Project Governance and Project Efficiency

Introduction

The objective of project management (PM) practice is to ensure that a project is completed and the stakeholders are satisfied. Ajmal et al. (2017) argue that in recent years, PM has gained a lot of attention from scholars and practitioners, and many businesses now ‘projectize’ their developments. This allows these companies to achieve more complex goals and have higher efficiency. Project governance and project efficiency are the two concepts that help achieve this goal.

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Project governance is the concept that refers to the processes, roles, and responsibilities of all stakeholders that allow the project manager to ensure that the project is completed successfully. Under governance models, the manager can monitor the completion of tasks. Project efficiency allows comparing the inputs and outputs to determine if the investment is beneficial for a company. This report will present an assessment of four research studies relating to project governance and project efficiency and summarize the findings.

Project Governance

Project governance allows the PM to control all aspects of the delivery. Simply put, it is a framework that helps the manager ensure that all processes are completed as planned. According to Muller (2016), the governance theory originated in political sciences and was later applied for organizational and project management. Governance implies an alignment of two elements: actors and institutions.

The former are all the people that work within a system and can collectively regulate or counter regulate it. The latter refers to the rules and the environment where the actors are placed. Hence, governance addresses the overlap between institutional and actor cooperation through the implementation of policies, processes, and declaration of roles and responsibilities. Therefore, a project manager can use a governance framework to regulate the behavior of team members within the context of the specific company, which helps address the completion of tasks on a daily basis.

Governance has to rely on the ethical standards and accountability of the management. If the project manager lacks accountability or does not address one of the governance elements, the project is designated to fail since these issues will cause inconsistencies, lack of cooperation, and lead to long-term problems. Hence, the project manager must build their governance approach based on ethical decision making, accountability, transparency, and well-defined roles of the team members and stakeholders (Muller, 2016). Therefore, one of the pillars for project governance is adherence to the standards of ethical behavior.

There are three core elements of governance which are: structure, people, and information. Additionally, project governance provides a manager with several tools and frameworks to control the project completion and address any disparities that come up along the way. For example, Muller (2016) states that governance models require the manager to provide the resources necessary for the project completion. For example, with an IT project, the manager has to ensure that the human resources or the team has enough members who are qualified to address the requirements of this project. Next, the manager has to monitor the processes through supervision and the use of tools or quality standards.

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The basis of PM governance is linked to the approaches managers use to govern companies. Muller (2016) argues that PM governance is similar to organizational governance. Both incorporate the value system, roles and responsibilities, and policies that help achieve the goal of a project. Moreover, governance implies that the project’s manager is focused on the goals of the internal and external stakeholders, as well as the benefit that a project will bring to the company.

Hence, project governance includes all the processes, the organizational environment, and the responsibilities of people engaged in it. This definition also shows that project governance and PM do not merely focus on the profits that an organization will gain from a project, with more attention dedicated to its value and stakeholder benefit. Muller (2016) also argues that there are four governance paradigms, which are based on the combination of stakeholder and shareholder value.

Structure, People, Information Sharing

First, structure refers to the organization’s structure because the environment where the project takes place has to align with its latter’s objectives. Otherwise, this project will fail. For instance, if an oil company has a mission to deliver as much quality product to the consumer as possible, and one of its projects is building an environmentally friendly production facility, the PM will face challenges. In this example, the organization does not have a corporate social responsibility (CSR) or environmental strategy, and the environment is not yet suitable for the project, the main goal of which is to use environmentally friendly practices.

A better approach would be to create a vision of transforming this oil company into an organization that supports environmental practices and then executing the project. Hence, structure in project governance refers to an organization that executives the projects, and the two elements have to align.

Next, people are a central element in business, and for the PM, the adequate management of human resources directly impacts the success. Adequate PM requires a selection of team members that are competent and can cooperate with each other. Moreover, if a conflict arises on a team, the PM should be prepared to resolve it and make sure that the project execution is not impaired due to this issue (Muller, 2016). Most importantly, governance implies that PM defines the roles of team members with assigned responsibilities, which helps create a structure of work and enhance accountability.

Finally, information sharing contributes to the successful execution of a project. For example, a contractor on a building site may face problems with clearing the area because there is more vegetation than was initially anticipated. If there are no clear information-sharing procedures, the contractor may either choose to clear the site without notifying the manager, which will result in cost overrun or not address the issue, and the project will be delayed.

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Both scenarios can be avoided if there is a straightforward procedure for sharing information within a project. If the contractor can contact the PM immediately and update them, the latter will review options and stakeholder goals to select the suitable decision and ensure that there are no delays and overruns. Therefore, information sharing is central for project management and allows us to address issues and concerns swiftly and effectively.

The value of human resources and stakeholders to the governance is immense. Derakhshan, Turner, and Mancini (2019) conducted a literature review on the topic of project governance. First and foremost, the authors argue that project governance has a strong focus on internal stakeholders. This group of people includes anyone with a direct relationship to a company, such as an employee or business owner. Derakhshan, Turner, and Mancini (2019) suggest that scholars should dedicate more attention to researching the role of external stakeholders from the perspective of project governance. Hence, a manager should consider the input and impact of not only external but internal stakeholders.

Roles

Under the project governance framework, there are defined roles, responsibilities, and relationships of different stakeholders. A project owner is a representative of the business who oversees the execution and holds the project manager accountable (Mulle5, 2016). Based on this. One can assume that the project owner is not directly involved in managing the processes, but they keep track of the completion. Next, there are the key stakeholders who form the Project Board. Notably, stakeholders in a project can be internal or external and refer to a wide group of people, for example, the project team, company’s employees, or the community where the project is executed.

However, the Project Board of stakeholders usually includes the most important stakeholders, for instance, the funders or business owners (Derakhshan, Turner, and Mancini, 2019). The role of this board is to provide their insight on what is the expected outcome. Finally, the Advisory Group consists of stakeholders, similarly to the Project Board. Although this group also consists of stakeholders, the number of included individuals is larger, and their impact on the decision-making is less significant when compared to the Project Board.

Project Governance Models

The project manager should select a model that will balance the rigor and flexibility to have proper employee engagement. If the project is overly zealous, the team members may get tired and less committed. In the opposite case, the commitment will be low because these individuals will not feel the responsibility for their work. This is why selecting a suitable governance model is essential for project management. Hence, project management, similarly to organizational management, relies on the leader’s ability to choose an adequate approach and strategy because otherwise, the employees will become demotivated to perform tasks.

Each group of stakeholders has its role in project governance. The Portfolio Board approves the budget for a project. Next, the Project Board is responsible for approving the documentation (Muller, 2016). Finally, the project manager oversees the day-to-day operations and controls the execution of each task. The project team is responsible for completing the tasks assigned to them. Hence, project governance relies on the intricate interactions between different individuals involved in a project. Governance is, therefore, necessary to oversee these interactions and ensure that there is no overlap between tasks, roles, and responsibilities.

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Project governance models are derived from organizational management theories. According to Muller (2016), one of the ways to address project governance is through the shareholder theory. This theory was developed to explain the purpose of corporations and their goals or actions. Mainly, according to the shareholder theory, the goal of a company is to maximize the profits of the shareholders. With businesses, this is done by either enhancing operations or cutting costs.

When applied to project management, the shareholder theory can be applied to project stakeholders and the core outcome is the need to maximize the benefits that they will receive. Hence, a project’s governance should target the benefit that this project will provide to the stakeholders. For example, a public school construction project has to consider the interests of the local community, such as the potential number of students, the necessary facilities, the aesthetics of the neighborhood among others. This factor is what differentiates project management from organizational governance since the benefit of stakeholders is viewed as one of the central decision-making factors.

Examples of Project Governance

The UAE has many successful construction projects that serve as examples of excellent governance models. Ajmal, Malik, and Saber (2017) explore the PM practices, and project governance in particular, specifically in the context of the UAE’s construction industry. By conducting a survey, the authors found that organizational structure is one of the elements that contribute to the project’s success. Hence, structure is the central factor that facilitates the success of projects in the UAE.

One example of how project governance was not applied properly and led to a failure is the ‘World Islands’ in Dubai. This was a construction initiative of immense magnitude that implied creating islands across the coast of Dubai, which the project owner initiated in 2003. To this day, the construction has not been finished, with the biggest haul happening during the 2008 financial crisis (Wainwright, 2018). In essence, this project was highly ambitious and required substantial inputs in terms of human resources, time, and financials, which means that managing it would be increasingly difficult.

It appears that the project owner, Dubai World failed to acquire the necessary financial support for this project, and in 2008 the organization had a debt of over $60 billion (Wainwright, 2018). Under the PM governance framework, the World Island would have to create a cohesive network of information sharing, alignment with the organization’s mission, and adequate people management practices in order to proceed with the construction. This points to an issue with roles and responsibilities within this project, since the owner failed to secure the financial resources for the construction.

Another element of project governance is the value that a project brings to the stakeholders, and in the case of the World Island, the reputation of this construction site created a negative perception of this endeavor. According to Wainwright (2018, para. 10), “the whole project became toxic, damned by rumors of money-laundering, pyramid schemes and reports that the islands were sinking into the sea.” Since projects have to align with the organization’s values and mission, the bad reputation of the World Island linked with some of its owners created a gap between the ambitious vision and a reputation of property owned by criminals.

Thus, the example of the World Island failure can be used to review how project governance frameworks should be applied to manage the preparation and execution of projects. In this case, there were inconsistencies between the project’s grandiosity and the project owner’s overreliance on the outside funding. The contingency plan did not consider a potential crisis, which is understandable but led to a failure of construction. However, the owner’s efforts to resume construction show that this project still has potential.

Project Efficiency

Project efficiency means that the PM does everything to ensure that the project is completed with adherence to the planned budget and standards. All in all, efficiency is a method for assessing the benefits that a project provides when compared to the utilized resources. For example, if an IT structure implementation project requires an investment of $1 million and a team of five people to implement, but the benefit will result in the company saving only $500,000, the efficiency is low, and it is best to use the resources for a different project. However, there are several distinct approaches to measuring efficiency, since of which do not imply measuring the financial gains.

The standard approach to measuring project efficiency implies calculating a ratio. The comparison is made between the resources invested in the project as opposed to its output (Zidane and Olsson, 2017). For example, if the outputs equal the imputed resources, the efficiency is at 100%. However, a project can reach 110% efficiency if the production surpasses the inputs or have a lower value in the opposite case. According to Zidane and Olsson (2017), the scholars interpret the notions “efficacy,” “effectiveness,” and “efficiency” in relation to project management with different approaches for each term and varied explanations offered by each researcher. This creates some problems in interpreting the theoretical basis and a framework of project efficiency.

Some scholars suggest that the project’s efficiency is measured by assessing the time frames and adherence to the set budget, and a project is effective when these metrics align with the expected (Zidane and Olsson, 2017). However, this is a vague benchmarking technique since a project may meet the two metrics but fail to provide profits or expected results for the project owner. In this case, the stakeholders would perceive the project as unsuccessful, and it is completed on time and within the budget would not matter.

Importance of Project Efficiency

Not all activities that are a part of a project add value to it and contribute to the final result. Only approximately 46% of tasks performed under a project add value to it, while the rest are a waste (Project efficiency, 2017). The same source cites a report of the Vancouver Construction Association, which shows that 60% of projects in this industry are completed with a larger budget than initially anticipated (Project efficiency, 2017).

Although these statistics are not universal and may describe the state of the industry in one part of the world, most project managers would agree that PM is linked to a large number of inefficiencies and contingencies that affect the completion and final budget. Hence, the concept of project efficiency helps one look at PM from a different perspective and with the utilization of practices that will help outweigh these contingencies and unexpected events if those happen.

The most common issue of a project delay or a change in the budget is inefficient management. Improper information sharing practices, for example, obstruct the manager from receiving timely updates and reacting to the changes, which often leads to cost overruns. Design changes are another cause, followed by poor analytics. Altogether, these causes can be categorized as Project Control, which suggests that project governance and project efficiency are linked. Adequate governance implies establishing the processes, control, and information systems under which a manager can effectively react to changes. Therefore, project efficiency depends on the proper implementation of project governance.

As for the definition of project efficiency, due to the fact that there are different ways of measuring it, scholars and practitioners use varied approaches to defining this term. However, Smith (2020) argues that it is an intuitive and value-thinking approach, which allows overcoming uncertainty through the use of cost-benefit ratios. The use of the cost-benefit ratio is central in the definition of efficiency used by Smith (2020) because the author argues that this approach helps overcome issues commonly faced by managers. The measure of project efficiency also allows determining the potential chances of success for a project.

Project efficiency can be used to rank different proposals based on their benefits. For example, Smith (2020, p.100) cites an algorithm developed by Jones et al. in 2009, which is referred to as a “greedy algorithm.” This is a linear model, where the manager assumes that neither costs nor benefits change depending on the specific project selected or rejected by the project owner. For example, between three construction projects, selecting the first one would result in additional cost-saving benefits for the second and third.

However, the approach offered by Smith (2020) requires omitting these additional benefits in the analysis, and only direct costs are calculated. With this project efficiency metric, the project managers receive a valid tool for calculating the potential benefits and gains from a project, which is helpful when choosing between several alternatives.

Performance Measurement

There are several methods for determining the effectiveness of a project based on different input variables. The basic method is setting key performance measures (KPI), which can be any metrics that will show if the project is progressing as expected. For example, adherence to the budget, completion of the project on time, stakeholder satisfaction, or others. The standard for setting KPIs is determining them prior to the start of the project and ensuring that all stakeholders involved agree with these KPIs (Smith, 2020). KPIs allow managers to assess the efficiency of their projects using different approaches depending on the goals and stakeholder expectations, which makes this method an excellent choice for efficiency measurements.

Each project is initiated for a certain goal, and currently, where more businesses adopt the project approach to managing new developments, it is vital to measure the impact of these initiatives. Another method is determining the project’s impact since the organization that issued it has specific expectations. For example, if a project makes an impact by improving the quality of a service or customer service, it has made a positive impact, and therefore, it is an efficient endeavor. Therefore, it is best to avoid using one standard method or formula for measuring project efficiency and instead adjust the method depending on the goals and stakeholder expectations.

The efficiency of a project relies on proper planning and execution, which shows a link between governance and outcome. According to Mainga (2017), some high-order factors, such as dynamic competencies, the pressure felt by team members towards the end of a project, focus on short-term goals, negative emotions due to a fear of sanctions, and power distance. The author suggests focusing on knowledge transfer, reduction of power distance to reduce the pressure that team members feel, as well as communicate the appropriateness of the trial and error approach. Hence, project efficiency is multidimensional and can be impacted by different factors that a manager can not foresee, such as team members feeling pressured to complete a project.

Examples of Project Efficiency

When using the ratio method of calculating project efficiency, one should compare the inputs and outputs. For example, a construction project that requires an investment of $1 million but will bring an accumulated benefit of $1.5 is considered efficiency based on the cost-benefit ratio. Hence, a manager should choose to pursue it and not a project that would result in a lesser gain for a company. Notably, Mainga (2017) found that in the UAE, there is no significant difference between project efficiency of projects that are led by governmental agencies and those initiated by private corporations. This shows that UAE is a good example of adequate PM practices.

Burj Khalifa is among the tallest buildings in the world and one of the best-known cities in Dubai. The construction of it was hindered by several unfavorable events, including the economic crisis in 2008 and the “Dubai Crisis.” Overall, this resulted in a significant cost overrun and delayed completion. From the perspective of efficiency studies based on the input-output ratio, the project efficiency of Burj Khalifa is low.

However, when considering the stakeholder’s perspective, one can argue that this is a successful project. Apart from the financial gain the owner of the building has though renting the office spaces, this skyscraper also contributes to the city’s image. Hence, Dubai’s government, the citizens, and local businesses, as external stakeholders, all benefit from the completion of Burj Khalifa. From the viewpoint of external stakeholders, the project efficiency of this construction project is high.

In comparison, a similar project constructed by the English government that was supposed to showcase the achievements of this nation over the years has failed, which was the Wembley Stadium. The project that began in 2002 has numerous cost overruns and proved to be inefficient immediately after the facility was opened. Despite being costly and ambitious, this project did not make the impact that its creators anticipated and eventually failed.

The project’s efficiency was undermined by the fact that not enough people visited it on the first day and the following year. Moreover, there was insufficiency in this project since people had to wait in long lines before entering during the opening day. Deloitte (2018) notes that the finished project was 32% more expensive than was initially anticipated, and over $1 million was spent on making photocopies for the materials to prepare for the construction. All in all, this project was inefficient because it caused no financial gain for the British government and did not benefit the stakeholders.

Another example of project efficiency is the construction of the Metro in Dubai led by the Roads and Transport Authority. The agency invested $7.5 billion in this project and was able to construct the biggest metro in the world that operates without drivers (Hamdy, 2014). Public transport projects’ efficiency is difficult to calculate because these projects are oriented towards enhancing the city’s infrastructure and creating better transportation capabilities for the citizens. Although this transportation means should be profitable for the city, its profitability will be achieved in years after the construction. Hence, the focus is not on the profits or the income that the RTA will be able to receive immediately upon finishing the concentration, and more attention is dedicated towards the stakeholders and their benefit from the project.

From the perspective of stakeholders, the city’s government was able to improve the infrastructure of the area. Moreover, additional infrastructure can provide benefits not only in the form of stakeholder satisfaction but also improve the economic wellbeing of the city.

Another stakeholder group that benefited from this project is the citizens, who now have more transportation options. Similar benefits are experienced by travelers who visit the local community on business or holiday. Hence, from the viewpoint of stakeholders, this project is efficient because it benefits all groups. From a monetary perspective, Hamdy (2014) does not provide information regarding the financial gain that the RTA was able to gain from it already. However, considering the non-monetary efficiency, this project is likely to be financially successful as well.

Conclusion

In summary, this paper reviews the ideas of project governance and project efficiency. The two concepts were created to help managers address the processes within a project and ensure its successful completion. Governance is a general concept that includes the approaches to managing people and information and allows to align the project’s goals with the vision of an organization. The concept of project efficiency remains to be vague, and different scholars offer varying definitions of it and ways of measuring this efficiency. However, a best practice measure is comparing the inputs and outputs of a project to calculate a ratio.

Using this ratio, the project’s manager can determine if the resources were utilized effectively. Other ways of measuring project success involve examining the adherence to the budget and the timeframe. Both concepts are connected since project governance and proper use of various frameworks result in project efficiency. As was demonstrated by the numerous examples in this paper, project efficiency is not always calculating by assessing the profits gained from a project.

Reference list

Ajmal, M., Malik, M.M., and Saber, H. (2017). Factor analyzing project management practices in the United Arab Emirates. International Journal of Managing Projects in Business, pp. 20-40.

Deloitte (2018) ‘Economic impact of Wembley Stadium for the 2017/18 event season.’. Web.

Derakhshan, R., Turner, R. and Mancini, M. (2019) ‘Project governance and stakeholders: a literature review’, International Journal of Project Management, 37(1), pp. 98-116.

Hamdy, K. A. (2014) ‘Lessons learned from the Dubai metro project.’ Web.

Wainwright, O. (2018) ‘Not the end of the world: the return of Dubai’s ultimate folly.The Guardian. Web.

Mainga, W. (2017) ‘Examining project learning, project management competencies, and project efficiency in project-based firms (PBFs)’, International Journal of Managing Projects in Business, 10(3), pp. 454-504.

Muller, R. (2016) Project governance. Oxon: Routledge.

Project efficiency (2017). Web.

Smith, D. (2020) Structured decision making: case studies in natural resource management. Baltimore: John Hopkins University Press.

Zidane, Y.J.T. and Olsson, N.O.E. (2017) ‘Defining project efficiency, effectiveness and efficacy’, International Journal of Managing Projects in Business, 10(3) No. 3, pp. 621-641.

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