Governance is an essential factor in large, complex projects. This presentation by Project Value Delivery explains the shortcomings of many Capex projects' governance setups both for Contractors and Owners, and includes some key recommendations.

1. Project Value Delivery
© Project Value Delivery, 2017
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How
Governance
Makes or Breaks a Project
v0 – May 2017

2. © Project Value Delivery, 2017
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The Project Governance Issue
• Projects and associated Capex are the decisive
long term success factor of facilities and
companies
• A large proportion of projects fail to deliver the
expected value. Some projects might even bring
companies on the brink of restructuring
• Beyond project execution issues, Governance is
often the real cause of failure
• This presentation focuses on Large, Complex
Projects.

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Contents
• What is project/program governance for?
• General governance issues
• Governance at Contractor level: specific issues
• Governance at Owner level: specific issues
• Summary and recommendations

4. Section
1
© Project Value Delivery, 2017
w w w . P r o j e c t V a l u e D e l i v e r y . c o m
What is project/program
governance for?

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What is Project Governance For?
Engagement and decision-making beyond
remit/capability of Project Manager:
• Engage stakeholders:
– Politics (local, national)
– Financing
– Board of Directors
– Project Resource providers at executive level
– Owner (for contractors)
• Mobilize internal resources as required and liaise with the
rest of the organization
• Drive strategy alignment
• Take the key decisions at Decision Points and for
Changes
• Release of management reserves

6. Section
2
© Project Value Delivery, 2017
w w w . P r o j e c t V a l u e D e l i v e r y . c o m
General governance issues

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Types of governance issues
1. Organization does not understand the specifics of
Project Management
2. Ineffective Governance organization
3. Inadequate decision-making framework
4. Inadequate reporting / information from Project

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Type 1: organization does not
understand the specifics of Project
Management
• In many organizations, Project Management is not the core
activity. Executive managers do not have project execution
background. They run repetitive businesses.
• Project execution requires a specific approach and specific
reflex behaviors that can be opposite to usual management
practices
 Governance body does not provide useful support to Project
Manager, takes decision opposite to project good practice
that are detrimental

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Type 1: organization does not
understand the specifics of Project
Management
Examples
• Underestimation of required Project Management Team
– (alternate): easier savings is cutting PMT team
– (alternate): delegation without control to EPCm contractor whose
incentives are not aligned with Owner’s project objectives
• Insufficient investment in Project Control tools and
infrastructure at project setup
• Inadequate planning at the start of the project
• Does not setup an integrated project team with all relevant
functions
• Too late involvement of Operations personnel
• Etc.

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Type 1: organization does not
understand the specifics of Project
Management
• What many CEOs do not realize is that Capex
projects even with limited yearly expenditure
compared to overall revenue can make or break
the company on the short/medium term
• Typically Capex projects of total value above 10%
of company revenue can be critical. This varies per
industry
– 2.5% of revenue per year
OOM calculation: suppose Revenue/Capex leverage factor of 5, net
margin of 10%, typical large Capex project over 4 years.
Critical Capex project value of 5% of annual revenue = 25% of current
asset base

11. © Project Value Delivery, 2017
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Type 2: Ineffective governance
organization
• Governance must be effective
– Be clear about scope of governance so as not to intrude into
Project Manager’s remit (governance charter)
– Make decisions effectively and quickly
– With a single voice give clear guidance to the Project
Manager
– Ensure alignment with organization’s strategy
– Provide an avenue for difficult, deep, frank conversations that
really address the issues
– Provide an avenue for resolving conflicts with external
stakeholder above project level to preserve momentum and
relations
• Governance must be at the right level
– Major/key Capex projects must report to executive
committee member or even directly to the CEO

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Type 2: Ineffective governance
organization
• Too many people…
“Too many governance
teams are stacked with
‘stakeholders’ to secure buy-
in rather than people with
proven ability to govern
projects. These people are
often heavily conflicted and
have no accountability for
their project governance
role” - Graeme Cocks,
Melbourne Business School
associate professor.

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Type 2: Ineffective governance
organization
• No possibility to really feedback reality to single
decision-maker…

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Type 2: Ineffective governance
organization
• Comitology…

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Type 2: Ineffective governance
organization
• Special for long
projects: the lack of
accountability over
the duration of the
project because of
the change of
Steering committee
and Project Manager • Also lack of
continuity and
knowledge
management
impedes
performance

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Type 3: Inadequate decision-making
framework
Key decision-making effectiveness factors
– timeliness, speed and relevance of decisions
– structured approach to governance decision-
making (e.g. Gate-based governance)
– Timeliness of decision-making/commitments +
availability for unexpected events is essential

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Type 3: Inadequate decision-making
framework
Examples
• No clear decision points defined in advance lead to decisions
being taken after the fact
• Commitments taking too long impacting project delivery
severely
• No list checks and required available material at various gates
• No discipline in the application of gate-based governance
process

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Type 4: Inadequate reporting/
information from Project
• Project control not effective – does not provide
accurate status
– Often due to insufficient investment due to
governance
• No independent / peer review to give alternate
opinion on the project

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Type 4: Inadequate reporting/
information from Project
• Analysis and information need to be able to
provide insight and early warning of
potential future issues

20. Section
3
© Project Value Delivery, 2017
w w w . P r o j e c t V a l u e D e l i v e r y . c o m
Governance at Contractor
level: specific issues

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Governance issues at Contractor
Level
• Lack of designation/commitment of Project Sponsor
• No setup of sponsor committee with Owner at a
sufficiently high level
• Lack of authority of the Project Manager causing
delays in decision-making for key subcontracts and
commitments
• JV/consortium levels governance not always
adequate for project execution (participants to
steering committee, JV agreement)
– Includes sometimes even internal issues within
contractor between BUs
• Interface management with other parties in the
project not properly managed

22. Section
4
© Project Value Delivery, 2017
w w w . P r o j e c t V a l u e D e l i v e r y . c o m
Governance at Owner level:
specific issues

23. © Project Value Delivery, 2017
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Governance issues at Owner Level
• Lack of understanding of Project Management by executive
management
– Inadequate decisions can jeopardize the business by
– Lack of investment into proper people, tools and processes
• No/Poor project governance framework
• Lack of recognition of Project Manager
– For major Capex should report directly to CXO
• Lack of internal expertise and lack of appetence for
mobilizing external experts
• Procurement process does not select best contractor for the
work or proper contractual framework
• Use of EPC management contractor to act on its behalf
preventing project success through lack of Owner
involvement and lack of willingness of management
contractor to accept beneficial compromises

24. © Project Value Delivery, 2017
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Governance issues at Owner Level
• Lack of adoption of proper pre-Final Investment Decision (FID)
process (FEL type gate process)
• Insufficient pre-FID investment and budgets
• Lack of discipline at gate review leading to project FID with
lack of maturity of engineering
• Lack of discipline in business case analysis and assumptions

25. Conclusion
© Project Value Delivery, 2017
w w w . P r o j e c t V a l u e D e l i v e r y . c o m
Summary and
recommendations

26. © Project Value Delivery, 2017
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Governance issues are major contributors to poor Project
performance
And…
They make the life of the Project Team miserable

27. © Project Value Delivery, 2017
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Project governance general
recommendations
• Ensure clear roles and responsibilities between Steering
committee and project
• Ensure a Project Sponsor is part of the Steering Committee and
is its single voice and its single point of contact
• Recognize that Project Management requires specific skills,
experience, tools
– Executive level education required in non-project organizations
• The reporting level of the Project Manager is an essential
indicator/parameter in Owner organizations
• Make sure that there is sufficient budget for PMT and that it is
invested early (before FID, at the start of the project…)
• When there are difficulties in Project Execution do not hesitate
to investigate the influence of actual project governance. It is
often a key factor

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Inadequate Project
governance is not
inevitable
Focus on and invest
in proper
governance to be
successful in
project execution

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