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5. Project Risk Governance - Structures and Relationships

Introduction

Previous chapters defined PRG as the deployment of reinforcing organisational structures and co-ordinating mechanisms by which processes are carried out to minimise the uncertainties related to negative project risk and to maximise the benefits of positive project risk. Structures are organisational entities while relationships exist between members of these entities. The board of directors is the highest authority within the structure. It is supported by steering committees and the Project Management Office. In addition, project sponsors and project managers have direct responsibilities for PRG processes by providing project funding and project development respectively.

Organisational Leadership

Leadership for governance is often found to be the factor that most separates top-performing organisations from substandard-performing organisations (Weill 2004). It should be proactive and strategic, which requires commitment and supportive behaviour from the top. Emphasis should be on transparency so that the organisation is informed how governance decisions are made.

GUIDANCE

Corporate governance principles, covered in Chapter 3, do not prescribe detailed practices of organisational leadership and hence are sufficiently flexible to be applied to various forms of governance, including PRG. This means, in general terms, that responsibilities for PRG are carried out in a clear and transparent manner so that the organisation is well aware of the strategic importance of project risk. There should be a commitment by senior management to maximise the opportunities offered by project risk for the benefit of the organisation's shareholders and stakeholders.

Active participation in PRG is required from the executive to the project management levels. The board of directors and senior managers take the lead in integrating business and project strategies and ensure that appropriate governance structures and processes are implemented. At the next level, various PRG structures develop project risk strategies as will be outlined in following sections. Leadership is about clearly setting out expectations for effective PRG at all levels within the organisation.

CAPACITY

An important leadership responsibility of the board and project management is to provide organisational capacity, defined by Henderson et al. (1996) as the human skills and capabilities required to support and shape the business. For PRG this means:

• Managing project risk as part of business strategy. PRG creates a shared understanding of business/project objectives and, more specifically, raises awareness of, and reaches agreement on, the impact that project risk has on these objectives.

• Developing strategies that distinguish between negative and positive project risk. The threats of the former are minimised while the opportunities for the latter are maximised.

• Opening channels of communication through which consensus among managers can be reached about the significance of project risks when they are identified, analysed and responded to.

• Developing an implementation plan for PRG and executing management of change processes, if required. This is about creating policy, raising awareness, delivering training and providing rewards for introducing effective PRG.

• Mentoring project sponsors, members of steering committees and project managers to create a culture that reinforces the importance of PRG and project risk management.

• Considering the organisational context by assessing existing project risk awareness, understanding and management capabilities.

By its nature the quality of organisational leadership is determined by the people dimension of governance and is therefore less formalised. When reliance is placed on humans, allowances should be made for the influence of personal traits, behaviours and motivations. The implementation of PRG may require the organisation to rethink its leadership approaches and individuals to re-learn their governance roles and relationships.

Checklist: Responsibilities of Organisational Leadership for Project Risk Governance

• Is organisational leadership aware of the strategic importance of project risk?

• Are responsibilities for PRG carried out in a clear and transparent manner?

• Are all levels of management aware of their PRG responsibilities?

• Is there awareness of managing project risk as part of business strategy?

• Are negative project risks distinguished from positive project risks?

• Is there communication and consensus about the significance of project risks?

• Are the processes and structures of PRG determined and documented?

• Has PRG been implemented?

• Are PRG activities regularly monitored?

 
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