomes many of the fundamental problems with the existing options:

  • It recognises projects are done by people for people, they are not amorphous expenditures of ‘energy’.
  • It allows for the fact that projects do not exist in nature, they are ‘artificial constructs’ created by people for their mutual convenience, and different people confronting similar objectives can create very different arrangements to accomplish the work.
  • It recognises that projects are only projects if the people doing the work and the people overseeing the work decide to treat the work as a project.  The ‘always present’ factors are:
    • People decide to call the work a project (but just calling it a project is not enough)
    • The work is directed to achieving an objective that involves a change in something (new, altered, improved, demolished, etc)
    • The people doing the work are part of a temporary organisation (team / contract / ad hoc / etc) created to facilitate achieving the objective.
    • The work is led by a person fulfilling the role of a project manager and the work is managed as a project (PMBOK / ISO 21500 / Agile / etc).

What do you think a good project definition may be that is concise and unambiguous?

The challenge is to craft a technically correct definition, and then apply the Socratic method of thinking outlined in our 2002 paper at:  www.mosaicprojects.com.au/PDF_Papers/P007_Project_Fact.pdf.

I look forward to your thoughts!

Selling Change – lessons from Brexit

Is the reason so many change initiatives fail an excessive focus on the ‘technical benefits’ and future value?  Some of the lessons from the Brexit campaign would suggest ‘YES’!

brexit

Before people will buy into a new opportunity (the ‘change’) it helps if they are unhappy with the status quo.  If this unhappiness can be magnified the willingness to embrace an uncertain future can be increased.  The Brexit ‘Leave campaign’ is an extreme example of creating this desire. Most of the focus of ‘Leave campaign’ seems to have been tailored towards raising the level of unhappiness with the status quo. A few key examples:

EU bureaucracy – it exists and it is a significant burden; by simply focusing on the ‘perceived pain’ (most electors have very little contact with the regulations) a desire to leave was generated. The counter points carefully ignored include:

  1. If the UK leaves it will need its own regulations for public health and safety
  2. Firms that want to export to Europe will have more bureaucracy to deal with, complying with both the UK rules and the EU rules (the alternative is to cut off 50% of your export market).

EU bureaucrats – the unelected and unaccountable masses in Brussels!  This ignores the fact UK bureaucrats are unelected and both sets are accountable to their respective parliaments.  However, the perception of lack of control and accountability was significant despite the fact 99% of the UK electors have no control over UK bureaucrats.

Immigration and Islam. ‘Taking control of UK borders’ seemed to be the biggest factor in the debate.  It’s a nice idea that ignores history:

  1. The vast majority of Islamic migrants in the UK arrived before the UK joined the EU (or these days their parents arrived…). Until the 1960s Commonwealth citizens had UK passports and a right of residence in the UK.
  2. The EU is less than 5% Islamic.
  3. Freedom to work in the EU is a two-way process – the right to work and access to workers is important (and has virtually nothing to do with ‘immigration’).

Trade deals. Negotiating ‘trade deals’ to the benefit of the UK…..   Ignoring the fact that any trade deal requires concessions and most take 5 to 10 years to negotiate. The ‘other party’ has to see a significant benefit.

 

Lessons from Brexit!

The positive lesson for change proponents is to spend more time on creating the desire for change. Most people in an organisation can ‘live with’ the status quo (but are aware of the problems and pain points), and are likely to be frightened with the perceived threats and challenges of the proposed change.  Digging into the ‘pain points’ and offering constructive solutions may provide a powerful basis for building the desire for change.  This is a very different approach to starting with an emphasis on the future benefits and opportunities the proposed change will bring.

The processes needed to sell the change to the organisation’s executive decision makers have to focus on benefits and value, but Brexit suggests a different approach may be beneficial when approaching the people within the organisation affected by the change.

Ethics matter!  “You can fool all the people some of the time and some of the people all the time, but you cannot fool all the people all the time[1]”. What has yet to wash out in the Brexit aftermath is the lack of ethics and in some cases blatant dishonesty of the ‘Leave campaign’. I suspect there will be a major backlash against the people responsible for the ‘Leave campaign’ as people become aware of the exaggerations and deceptions.  The current crash in the Pound and the almost inevitable recession it will cause were predicted.  What was missed from the UK debate, and is essential in an organisational change initiative, is recognition of the challenges of the change – offset by the vision of future benefits. Ethics are not negotiable!

Simple language is important.  Creating and emotional commitment to change requires the use of language that is easy to understand. The ‘Leave vision’ was simplistic rather than simple but it worked – ‘make Britain great again’ and ‘regain sovereignty’ sound appealing[2] but lack substance.  The difference between the Brexit ‘con job’ and ‘informed consent’ is understanding what you are committing to, both the vision and the journey. But the language of projects, engineers and technicians used to define and develop a change proposal is frequently inappropriate for effective communication to the rest of the people affected.  This is discussed in my paper: Understanding Design – The challenge of informed consent.

Summary

The Brexit campaign is an extreme example of creating a desire for change based on developing a level of dissatisfaction with the status quo.  This tactic can be a very useful early phase in the communication processes around a proposed organisational change – dissatisfaction with the current state is a powerful driver to accept change.  The flip side, also observable in the Brexit campaign, is that ethics and honesty matter. Democracy requires informed consent!  We have no idea what the consequences in the UK would have been if the ‘Leave campaign’ had been more ethical and spelt out a future; but judging from the reaction of many, large numbers of people now seem to feel conned by the ‘leave’ campaign.

In an organisational context, this loss of trust will be disastrous.  However, the fact the ‘Leave campaign’ could persuade a majority in the UK to vote in favour of an uncertain future that will reduce living standards and increase costs in the short-term (at least) without even bothering to paint a clear vision of their proposed future (or how to get there) shows how powerful the techniques discussed above can be.

The challenge for ethical organisational change is to harness the power without resorting to the deceptions.

 

[1] Adapted from: “Traité de la Vérité de la Religion Chrétienne” by Jacques Abbadie (1684, Chapter 2)

[2] Britain was ‘Great’ in the period leading up to WW1 based on its Empire (not the Commonwealth); it is and has been a sovereign nation since 1066…… Neither of these concepts was fleshed out possibly allowing 1000s of different self-made visions to fill the space. Potentially a good tactic but fraught with problems going forward.

The language used to define risks can contribute to failure.

Risk1If a risk is going to be adequately managed, it needs to be defined.  Failing to describe the actual risk (or risks) will almost inevitably lead to project failure and will frequently exacerbate the damage.

In recent times, there seems to be an explosion of documents in the public domain, including academic papers (where one would have hoped the reviewers and editors knew better) listing as ‘risks’ factors that cannot ever be risks.  The ‘fact’ hides the real or consequential risks that may be manageable.

RiskRisk 101 – a risk is an uncertainty that may affect a project objective if it occurs. For something to be a risk, there has to be an uncertainty and the uncertainty may have a positive or negative impact on one or more objectives (see more on risk management). Risk management involves balancing the uncertainty, its potential impact and the cost and effort needed to change these for the better. But to do this you need to focus on the uncertainties that can be managed.

head-in-sandOne of more frequently miss-described risks is ‘technical complexity’.  The degree of technical difficulty involved in a project is a FACT that can be measured and described!  Some projects such as launching a space rocket are technically complex, other less so; but NASA has a far higher success rate in its rocket launches than most IT departments have in developing successful software applications that achieve their objectives.  The technical difficulty may give rise to consequential risks that need addressing but these risks have to be identified and catalogued if they are going to be managed. Some of the risks potentially arising out of technical complexity include:

  • Inadequate supply of skilled resources in the marketplace / organisation;
  • Management failing to allow adequate time for design and testing;
  • Allowing technicians to ‘design in’ unnecessary complexity;
  • Management failing to provide appropriately skilled resources;
  • Management lacking the skills needed to properly estimate and manage the work;
  • Etc.

Another common risk in many of these pseudo risk lists is ‘lack of senior management support’.  This is a greyer area, the project team’s perception of management support and the actual level of support from senior management may differ. Developing an understanding of the actual attitude of key senior managers requires a methodical approach using tools such as the Stakeholder Circle.  However, even after defining the actual attitude of important senior managers the lack of precision in the risk description will often hide the real risks and their potential solutions or consequences:

  • If there is a real lack of senior management support the project should be cancelled, its probability of failure is greater than 80%. Continuing is simply wasting money.
  • If the problem is senior management failing to understand the importance of the project, this is an issue (it exists) and the solution is directed communication (see more on directed communication). The risk is that the directed communication effort will fail, leading to project failure, this risk needs careful monitoring.
  • If the problem is a project sponsor (or steering committee) who is not committed to project success and/or a sponsor (or steering committee) lacking understanding of his/her role (see more on the role of a sponsor) this is another issue with a solution based in education or replacement. Depending on the approach to resolving the issue (and its guaranteed impact on project success if the issue remains unresolved) the risk is either the necessary education process may not work and/or poor governance and senior management oversight will allow the issue to continue unresolved – these specific risks need to be explicitly described and acknowledged if they are to be managed.

Fine tune your detectorsThe first step to managing risks effectively is developing a precise description of the actual risk that requires managing. If there are several associated risks, log each one separately and then group them under a general classification.   The description of each risk is best done using a common meta language such as:

  • ‘[Short name]: If a [description of risk] caused by [cause of risk] occurs, it may cause [consequence of occurrence]’. For example:
  • ‘Storms: If a heavy thunderstorm caused by summer heat occurs, it may cause flooding and consequential clean up’.

For each risk you need to:

  • Define the risk category and short name;
  • Describe the risk using an effective ‘risk meta language’;
  • Determine if the risk is an opportunity or threat and quantify its effect;
  • Prioritise the risk using qualitative assessment process;
  • Determine the optimum response;
  • Implement the response and measure its effectiveness (see more on risk assessment).

A simple Excel template such as this can help: http://www.mosaicprojects.com.au/Practical_Risk_Management.html#Tools

Managing issues is similar, the key difference is the consequences of an unresolved issue are certain – the issue is a fact that has to be dealt with (see more on issues management).

There are a number of factors that can cause both risks and issues to be improperly defined, some technical, most cultural. Three of the most important are:

  • Dealing with easy to identify symptoms without looking for the root cause of the risk / issue (see more on root cause analysis).
  • A management culture that does not allow open and honest reporting of risks and issues; preferring to hide behind amorphous descriptions such as ‘technical complexity’ rather than the real risk ‘management’s inability to manage this level of complicated technology’.
  • Failing to allow adequate time to analyse the stakeholder community using tools such as the as the Stakeholder Circle so that the full extent of risks associated with people’s capabilities and attitudes can be understood – these can account for up to 90% of the actual risks in most projects.

Management culture is the key to both allowing and expecting rigorous and honest assessment of risk. One of the key functions of every organisation’s governing body is to design, create and maintain the organisation’s management culture, this is a problem that starts at the top! For more on the roles of governance see: http://www.mosaicprojects.com.au/WhitePapers/WP1096_Six_Functions_Governance.pdf.

Stakeholders and Reputational Risk

trust-valueYour reputation and your organisation’s reputation are valuable assets. The willingness of others to trust you, their desire to work with you and virtually every other aspect of the relationship between you and your stakeholders is influenced by their perception of your reputation (see more on The value of trust).  But reputations are fragile: they can take a lifetime to build and seconds to lose. Some of the factors influencing them are:

  1. Reputation cannot be controlled: it exists in the minds of others so it can only be influenced, not managed directly.
  2. Reputation is earned: trust is based on consistent behaviour and performance.
  3. Reputation is not consistent: it depends on each stakeholder’s view. One organisation can have many different reputations, varying with each stakeholder.
  4. Reputation will vary: each stakeholder brings a different expectation of behaviour or performance and so will have a distinct perception of reputation.
  5. Reputation is relational: you have a reputation with someone for something. The key question is therefore: ‘with whom, for what?’
  6. Reputation is comparative: it is valued in comparison to what a particular stakeholder experiences or believes in relation to peers, performance and prejudice.
  7. Reputation is valuable: but the true value of reputation can only be appreciated once it is lost or damaged.

Estimating the ‘true value’ of your reputation is difficult and as a consequence decisions on how much to invest in enhancing and protecting your reputation becomes a value judgment rather than a calculation. Your reputation is created and threatened by both your actions and their consequences (intended or not).  Some actions and their effects on your reputation are predictable, others are less so and their consequences, good or bad are even less certain. This is true regardless of your intention; unexpected outcomes can easily cause unintended benefit or damage to your reputation.

Building a reputation requires hard work and consistency; the challenge is protecting your hard earned reputation against risks that can cause damage; and you never know for sure what will cause reputational damage until it is too late – many reputational risks are emergent.

Managing Reputational Risk in Organisations

Because an organisation’s reputation is not easy to value or protect, managing reputational risk is difficult! This is particularly true for larger organisations where thousands of different interactions between staff and stakeholders are occurring daily.

The first step in managing an organisation’s reputational risk is to understand the scope of possible damage, as well as potential sources and the degree of possible disruption. The consequence of a loss of reputation is always the withdrawing of stakeholder support:

  • In the private sector this is usually investor flight and share value decline; these can spiral out of control if confidence cannot be restored.
  • In the public sector this is typically withdrawal of government support to reflect declining confidence.
  • In the professional sector client confidence is vital for business sustainability; a loss of reputation means a loss of clients.

Each sector can point to scenarios where the impact of reputation damage can vary from mild to catastrophic; and whilst the consequences can be measured after the effect they are not always predictable in advance.  To overcome this problem, managing reputation risk for an organisation requires three steps:

  • Predict: All risk is future uncertainty, and an appropriate risk forecasting system to identify reputation risk is required – creative thinking is needed here! The outcomes from a reputational risk workshop will be specific to the organisation and the information must feed directly into the governance process if reputation risk is to be taken seriously (see more on The Functions of Governance).
  • Prepare: Reputation risk is a collective responsibility, not just the governing body’s. All management and operational staff must recognise the organisation’s reputation is important and take responsibility for protecting it in their interaction with stakeholders. The protection of reputation should also be a key element in the organisation’s disaster recovery plans.
  • Protect: A regular vulnerability review will reveal where reputation risk is greatest, and guide actions to prevent possible damage. Each vulnerability must be assessed objectively and actions taken to minimise exposure. Significant risks will need a ‘protection plan’ developed and then implemented and monitored.

Dealing with a Reputational Risk Event

When a risk event occurs, some standard elements needs to be part of the response for individuals and organisations alike. For reputation enhancing risk events, make sure you acknowledge the ‘good luck’ in an appropriately and take advantage of the opportunity in a suitably authentic way. Over-hyping an event will be seen as unauthentic and have a negative effect on reputation; but good news and good outcomes should be celebrated. Reputation threatening risk events need a more proactive approach

  • Step 1: Deal with the event itself. You will not protect your reputation by trying to hide the bad news or ignoring the issue.  Proactively work to solve the problem in a way that genuinely minimise harm for as many stakeholders as possible minimises the damage that has to be managed.
  • Step 2: Communicate. And keep communicating – organisations need to have a sufficiently senior person available quickly as the contact point and keep the ‘news’ coming. Rumours and creative reporting will always be worse then the fact and will grow to fill the void. All communication needs to be open, honest and as complete as possible at the time.  Where you ‘don’t know’ tell people what you are doing to find out. (see Integrity is the key to delivering bad news successfully).
  • Keep your promises and commitments. If this becomes impossible because of changing circumstances tell people as soon as you know, don’t wait for them to find out.
  • Follow up afterwards. Actions that show you really care after the event can go a long way towards repairing the damage to your reputation.

Summary

Reputation is ephemeral and a good reputation is difficult to create and maintain. Warren Buffet in his 2015 memo to his top management team in Berkshire Hathaway emphasised that their top priority must be to ‘zealously guard Berkshire’s reputation’. He also reminded his leadership team that ‘we can afford to lose money–even a lot of money. But we can’t afford to lose reputation–even a shred of reputation’ (discussed in Ethics, Culture, Rules and Governance). In the long run I would suggest this is true for every organisation and individual – your reputation is always in the minds of other people!