Drawing the line – the distinction between project governance and project management

Inadequate project governance structures and poor project management practices have been identified as key contributors to recent failures experienced in the construction sector. Fletcher Building’s former chairman, Sir Ralph Norris, for example attributed Fletcher’s well-publicised $292 million loss in its construction division in 2017 in large part to inadequate project governance and project management.

This article begins by explaining what “project governance” and “project management” mean, and delineating the key differences between these two concepts, before providing some practical guidance on how to implement both effectively in the construction context.

 Introduction to Project Governance and Project Management

In its simplest terms, project governance is the role of leading a project.  Governance is implemented through an effective framework that is designed to maximise the ability of a party to achieve its desired project goals and objectives, such as delivering a project on time, to budget, to desired quality outcomes and with good health and safety outcomes. Governance occurs at both Principal/developer and Contractor-level, albeit with differences reflecting that these parties’ goals and objectives are not always shared nor aligned.

Project management is the day-to-day running of a project. Effective project management requires a detailed methodology for managing project durations, costs, risks, quality, compliance, communications and procurement. Like governance, project management is separately undertaken by Principals/developers and Contractors, and this professional function is often contracted out to specialist providers.

While governance and management have different features and influences on the success (or otherwise) of a construction project, they do not operate in insolation. For instance, effective project governance may not save a project where there has been poor project management – however, good project governance may identify project management failures early and provide a means to intervene to soften the blow.

Project Governance Explained

Project governance is a key driver of project success by having people accountable for overseeing a project as a whole. Effective governance ensures the goals of a project are clear and maintained, management decisions are justified, project funds are managed effectively, and key decisions are made based on adequate information. Governance is applicable throughout the range of industry players, from single developer directors to large bureaucratic structures in government projects.

Project Governance vs. Organisational Governance

Project governance is distinguishable from organisational (corporate) governance. Project governance does not duplicate or replace existing governance structures in an organisation, such as the Board of Directors. Rather, it looks beyond the internal structures and processes of an organisation, to how those structures and processes can be applied to and operate within a specific project. For example, organisational governance may – from a Contractor’s perspective – set the internal “rules” applicable to contracting with any party (e.g. pre-qualification around the organisation’s health and safety and environmental requirements). Similarly, the Contractor’s project governance structure will mandate the project team’s internal reporting requirements around health and safety compliance for the organisation.

It is important for organisations to establish reporting lines between organisational governance and project governance to allow a project to integrate with wider organisational activities. While the two governing bodies are distinct from one another, their roles and responsibilities often overlap.

Lessons learnt is a useful example: at the conclusion of a project, the project team will (as part of the project governance framework) usually report on things that worked well (for instance positive experiences with a particular consultant or contractor) and things that may not have (such as poor quality control and closing out defects). Unless those “lessons” are communicated through the business and incorporated into organisational governance structures, the benefits of success may not be replicated and conversely similar mistakes may be repeated in subsequent projects.

Distinguishing Project Governance from Project Management

Organisations must both govern and manage projects. While governance involves overseeing a project as a whole across a project’s lifespan, management involves managing the individual components of a project on a day-to-day level.

A coordinated approach between project governance and management is essential to project success. The key to achieving a coordinated approach is to implement clear reporting lines between organisational governance, project governance, project management and project administration. Reporting lines will enable project governance to be fully informed of project progress and risk and allow governance to make appropriate decisions in response.

For example, if the commercial or project manager does not correctly forecast cashflow (a project management function), then the project director’s monthly reports to management (as part of project governance) may not be accurate, and management’s reporting to the board and consequently shareholders (organisational governance) may be misleading.

This article was first published by Construction News.

Project Management Explained

Project management involves overseeing the day-to-day activities of the project team. Some key functions of project management are ensuring a project is resourced and efficiently planned, kept to budget and delivered on time. For large construction projects, it is often useful to have a Project Management Office to co-ordinate different aspects of a project and monitor project progress.

Effective Project Management – An Example  

An example of an effective project management tool is the project management plan. This is developed by the project manager at the start of a project and the manager monitors the project against the plan throughout the project lifecycle. The project management team should communicate any deviations from the management plan to the project governance team to allow project governance to make informed decisions in response to project issues.

Some questions to ask when creating a project management plan are:

  • What are the objectives of the project?
  • What is the scope of the project?
  • What is the management structure of the project?
  • Who is responsible for what part of the project? Are the roles and responsibilities of those in the management team clearly defined in the management plan?
  • What is the relationship between project management and project governance? Has the management plan outlined the governance structure of the project and how it interacts with the management structure?
  • What are the timelines for the project? Are they realistic?
  • What is the budget for the project as a whole? What is the budget for each component of the project?
  • What are the project’s areas of risk? Are these defined in the management plan? Has the management plan included a risk mitigation plan?

 Practical Guidance

There are a number of steps organisations can take to develop healthy project governance and project management, including:

  • Establishing clear project goals and objectives that are communicated to all parties at the start of a project;
  • Establishing distinctive roles and accountabilities for project governance and project management and ensuring individuals clearly understand their roles and decision-making responsibilities;
  • Establishing an appropriate governance framework that includes the responsibility to monitor project management;
  • Establishing clear and robust reporting lines between project governance and project management and between project governance and organisational governance to facilitate timely, accurate reporting throughout the project lifecycle, including an assessment of ongoing project risks and mitigation strategies;
  • Undertaking independent audits and reviews to raise issues for assessment, for example in relation to health and safety, quality assurance and project execution; and
  • Being consistent. While governance structures need to reflect project goals, an organisation that adopts inconsistent structures will create confusion and inefficiencies.

The public sector has published numerous treatises on project structures and processes that, if adapted, are useful for all projects. For example, the 4th Edition of the Government Procurement Rules (which apply to public procurement projects) include references to a number of useful materials, including New Zealand Government Procurement’s Planning Construction Procurement guides.

Ultimately, the extent of project governance and project management will be tailored to project size, complexity and importance of business, as well as the scale of the organisation and its internal requirements. However, both project governance and project management are necessary to set up a project for success, ensure a project achieves its goals, and can adapt to changing circumstances and events.

This article was first published in Construction News. Special thanks to Katie Shorter for assisting with content.

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