The Wiley Guide to Managing Projects (Morris/The Wiley Guide to Managing Projects) || Managing Project Stakeholders

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  • 321

    CHAPTER FOURTEEN

    MANAGING PROJECT STAKEHOLDERS

    Graham M. Winch

    Taurus meant an awful lot of different things to different people, it was the absolute lack ofclarity as to its denition at the front that I think was its Achilles heel.

    PETER RAWLINS, FORMER CHIEF EXECUTIVE OF THE LONDON STOCK EXCHANGE, INTERVIEWED IN THEMARCH 7, 1995, EDITION OF THE FINANCIAL TIMES, ON THE DEMISE OF THE MASSIVELY OVERRUN AND

    UNSUCCESSFUL PROJECT TO COMPUTERIZE SHARE DEALING ON THE EXCHANGE.

    The challenges for the project management team are growing more complex. This pointis illustrated in many different ways throughout this book and is the fundamental insightof the management of projects perspective. The aim of this chapter is to address one ofthe more important elements in that complexity: the increasing diversity and power of projectstakeholders. The chapter starts by briey identifying some of the sources of this growingcomplexity, before formally dening the concept of project stakeholder. It then goes on topropose a framework for mapping the stakeholders on the project as a prerequisite foranalyzing their ability to inuence the denition of the project mission and to disrupt itsexecution. The framework presented here was used to analyze publicly sponsored construc-tion projects in Winch and Bonke (2002). Here the analysis of power is developed furtherand the framework used to analyze the case of a private-sector-sponsored IT project forback-ofce settlement on the London Stock Exchange (LSE). It will be argued that one ofthe major differences between the failed project (TAURUS) and the successful project(CREST) was the effectiveness of stakeholder management. Some implications of the analysisare then drawn out for the effective management of project stakeholders by the projectmanagement team (PMT).

    The Growing Complexity of Stakeholder Management

    Projects have always had stakeholders, but they have usually been either the funders of theproject as client or suppliers of the project as members of the project coalition. Inherently,these stakeholders have had an interest in the effective delivery of the project with the

    The Wiley Guide to Managing Projects. Edited by Peter W. G. Morris and Jeffrey K. PintoCopyright 2004 John Wiley & Sons, Inc.

  • 322 The Wiley Guide to Managing Projects

    minimum capital investment for the functionality required by the business case, and theproject management team could focus on this objective. However, long-run changes in thesocial, political, and economic environment of projects have meant that this is no longernecessarily the case, for a number of reasons:

    Since 1945, most projects were nanced from the general revenue streams of the clientorganizationwhether streams derived from prots on turnover or the raising of taxes.Increasingly, for both private and public sector clients, projects are nanced by loans orequity raised by a special project vehicle (SPV) with the returns on that investmentgenerated directly by the revenue stream from the asset created by the project (see thechapters by Ive and Turner). This immediately introduces nanciers as a new class ofproject stakeholder, as well as creating a wholly new type of project actor in the SPVitself.

    Traditionally, the clientthat is, the party with which contracts are made by the prin-cipal supply-side members of the project coalitionand the project sponsor were thesame entity. This is no longer necessarily the case. In urban regeneration projects, forexample, the sponsors may be local political elites, who then choose a public body to bethe client, as in Manchesters sports-led schemes to host the Olympic Games and (suc-cessfully) the Commonwealth Games (Cochrane et al., 2002), or on the Central Artery/Tunnel (CA/T; Hughes, 1998) in Boston, Massachusetts.

    Regulators are growing ever more insistent on the project denition taking into accountwider social objectives than the effective exploitation of the asset being created by theproject. At least one authoritative study has concluded that the interventions of regulatorsare a principal source of budget overruns on projects (Merrow et al., 1981). The mostobvious example here is environmental protection, institutionalized through environmen-tal impact assessments, but operational safety, local purchasing and labor requirements,and land-use policy issues can also gure large in regulators concerns.

    Direct action by environmentalists or local loser groups can also be highly disruptive forthe project during the execution phase, and the only way to address this issue aside fromconfrontation is to address the concerns of such groupsto the extent that they can beconsidered as legitimateduring project denition.

    These points indicate the diversity of parties that can be considered to be project stake-holders. Cleland (1998, p. 55) has dened project stakeholder thus:

    Stakeholders are people or groups that have, or believe they have, legitimate claimsagainst the substantive aspects of the project. A stake is an interest or share or claim in aproject; it can range from informal interest in the undertaking, at one extreme, to a legalclaim of ownership at the other extreme.

    There are two important aspects of this denition worthy of note. First, stakeholders onlyhave to believe that they have a claim on the project to cause problemsthat claim mightbe perceived as illegitimate by the client and PMT. As the sociologist William I. Thomasput it, if men dene situations as real, they are real in their consequences (cited Coser,

  • Managing Project Stakeholders 323

    TABLE 14.1. SOME PROJECT STAKEHOLDERS.

    Internal Stakeholders External Stakeholders

    Demand Side Supply Side Private Public

    ClientSponsorFinanciersClients employeesClients customersClients tenantsClients suppliers

    Consulting engineersPrincipal contractorsTrade contractorsMaterials suppliersEmployees of the above

    Local residentsLocal landownersEnvironmentalistsConservationistsArchaeologists

    Regulatory agenciesLocal governmentNational government

    Source: Adapted from Winch (2002) Figure 4.1. Used with permission of the Project Management Institute.

    1978, p. 315). Second, those claims are usually met by adjusting the project mission in someway, unless the claimant is too weak to press their claim. Even direct-action opponentswhose claims are not considered legitimate by most parties can force changes in projectdenition by enforcing additional expenditure on site security and the like. As Fred Salvucci,a member of the Boston political elite sponsoring the CA/T, put it, these mitigations ofstakeholder claims on the project are the modern equivalent of delivering some chunk ofmastodon meat back to the tribe (Hughes, 1998, p. 221).

    Project stakeholders are a diverse groupsome are formally members of the projectcoalition, others not. The rst group is usually dened as the primary or internal stakeholdergroup (Calvert, 1995; Cleland, 1998). They are dened by having a contractual relationshipwith the client or a subcontract from another internal stakeholder. They usually enter will-ingly into the project coalition, and are, by denition, positive about the project even if theynegotiate toughly for their share of the value added by the project. Their claims are usuallyenforceable directly as breach of contract. The second group is usually dened as the sec-ondary or external stakeholder group. They may have little choice about whether the projectgoes ahead and may be either positive or negative about the project. They rarely have adirectly enforceable claim on the project and are therefore reliant upon regulators to act ontheir behalf, the mobilization of political inuence either covertly or through public cam-paigns, or, occasionally, direct action.

    Internal stakeholders can be broken down to those clustered around the client on thedemand side and those on the supply side. External stakeholders can be broken down intoprivate and public actors. This categorization, with some examples, is shown in Table 14.1.

    On the demand side, a complex array of interests is indicated, and there can be noassumption that they are all aligned. One of the largest differences of interest within thedemand side is often between the client and its employees. Particularly where the project isassociated with reengineering business processes, employees may face signicant changes intheir work, or even lose their jobs, as a result of the project. Even where this is not thecase, failure to adequately capture the needs of users as they perceive them can causedifculties or even failure during the commissioning phase of the project. Similarly, theinterests of nanciers, clients, and sponsors may be divergent. Where project sponsors or

  • 324 The Wiley Guide to Managing Projects

    clients do not nance the project from their own resources, there is a great temptation tounderestimate the costs and overestimate the benets of the project (Flyvbjerg et al., 2003).For example, the nance of the Boston CA/T using the 10-cent dollar, where the U.S.federal government matches every ten cents put in by local taxpayers with 90 cents fromfederal taxpayers (Hughes, 1998), created a major misalignment of incentives. Much thesame would appear to have happened on the West Coast Main Line project in the UnitedKingdom, which has suffered program and budget overruns similar to Boston CA/T. Wherethe project sponsors are on the supply sideas on the Channel Fixed Link projectthiscan cause great suspicion among nanciers regarding the integrity of the decision makingof the client (Winch, 1996).

    On the supply side, a whole coalition of interests is arrayed. The supply side satisesits claim on the project through the income stream generated by working on the projectand the learning acquired through solving project problems (Winch, 2002). It is immediatelyclear that there is an inherent conict of interest between the stakeholders on the demandside and those on the supply side as they compete to appropriate the income stream fromthe projectwhat Porter (1985) calls marginin the project value system. Managing thisconict is the central task of project governance (Winch, 2001).

    Among the external stakeholders, there is even more diversity. By and large, the internalstakeholders will be in support of the project, although there may be factions within theclient that are backing alternative investments. External stakeholders may be in favor,against, or indifferent. In the private sector, those in favor may be local landowners whoexpect a rise in the value of their holding and local residents supporting a rise in the generallevel of amenity. Those against may also be local residents and landowners who fear a fallin amenity and hence the value of holdings. Such objectors are known as NIMBYs (not inmy back yard) and can delay infrastructure projects such as airports for decades, if not stopthem all together. Environmentalists and conservationists may take a more principled viewthan local losers, while archaeologists are concerned about the loss of important historicalartifacts.

    The public external stakeholdersin those situations where the public sector is not alsothe clientwill tend to be indifferent. Their interest arises from the general level of eco-nomic activity, rather than from any particular project, and their claim is met through thetaxes generated by this economic activity. Regulatory agencies that enforce regulatory ar-rangements such as those for urban planning, quality of specication, and heritage assetswill tend to be indifferent to any particular project denition, so long as it complies withthe codes. National and local government may, however, wish to encourage development,particularly in regeneration areas. At times, there may be conicts of interest within thepublic sector between its role as a project sponsor and its responsibilities as a regulator, ashappened with the Shefeld Arena project (Winch, 2002).

    Managing Stakeholders

    The successful management of stakeholders by the project management team requires thefollowing processes (cf. Cleland, 1998):

  • Managing Project Stakeholders 325

    FIGURE 14.1. MAPPING STAKEHOLDERS.

    Solutions

    Problem

    Opponents

    Proponents

    ProjectMission

    Source: Bonke (1996).

    Identify those stakeholders with a claim on the project Specify the nature of each stakeholders claim Assess each stakeholders ability to press that claim Manage the response to that claim so that the overall impact on the denition and

    execution of the project are minimized.

    Stakeholder mapping is proposed as a valuable aid to completing these management proc-esses successfully. The rst step in managing the stakeholders is to map their interest in theproject (Winch and Bonke, 2002). This can be done using the framework illustrated in Figure14.1. The focus of the approach is the project mission as represented by the asset to becreated. Stakeholders can be considered as having a problem or issue with the projectmission and as having a solution (tacit or explicit) that will resolve that problem. Wheresuch solution proposals are inconsistent with the clients proposals, they can be dened asbeing opponents to the project. An important part of stakeholder management is to ndways of changing opponents to proponents by offering appropriate changes to the projectmission and preventing possible proponents defecting to the opponent camp by offering toaccommodate more explicitly their proposed problem solutions.

    Once the stakeholder map has been drawn up, the power/interest matrix can be usedto develop a strategy toward managing the different stakeholders ( Johnson and Scholes,2002). It consists of two dimensions: the power of the stakeholder to inuence the denitionof the project and the level of interest that the stakeholder has in that denition. The level

  • 326 The Wiley Guide to Managing Projects

    of interest is conceptually simpleit is a function of the expected benet or loss from theproject. Power is a more slippery concept and is discussed more fully in the text that follows.

    This matrix categorizes the stakeholders into one of four types, but the discussion herecan only be indicativewhere a particular stakeholder sits in relation to the project dependsentirely on the specic context of that project. The rst group is those who require minimaleffort, such as the clients customers, or local and national government. A public relationsapproach to this group will often sufce, aimed at ensuring that those who might be opposedto the project stay in the low-interest category while those who are likely supporters aretempted to move to the high-interest category.

    The second group are those who need to be kept informed. Groups who may be opposedto the project, such as local residents, conservationists, or environmentalists, need to becarefully managed. If such groups coalesce into well-organized movements and are able tomobilize the press behind them, they may well be able to move into the key player category,causing the project severe disruption, or even cancellation. T...

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