7CNMN003 Commercial

Management
Lecture 6: Governance
24th February 2020

Lecture 6 1
 Content
• Today’s objectives
• Business Case/ Business Drivers (5 Mins)
• Corporate, Organisation and Project Governance (20 Mins)
• Questions (5 Mins)
• Conclusion (5 Mins)
• Case Study: Read and Analyse, (10 Mins)
• Case Study Answers (10ins)
• Break (about 7.00)
• Case Study Answers & What happened........ (20 Mins)
at 7.30

Lecture 6 2
 Today’s Objectives
Objectives of today are:

• Look at Business Drivers and Business Cases

• Explain the importance of good governance.
• Look at the elements of good and bad governance.
• Look at models that explain the theory behind governance.
• Analyse a case study
• Test the theory against the case study

Lecture 6 3
 Business Case/Business Drivers
Business drivers
• What drives a business?
– Financial Performance: Cost Reduction, Profit, Cash, Shareholder
Returns, Worth, etc.
– Strategic Performance: Service Levels, Market Forces and Share,
Regulatory Changes, Mergers and Acquisitions, Clients etc.
– Resource Capability
– Knowledge Management

Lecture 6 4
 Business Case/Business Drivers
Business Case
• What is a business case?
• The business case provides justification for undertaking a
project, in terms of evaluating the benefit, cost and risk of
alternative options and rationale for the preferred solution.
Its purpose is to obtain management commitment and
approval for investment in the project. The business case is
owned by the sponsor. (Association of Project Management,
2006 adj for emphasis)
• Business cases need to be aligned to business drivers

Lecture 6 5
 Business Case/Business Drivers
• How well are business drivers defined in Companies and
Practices in the Built Environment?
• How well are they aligned to business cases?
• How is this performed in these companies?
• There is a choice and a decision to be made, weighing up all
the risk, benefit against the business drivers and capability
• Committing to a business case is a major decision. Company
resources are committed and risk and reward that needs to be
managed and realised.

Lecture 6 6
Business Case/Business Drivers
Don't forget the Project cycle in the Business case !

Lecture 6 7
 Governance
What is Governance?
“ Governance refers to the set of policies, regulations,
functions, processes, procedures and responsibilities that
define establishment, management and control of projects,
programmes and portfolios”
(Association of Project Management 2012)
Again a link: For Commercial Management and Finance

Organisational
Corporate
Governance – Project Governance-
Governance –
Management CVR
Company Accounts
Accounts

Lecture 6 8
 Governance
• Short word on Programme, Portfolio and Project Management
• So should they be governed differently? What are the risks?
• Now review the answer that was given to a bad business case.
Was this a bad business case or poor Project Governance?

Lecture 6 9
 Governance
Project Governance

HM Treasury 2007

What about re-evaluation and re-casting based upon decisions?

Ability to change the format and adapt to changing situations.
Example: Recession and Bluewater Quarries.
Lecture 6 10
 Governance
• What is the difference with all these terms; Corporate
Governance, Organisation Governance, Project Governance
and Project Management?
• Project Governance is not Project Management

HM Treasury 2007

Lecture 6 11
 Governance
Good Governance
• Programme direction;
• Project ownership and sponsorship;
• Ensuring the effectiveness of project management functions;
and
• Reporting and disclosure (including consulting with
stakeholders).

HM Treasury 2007

Lecture 6 12
 Governance
Project Direction.
• Aims, objectives, business case, structure to implement,
authority, accountability, steering, risk management, accurate
and relevant reporting
Project Ownership and Sponsorship.
• Identify people, decision making, single point, support to
project team, issues and dispute resolution
Effectiveness of PM function
• Role of technology, competent, awareness and control of
deliverables, risk management
Disclosure and Reporting
• Timely and accurate
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 Governance
Can be analysed and sometimes
managed using established methods
• Stakeholder
– Power Interest Grid (Mitchell et al 1997)

• Resource
- Resource Scheduling

Lecture 6 14
 Governance
• Knowledge
– SECI Model (Nonaka, I and Takeuchi H 1995)

• Agency Theory

• Are this all applicable at all levels of Governance?

Lecture 6 15
 Governance
• Good governance controls Project risk: Deloitte (2009)

Lecture 6 16
 Governance
The aims of a project governance structure are to:
• Set out lines of responsibility and accountability within the
Authority for the delivery of the project;
• Give the stakeholders in the Authority the ability to manage
their interest in the project;
• Support the Authority’s project team to deliver the required
outcomes by providing resources, giving direction, and enabling
trade-offs and timely decision taking;
• Provide a forum for issue resolution;
• Provide access to best practice and independent expert advice;
• Disseminate information by reporting to stakeholders so that
they can effectively fulfil their roles; and
• Provide a framework for project disclosures.
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 Governance
When it goes wrong:
• Lack of clear link between the project and the organisation’s
key strategic priorities, including agreed measures of success.
• Lack of clear senior management and project sponsorship and
leadership.
• Lack of effective engagement with stakeholders.
• Lack of understanding of and contact with the supply industry
at senior levels.
• Inadequate resources and skills to deliver the overall
programme

Lecture 6 18
 Governance
• A report by the National Audit Office (NAO) has roundly
criticised the Ministry of Defence (MoD) for poor management
of ongoing construction projects at three nuclear-regulated
sites in the UK. Construction News 10th Jan 2020
• The NAO investigation concluded that the combined cost of the
three projects had been inflated by £647m as a result of
decisions made by the MoD to begin construction too early.
This additional cost formed part of a £1.35bn increase, with the
three projects now expected to cost £2.5bn to complete – a
115 per cent rise beyond the initial forecast.
• Among other criticisms, the report found that the MoD failed
to capture or share the lessons of previous problem projects,
including the last cycle of nuclear updates in the 1980s and
90s. Lecture 6 19
 Governance
• It said management errors included “starting to build before
requirements or designs were sufficiently mature, increasing
risks through inappropriate contracts, and failing to engage
with regulators to understand requirements”.
• Delivery of the three projects has been severely delayed as a
result. A project at the BAE Systems shipyard in Barrow-in-
Furness, where nuclear submarines are constructed (pictured),
is expected to be completed in 2022, nearly two years behind
schedule. New facilities at a Rolls-Royce site near Derby, where
reactors for nuclear submarines will be made, is now due to
open in 2026, more than five years late. And MENSA, a new
facility at the Atomic Weapons Establishment (AWE) near
Reading, will be more than six years late on completion, now
expected in 2026.
Lecture 6 20
 Governance
• Knock-on impacts include the need to use existing facilities for
longer, with expected upgrade costs of £21m to ensure the
current AWE site can remain operational, for example.
• The NAO attributed the large cost overruns to a wide variety of
factors, including overspecification resulting from a failure to
engage with the nuclear regulator, poorly drafted contracts
that not only saw the MoD swallow almost all financial risks
but also failed to incentivise suppliers to curb cost growth, and
a lack of contractual controls, oversight and commercial
expertise.
• It also found that risks were increased by “progressing projects
too quickly early on” and failing to properly manage
interdependencies. For example, it noted that building of new
reactor-core facilities began before
Lecture 6
the core design was 21
 Governance
• NAO chief Gareth Davies said: “While these infrastructure projects
are complex, the MoD has encountered similar challenges before in
its nuclear work. Although it has recently introduced changes to
enhance its oversight of the projects and improve its contracts with
suppliers, it should have learnt earlier from past mistakes and the
experience of others in the nuclear sector. Instead, the MoD’s
failure to mitigate commercial and delivery risks early on has led to
project delays and cost increases, as well as impacting its wider
work.”

Lecture 6 22
 Governance
• An MoD spokesperson said: “As the National Audit Office has
acknowledged, nuclear infrastructure projects are often large and
complex with niche designs. We are carefully examining the
conclusions in their report and will respond formally in due course.
We are committed to strengthening the management of nuclear
programmes, including investing significantly in infrastructure and
working closely with regulators and industry partners.”

Lecture 6 23
 Governance
Governance Roles (BIS 2010)
• A complex issue that involves stakeholders.
• Role of Boards : Members, roles, set/meet objectives(SMART)
• Role of Project Sponsor or SRO. Management , development
and delivery of the Project Initiation Document (PID). Owner
or Champion of Project.
• Role of Project Manager. Day to Day Project Management
• Project assurance: Independence and Audit

• A clear structure and accountability in roles ensures good

project control

Lecture 6 24
 Conclusion
•Project Governance and executing the Project Strategy are part of
an overall process.
•Good Governance links each element in the process and provides
direction and flow to key objectives, aims and other deliverables.
•Consistent and accurate reporting is critical to good governance.
•Stakeholder management is important to the process.
•Accountability, authority, roles and individual competence need to
be carefully evaluated, set and regularly reviewed.
•Could BIM be extended to encompass some or all of the
Governance items discussed?

Lecture 6 25
Questions

Lecture 6 26
 Next Week

Presentations: An opportunity for you in your Groups to update on

progress, get some feedback ready for your submission.

Group 4 - 6.15pm

Group 3 - 6.45pm

Group 2 - 7.15pm

Group 1 - 7.45pm

Lecture 6 27
 Case Study
Read the case study on the handout. Working either individually or
in your groups, investigate the case
study by:
1. Use the lecture material and hand-outs to analyse and evaluate
what is happening and answer the suggested questions and
others that you may have.
2. Suggest what could have happened in this case. You will find
this on the internet, so try to stay away from this!

Lecture 6 28
 Case Study
So what do you think is going to happen and why?

What really happened to follow .......................!

Lecture 6 29
 References
• Association of Project Management (2012). APM Body of
Knowledge. 6th Ed. APM. High Wycombe: APM
• HM Treasury (2007). Project Governance: A Guidance note for
public sector projects. November 2007. ISBN 978-1-84532-
376-9. London.
• BIS (2010). Department of Business Innovation and Skills.
Guidelines for Managing Projects: How to organise, mange
and control projects. BIS November 2010. London.
• Bibliography – see other material on Blackboard – Lecture 11
> Reading Material
• Deloitte (2009). Major Construction Projects: Improving
performance and Managing Risks. Deloitte Development LLC

Lecture 6 30
 References
• Nonaka, I Takeuchi H (1995), The knowledge creating
company: how Japanese companies create the dynamics of
innovation, New York: Oxford University Press, p. 284,
ISBN 978-0-19-509269-1
• Mitchell, R. K., B. R. Agle, and D.J. Wood. (1997). "Toward a
Theory of Stakeholder Identification and Salience: Defining the
Principle of Who and What really Counts." in: Academy of
Management Review 22(4): 853 - 888.

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