Organisational Governance Explained: The key to successful governance

Governance in project management is no new concept but for many, it is still misunderstood. For many, governance is limited to the project level and merely involves the set of rules, processes and principles that guide project-based decision making. But decisions are not only being made at a project level. 

Successful governance does not only govern project management processes, it governs the organisation that executes these projects. Often, the missing piece to truly successful project governance is a robust organisational governance structure. In this blog, we guide you through the concept of governance, organisational governance and the benefits good organisational governance can bring your business.

What is governance?

Governance is defined by Merriam-Webster as ‘‘the action or manner of governing a state or organization, and the verb to govern is defined as to conduct the policy, actions, and affairs of a state, organization or people with authority.” Governance is a part of managerial DNA, everyone at every level in the organisation is abiding by some form of governance to make their decisions. Yet why is the discussion of governance in project management often confined to the project level alone?

Due to the dominance of traditional linear-based industries in project management literature regarding governance, governance is often associated with stage-gate processes and bureaucratic rules, reducing it to a mechanism of compliance management. However, this mistaken association has confused the mechanics of governance with its function. While building structure and accountability is a critical aspect of governance, governance encompasses a far wider range of functions.

In her article, Dr Lynda Bourne identifies the six core functions of governance as:

  1. Determining the objectives of an organisation
  2. Determining the ethics of an organisation
  3. Creating the culture of an organisation
  4. Ensuring compliance within an organisation
  5. Ensuring accountability within management
  6. Designing and implementing the governance framework for an organisation

When we have this overarching view of governance, we can see how only viewing governance from a project level can be limiting. Good governance is not only about setting up the right frameworks for decision-making but is also about creating suitable environments, cultures and practices that make sure those frameworks are addressing the right factors and can be effectively implemented.  

How do we expect project teams to effectively run on a different set of standards and processes if the same standards are not being applied or valued across the entirety of the organisation? This often results in governance disconnection between different departments and levels of management, turning governance activities into an additional burden for project teams without reaping its full benefits for senior management and key decision-makers. This is why organisational governance is a critical piece for successful governance at all levels.

Read more: Top 5 Signs of Poor Project Governance

What is organisational governance?

Organisational governance, also known as corporate governance, can be understood as the overarching approach that answers two core questions – ‘What needs to be achieved by the organisation’  and ‘why this is important to the organisation’. 

The OECD has an extensive definition for organisational governance as:

“ the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance.” 

While there are many different definitions floating around, some critical elements of good organisational governance include:

  • Ensuring the right organisational strategic objectives are set
  • Appointing the right executives and providing advice 
  • Collaborating with executives in the designing and implementation of policies that consider key strategic principles and organisational values
  • Collaborating with managers to ensure the organisation’s resources are being used efficiently in line with the organisation’s policies and strategic objectives.

Organisational governance is the overarching framework from which project governance and PPP governance emerge. 

Benefits of Good Organisational Governance

We have discussed the basics of governance and organisational governance, so what exactly are the benefits it brings to organisations?

1. Builds the appropriate culture and behaviours within the organisation

It is hard to make good decisions if pre-existing cultures and behaviours encourage you to do otherwise. Good organisational governance helps set the right culture and encourages positive behaviours in line with the intended objectives and frameworks in place. 

2. Improves decision-making across all levels of the organisation

Organisational governance ensures that all decisions made within the organisation apply the same principles, values and practices that are geared towards achieving the organisation’s strategic goals. Good governance helps individuals at all levels in the organisation make better decisions faster, giving them the extra edge in a fast-paced and turbulent economic environment.

3. Improves organisation-wide efficiency

Organisational governance is not just about adding more steps for every level of the organisation. By implementing and monitoring frameworks, governance committees and teams can better identify opportunities for improvements that can improve efficiencies throughout the organisation and reduce costs. 

4. Improves strategic alignment, planning and value generation

Organisational governance helps give the critical strategic alignment that is missing when governance is only applied on a project level. When all frameworks are built in line with strategic objectives in mind, executives can improve strategic planning and decision making which in turn gives project teams the agility and confidence to make decisions that will contribute to project success and generate greater strategic value for the organisation

5. Improves stakeholder relationships and organisational reputation.

Good organisational governance also has the added benefit of improving external reputation with stakeholders and potential investors. When an organisation has clear procedures that allow for smooth communication and quick decision making, it gives stakeholders and potential investors greater confidence and trust in the organisation which can allow for long-term relationship development

6. Improves sustainability

In their article, de la Cruz Lopez and others emphasize that sustainability should not merely be an afterthought that is drafted onto current project management processes but should rather be engrained throughout the entire project lifecycle to be truly sustainable. Organisational governance is thus the critical tool that enables organisations to fully integrate their sustainability practices consistently throughout all stages of their projects to effectively achieve their sustainability objectives. 

Read more: The 7 Processes of Sustainable Project Management

Learn more about governance with pmo365!

As mentioned, governance is a misunderstood concept and many fail to tap into the full benefits of good governance due to these misunderstandings. Make sure to check out our blog for extensive content on everything to do with governance in project management. 

If you want to continue learning more about organisational governance specifically, make sure to read our post on the challenges of organisational governance or download our free organisational governance maturity matrix!

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