LETTER TO THE EDITOR
11 January 2013
The basic premise of this title is fundamentally flawed; the governance of any organisation, commercial, not for profit or government is undertaken by the Board of Directors or their equivalent. The governance functions associated with portfolio management are:
- Requiring the organisation’s management to implement effective portfolio management
- Requiring effective assurance from management that the organisation has implemented effective portfolio management
- Ensuring an effective and implementable strategic plan is established for use in portfolio management decision making.
Once the governance framework is decided by the governing Board, the hard work of implementing effective portfolio management is a management processes.
In short, Directors or their equivalent govern, Managers manage. This is the unequivocal view of governments, the OECD, stock exchanges world-wide, various ISO Standards, various Institutes of Company Directors and the Association for Project Management in the UK. The various laws, standards, definitions and guidelines all agree the Board has the exclusive responsibility to govern all aspects of the organisation and this includes the governance of project and program management activities. Effective governance of project and program management by the Board ensures that the organization’s management is keeping the organization’s portfolio of projects and programs aligned to the organization’s objectives, and that they are being delivered efficiently and the work is sustainable.
Governance and management are different processes with different objectives but are closely coupled and within an organisation are totally interdependent. The connection between the two systems is made by a few very senior managers, including the CEO (or to use the old UK title ‘Managing Director’) and other Executive Directors. These people provide the link between the governance functions of the Board and the management of the organisation.
When these executives are operating in a governance role as a Director, they contribute to the governance of the organisation and bring the ‘lessons’ learned by management into the governance debate; when they are operating as the top tier of the management hierarchy they are the managers responsible for implementing the governance principles within the organisation. The role of all other managers is to manage the organisation within the framework established by the Board.
Unsurprisingly, in virtually every area of operation within an organisation from finance to HR to manufacturing and sales, there seems to be little or no confusion over this division, most managers know their job is to manage! The two exceptions to this are IT and project management.
There is a relatively small group of academics in these domains happily cross quoting each other supported by managers on an ego trip that want to make any complex decision or leadership role in both IT and project management into a ‘governance role’. The problem is if you extend an identical argument to other aspects of the business eventually ‘management’ disappears and everything becomes ‘governance’.
If the proposition raised in Paul Dinsmore & Luiz Rocha’s first article that defines ‘Enterprise project governance’ as ‘a framework residing under the umbrella of top management and corporate governance aimed at ensuring the alignment of the corporate portfolio and its programs and projects with overall strategy’ is correct, then every decision to invest money to achieve the organisations strategy is ‘governance’ including decisions by PR and Marketing managers when they decide where to invest money in the next advertising campaign. But strangely enough, PR and marketing managers think they are doing PR and Marketing management when they decide to invest $2 million in the next TV commercial. Their decision is guided by the governance framework laid down by the Board, including ethical principles and organisational strategy, but the actual negotiations, decisions and implementation are pure management.
Similarly, deciding on the projects and programs to start, those to continue and those to either not start or terminate is Portfolio Management, and the PMI Standard for Portfolio Management provides a very good starting point as to what is involved. Strangely, the PMI standard also agrees that yes the selected investments should be aimed at optimising the achievement of the organisations objectives as defined in its strategy and yes risks and rewards need to be balanced and the overall NPV of the portfolio optimised. But making and implementing the decisions to achieve this is the role of management; the role of governance is to seek assurance management are doing their role ‘properly’.
This is not new; the functions of management were defined by Henri Fayol (1841 – 1925). His work was one of the first comprehensive statements of a general theory of management in which five primary functions and 14 principles of management were defined. Fayol’s functions of management are:
1. to forecast and plan,
2. to organize
3. to command or direct
4. to coordinate
5. to control (French: contrôller: in the sense that a manager must receive feedback about a process in order to make necessary adjustments and must analyse the deviations.)
Inherent in these functions is the need to make and implement effective decisions to create value. The primary output from management can be defined as information and instructions that have to be communicated to others. The communication is firstly to the workers so they understand what has to be produced, where and when; secondly to the governing body to provide assurance that the right decisions have been made and the right things are being produced in the right ways applying the organisation’s policy framework correctly.
The governance system operates at a higher level and is responsible for governing the organisation to create sustainable success for the organisation’s owners. This is of necessity, a multi-faceted process that requires the careful balancing of different, frequently contradictory, objectives from different stakeholder groups.
The governance function has two key aspects; the first is deciding what the organisation should be and how it should function. These governance decisions are communicated to management for implementation and the primary outputs from this part of the governance system are:
- The strategic objectives of the organisation framed within its mission, values and ethical framework.
- The policy framework the organisation is expected to operate within.
- The appointment of key managers to manage the organisation.
The second aspect of the governance system is oversight and assurance. The governing body should pro-actively seek assurance from its management that the strategic objectives and policies are being correctly achieved or implemented. The assurance and oversight functions include:
- Agreeing the organisations current strategic plan (in conjunction with executive management). The strategic plan describes how the strategic objectives will be achieved.
- Suggesting or approving changes to the strategic plan to respond to changing circumstances.
- Requiring effective assurance from management that the organisations policy framework is being adhered to.
- Requiring effective assurance from management that the organisations resources are being used as efficiently as practical in pursuit of its strategic objectives.
- Communicating the relevant elements of the assurances received from management to appropriate external stakeholders.
- Assurance to the organisation’s owners the strategy and policies are being adhered to by management and the organisation as a whole.
- Assurance to a wider stakeholder community (including regulatory authorities) the organisation is operating properly.
If the overall management domain of project, program and portfolio management ever hopes to be taken seriously, we need to focus on improving the management processes involved in our area of interest and stop pretending they are somehow special or different to any other management process by applying grandiose titles to the work that are basically wrong.
What is needed in many organisations is much better middle and senior level management of the PPP domain focused on achieving better alignment with strategy and an improved return on the organisation’s investment in its project and programs; achieving a good ROI is a management KPI, not a governance measure.
This commentary is based on a series of papers and articles that can be accessed from: http://www.mosaicprojects.com.au/PM-Knowledge_Index.html#OrgGov
Patrick Weaver, FAICD (Fellow of the Australian Institute of Company Directors).
Mosaic Project Services