Project Risk Management: Challenges and Good Practices in Active Project Ownership

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1 Project Risk Management: Challenges and Good Practices in Active Project Ownership Hans Petter Krane 1 (PhD Candidate, Norwegian University of Science and Technology, Trondheim, Norway) Jan Alexander Langlo (PhD, Research Scientist, SINTEF, Trondheim, Norway) Abstract Managing risks is one of the most vital activities in project management in order to ensure project success. The purpose of this paper is to investigate the role of project ownership and see how a project owner actively taking part in a project may influence how the project manages risks. The ambitions of the project manager and the project owner are traditionally to some degree misaligned. While the project manager primarily focuses on operational risks and risks that will influence the success of the project completion, the project owner primarily focuses on risks that may influence the success of the operational project product. This paper will explore different challenges facing the project owner as he depends on the interaction with the project manager and the project team members in order to make his decisions, and the paper will describe different examples of good practice identified during the research. The research is based on qualitative investigation of seven different projects, combined with document studies and analysis of risk register data from the same seven projects. The conclusions of this paper are that there often is more than one representative for the project owner in a project, that close informal interaction and cooperation between project management and project owner representatives are essential for efficient and effective risk management, and that operational risks are the dominating focus in project risk management in spite of project owner involvement. Keywords: Project risk management, project ownership 1 Active Project Ownership in Project Risk Management In a discussion of the issue of project success, all participants are likely to agree that this quite simply must be the top priority for projects. But behind the large common agreement we will easily find that there are very different interpretations of the term "Project success". For instance will the project owner not primarily mean success for the project itself, but he will usually find it more important that the more long-term effects of the project are giving indisputable and clear benefits. The project management team, on the other hand, will most likely above all want to obtain success for the project itself; in the shorter time perspective of a construction or implementation phase and including the hand-over to the user and/or operations organisation. In other words, the project management team focus on cost, schedule and quality in order to ensure project success, while the project owner judges project success in a broader perspective. In order to evaluate and discuss the different kinds of results and effects of a project, we find it useful to introduce the terms "first, second and third order of project consequences", suggested by Johansen et al. (2009). First order effects are related to the immediate results and deliverables from the project. These are the consequences arising 1 Corresponding author: Address: NTNU, Dept. of Production and Quality Engineering, NO-7491 Trondheim, Norway. hans.p.krane@ntnu.no

2 when the project has been executed and has delivered according to its result oriented goals. Second order consequences are the ones arising after the project execution phase is finished and its deliverables handed over. This will typically be benefits in the form of increased sale or sale of new products, or increase in the knowledge within the owner organisation. Third order consequences are the ripple effects created in the society as a consequence of the realisation of the project. For many of this type of consequences it will take time before they occur. This article is primarily focused on the project owner and the challenges that he meets in practicing the ownership of the project and secondly on the project management team. The ownership includes the combination of control and responsibility of cost and income of the project (Olsson et al., 2008). This makes it a unique role versus the project, and it also implies that this role should act as a principal to the project management team. The interaction between project management and project owner often materialises and becomes evident through project uncertainty management. Using the term "uncertainty management", we include both the management of potential risks and potential opportunities. A basic presumption for the studies presented in this paper is that it will be vital to project success that the project owner is actively influencing how uncertainty management of the project is performed for instance focusing on opportunities and strategic risks. Without his active involvement the uncertainty management will mainly focus on uncertainties regarding first order project consequences. Four main challenges in practicing active project ownership were identified early in our work: Challenge 1: "Regarding the different perspectives of project owner and project management team: How can the gap be bridged while the owner keeps control of project success?" In the next section of this paper it is shown that the project owner and the project management team will have diverging interests. When this is realised by the actors how can the gap be bridged, cooperation be established while the owner maintains his control? Challenge 2: "The owner should not take over and run a project, but he should control it." This is based on realising that there are substantial differences in interests between project owner and project management team. It is also based on what is stated above that the project owner must be at the steering wheel. However, the project management should still be managing the project, but under the control of the owner, and with everyone aware of the divergence in interests. Finding practical solutions to this will be a major challenge to a successful project execution. Challenge 3: "Balancing operational and strategic issues they must both be properly addressed!" Claiming that the project owner's strategic perspective must be guiding for the project management team, this does not imply that project operational issues can be neglected. No matter how important the project lifecycle and strategic views are still a number of short term project issues will be critical, not just to project success, but even to project survival. Challenge 4: "The owner is responsible for both project costs and benefits and must also balance the two." as stated above, one quite unique characteristic of the project owner is the combination of his ownership to both project benefits and project costs. However, this will constantly also mean dilemmas and gives a basis for conflicts. This will for instance be the case when (necessary?) cost reductions are threatening benefits, or when measures made to the project to achieve (necessary?) benefits mean escalating costs. These challenges form the basis for the research presented in this paper. 2 Project Owner and Project Manager: Conflicting perspectives? As stated earlier in this article, we are primarily focusing on the roles of the project owner and the project management team. Little influenced by their subjective intentions, their factual interests will give strong guidance to their factual priorities, choices and decisions in the everyday work of the project (Olson, 1971). This will mean that when the project owner is evaluated, rewarded and blamed for the project's benefits to the organisation and economical results, then his perspective on the project will be the organisational results, benefits, and financial/economical results that the project is likely to give. And likewise, the project management team is first and foremost evaluated and rewarded or blamed for what appears as a successful project during project execution and at handover to the user/owner organisation project deliverables as specified, and the project performed according to time plans and within budgets. Hence their focus will be on the specified project deliverables and a well-run project process.

3 The potential clash between these two sets of interests is obscured by apparently common goals (project success), hence it is often difficult to address properly the challenge of this implicit conflict. Reformulating the stance of the two actors and trying to take a more analytic approach to the dilemma, we could say that the project owner is having a financial/economical perspective or an operational perspective (depending on which of the different owner roles we study), and the project management team has a product/ process perspective on the project. 3 Research design The investigation was conducted as a number of multi-case studies and what is presented here are the results from a combination of two PhD studies. All studies were based on semi-structured interviews. The interviews were both based on and supplemented by careful studies of documentation, both internal and external to the project owner organisations. 4 Active Project Ownership and Risk Management: Identified challenges and good practices The approach to the studies was twofold. For the first we wanted to investigate in different organisations how the project owner role was implemented. Secondly we wanted to see how this was influencing the projects and how the different implementations of project owner roles in different organisations had resulted in different benefits and challenges, given the differences of the organisations. 4.1 Multiple project owners for a single project A basic challenge to the projects regarding project ownership is based on the different interests of the different owner roles. This will be a possible source to internal conflicts. Actors occurring in different owner roles to the same project may easily give different messages, both to the project team and to other stakeholders. Another challenge can be that not all those who appear in roles as owners are "balanced owners", i.e. having responsibility for both the costs and the benefits of the project. These actors will usually represent different aspects of the project ownership it will be important to handle them as complementary to each other, and not as alternative owner representatives. The multiple project owner roles and the different aspects of the owner roles are described in more detail by Olsson et al (2008) and Andersen (2010). Through the investigations it was found that the identified owner representatives had quite different relations to the projects, and also expressed quite different expectations and requirements. Challenges caused by owners having different interests, needs and perspectives were also encountered in the studies. In particular we observed that roles were quite often mixed, and in some projects some owner representatives behaved as quite "unbalanced" owners. This meant that they concentrated mainly on a set of benefits (or costs) optimised to criteria based only on their specific viewpoint, and with little attention on any equivalent set of costs (or benefits). They would then often have too little attention to other criteria sets and other viewpoints. However, examples of "balanced owners" were also encountered owners who were taking into account both project benefits and costs. Other good practice observed was a number of project owners acting quite much as strategic owners, having their main focus on the more long-term benefits from their projects and taking a lifecycle perspective on the project. 4.2 The necessity of close informal interaction and informal communication When the interaction between project owner and project management team to a large degree is kept at an informal level, the actors claimed that this usually means that it is possible to cooperate/ respond quickly, without spending much resources and time on sticking to formal procedures, and the communication flow may more easily be running

4 in both directions. In a knowledge management perspective and innovative perspective, it is important to let informal processes run, in order to activate and combine the knowledge of all the involved individuals. Informal interaction and informal communication are essential for making organisations work (Drucker, 2001; Galbraith, 1977). However, this informal interaction also needs to be accompanied by some more basic structure a "formal backbone" must always exist. Neither should the power coming from formalism be forgotten. This may for instance be found as an integral part of the "sources of power in organisations" presented by Morgan (1986). In project management literature from the recent years the importance of trust in stakeholder relations is often emphasised. Interaction between stakeholders has been investigated by, among others, Kadefors (2004), Karlsen et al. (2008), Dervitsiotis (2003), and Zaghloul and Hartman (2003), all of whom emphasise building trust in the relationships between stakeholders. Dervitsiotis (2003) has studied trust between the stakeholders who are vital to an organisation. His work does not focus on projects, but might in principle also be applicable to a project organisation. The aforementioned papers all provide evidence that trust between project owners and project managers is crucial for project success. Findings from the studies regarding this: In the studied projects, risk management was found to be performed in close interaction between the project owner s representatives and the management team of each project. I.e. the particular focus was on the management of high priority risks, but with an open discussion and attitude to the question of what are and should be the high priority risks. A close cooperation between project owner and project management team was ensured by a proactive attitude on the part of the project manager. This was also supported by what we regard as basically expressions of trust between the participants. The cooperation was simplified by the project managers to a large extent being company internal. The main explanation that was given for cooperating in this manner was the need for a holistic view of the project. It was also claimed that close cooperation was needed in order to respond quickly enough to changes in a dynamic project environment. In other parts of the studies it was found that the use of informal means of communication was dominating the communicative situation in projects. This was regarded to be an indication that informal interaction normally would precede formalised actions. Trust was found to be built, maintained and reinforced through a combination of informal and formal processes. 4.3 The domination of operational risks Detailed examinations of the risk registers in seven projects were part of one of the studies. This unveiled that a large majority (more than 90%) of the approximately 1500 risk elements were operational risks. This might partly be due to the risk management both being performed by the project management team and conducted on their premises. As discussed above, the focus of the project management team will overall and basically be on first order effects of the project and hence their main focus will be on operational risks. Within the owner organisations there might of course also exist separate risk management processes for strategic risks that could be conducted on the project owner's premises. We did however in our studies not find any evidence of the existence of such processes. Other findings from the studies regarding this: In the interaction between the project owner s representatives and the project management team in the projects that were studied, no distinct difference was found regarding their focus on strategic or operational risks. The vast majority of the risks were operational. No significant differences were found between the project owner and the project management team here.

5 5 Summary and conclusions This broad empirical study of project risk management has in particular focused on the project owner's role and his relation to the project management team. This has brought new insight into how the interaction between the two is working, and also how this does influence the challenges of practicing an active project ownership. Conclusion 1: The owner representatives' relations to the projects varied quite much, and also the expectations and requirements to the projects that they expressed. Additionally, there was quite a large variation between different owner types regarding how they balanced between benefits and cost from the project. Some quite narrowly focused on a specific set of benefits while others made a broader and more overall balance between costs and benefits. Conclusion 2: A proposition that project risk management is performed in a close informal interaction and cooperation between the project owner and the project management was supported by the findings in the studies. This was also regarded as essential for the projects. Conclusion 3: There was not found any indication that the project owner did have any stronger focus on strategic risks than the project management team. Both of these actors were mainly focused on the operational risks of the project. We have however not found any good explanations whether this is the full answer regarding the management of strategic risks in the project owner organisations, i.e.; whether there might exist other risk management processes for strategic risks. References Andersen, E. S. (2010). Illuminating the role of the project owner. Paper presented at the Asian Pacific Research Conference on Project Management (APRPM). Dervitsiotis, K. N. (2003). Beyond stakeholder satisfaction: aiming for a new frontier of sustainable stakeholder trust. Total Quality Management & Business Excellence, 14(5), Drucker, P. F. (2001). The essential Drucker. Oxford: Butterworth Heinemann. Galbraith, J. R. (1977). Organization design. Reading, MA: Addison-Wesley. Johansen, A., Jermstad, O., & Ekambaram, S. (2009). Muligheter i prosjekter - Del II ("Opportunities in projects - Part 2", in Norwegian). Prosjektledelse(4), Kadefors, A. (2004). Trust in project relationships--inside the black box. International Journal of Project Management, 22(3), Karlsen, J. T., Græe, K., & Massaoud, M. J. (2008). Building trust in project-stakeholder relationships. Baltic Journal of Management, 3(1), Morgan, G. (1986). Images of organization. Beverly Hills, Calif.: Sage. Olson, M. (1971). The logic of collective action: public goods and the theory of groups. Cambridge, Mass.: Harvard University Press. Olsson, N., Johansen, A., Langlo, J. A., & Torp, O. (2008). Project ownership: implications on success measurement. Measuring Business Excellence, 12(1), Zaghloul, R., & Hartman, F. (2003). Construction contracts: the cost of mistrust. International Journal of Project Management, 21(6),