The John Grill Centre's Marc Vogts on the importance of boards understanding the risks unique to major projects.
Sometimes the future of a business pivots on the success of one project. “Directors who may have no in-depth experience of governing major projects must develop a very clear understanding of how risk is likely to evolve from conception to completion,” says Marc Vogts, CEO of the John Grill Centre for Project Leadership and former vice president, projects of BHP Billiton and project director at Rio Tinto. “As negative events rarely occur in isolation, they need to understand the broader risk portfolio rather than focusing on individual risks.”
He suggests that directors plan their interrogation of the project by thinking about the 10 most important questions they could ask along the way – and, just as importantly, the best time to ask each one.
“For example, at the start of a project there is very little information to draw on, so there is little point in asking for detail,” he says.
“In the early stages there is also a tendency for the people who are putting the proposal together to downplay risk and overstate opportunity. What they describe as a very clear and solid business case might well be optimistically skewed so, at this stage, the board will want to know whether the project team has honestly explored all alternatives and challenged their proposed solution.”
Information technology projects present a particular challenge because the technology can move faster than the project itself. They also tend to be customer-focused, so the board must try to imagine what customers will want or need in the future.
“This can be very challenging, but techniques are being developed that take an iterative approach based on frequent customer interaction,” says Vogts.
There are some threats to success that no project manager can control.
"Something like a sharp fall in commodity prices could kill the best-designed project," says Vogts.
And a big infrastructure project might be driven more by political intent than optimal results. Boards must find a middle ground – not overly optimistic but not so pessimistic that every project appears to be too risky to take on. That isn’t easy in today’s turbulent world.
The board’s overriding responsibility is to know that the risk exists.
“You can then call on techniques that can be very successfully adapted to things like a shifting political environment,” says Vogts. Every board should be prepared to draw on expert advice.
“On a business-defining project I would certainly look for some form of independent review,” says Vogts. “Appropriately skilled people can facilitate the right conversations and provide a sense of whether the project is moving in the right direction. Good boards understand the value of running an independent peer review and the positive impact this can have on the culture within a project.”
A good board also knows when it’s time to stop. “It takes a great deal of courage to make a decision that could give the impression of failure,” says Vogts. “In fact, calling a halt at the right time is a sign of effective oversight.”
Marc Vogts is Principal Advisor - Energy and Resoarces at the John Grill Centre for Project Leadership at the University of Sydney which offers executive education programs for those leading and governing business-defining projects, equipping them with the capabilities to deliver optimal value for their organisations through projects.
Marc supports our leadership development and governance programs bringing a wealth of knowlegde from his previous project executive roles with BHP and Rio Tinto.
This article is authored by Domini Stuart and was first published in the May 2017 edition of the Australian Institute of Company Directors’ Company Director magazine which is available online.