Project governance and investment risk

Chris Roux.

Chris Roux takes a look at the importance of project governance and project management and how they can ultimately be responsible for a project’s success.

The global economic collapse, like an outgoing tide that reveals once unseen reefs and wreckage, brought to the world’s attention an assortment of exposés about scams and high-risk speculations around the globe that have horrified and fascinated both professionals and the general public.

Their stories are made public knowledge largely because of the severe financial and human cost they reportedly caused, and tend to share very little about the decision making processes involved.

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Somewhere between projects that have been cancelled or put on hold, and those that were overexposed to business uncertainty, are the better geared investments now confronted with new conditions demanding changes to the variables and assumptions in their feasibility model.

The changes in market conditions present both opportunities and new risks, which have to be factored into the feasibility reviews. This assumes, of course, that some decision making framework and models existed in the first place.

Models vary from simple Net Present Value calculations based on discounted future cash flows, to highly complex Real Options models applying multiple sources of uncertainty and managerial choices regarding future payoffs.

Whatever model is applied in determining the type of a strategic investment, unless a robust system of continuous project governance is in place to oversee the delivery, the process of managing investment risk becomes more difficult.

Project governance is deliberately mentioned here as opposed to project management, which is a necessary, but not sufficient, determinant for investment success.

Good project management is essential for the successful delivery of an investment decision, while project governance applies across the full span of its life cycle.

Undoubtedly, the cause of most investment failure is the absence of both responsible project governance and good project management.

Project governance can be seen as the managerial system responsible for the sum of all decisions that determine the ratio between the real worth of an investment and the cost of having it, which includes capital, operating and opportunity costs.

Much of the responsibility of project governance is delegated downwards through the project management process but accountability for the project’s ultimate success remains with the directors of the investing company.

Good project management can highlight inadequate project governance and if engaged at a sufficiently early stage, can significantly improve the probability of investment success through methods such as risk management, value engineering, configuration control, and alternative procurement and construction strategies.

These are important functions, however devalued they have become, in a competitive market that often reduces project management to mere construction supervision.

It is the primary role of a project governance system within a firm to continuously study external and internal uncertainty and dynamics, and diligently manage the process of decision making throughout an investment project’s life, in order to achieve the pay-off it was chartered to yield.

Project governance in turn, is only as effective as it is structured and allowed to act by the directors of an enterprise. There is an old maxim that management cannot improve poorly evaluated ventures and that at best it can then only deliver the wrong strategy.

The function of project governance is to ensure that this does not happen.

Who is Chris Roux?
Chris Roux is the business development manager for Coffey Projects in the UAE. He has a long history in the delivery of investment undertakings beginning with contracting. Roux did an eight year stint with consulting engineers, followed by 13 years in project management in South Africa. He holds an MBA and a PhD in strategic management, with emphasis on project management as a method of strategy implementation.