Tag Archives: Corporate Governance

Defining project success – moving beyond benefits realisation!

What you measure is what you are likely to get – so do the so-called measures of project success used by The Standish Group[1] and other really help?  Certainly, the CHAOS definition has been updated from the ‘traditional’ assessment of on-time, on-budget, and on-target (scope) to the ‘modern’ definition of on-time, on-budget, and a satisfactory result[2]; but does this really change anything?

Challenged projects failed to achieve one or more of the measures, failed projects were cancelled before completion or the deliverables were not used.  The problem is do these measures really matter?  The Panama canal expansion was planned to finish in 2014, it was actually finished in 2016; its costs were estimated at US$5.25 billion, it actually cost will be in the range of $6 to $8 billion (depending on the outcome of disputes).  But, the expanded canal is operating close to capacity and has had to restrict bookings since January 2017 to minimise delays and the latest estimates project that fiscal transfers from the Canal to the central government are expected to increase 60% to a total USD 1.6 billion in the current fiscal year.

Given the canal is 100 years old and the new works can be expected to have a similar lifespan what is the real measures of success? In the last 11 years of Panamanian administration, canal revenues grew at a compound rate of five percent annual of the fiscal year 2006 to 2016. Given the core mission of the Panama Canal is to generate income and support the growth of the Panamanian economy is this really a ‘challenged project’?

We have been suggesting for many years real success is a much more complex issue that requires far more sophisticated measures and management than simply focusing on time, cost and scope:

All of these papers lead towards the same conclusion, project success is founded in the creation of deliverables that facilitate the realisation of benefits. But real success needs something more; the benefits have to be seen as valuable by a large proportion of the key stakeholders – success is very much in the ‘eye-of-the-stakeholders’ and if they declare the project a success it is, if they don’t see the outcomes as valuable it is not!

The simple measures used by The Standish Group are only relevant if they advantage or impact the value perceived by the project’s stakeholders.  A number of projects in Queensland leading towards the 2018 Commonwealth Games undoubtedly have time as a key component in providing recognisable value to stakeholders. In many other projects time may be almost irrelevant. Cost may affect profitability (and therefore value in the ‘eyes’ of some stakeholders) but is probably far less important than delivering an output that delights the end users.  Quality and scope should be similarly balanced against the value perceived by stakeholders.

The problem with the proposition that success is based on outcomes of a project being perceived as successful by its stakeholders are many:

  • Different stakeholders will have different views of what is important and ‘valuable’ – these differences may be irreconcilable.
  • Stakeholder’s perceptions change over time – the Sydney Opera House went for a ‘white elephant’ that suffered massive time and cost overruns to a UNESCO World Heritage landmark in record time.
  • It is impossible to know how people will react to the eventual project outcome in advance –success, or failure, emerges after the project has delivered and everyone involved has ‘gone home’.

I don’t have an easy answer to this conundrum – but I do believe two major shifts in project governance and the overall ‘management of project management’ are needed:

  1. The concept of project success is built over time; it starts during the earliest stages of a project when the concepts are being formulated – no one benefits from delivering the wrong project on time and on budget.
  2. Everyone involved in the management of the project including sponsors and portfolio managers through to the project manager need to have in-depth discussions with their stakeholders about what success looks like and what is really important to the client and end users of the deliverable. This discussion needs to be framed by the constraints of cost and time (to the extent they matter) but not limited to predetermined artificial values, to create a prioritised list of success criteria that directly relate to the needs of the stakeholders (which may include time and/or cost, but equally may not); see: Defining Project Success using Project Success Criteria.

Finally, the ‘what’s really valuable’ discussion needs revisiting on a regular basis to keep the work of the project aligned with the evolving needs and perceptions of the stakeholders.  You can call this ‘agility’ if you like (or simply effective stakeholder engagement) but by now we all should recognise that producing ‘failed’ projects helps no one and driving to achieve arbitrary and/or unnecessary time and cost targets is a good way to destroy real value.

Making these shifts presents some real challenges:

  • The challenge the project controls community needs to start looking at is how do we start measuring success? Most organisations can’t even measure benefits!
  • The challenge for people involved in the overall management of projects is primarily answering the question which stakeholders are important in this conversation and how do we engage them?
  • The portfolio management challenge is focused on developing ways to quantify and assess these intangible metrics to select the most valuable projects.
  • The governance challenge is putting rigour around the whole framework to encourage innovation, satisfy stakeholders and maintain overall accountability.

My feeling is that project success is a complex, emergent, characteristic of a project that manifests after the work of the project has been completed.

Your thoughts are welcome.

_____________________________

[1] See: http://www.standishgroup.com/outline

[2] Presumably this change is to accommodate agile project where the scope is defined through the course of the work.

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Comminsure Scandal – just more of the same……

ComminsureThe Directors of the CBA Bank and Comminsure would appear to have a lot to learn about basic ethics.  You do not set the ethical standards for an organisation by:

  • Saying ‘we are focused on ethics’,
  • Confusing ethical intent with outcomes,
  • Meeting with people screwed as a consequence of unethical behaviour within the organisation,
  • Saying sorry and/or making belated payments years too late.

This approach is at best second rate PR and the belated payments may be necessary restitution (but rarely compensates for the pain an suffering caused by the CBA’s unethical behaviours extending over years). But none of these actions has anything to do with setting ethical standards – ethics are about doing the right thing when no one is watching and proactively correcting errors as soon as you are aware of them. Ethical standards have nothing to do with implementing a pathetic PR exercise after your extensive wrong doing has been exposed to the full glare of publicity and then only paying parsimonious compensation to a few of the victims.

The ethical standards of an organisation are set by the minimum standards of behaviour its managers condone.  CBA Directors and managers have condoned highly unethical behaviours and the CBA continues to employ many of the same people who have been responsible for the creation and sustainment of this unethical culture over many years. This is a fundamental failure of organisational governance.

The only real measure of CBA and Comminsure starting to cut out the unethical rot in its management systems will be the number of people in senior management ranks fired or otherwise sanctioned for either:

  • Condoning the behaviours outlined in the previous Senate enquiry and the latest ABC 4 Corners / Fairfax report, or
  • For incompetence in not knowing (or not wanting to know) the unethical practices were on-going.

A number of Comminsure Directors should be resigning for exactly the same reasons!

CrisisThe root cause of the Comminsure scandal highlighted over the last 24 hours is identical to the earlier CBA banking scandal (discussed in several previous posts) – CBA management designed incentive systems that paid its staff bonuses to screw their clients and inflate profits. The consequences may not have been intended but nothing was done to correct obvious problems once they became apparent, probably because the managers responsible for oversighting the behaviours were on exactly the same incentive structure. And, the bank continued to pay for behaviours that focused on short term profits over the needs of distressed clients for years. Simply leaving the same group of people who created the mess to clean it up is stupidity of the highest order.

As defined in our White Paper: The Functions of Governance, two of the most important aspects of governance are establishing (and enforcing) the ethical standards and culture of the organisation. These functions cannot be delegated for reasons outlined in Dr. Bourne’s post from last week Practical Ethics.

The question is what are the CBA Board going to do about the core problem?

PMI’s Practice Guide for the Governance of Portfolios, Programs, and Projects

governance-of-portfolios-programs-and-projectsPMI’s newly released Practice Guide for the Governance of  Portfolios, Programs, and Projects, provides some useful guidance to organisations and practitioners on the implementation of the management of portfolios, programs, and projects, but very little on the governance of this important aspect of most organisations.

The understanding of project management, program management and portfolio management is well developed and easily accessible to all organisations, many of which have well developed capabilities in these areas, but most still see their projects and programs fail on a regular basis.  Our 2012 post Project or Management Failures? highlighted the issues.

The source of many of these failures lies in the organisation’s ability to manage the overall function of ‘doing projects’ – defined by Professor Peter Morris as ‘the management of projects’ to differentiate this area of middle and executive management from traditional ‘project and program management’. The overall domain covered by the ‘the management of projects’ concept is outlined in our White Paper WP1079 The Strategic Management of Projects.

Despite confusing the governance function and the management function, this PMI Practice Guide is a valuable contribution to this area of management and to a lesser extent the governance of projects, programs and portfolios.  As previously mentioned, the major weakness in the PMI Practice Guide is its failure to differentiate and understand the different functions of governance and management.  Whilst this confusion is common in documents prepared by practitioners and academics focused on IT management and project management, it is rarely seen in any other area of management.

Governance is the exclusive responsibility of an organisation’s governing body; in corporations this is the ‘board of directors’, in other types of organisation, their equivalent.  The governing body is responsible for setting the objectives, culture, and ethical framework for the organisation, employing the organisation’s senior management, oversighting the organisation’s management functions and providing assurance to external stakeholders the organisation is operating effectively and conforming to its obligations (for more on this see: WP 1096 The Functions of Governance). Elements of some of these functions can be delegated to management, particularly in the areas of surveillance and assurance, but accountability remains with the governing body. Importantly in a well governed organisation, the governing body does not interfere in or directly undertake the management of the organisation – it is impossible to govern your own work!

The functions of management were defined 100 years ago by Henri Fayol in his book Administration Industrielle et Generale.  Management involves planning, forecasting, employing other managers and workers, and organising as in creating the organisation; then coordinating, controlling and directing the work of suppliers and subordinates to achieve the organisation’s objectives; whilst working within the ethical and cultural framework set by the governing body (for more on this see: WP 1094 The Functions of Management). A key function of every management role is ensuring subordinates and suppliers conform to the ‘rules’ set by the governing body.

In short, the role of governance is to set the objectives and rules; the role of management is to manage the resources of the organisation to achieve its objectives, working within the ‘rules’. This approach to governance is clearly defined in ISO 38500 the international standard for the corporate governance of information technology, and ISO 21505 the draft international standard for the governance of projects, programs and portfolios.  PMI has completely failed to understand this distinction and as a consequence invented a range of meaningless definitions in the Practice Guide along with a framework that defines basic management functions such as providing resources to undertake work as ‘governance’.

The simple fact of life is the governing body employs managers to undertake management functions and this involves allocating resources, deciding on priorities and making decisions within the strategic framework approved by the governing body. The basic functions of management were clearly defined by Henri Fayol in 1916 had have stood the test of time and the rigours of academic scrutiny.

The tragedy of the decision by PMI to ignore legislation, international standards and a range of governance authorities ranging from the OECD to Cadbury and try to invent its own definition of governance, is that in the PMI model, virtually every management role above that of the project manager is turned into a ‘governance role’.

The proposition made by PMI that every manager responsible for organising and coordinating the work of subordinate managers is engaged in governance is simply untenable – good effective prudent management is simply good effective prudent management!

The role of governance is to create the environment that allows good effective prudent management to occur; ensure the organisation employs people capable of implementing good effective prudent management and to oversee the working of management so the governors can provide assurance to the organisation’s stakeholders that their management team is in fact providing good effective prudent management. The actual work of providing good effective prudent management to achieve the objectives of the organisation is the role, responsibility and duty of managers

Strangely enough most people in real governance positions know what governance is and know what management is.  Alienating this group is a real pity because once you get past the problem of describing almost every management role as a ‘governance role’ the Guide contains a lot of very useful information focused on improving the abysmal performance of many organisations in the complex area of the ‘management of projects’.

  • Section 2 describes organisational project management and the tailoring management practices to meet organisational needs; the essential relationships and considerations; roles and responsibilities; and domains, functions, and processes. It describes how ‘the management of projects’ can be implemented as a program or project for integrated portfolio, program, and project management.
  • Section 3 describes portfolio management, its links to governance and its central role in the ‘management of projects’.
  • Section 4 describes program management and Section 5: management at the Project Level.

In summary PMI’s Practice Guide for the Governance of Portfolios, Programs, and Projects is a good attempt to focus attention on the vital executive and middle management roles that routinely fail to properly support the delivery of projects and programs; the Practice Guide is spoiled by the delusion that middle level managers and executives undertaking their normal management responsibilities are somehow ‘governing’ the organisation.  As a consequence, the governing bodies of organisations and corporations will tend to dismiss the Practice Guide as an irrelevance.

The key element missed by PMI is the understanding that good management practice is an outcome of good governance, and bad management practice is a symptom of governance failure. The role of governance is to ensure its organisation’s management structures and systems are ‘good’. The fact PMI have completely missed this important distinction in their Practice Guide and as a consequence significantly reduced its value to organisations is an opportunity lost! In most organisations both the governance of projects programs and portfolios needs improving and the overall management of projects programs and portfolios needs improving – these are both important, but require very different improvement processes!

Does organisational governance exist?

Governance99Governance and governing have historically was associated with the role of the Sovereign governing his (or occasionally her) ‘sovereign state’. Over the last five or six centuries the exclusive power of the Sovereign has largely been devolved to governments of one form or another but the functions of making laws, authorising the collection of taxes and providing direction to the citizens of the state remain fundamentally unchanged.

The concept of corporate (or organisational) governance grew out of this overarching concept; to imply there was a similar role within an organisation for a ‘governing body’ to take responsibility for the governance of the organisation. This concept of a governing body setting the ‘rules’ by which an organisation operates and providing guidance on the organization’s objectives has many parallels with the functions of a government.  A government may choose to declare war on another country and provide resources and directions to its military but, at least for the last 2 or 3 centuries, governments have learned not to interfere in the actual conduct of the military campaigns – fighting the war is the responsibility of the professional military. Similarly the governing body of an organisation can set the objectives for the organisation and define the rules by which members of the organisation should operate but is wise to refrain from becoming actively involved in managing the actual work.

The paramount reason for separating governance and management is the simple fact it is almost impossible to take an objective view of work you are actively involved in! With these thoughts in mind, I started to consider the functions and purpose of governance to contrast with the functions and purpose of management.

The functions of management were quite easy to define, the work was done 100 years ago by Henri Fayol in his 1916 book Administration Industrielle et Generale, while there has been some academic argument about the syntax of Fayol’s five functions of management, they have basically stood the test of time. These are outlined in The Functions of Management.

Defining the functions of governance was much more difficult. Almost all of the standard texts describing governance either define:

  • The objectives of ‘good governance’; for example Cadbury’s ‘holding the balance between economic and social goals and between individual and communal goals’;
  • The principles of ‘good governance’; for example the OECD Principles of Corporate Governance (2004 and the 2015 update); or
  • Elements of defined or required practice such as the ASX listing rules and the AICD Governance framework.

None of these sources actually describe what the governing body does or the extent of the governance processes within an organisation.  These are the questions I’ve been focusing on for the last couple of years.

The functions of governance have been described in The Functions of Governance, so far there has been no significant disagreement, that I’m aware of, that would indicate the need for change.  The functions of governance are also mapped to the functions of management and suggest a clear difference in purpose between governance and management that can be summarised as ‘governance sets the objectives and rules for the organisation, management works within the rules to achieve the objectives’.  A closely coupled, symbiotic relationship.

The responsibility for governance seems to be clearly defined by law makers and regulatory authorities.  The governing body is held accountable for the actions of the organisation it governs; this is the Board of Directors in most commercial organisations, in others the person, group or entity accountable for the performance and conformance of the organisation.

Having established the functions of management and governance, the fundamental question posed in this post is does organisational governance exists as a separate entity or is it simply an extension of ‘good management’.  To a degree this is a ‘chicken and egg’ problem.  Does the functioning of an effective governing body lead to ‘good management’ or does ‘good management’ embody the elements of good governance as an integral element in the overall functions of management (ie, Fayol’s five functions need expanding to include governance).

The consequence of the first option is the presence of a governing body which has as its primary function the oversight of the organisation’s management.  The consequence of the second is so-called ‘governing bodies’ such as a Board of Directors, are in effect simply the first, and most senior level of management.

There are a lot of writings that suggest the second option is at least considered viable by many commentators, a view I strongly disagree with.  However, this month’s magazine published by the Australian Institute of Company Directors  contained a number of articles on ‘cloud technology’ and ‘big data’ suggesting Directors should be making management decisions on a daily basis based on current sales information, etc.  Similarly there are numerous publications describing various mid-to-low level management committees such as project steering committees as ‘governing bodies’ responsible for the ‘governance of’ a project. However, a project steering committee is in essence no different to any other management committee responsible for overseeing the work of a management entity; therefore under this scenario, every management committee responsible for the oversight of a management function is a ‘governing body’. The consequence of this line of argument is the proposition that governance and management are integral and there is no significant difference in the entities that undertake the work. Every level of management from the Board down is responsible for delivering good management which incorporates governance.

The alternate view which I support is based largely in corporate regulations and laws suggests the functions and responsibilities the governing body and its management team are discrete and different. The governing body (singular) represents the owners of the organisation and is responsible for governing the organisation to achieve sustained superior performance. The governing body accomplishes this by:

  • Defining the objectives of the organisation;
  • Determining the desired ethical, cultural and other standards they expect the organisation to work within (‘the rules’);
  • Appointing management to accomplish the objectives, working within ‘the rules’; and then
  • Ensuring the conformance and performance of their management and the organisation as a whole.

The primary advantage of this approach to governance is the functions of management are separated from the functions of governance. It is virtually impossible to have an impartial view of the work you are actively engaged in and one of the key responsibilities of the governing body is to oversight the performance of its management; the law says so!

Therefore, I suggest good governance requires a clear separation of the management and governance functions for no other reason than the need for the governing body to be able to objectively oversight the performance of it management. But this raises practical issues.

It is virtually impossible for the governing body to meaningfully oversight the work of 100s of managers and 1000s of staff, contractors and suppliers. Some aspects of governance have to be delegated to the organisation’s management.  This requires the following:

  • A carefully designed governance framework. Roles, responsibilities, decision limits and escalation paths need to be defined.
  • Clear rules for managers to follow in the performance of their management responsibilities. Managers should be personally responsible for following ‘the rules’ and for ensuring the people they manage follow ‘the rules’. Complying with, and conforming to, the objectives, ethics and culture of the organisation should be a condition of employment and a clearly defined management responsibility.
  • Ensuring any governance function is separated from the management function being governed. Assurance and conformance cannot be in the same place as management responsibility for performance. For example, a project steering committee should be responsible for providing direction and support to the project management team to ensure the performance of the project and the achievement of the project’s objectives (a management function) – ensuring conformance with ‘the rules’ is also part of this management responsibility. Assurance that these objectives have been achieved is a governance function that has to sit in a separate reporting line. In many organisations the PMO may be the entity tasked with this responsibility.

However, while the governing body by necessity has to devolve aspects of its responsibilities to people and entities within the overall management structure, the governing body remains responsible for the design of the governance framework and accountable to the organisation’s owners and other external stakeholder for the performance and conformance of the organisation and the validity of any assurances provided by the organisation to regulatory authorities.

So where does this leave questions such as the use of ‘big data and ‘the cloud’? I would suggest the responsibility of the governing body is to understand the technologies sufficiently to be able to set sensible objectives and ethical parameters for the organisation’s management to work within and then to ensure their management are working to achieve these objectives. It is no more the responsibility of the governing body to ‘manage big data and use it to make decisions on a daily basis’ than it is the responsibility of a steering committee to ‘govern’ a project. The responsibility of the governing body is to govern; the responsibility of a management committee is to manage.

This concept of separate functions and focus is not intended to imply an antagonistic relationship. In the same way every high performance soccer team blends people with different skills and responsibilities into a tight unit, a goal keeper needs very different capabilities to a striker; a high performance organisation needs a blend of capabilities: effective governance, effective management and committed staff. Certainly members of a performing team support each other and will help to correct deficiencies and errors by others within the team (high performance organisations are no different); but if the team start to mix up the skills and responsibilities the overall team performance will suffer (the consequences of steering committees pretending to be governance bodies is discussed in a 2012 post Management -v- Governance).

In conclusion, the answer to the opening question is YES, I believe governance and management are different and their functions are different:

A high performance organisation that is capable of achieving sustained superior performance combines both governance and management in a clearly delineated governance framework, supported by a clearly delineated management structure.

Governance and the Magna Carta

On the 15th June 1215 the Magna Carta (Latin for “the Great Charter”), was sealed by King John of England at Runnymede, near Windsor. Drafted by the Archbishop of Canterbury to make peace between the unpopular King and a group of rebel barons, it promised the protection of church rights, protection for the barons from illegal imprisonment, access to swift justice, and limitations on feudal payments to the Crown, to be implemented through a council of 25 barons.

Magna carta

Unfortunately, neither side stood behind their commitments, leading to civil war with the rebel barons receiving active support from France. After John’s death, the regency government of his young son, Henry III, reissued the document in 1216, stripped of some of its more radical content, and at the end of the civil war in 1217 it formed part of the peace treaty agreed at Lambeth, where the document acquired the name Magna Carta.

The 1297 version of Magna Carta

The 1297 version of Magna Carta

Short of funds, Henry reissued the charter again in 1225 in exchange for a grant of new taxes; and his son, Edward I, repeated the exercise in 1297, this time confirming it as part of England’s statute law. But as important as this document is in English history, it was not ‘unique’ – the Magna Carta is based on a long Anglo-Saxon tradition of governance.

The 1215 Magna Carter was based on The Charter of Liberties, proclaimed by Henry I a century earlier. Henry I was King of England from 1100 to 1135; he was the fourth son of William the Conqueror and came to the throne on the death of his bother in a hunting accident. The Charter of Liberties issued upon his accession to the throne in 1100, and was designed to counteract many of the excesses of his bother William II and shore up support for Henry.  Among other things the Charter of Liberties restored the law of Edward the Confessor one of the last Anglo-Saxon kings of England.

Anglo-Saxon law itself has a long history; the Textus Roffensis currently held in the archives at Rochester, Kent, documents Anglo-Saxon laws from the 7th Century. These laws and practices suggest the rights of individuals were fairly well protected and the King was responsible for governing within the law (see: Arbitration has a long history).

The Norman Conquest of 1066 brought a more imperial style of governing that flowed from the Roman Emperors (post Julius Cesar), based on ‘the divine right of kings’ and a feudal system that placed the King at the top of a hierarchy of power based on the control of land – the King owned all of the land and granted it to Barons in return for allegiance and taxes.  The only limitation on the King’s power was the willingness of his barons to accept the King’s rule and if they did not, rebellion was their only option. This type of ‘absolute’ power was wound back a little by the Magna Carta which guaranteed the rights of Nobles and the Church but did little for ordinary people.

However, during the course of its repeated ‘re-issuing’ the Magna Carta did pave the way for Parliamentary government and stood as a powerful counter to attempts by monarchs to assert the divine right of Kings as late at the 17th Century. By the end of the 17th century, England’s constitution was seen as a social contract, based on documents such as Magna Carta, the Petition of Right, and the Bill of Rights. These concepts were taken to the Americas by the early colonists and formed part of the underpinnings of the USA constitution.

The governance message from the Mana Carta is the need for the ‘governor’ to respect the rights of the people being governed. The closer a governor gets to absolute power the greater the tendency to despotism and corruption. Effective governance systems balance the needs and rights of the governor and the governed, operate within an open framework, incorporate checks and balances, and adapt to changing circumstances. ‘Absolute systems’ are almost incapable of changing progressively, the usual course is the governors apply more and more coercion to stay ‘in power’ until eventually the whole system is destroyed by revolution or catastrophe; damaging everyone.

Following Magna Carta, the English constitution evolved and adapted to change and certainly since the restoration of the Monarchy after the English Civil War and Commonwealth of Oliver Cromwell has been designed to adapt and change. Corporate and organisational governance has followed a similar trend and evolved from its inception in the early 17th century into its modern form (see: The origins of governance).

However, whilst the concept of governance has been evolving and the purpose of good governance is to balance the needs and expectations of all stakeholders to the common good, governance failures remain commonplace.  Our last blog post Governance and stakeholders highlighted three recent governance failures; the discussion on FIFA in particular highlighting the danger of concentrating nearly absolute power in the hands of one person.

There are some interesting parallels, eight hundred years ago on the banks of the Thames an embattled King John met the English barons who had backed his failed war against the French and were seeking to limit his powers. The sealing of the Magna Carta, symbolically at least, established a new relationship between the king and his subjects. Eight days ago, Sepp Blatter met his advisors near the banks of Lake Genève and sealed his fate by announcing his resignation from FIFA. If FIFA survives, it is highly likely the powers of his successor will be similarly limited by a new ‘charter’.

The bigger question though, is how can these excesses be avoided in future? History tells us that transparency and good information is one of the keys to avoiding excess, as is making the ‘governors’ accountable to the governed.  Another is the affected stakeholders being willing to assert their rights before a situation gets out of hand and more desperate measures become necessary.

On two separate occasions I’ve been lucky enough to see one of the four remaining copies of the original Magna Carter, once at Lincoln in the UK, and once as part of an exhibition in Canberra. As we reflect on this document and its 800 year history its worth considering its key message, that good governance requires both limits on power and for the governors to consider the interests of their stakeholders; if these two elements are present, the likelihood of governance failure is going to be significantly reduced. This is equally true for national governments, organisational governance and the governing of projects, programs and portfolios.

Certainly, as far as the governing of projects, programs and portfolios is concerned, both the EVA18 Project Controls Conference in England and our local Project Governance and Controls Symposium are organised by people who believe one of the keys to good governance is having open, effective and robust reporting system in place that deliver accurate information to all relevant stakeholders. The challenge we face is persuading more organisations to invest in this key underpinning of good governance – hopefully we won’t have to wait another 800 years…

Ethics, Culture, Rules and Governance

RulesFar too many governing bodies spend far too much time focused on rules, conformance and assurance.  While these factors are important they should be an outcome of good governance not the primary focus of the governors.

When an organisation sets high ethical standards and invests in building an executive management culture that supports those standards the need for ‘rules’ is minimised and the organisation as a whole focuses on doing ‘good business’ (see: Corporate Governance).

The order of the functions outlined in The Functions of Governance, places: ‘Determining the objectives of the organisation’, ‘Determining the ethics of the organisation’, and ‘Creating the culture of the organisation’ ahead of both assurance and conformance.  The rational being creating a culture of ‘doing the right thing’ that extends from the very top of the organisation to the very bottom, means most people most of the time will be doing the ‘right thing’ making assurance and conformance a relatively simple adjunct, there to catch the few errors and malpractices that will inevitably occur.

A very strong endorsement of this approach to governance has recently come from one of the world’s most successful business people, Warren Buffet.  His recent memo to the top management of his holding company, Berkshire Hathaway’s subsidiaries (his ‘All Stars’) emphasised that their top priority must be to ‘zealously guard Berkshire’s reputation’ (read act ethically). 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’.

His advice to managers also included this good advice ‘There’s plenty of money to be made in the centre of the court. If it’s questionable whether some action is close to the line, just assume its outside and forget it’. This is a simple ethical guideline that avoids the need for pages of precise ‘rules’ designed to map the edge of legality drafted by lawyers and argued over endlessly.  See more on Ethics.

Rule#1Reading the memo, its clear Buffet has built a massive organisation based on an ethical culture, employs executives that reinforce the culture, and still makes a very good profit. It’s a long term investment but infinitely preferable to the sort of issues that confronted Salomon Bros., 20 years ago (see: Warren Buffett’s Wild Ride at Salomon), the banks associated with the GFC, and the on-going damage continuing to be suffered by the Australian banks as more ethical failures come to light. I’m sure they all had hundreds of ‘rules’ some of which may even have been sensible.

A copy of Warren Buffet’s memo can be downloaded from:  http://www.mosaicprojects.com.au/pdf/Ethics_Culture_Rules-Buffet_Memo.pdf

Understanding Governance

My last post looked at developing a grounded definition for the governance of PPP based on established definitions for corporate governance (see: Defining Governance – What the Words Mean) .  This post looks at how the definition can be put into practice to govern an organisation doing projects and programs.

An organisation is governed by its ‘governing body’ which, depending on the nature of the organisation, may be an individual, a small group, a committee or a formally constituted board of directors.  Whilst this statement may seem obvious, it is vitally important! The governing bodies job is to represent the interests of the organisation’s owners and to appoint, direct and oversight the organisation’s management (see more on organisational governance).

Within the organisation, the workers are appointed, directed and overseen by management, management is appointed, directed and overseen by the executive and the executive is appointed, directed and overseen by the governing body. However, whilst the governing body has responsibilities and obligations to both the organisation’s owners and other external stakeholders, within the organisation, the governing body is self-governing and very often self-appointing (in practical effect if not always in theory). And unlike management which is hierarchal, within most Boards the legal assumption, and general practice, is that all of the members are equal .

 

Governance Structure

The key responsibilities of the governing body are:

  • Framing the values and ethics of the organisation
  • Appointing the CEO and other key executives
  • Developing and maintaining the organisation’s strategy in collaboration with the executive
  • Ensuring an appropriate management system is developed by the executive (see more on governance and management systems)
  • Surveillance of the performance of the organisation
  • Stewardship of the organisations resources and assets
  • Taking appropriate actions to support the needs of stakeholders and sustainability (CSR).

The ‘governing body’ cannot achieve these responsibilities alone, management support is essential. However whilst the governing body can and should delegate aspects of the organisation’s governance processes to management and should hold management accountable for their performance, the ‘governing body’ is ultimately responsible for the actions of the organisation it is governing, including the actions and failures of management.

A Governance Framework

The Australian Institute of Company Directors (AICD) has developed a comprehensive Corporate Governance Framework to help directors understand their responsibilities and develop the skills they need to serve effectively on a ‘governing body’.  The framework sums up the practices (skills, attributes and expertise) that comprise good director practice as demonstrated by responsible directors.

It is designed as a wheel that has four quadrants depicting the four key areas of focus and engagement applying to every individual director: individual, board, organisational and stakeholder. Each quadrant is divided into a number of slices representing director practices essential to the quadrant’s focus (the different sizes of the slices do not represent the relative importance of the topic).

 

Together with the AICD’s Guide for Directors and Boards: delivering good corporate governance, which articulates a set of values and principles that underpin the behaviours and practices of sound directorship, the framework provides a solid basis for developing the skills needed to ‘govern’ an organisation.

AICD GovFramework

Governing Projects, Programs and Portfolios (PPP)

Whilst the inclusion of stakeholders as one of the four focuses is something I strongly applaud, the governance of PPP is focused in the ‘green quadrant’ and really only connects directly into a couple of the sub-sectors, primarily, implementing the organisations strategy (3.3.1). Therefore, a different frame is needed to understand the governance of PPP in the overall context of governing an organisation.  This reframing consolidates many of the personal responsibilities highlighted in the AICD framework whilst retaining the core tenet that governance is a holistic process and a significant failure within the PPP domain can have ramifications across the entire organisation. The ‘petal diagram’ below is our attempt to reframe the concepts of governance is it is affected by, and affects the PPP domain.

The Governance ‘Petal Diagram’

The ‘petals’ seeks to aggregate the various functions of governing the organisation into the five main themes, whilst other aspects of governance such as the performance of the ‘governing body’ and of individual directors have been largely omitted for clarity. The importance of these ‘other’ functions from the AICD perspective of developing the competence of directors is crucially important; the ‘petal diagram’ assumes competent directors and an effectively functioning board and focuses on the board’s role in governing the organization.

The domain of PPP is focused on implementing the changes needed to fulfil the organisation’s strategy and therefore, the processes of PPP are grouped in the ‘Governing Change petal’.  The other ‘petals’ are aspects of governance and management that affect, or are affected by the change processes.

Governance Petal Diagram

This petal diagram is a synthesis of several sources focused on various aspects of governance that are associated with projects, programs and portfolios. The primary source is the AICD ‘Company Directors Corporate Governance Framework™’. discussed above.

Secondary sources are a series of Standards that focus on the governance of projects and ICT, including:

  • Directing change: A guide to governance of project management (APM, 2011) (download from here);
  • AS 8015-2005 corporate governance of information and communication technology (AS8015, 2005); and
  • AS/NZS 8016: 2010 corporate governance of projects involving information technology investments (AS8016, 2010).

Within the ‘petal diagram’ some of the specific references are:

Values — Yellow section

Vision

•   GoPM: Assure the continued development of the organization
•   AICD Value: Leadership

Values & ethics

•   AICD ‘Ethics’ are a key sub-set of values

Corporate social responsibility

•   AICD 4.4 Society and Community

Governing of the Board

•   AICD Segments 1 and 2

Principle functions of governance — ‘the petals’

Governing relationships

•   AICD Quadrant 4

Governing change

•   AICD 3.3.1 Strategy
•   GoPM (full document)
•   AS8016 (full document)

Governing the organizations’ people

•   AICD 3.2.1 Executive Team
•   AICD 3.1.3 Culture
•   AICD 3.1.2 Policies and Assurance

Financial governance

•   AICD 3.1.3 Corporate outcomes—financial

Governing viability and sustainability

•   AS8016 1.4.3 (e)
•   Cadbury and others

From within this overall governance framework, the more specific aspects of governing PPP can be established (see more on governing PPP).

The two key takeaways from this post should be:

  1. Governance is a holistic process, and the ‘governing body’ has exclusive accountability and responsibility for the effectiveness of the organisation’s governance.
  2. Governance and management are quite different functions.

For more posts on governance see:https://mosaicprojects.wordpress.com/category/governance/