It is commonly understood that every organization working on a project or programme should have its own governance.
For more than half century, project-based approaches of governance and management have been developed, in order to respond to the constant evolving nature of the construction industry. (Turner and Keegan, 1999). The evolution in Information Technology is leading customers seek more “sophisticated products” and firms are trying to implement their needs by adopting new methods of production. (Bennett, 2000). According to KPMG (2017), in order to manage a step change in performance, construction firms and owners have to review their thoughts on governance, people and technology.
This paper discusses the concept and meaning of governance from an owner’s project-based organization perspective and offers a case study example from the industry.
In order to better understand the meaning of governance in an Owner’s Project-Based Organization, the need to define and discuss the terms appears.
1. Theoretical Framework
The theoretical framework used to define and further understand all the terms involved in the research of this present paper is analyzed in the second chapter. Starting with the terms of Project and Project-Based Organization, all the way to discussing the forms of governance in a PBO and the role of the owner.
2.1 The Owner Project-Based Organization
A Project according to PMI (2013) is “an oversight function that is aligned with the organization governance model and that encompasses the project life-cycle a comprehensive, consistent method of controlling the project and ensuring its success by defining and documenting and communicating reliable, repeatable project practices.”
Based on Gareis and Heumann (2000), a Project-Based Organization could be described as a form that defines management of projects as an organizational strategy, while sometimes adopting temporary organizations for complex processes. Project-Based Organizations manage portfolios of projects of different nature, although having certain permanent organizations to provide integrative functions. They apply a ‘new management paradigm’ and have a totally project management perspective and believe themselves to be project-oriented.
Project- based organizations are the dominant form of organizing production across a number of industries, such as construction (Bresnen et al., 2004). They are viewed as an organizational form which is capable of responding to changing market demands, integrating diverse bodies of knowledge and undertaking complex non-routine tasks (Nightingale et al 2011). Especially as according to Gareis and Heumann (2000) in a Project-Based Organization, projects are considered as strategic tools for the organizational design.
Project-Based organizations have received increasing attention in recent years as an emerging organizational form (Thiry and Deguire, 2007). That is happening as, according to Turner et al (2010), about 40% of the global economy is project based, with construction firms being a grand example of that way of organization. (Guo et al, 2014)
(Turner and Keegan, 2001)
(Turner and Keegan, 2001)
An owner of a project is the person or group that is providing all financial resources needed for its delivery, accepts project milestones and project completion (PMI, 2000; Turner and Muller, 2004).
The owner is accountable for the investment in the project, and receives value from the operation of the facility delivered (Turner, 2000; Turner and Muller, 2010).
(Winch, 2014)
Thus, a way to define an owner Project-Based Organization, could be by being summarized as a Project-Based Organization owning all assets of its projects, providing all needed resources for their construction and then receiving value from operating them.
(Reproduction of the Turner and Keegan, 2001 figures)
The relationship between owners and their projects is usefully summarized as the challenge of governance (Winch, 2014)
1.2 The Governance
Governance is a framework for ethical, decision-making and managerial action within an organization that is based on transparency, accountability and defined roles. (Zwikael et al., 2014). According to Klakegg et al (2008) “governance has to cover all levels of organization”, while Too and Weaver (2014) comment that it “defines the structures used by the organization, allocates rights and responsibilities within those structures and requires assurance that management is operating effectively and properly within the defined structures”.
Corporate governance has been around since the 1844 Joint Stock Companies Act (Pemberton, 2014), with its definition according to Muller et al (2016), being: “A net of values, responsibilities, processes and policies which gives the directions to projects in order to attain organizational objectives in the interests of its shareholders and the corporation itself”. Biesenthal and Wilden (2014) suggest that corporate governance in a project mostly has to do with “cost” (as in Transaction Cost Economics), “control” and “trust”.
2. Governance in an Owner Project-Based Organization
After defining and analyzing all terms in the theoretical framework chapter, the paper proceeds into critically discussing the meaning of governance from an owner’s project-based organization perspective. Discussing terms such as Project Governance, until the goal of understanding the meaning of governance in Owner Project-Based Organizations is achieved.
According to KPMG (2017), the three main drivers of performance are: governance, people and technology.
According to Winch’s (2013) three domains of Project Organizing:
Between the owners and their projects lies governance, associated with the Portfolio Management and Project Assurance.
According to Winch (2013), in this figure, the owners are the suppliers of the capital needed in order for the project-based organizations to provide the intellectual work and all needed workforce and material resources for the project to actually run.
In this paper’s case, the governance in an Owner Project-Based Organization is discussed and thus, the exact emblazonment of Winch’s (2013) diagram cannot be exactly accurate.
Although, according to Turner (1999), three levels of governance exist inside a Project-Based Organization:
The first one being the firm’s board operation that has to do with the board’s interest on each one of the projects. Turner claims that in modern organizations, boards of directors have a bigger interest in their firm’s projects than in the past.
The second one being the background of each one of the projects and the existing infrastructure needed to undertake projects effectively. That infrastructure has two parts, the first being it creation and he proper program and portfolio management, to make sure the right projects are being chosen and the second one being the assurance that each one of the projects selected will be managed to deliver successfully.
The third one being in each individual project’s level. As it has been mentioned earlier, each project is a temporary organization and so it is in need of governance. This level of governance has mostly to do with project governance.
In the rest of this chapter, the paper focuses in each one of the levels of governance.
3.1 Project Governance
Organization and governance in construction has been researched for a long time (Reve and Levitt, 1984). Classic management theories discussing weighted central planning, governance and administration, knowledge management and human resource management cannot be used for an owner project-based organization, as it requires a different approach duo to its uniqueness. (Turner J. R. et al, 2001). Especially as according to Flyvbjerg et al. (2003) governance is related to its case, we cannot use the exact principles in all cases and different projects and organizations.
For that reason, instead of just using corporate governance measures and controls, the project governance has developed. Although in general, project governance is a subset of corporate governance (Marnewick and Labuschagne, 2011), it is thought that in the construction industry, the governance of the projects is a mix of corporate and the project governance (Guo et al, 2014). So, in an Owner Project Based Organisation’s context, it could actually be thought that project governance aligns with the corporate governance, creating a new form. (Reve and Levitt, 1984)
Project governance, is a multi-layered phenomenon, intersecting projects, programs and portfolio management, that helps bring the successful result of the organizational and project scope. (Müller, 2009; Biesenthal and Wilden, 2014)
Project Governance is normally used in order to authorize the beginning and every stage of a project, to order differentiations to it and to ensure compliance with the organization’s policies and any probable contractual needs. (Too and Weaver, 2014). According to the APM (2013), good project governance assures that applicable and sustainable substitutes are selected and brought efficiently (APM 2013).
Aloha et al, 2014
So, over the last years, as it is thought to be of importance, several studies have been made on project governance in construction. (Miller and Hobbs, 2005). The research done by Joslin and Muller (2016) in the relationship of project governance and project success was based on two hypotheses (H1.1: “Stakeholder oriented governance of projects correlates positively with project success” and H1.2: “Behavior control in project governance correlates positively with project success.”) which were tested, with the results claiming that project governance indeed plays a significant role to the project’s success.
Joslin and Muller (2015) defined the term “project success” by using the work of Khan et al. (2013), who created a model of success factors offering (hard and soft).
All this while researchers also discuss the problematic situations because of poor project governance as for example in “How poor Project Governance causes Delays” from Morgan A. et al (2010), which researches the point to which poorly governed projects affect the schedule for delivery of capital projects generally, leading to increased costs and project failure.
A research by the Office of Government Commerce, states the “Common Causes of Project Failure” (2005) with all of them being part of the APM’s components of Project Governance, showing in that way the importance of right project governance for the successful project delivery. (Knodel, 2004)
2.2 Owner’s Governance
Governance in a Project-Based Organization is about “Setting the strategic direction; monitoring the performance; providing finance and control financial returns; providing technical expertise and controlling risk exposure”. (Turner and Keegan, 1999)
According to Turner (1999), poor governance of a project-based organization results in no association between the firm’s strategy and the projects, total absence of ownership of projects and their results, poor Stakeholders’ engagement, poor enterprise project management capability, absence of engagement with suppliers, poor evaluation of project proposals, lack of focus on breaking a project down into manageable steps.
The focus of research, especially in Public Private Partnership projects (PPP) in the last years is the governance alignment at a macro-level and micro-level. (Henisz, 2006). Researchers have discussed topics from Financial Governance in PPP Organizations (Devrapiyia, 2006), to problems in Public Governance of projects (Williams et al, 2010) and more.
Asaaf and Al-Heiji (2006) claim that the biggest source of delay in construction projects are the owners themselves. Thus, making the importance of governance an even bigger factor within the owner Project-Based Organization itself.
Sambasivan and Soon (2007) rank the inappropriate overall organizational structure linking to the project, as one of the main reasons for delays in the Malaysian Construction Industry, with lack of communication playing a vast role. Doloi et al, (2012); Marzouk and El-Rasas (2014) name owner’s slow decision making process and lack of communication as main reasons for unsuccessful projects. Al-Khalil et al (1999) also emphasize in owner’s administration.
Even trust is playing an important role in governance in terms of managing the communication between the various actors in a PBO, according to Poppo and Zenger (2002).
Miterev (2017) in his work claims that not giving enough consideration to the organizational parts of projects is the reason for three vast implications for the Project-Based Organizations. Firstly, it is contributing to a less wide range of theories used to analyze the internal of the Project-Based Organizations. Secondly, it is leading to an assumption of the homogeneity of projects within a Project-Based Organization. Lastly, it is leading to the conclusion that projects are just subordinates of the firm.
Bredin (2008) similarly discussed a different perspective that dealt with the conception of what constitutes the more “permanent” feature in a Project-Based organization. When workers and crews are constantly re-allocated, governance and its efficiency becomes critical as the long-term and stable component in a Project-Based Organization whose function is above individual projects. (Bredin 2008)
2.3 Portfolio Management, Project Assurance and Other aspects
Project Portfolio Management is:
Project Assurance is:
It’s not untruth to claim that governance and controls are the very fabrics of projects and that, for a big proportion of them, help engineering and construction firms achieve their purposes. (KPMG, 2017)
According to Guo et al (2014) governance is one of the major factors influencing the risk management process in large construction projects, while Maylor et al (2015) emphasize the importance governance in Project-Based Organizations, from an Operations Strategy (OS) perspective.
In the most recent work by Miterev et al (2017) it is stated that one of the most serious factors influencing the design choice of a Project-Based Organization is Governance. Williams et al (2010) in their investigation of governance frameworks in public projects stated that all cases confirmed the importance of governance.
Pinto’s (2014) study on the normalization of deviance (based on Vaughan, 1996 research) concluded that project governance mechanisms are the second most important part in the process of removing the deviance.
Keegan and Turner’s (2001) data analysis claimed that all PBOs made innovative changes even in their governance, when needed, something that shows the vast importance of administration in those Organizations. Lastly, governance in project-based organizations has even been in the focus of Knowledge Management research papers, such as Peltokorpi and Tsuyuki (2006).
3. Analysis and Case Study.
4.1
For the past couple of decades, the main engineering and construction players have focused heavily on governance, risk and controls to ensure that projects meet deadlines and budget, and to improve quality and safety (KPMG, 2017).
It has been clear, through this paper that there currently are different schools of thought, concerning governance and especially in terms of an owner project-based organization. Different claims on the exact roles and responsibilities have been researched. Winch’s (2013) belief in the existence of two literatures on the relationship between owners and their projects, project portfolio management and project assurance, although he states in his paper that he is “Broadly Speaking”, (Winch, 2013, pp 726). Whereas Turner (1999) analyzed the three levels of governance in a project-based organization, the firm’s board of directors, the background and infrastructure needed for each one of the different projects (where he inserted the terms of project portfolio management and project assurance) and lastly the project governance level.
In the previous chapter, all of those levels and terms were discussed, but most gravity was given into analyzing the first and last levels of governance, from Turner’s (1999) literature as it was thought to be closer to the case-study.