I’m increasingly convinced that the theories and concepts coming out of the ‘project management and governance’ literature offer incredible insights into how we might improve ‘institutional investment management and governance’. As evidence of this, I’d like to introduce Exhibit A: A new paper by Christoph Loch, Magnus Mähring and Svenja Sommer entitled “Supervising Projects you Don’t Understand – Do your Major Projects Receive the Leadership they Need?”
This paper serves as a remarkable analogy for the current governance constraints facing pension and sovereign funds. Just as many institutional investors around the world are accountable to lay boards, so too are many project teams overseeing large scale projects. Indeed, the themes and issues applied by the authors to ‘steering committees’ (SCs) can easily be applied to the Boards of Directors, Investment Committees, and Trustees and Guardians of pensions and sovereigns.
As such, the paper (unwittingly) describes the challenges facing institutional investment in the modern and complex era of global finance (and even offers some ideas for resolving them). Here are some of the most interesting blurbs from an investment perspective:
“This study addresses the dilemmas and challenges facing steering committees or other supervising bodies of large and strategically important initiatives. They ultimately bear responsibility, but they are not in a position that allows them to understand all the details of what is going on. They do not have the time, they are distant from the actual work processes, and, after all, executives cannot be experts on everything.”
“The added difficulty comes from organizational distance: hidden information, multiple areas of expertise, non-aligned interests, and other changing circumstances. Some projects fail not because of project management itself, but because of failure of the supervisors to provide the necessary senior leadership and governance to the project.”
“SCs are often formed based on political decisions, including people “who are important” on desirable projects (or those who are irrelevant on undesirable ones), rather than people who really have a role to play, (either because they own resources or the benefits and risks associated with the project).”
“Keeping the SC to a manageable size is therefore important. “You try to staff the SC to have people who possess the power and the capability to get things done, and who have a shared interest. Typically, a SC should have 6-8 people on it.”
“The SC needs to clarify and agree on project goals…Goal agreement is easy to characterize in principle: The SC needs to agree on a set of goals that can be translated into targets for the team. However, coming to an agreement about “clear, operational goals” is hard to do.”
“In an ideal world, the SC should be in the position to choose the [project team]; articulate the domain expertise required for successful execution, and ensure that this expertise is represented on the PT. In practice, however, the SC is often put together after the project team has already been put in place. Nevertheless, the SC should still to the best of their ability define and articulate the required expertise for the project and check whether the PT suffers from severe gaps.”
“Because of the complexity and specialized expertise involved in complex strategic projects, a tight oversight (ensuring a vetting of all important decisions) is simply not feasible for the SC. Substantial delegation is unavoidable.
“Misalignment can become catastrophic, and moreover, it may be so subtle that it is hard to recognize at first. Thus, the abdication that we have described in the section above is a real risk that can arise without the SC realizing it.”
“No matter how carefully you have planned, it is not a question of whether but only a question of when the plan will have to be modified. The key question is then whether the deviation was due to a mistake that can be corrected, an unavoidable deviation that is minor and can be made up for, or a reason for actually modifying the plan?”
Fascinating. This has given me the inspiration to really dig through the project management and governance literature. There’s a lot to learn. Anyway, the charts below offer some thoughts on 1) the constraints and challenges of good project governance and 2) how to overcome these challenges (click on image to enlarge).
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This post originally appeared on the Oxford SWF Project.