Stakeholder Circle® Up For Sale

The developer of the Stakeholder Circle® methodology, Dr. Lynda Bourne, has decided that as part of her transition to retirement it is time for the sophisticated SAAS web version of this leading-edge methodology to be transitioned to a new owner better able to exploit its potential.

The elements of the overall Stakeholder Circle® methodology we are actively seeking new owners for are:

1. The current database system that delivers the Stakeholder Circle® functionality to clients including both the analytics and contact management systems. These are developed in SQL Server and currently hosted by OrangeSoft Pty Ltd.
2. An earlier FileMaker database system that delivers the Stakeholder Circle®
3. The Stakeholder Circle® website and URL: https://stakeholder-management.com/
4. A non-exclusive licence to use the Stakeholder Circle logo and various papers and other IP.

The precise arrangements of the sale and transfer of ownership are very flexible, what Lynda is seeking is an advocate that can take the concepts and exploit the commercial opportunities her work has created. Payment amounts and terms, the precise scope of the IP transfers, and how much assistance we provide to you are open to offer, and agreement.

If you feel you may be interested in this unique opportunity to move your business or organisation to the leading edge of stakeholder analysis we will be happy to talk with you. In the first instance, email your expression of interest to patw@stakeholder-management.com.  All offers and ideas will be considered and assessed based on finding a good ‘new home’ for the tool.

Defining Project Success using Project Success Criteria

Everyone likes a successful project but the big question is what makes a project successful??  A good example is the Sydney Opera House; was the Sydney Opera House successful or not?

The project ran significantly over budget finished very late and was technically less than perfect; $millions are currently being spent rectifying many of the technical deficiencies in the building. But can anyone say Sydney Opera House is not one of the most recognised and therefore successful buildings in the world?[1]

Success is an ephemeral concept! Different people will have different perspectives and judge the success or failure project differently. Neither a project nor a program manager can control many of the factors that have made the Sydney Opera House worldwide icon but they can address the concept of success with their stakeholders and then work to deliver a successful outcome based on these discussions.

So what is success? There are probably three key elements, but these frequently create a paradox that requires a balanced approach to success. The three fundamental elements are:

• The Iron Triangle (Scope + Cost + Time)
• Benefits realised (or maximised)
• Satisfied stakeholders (but, when??)

One of the key paradox is a myopic focus on the Iron Triangle particularly time and cost can frequently destroy benefits and leave the stakeholders unhappy, but focusing on keeping stakeholders happy can frequently have detrimental effects on the Iron Triangle. There are no easy solutions to this problem[2].

In my view, the successful delivery of a project or program requires:

• Achieving the overall goal for the project;
• Delivering its objectives; and
• Meeting its success criteria.

But, to achieve success you need to define and agree the project goal, the project objectives, and the project success criteria with your key stakeholders with a view to achieving a combination of stakeholder satisfaction and value created. The goal and objectives frame the project’s work and direction. The success criteria frame how the objectives are achieved.

 

The Project Goal

Goals are high-level statements that provide the overall context defining what the project is trying to achieve. One project should have one goal (if there are multiple goals you are most likely looking at a program of work[3])!  For example:  Within 180 days, reduce the pollution in the rainwater runoff from a council tip by 98%.

The goal is a key statement in the Project Charter[4] and if the project is to be successful, all key stakeholders need to agree the goal.  The goal needs to be specific and should define the project in a way that focuses attention on the key outcomes required for overall success from a technical and strategic business perspective[5].

 

Project Objectives

The objectives are lower level statements that describe the specific, tangible products and deliverables that the project will create; each objective (and the overall goal) should be SMART[6]. For the runoff project the objectives may include:

• Develop wetlands to trap 99.8% of sediment
• Install channels to collect and direct the runoff
• Install screens remove floating debris
• Etc….. There will be a number of objectives……

Each objective requires defining and specifying with clear performance criteria so you know when it has been achieved. This may be done by the client or by the project team during the scope definition process. The performance criteria may be defined by a set of precise specifications that are specific and measurable or may be defined as a performance requirement with either:

• The external contractor to provide the specific details of how the objective will be achieved, or
• The internal project team to develop the details in consultation with the client

The defined objectives are the building blocks that facilitate the achievement of the goal and the creation of the benefits the organisation is expecting from the project[7]. The benefits need to be realised to create value.

 

Success criteria

Success criteria are different they measure what’s important to your stakeholders. Consequently, they are the standards by which the project will be judged at the end to decide whether or not it has been successful in the eyes of its stakeholders. As far as possible the stakeholders need to be satisfied; this includes having their expectations fulfilled and in general terms being pleased with both the journey and the outcome (in this respect scope, cost and/or time may be important).

Success criteria can be expressed in many different ways some examples include:

• Zero accidents / no environmental issues;
• No ‘bad press’ / good publicity received;
• Finalist in the project achievement awards;
• Plus the goal and all of the objectives achieved (yes – you still need to do the work).

For any project, the success criteria should be split between project management success criteria which of related to the professional aspects of running the project; plus project deliverable success criteria which are related to the performance and function of the deliverable.

Documenting the success criteria is important, it means you can get project stakeholders to sign up to them, and having them clearly recorded removes ambiguity about what you are setting out to do. The four basic steps to create useful success criteria are

1. Document and agree the criteria; each criteria should include:
   1. The name of success criteria,
   2. How it is going to be measured,
   3. How often it is going to be measured, and
   4. Who is responsible for the measurement.
2. Use continuous measurements where possible. For example, rather than ‘finish the project on time’ measure progress continually ‘no activity completes more than 5 days after its late finish date’.
3. Baseline today’s performance.
4. Track and report on your progress.

As with any performance indicators, the art is to select a few key measures that represent the wider picture if there are too many success criteria defined the impact will be severely reduced. For example, the effectiveness of meetings, communication, and stakeholder attitude could be measured scientifically using the ‘Index Value’ in the Stakeholder Circle[8] or pragmatically by measuring the number of open issues against a target (eg, no more than 5 high priority open issues).

 

Summary

Goals and objectives are the building blocks required to allow the realisation value from the project’s outputs; they are essential ingredients in a successful project but are insufficient on their own.  The role of success criteria is to direct the way work at the project is accomplished so as to meet stakeholder expectations, and to craft a perception of success in the stakeholder’s minds.

Project success is an amalgam of value created for the organisation and your stakeholders being satisfied with the journey and the outcome.  This concept of success may seem subjective, but it does not have to be. Successful organisations work to take the guesswork out of this process by defining what success looks like and agreeing these definitions with the key stakeholders, so they all know when the project has achieved it.

This means the key to stakeholders perceiving your project as successful lays in understanding the criteria they will measure success by, incorporating those measures into your project success criteria, and then working to achieve the criteria. But even this is not enough, to engage your stakeholders you need to communicate the criteria, communicate your progress and communicate your success at the end. For more on effective communication see: http://www.mosaicprojects.com.au/PM-Knowledge_Index.html#PPM07

_______________________

 

[1] For more on the success or failure of the Sydney Opera House see Avoiding the Successful Failure!:  http://www.mosaicprojects.com.au/Resources_Papers_046.html

[2] For more on paradox see: https://www.projectmanagement.com/blog-post/30669/The-Problem-With-Paradox

[3] For more on differentiating projects and programs see: http://www.mosaicprojects.com.au/WhitePapers/WP1002_Programs.pdf

[4] For more on the project charter see: http://www.mosaicprojects.com.au/WhitePapers/WP1019_Charter.pdf

[5] For more on project success see: http://www.mosaicprojects.com.au/Mag_Articles/N001_Achieving_Real_Project_Success.pdf

[6] SMART = Specific, Measurable, Attainable, Relevant and Time-framed.

[7] For more on linking objectives and benefits see: http://www.mosaicprojects.com.au/WhitePapers/WP1042_Outputs_Outcomes_Benefits.pdf

[8] The Stakeholder Circle® index value see: http://202.146.213.160/help-files/stakeholder-engagement-profile/#engagement-index

Defining Stakeholder Engagement

Two earlier posts have discussed the concepts of stakeholder engagement.

• The Elements of Stakeholder Engagement discussed the three foundations of stakeholder engagement and the paradigm shift in thinking needed to shift from management to engagement: https://stakeholdermanagement.wordpress.com/2015/07/20/the-elements-of-stakeholder-engagement/
• Beyond Crisis Management looks at the journey from responsive to proactive engagement with stakeholders in your community http://www.projectmanagement.com/blog/Voices-on-Project-Management/13868/

This post builds on these foundations to look at the tools and techniques of proactive stakeholder engagement. Effective stakeholder engagement is a mutually beneficial process designed to enable better planned and more informed policies, projects, programs and services.

For stakeholders, the benefits of engagement include the opportunity to contribute as experts in their field or ‘users’ of the deliverable, have their issues heard and participate in the decision-making process. This should lead to:

• Greater opportunities to contribute directly to the development of the outputs from the work;
• More open and transparent lines of communication, increasing accountability and driving innovation;
• Improved access to decision-making processes, resulting in the delivery of better outcomes;
• Early identification of synergies between the stakeholders and the work, encouraging integrated and comprehensive solutions to complex issues.

For the ‘organisation’, the benefits of stakeholder engagement include improved information flows, access to local knowledge and having the opportunity to try out ideas or proposals with stakeholders before they are formalised. This should lead to:

• Higher quality decision-making;
• Increased efficiency in and effectiveness of delivery;
• Improved risk management practices – allowing risks to be identified and considered earlier, thereby reducing future costs;
• Streamlined development processes;
• Greater alignment with stakeholder interests – ensuring outputs are delivered in collaboration with stakeholders and provide outcomes which meet their needs;
• Enhanced stakeholder community confidence in the work being undertaken;
• Enhanced capacity to innovate.

As with any stakeholder management process, ‘not all stakeholders are equal’ some stakeholders should be engaged because they are important to the work being undertaken, others simply need to be kept informed by appropriate levels of communication (for more on this see The three types of stakeholder communication).

The various levels of stakeholder communication, management and engagement are:

• Inform: You provide the stakeholder with an appropriate level of communication, generally either PR or reporting.
• Manage: You direct your communication to achieve a desired change in the attitude of the stakeholder or to manage an emerging situation.
• Consult: You invite the stakeholder to provide feedback, analysis, and/or suggest alternatives to help develop a better outcome.
• Involve: You work directly with stakeholders to ensure that their concerns and needs are consistently understood and considered; eg, the business representative involved in an Agile sprint).
• Collaborate: You partner with the stakeholder to develop mutually agreed alternatives, make joint decisions and identify preferred solutions; eg, typical ‘alliance’ and ‘partnering’ forms of contract.
• Empower: You place final decision-making in the hands of the stakeholder. Stakeholders are enabled (but also need to be capable) to actively contribute to the achievement of ‘their’ outcomes.

The first three bullets above are Stakeholder Management activities, the last three various levels of Stakeholder Engagement. Deciding which level of interaction is appropriate is a key driver of success, in any project, program or other work, some stakeholders will be best managed by simply keeping them informed, whereas the higher levels of engagement such as collaboration and empowerment require stakeholders with sufficient skills and knowledge to be able to actively participate in the endeavour, and importantly the desire to be involved!

The Stakeholder Circle® methodology provides the foundations needed to understand your stakeholder community and decide on the appropriate level of engagement for the ‘high priority’ stakeholders affected by the work. When you get to ‘Step 4 – Engagement’ the additional questions that need answering include:

• What is the purpose and desired outcomes of the engagement activity?
• What level of engagement is required to achieve this outcome – consult, collaborate, empower?
• What method of engagement will you use?
• What are the timing issues or requirements?
• What resources will you need to conduct the engagement?
• Who is responsible for engagement?
• What are the risks associated with the engagement?

 

Finally, as with any stakeholder management process, the success or otherwise of the overall process needs to be reviewed regularly and appropriate adaptation made to optimise outcomes (step 5 in the Stakeholder Circle® methodology)

Summary:

Stakeholder engagement is not a ‘one-size-fits-all’ solution to managing stakeholders and needs to be planned into the overall development of the work:

• Some of the questions outlined above need asking at the very earliest stages of a project or program during the ‘strategic planning phase’ and will affect the way the whole of the work is planned and undertaken.
• The culture of the organisation undertaking the work will determine how open it is to inviting stakeholder collaboration or engagement, a degree of ‘culture change’ may need to be planned into the work.
• Stakeholder engagement is always a two-way process, the skills, capability and culture of the key stakeholders will also be a constraint on what is feasible or desirable. You may need a strategy to ‘get the stakeholders on-side’.

Overall time and effort spent on stakeholder engagement will pay dividends (see: Valuing Stakeholder Management), stakeholder engagement is simply the most proactive way of helping your stakeholders to help you deliver their requirements successfully.

The Elements of Stakeholder Engagement

Effective stakeholder engagement is a two-way interactive relationship that encourages stakeholder involvement in the organisation for the benefit of both the stakeholders and the organisation.  The trend is increasingly clear; organisations that effectively serve the needs of their stakeholders outperform those that do not.

However, what is also apparent is confusion on the part of many managers as to precisely what stakeholder engagement is, and what systems facilitate effective stakeholder engagement.  This post suggests there are three basic systems that together form the foundation for effective stakeholder engagement in most organisations, but the foundations are just that, necessary underpinnings, stakeholder engagement itself rises above the foundations to create an entirely new way of engaging with stakeholders. Let’s start with a look at the three basic components:

PR = Public Relations

PR is probably the oldest of the three foundations (particularly if you include advertising within the overall ambit of PR).  For thousands of years people and organisations with something to sell to ‘the public’ have recognised the need to tell potential customers about their offering and suggest there is a good reason for the potential customer to become an actual customer or client.

Smart merchants realised they needed to give potential customers a reason for doing business with them (rather than someone else) and that competing on price alone was not a good move in a crowded market place.

The role of advertising is in part to make potential customers aware of your offering and in part to create a desire for the type of goods or services you are providing. Effective advertising creates a ‘call to action’ which the customer heeds.

Public Relations (PR) has a different focus.  Good PR is built around creating a positive image of the organisation in the minds of its wider stakeholder community. PR is not directly aligned to sales in the way advertising is, but does seek to make the organisation appear to be one that most stakeholders in its target audience will want to be associated with.  This may be because of exclusivity, or status, because the organisation is seen to be ‘good’, or for any one of a dozen other reasons.  Effective PR has many purposes including:

• Underpinning its advertising by creating a ‘good first impression’ of the organisation, thereby allowing the stakeholder to take note of its advertising.
• Explaining the value of the organisation to a wider community minimising resistance to the functioning of the organisation and facilitating its operations.
• Making the organisation appear to be a desirable ‘citizen’ within its community; etc.

Good PR is of course authentic and reflective of the true nature of the organisation, in the modern age ‘spin’ is easily uncovered and can be very damaging.

The fundamental nature of both PR and advertising is ‘push’ communication – the organisation pushes its message out to the wider community, hopes someone listens, and then measures its impact after the event with a view to improving the ‘message’ and the effect.

 

CRM = Customer Relationship Management

CRM is focused on providing a great experience to every customer.  The commercial driver for CRM is in part the generally accepted fact that it is far cheaper to retain an existing customer then to attract a new one and in part from a win-win view that the ability to quickly and efficiently service the unique needs of each customer reduces the transaction costs for the organisation.

Customers or clients are clearly stakeholders with a significant interest in the organisation, so focusing effort on providing them with the best possible level of service, delivered quickly and efficiently is a win-win outcome. Happy customers are more likely to recommend an organisation to their friends and colleagues as well as becoming regular clients of the organisation.

Unfortunately the concept of CRM seems to have been hijacked by software systems, overseas call centres and ‘big data’; bought with a view to ‘reducing costs’.  There’s nothing wrong with any of these concepts provided the outcome is improved customer service. Where the outcome is a reduction in service, any cost savings are likely to be offset by reduced business and the cost of attracting new customers to replace the ones lost by poor service.

Whilst CRM at its best is interactive and focused on a win-win outcome for both the organisation and its stakeholders, the stakeholders directly affected by CRM are limited to the organisations customers and clients.

 

Stakeholder Management

Stakeholder management is process focused; it involves planned interaction with a wider stakeholder community, both to manage the consequences of any crisis as well as providing information and facilitating two-way communication with key stakeholders.

Good stakeholder management is a proactive process, focused on facilitating regular communication and anticipating needs, issues and problems that are likely to arise within the stakeholder community. Tools and methodologies such as the Stakeholder Circle® are designed to facilitate efficient stakeholder management. Stakeholders are identified, there needs assesses and their relative importance determined. Based on this assessment, communication and other interactions are initiated to gather the support and assistance needed by the organisation and to head off or minimise any threats or problems.

The focus of stakeholder management tends to be ‘defensive’, and is aimed at creating the best possible stakeholder environment to allow the organisation to do its work efficiently   The process is interactive, seeking to engage constructively with the organisations stakeholders and looking for win-win outcomes that benefit the organisation and the stakeholder, but is driven by the organisation, from the perspective of the organisation.

 

Stakeholder Engagement

Stakeholder engagement builds on these three foundations (particularly ‘stakeholder management’) to create a different paradigm.  Stakeholders are encouraged to actively engage with the organisation and contribute to its growth and development whilst at the same time the organisation and its staff engage with their community through Corporate Social Responsibility (CSR) initiatives and the like. These engagement processes build a strong, two-way relationship in which the stakeholders and the organisation work together to build a common future that is both mutually desirable and beneficial.  I will be writing about stakeholder engagement in a future post.

 

Conclusion

The three foundations of Stakeholder Engagement: ‘Stakeholder Management’, CRM and PR are quite different processes focused on achieving different outcomes.  In a well managed organisation all three functions work together to crate a supportive stakeholder environment and a successful organisation. However, whilst the systems need to be aligned and compatible they are very different and should not be confused.

In particular CRM and Stakeholder Management systems have very different objectives, focus on quite different stakeholder groupings, need significantly different information sets, and have very different measures of success:

• CRM focuses on customers (or clients). Whilst customers as a ‘class’ of stakeholder are important, generally an individual customer is not. The focus of a CRM system is managing large amounts of data to provide ‘all customers’ with a generically ‘good’, potentially ‘tailored’ experience.
• Stakeholder Management focuses on indentifying the key stakeholders ‘at this point in time’ that require specific management focus as well as the wider group of stakeholders that need to be engaged (or at least watched). In most situations very few individual clients or customers would be sufficiently important to feature in this list, but there will be lots of stakeholders who are highly unlikely to ever become ‘customers’, for example suppliers and competitors.

The shift to ‘stakeholder engagement’ does not add new systems but does require a paradigm shift in thinking. The key element of stakeholder engagement is opening up to the ‘right stakeholders’ and either inviting them into the organisation, or reaching out to them, to help create a mutually beneficial future – more on this later.

 

 

 

Mind your language

Communicating ideas effectively to another person needs a common language, and a common understanding of the meaning of the symbols used in the language. While this sounds simple, language can take many forms including images, sounds and writing. This post is going to focus on the design and use of images as the language for communication.

The use of images as a language stretches back to the Ancient Egyptians. They developed a written language based on stylised pictures whereas the civilisations in the ‘fertile crescent’ developed cuneiform text.

Whist we may not be able to read the Egyptian script, many of these hieroglyphs are easily understandable.

Whereas the cuneiform script is completely indecipherable. However, just because we can identify a goose at the top of the third column of the hieroglyphs, it does not mean we understand its meaning!

A simplified graphical language can provide a really useful way of communicating complex information but when you use the language, you need to be sure the people you are communicating with have the same level of understanding you do and ‘see’ the same message.

One of the first attempts to stylise complex information and to make it accessible and easy to understand was the development of the London Underground map.

The London Underground Map

The London Underground is one of the most complicated systems in the world.  By the middle of the 20^th century the map was becoming too complicated for easy use.

1930 Underground Map.

The concept of the topological map we all know and use was developed by Henry Charles Beck. ‘Harry’ Beck was an English engineering draftsman at the London Underground Signals Office. He developed the first ‘topological map’ in his spare time, based on an electrical wiring diagram.

London Underground was initially sceptical of Beck’s radical proposal and tentatively introduced to the public in a small pamphlet in 1933. It immediately became popular, and the Underground has used topological maps to illustrate the network ever since. There is even a book on the map: Ken Garland’s, Mr Beck’s Underground Map (Capital Transport Publishing 1994). The book describes the enormous care, craft, thought, and hard work of Harry Beck that went on for decades (exactly what it takes to do great information design).

Beck’s version of the 1930 Map.

This style of communication has carried through to modern times but is not without its problems – you can easily get to the station you want, but there is no indication of how close or how far apart different stations are ‘on the surface’ – particularly if the stations are on different lines.

The current London Underground Map.

Success is contagious; most transport maps world-wide follow Henry Beck’s lead and a new universal language has been created.

Part of the new Melbourne Tram Map, using a version of Beck’s language.

The Melbourne map uses the same style as the underground map – lines are vertical horizontal or at 45 degrees, but unlike the underground stations, tram stops are not shown; the designers believe the street names and route numbers are more important.

Part of the Stuttgart Metro map

Based on your knowledge of the London or Melbourne maps, you do not need to be able to read German to have a good idea how to navigate the Stuttgart metro from the Hauptbahnhof to the Zoo. The language of transport maps has become fairly standard world-wide.

However, design of the communication is still important; the designers of each map need to decide what is important (eg, the route numbers on the tram map), what is emphasised, what is suppressed, and what is left out – bad design can reduce the elegance of the communication and block understanding. Whereas innovation can enhance it – the Tokyo train system has its trains painted the same colour as the line used on the transport map – the orange trains follow the orange route and you ret to the right platform by following the orange signs!

A similar convergence of communication style has occurred with in-car road maps. Most books and electronic sat-nav systems use a stylised language similar to the map of North Sydney (below) – another language designed for a specific purpose.

North Sydney

For the purpose of navigating a car to the ‘Aiki Kunren Dojo’, this ‘simplified road map’ is far more useful than the 100% accurate photograph of the same location!

North Sydney

The style of the road map above has been taken ‘virtual’ and global by several organisations including Tomtom. You do not need to be able to read the street names or understand the spoken advice ‘turn left in ……’ to follow the map – the pictures say it all and are just as effective in Shanghai and Munich as Sydney or Melbourne.

When designing a graphical communication language, useful, accurate and fully detailed are not synonymous! Both of the mapping languages discussed so far are really simple to use provided you have learned to ‘read the language’ and interpret them correctly. But as we all know North Sydney looks like the Google Earth photograph (not the map) and Melbourne’s geography only has a passing resemblance to the tram map – but we have learned how to read the ‘language’ and can then use that knowledge of the language to understand similar maps in different cities.

Project Maps

The same challenge applies to project dashboards, reports, and artefacts such as bar charts and CPM diagrams. Creating an appropriate level of understanding in a person’s mind about the true situation of the project and your intended work plans requires appropriate information to be communicated in a language that is understandable to the stakeholder. In this context, ‘appropriate’ does not mean complete or fully detailed; selecting the right level of detail is in itself an art form.  The bar chart below may be fully detailed and precise but it is not a good communication tool!

And while preferred by many project controls professionals, the CPM logic diagram below is even less likely to work as a communication tool for stakeholders.

These specialist languages are useful to trained project controls professionals and some experienced project management professionals but are too complex for most communication needs.

As suggested above, effective communication does not need fully detailed or accurate representation. What is needed is ‘useful’ information that can be used!  You do not need to be an expert in directional boring to understand the plan for this project (all that is missing is the timing for each stage):

Simple is good, simplistic is dangerous! One of the popular options for reporting project status is using simplistic ‘red-amber-green’ (RAG) traffic lights such as these:

We know there is a scope problem but there is no real indication of the seriousness of the situation or how far into the ‘red zone’ the project actually is.  Rather than the simplistic 3 point RAG scale, the same information can be displayed using more insightful tools:

Any of the ‘gauges’ will tell you where within each band the project is situated, add in a simple ‘change’ report and the trend becomes apparent as well. The art is knowing how much information is enough.

Conclusion

From the hieroglyphs of the Ancient Egyptians to the Tomtom road map, the art of using pictures for effective communication is creating a set of symbols that communicate your ideas and information simply and accurately, and then taking the time to teach your stakeholders how to read the language.

Effective communication, focused on obtaining the understanding and buy-in from a stakeholder needed to deliver a successful project requires:

• Understanding who are the key stakeholders at ‘this point in time’ that you need to influence;
• Understanding their needs and the best way to communicate with them (the Stakeholder Circle®  methodology is designed for this purpose);
• Communicating the appropriate amount of information in a way that can be understood by the stakeholder; and then,
• Taking the time to help the person reach a proper understanding.

The communication challenge is recognising that some concepts will be easy to communicate in some communities of stakeholders, others will be more difficult; and people are frightened of things they don’t understand.

Designing an effective communication strategy requires the project team and project leaders to firstly derive a common understanding between themselves, then determine what the key stakeholders actually understand, then determine how to communicate effectively with the key stakeholders to build their understanding to the level needed to get the ‘buy-in’ required to make the project successful.

Effective communication is the tool that builds understanding, reduces opposition based in ‘fear of the unknown’ and generates a framework for success – for more on effective communication see: http://www.mosaicprojects.com.au/PM-Knowledge_Index.html#PPM07

Understanding stakeholder theory

I have used the term ‘stakeholder theory’ in a couple of recent posts on this blog without taking the time to explain what it is.

‘Stakeholder theory’ is a particular approach to recognising and dealing with stakeholders, based on the concept of stakeholder developed by Ed Freeman in his 1984 books Strategic Management: a Stakeholder Approach (1984), and Stakeholder Theory: The State of the Art (2010).  These ideas a central to the stakeholder management approach embedded in the Stakeholder Circle methodology.

The way in which organisations approach stakeholders, the tools and techniques used to engage stakeholders and at a philosophical level, the purpose of the organisation are all built on the view of stakeholders accepted by the organisation’s governing body. The traditionalist / Friedman view of stakeholders focused on the ‘owners’ of the organisation (in the commercial world shareholders) and a narrow focus on maximising profits. A range of public relations and physical disasters highlight the short term, self-defeating outcomes from this approach.

Stakeholder theory poses the deeper philosophical question: ‘can business leaders make decisions about the conduct of the business without considering the impact of these decisions on (all) those who will be affected by the decisions? Is it possible to separate ‘business’ decisions from the ethical considerations of their impact? I suggest ‘not’. It is not possible to build a sustainable organisation of any type, including a profitable business, if the organisation fails to meet the needs of most (if not all) of its stakeholders.

R Edward (Ed) Freeman is considered to be one of the early proponents of this wider view of organisational stakeholders, writing that they could be defined as “any group or individual who can affect or is affected by the achievement of the organisation’s objectives”.  This broad view has been accepted by many other institutions, for example, the current PMBOK^® Guide glossary defines stakeholders as: “Stakeholders are individuals, groups, or organisations who may affect, be affected by, or perceive themselves to be affected by a decision, activity, or outcome of a project, program, or portfolio”.

Freeman, Harrison, Wicks, Parmar, & deColle, in their 2010 book trace the evolution of stakeholder theory from 1984 when was originally associated with the idea of business as being concerned with value creation and trade to the current times.

In 1984, economics assumed that ‘values and ethics’ did not need to be considered in economic theory. The limitations of this approach can be questions in a number of ways:

• Can we really divide the world into ‘business realm’ and ‘ethical realm’?
• Can business executives ‘do the right thing’: can they separate the ‘business’ decisions they make from the impacts of these decisions on everyone else (stakeholders)?
• How can we combine ‘business’ and ‘ethics’ conceptually and practically?

Freeman et al. describe the artificial separation of business decisions and considerations of their impact as the ‘separation fallacy’, rejecting it by stating there can be no such thing as ‘value free economics’: “it makes no sense to talk about business or ethics without talking about human beings. Business is conducted by human beings, decisions are made by human beings, the purpose of the value creation and trade is for the benefit of human beings”. If business is separated from ethics there can be no moral responsibility for business decisions.

The starting point for a better approach to stakeholders is that “most people, most of the time, want to, and do, accept responsibility for the effects of their actions on others”. What this means is that:

• People engaged in value creation and trade (in business) are responsible precisely to “those groups and individuals who can affect or be affected by their actions”.
• This means at least: customers, employees, suppliers, communities and financiers (shareholders). And importantly, no one group can expect to profit at the expense of others over a sustained period – everyone benefits or ultimately no one benefits.

Stakeholder theory, then, is fundamentally a theory about how business can work at its best. It is descriptive, prescriptive and instrumental at the same time. Stakeholder theory is more than just considering value for shareholders – it is more complex, because there are many relationships involved. For any organisational activity there will be a complex web of human beings with their needs and wants (stakes).

In answering the question ‘what makes business successful’? Freeman refutes Milton Friedman’s article in the New York Times (1970) which stated that for businesses to become successful they must focus on maximizing profits – a focus on shareholders and ‘shareholder value’.  However, to maximize profits there must also exist:

• Products and services that customers want,
• Good relationships with suppliers to keep operations at cutting edge,
• Inspired employees to stand for the company’s mission and push it to become better,
• Supportive communities to allow the company to flourish.

A focus on shareholders is counterproductive because it takes away focus on fundamental driver to value – stakeholder relationships. The only way to maximize profits sustainably it to satisfy all stakeholders.

Instead of the flawed shareholder value paradigm, developing a ‘stakeholder mindset’ in organisations and by extension in projects and programs is a better way to maximize profits, where:

• Business is a set of relationships among groups which have a stake in the activities that make up the business.
• Business is about how customers, suppliers, employees, financiers (stockholders, bondholders and banks), communities and managers interact and create value.
• To understand business is to know how these relationships work.
• The executive’s job is to manage and shape these relationships.

Within this framework the stakes that stakeholders have will include:

• Owners or financiers (shareholders) have a financial stake in the business in the form of stocks, bonds – they expect a financial return.
• Employees have their jobs and their livelihood at stake: They may have specialised skills for which there is only a small market – in return for their labour they expect security, wages and benefits and meaningful work.
• Customers and suppliers exchange resources for the products and services of the firm. They expect to receive in return the benefits of the products and services – these relationships are enmeshed in the practice of ethics in business.
• The local community grants the organisation the right to build facilities within its boundaries. The community benefits from taxes and the economic and social contributions of the organisation back into the community.

These relationships are interdependent and require balanced decision making:

• The organisation will not be profitable unless is employees and suppliers work constructively to make goods or services the customers are prepared to buy.
• The organisation has to pay sufficient money and create a culture that attracts the right type of employee, but if employees take too much out of the organisation in the form of excessive pay, the organisation becomes uncompetitive and the employees lose their jobs.
• Organisations are expected to be good citizens – not to expose the community to unreasonable hazards in the form of pollution, toxic waste or substandard goods or services. But the community benefits from consuming the goods and services and it is impossibly to create things without some pollution.

The art of managing within stakeholder theory is to find ways to minimise the damage and maximise the benefits accrued by each of the stakeholder groups. This is a creative process and management teams that do it best create the most successful organisations.

There is great value to be gained in examining how the stakes of each stakeholder or stakeholder group contribute, positively or negatively, to the value creation process of a business; and what the role of the executive is in stakeholder relationship management. In this context stakeholders are defined:

• Narrow: those groups without whose support the business would cease to be viable: categorized as ‘primary’ by Freeman and ‘Key stakeholders’ in mine.  Such thinking was also the basis of the categorization of stakeholders as ‘legitimate’ and ‘salient’ (Mitchell, Agle, & Wood, 1997), leading to a risky viewpoint that only the ‘important primary’ stakeholders matter.
• Wider: those who can affect the business, or be affected by its activities categorized as secondary or instrumental (a means to an end).

The stakeholder approach preferred by Freeman is this: Executives need to understand that business is fully situated in the realms of human beings; stakeholders have names and faces and children AND they are not placeholders for social roles.

Stakeholder theory must address:

• Understanding and managing a business in the 21st century – the problem of an organisation’s value creation and profitable trade.
• Combining thinking about ethics, responsibility, and sustainability with the current economic view that the organisations that operate within a capitalist framework must ‘maximise shareholder value’ – the problem of the ethics of capitalism.
• Dealing with the paradox that an over emphasis on creating shareholder value will destroy shareholder value.

Shareholder value is a component of stakeholder value, organisations that innovate and create great stakeholder value, will also drive shareholder value.  And the first step in creating stakeholder value is understanding your stakeholders, their attitudes and their expectations.  The Stakeholder circle® tools have been designed to help you resolving this problem!

Stakeholder Management Maturity

Recognition of the importance of stakeholder management has taken a huge leap forward since the release of the PMBOK® Guide 5^th Edition.   The next challenge, addressed in this blog, is for organisations to be able to map their maturity with a view to improving their stakeholder management capabilities.

The PMBOK® Guide lays out the fundamental framework for effective stakeholder management and aligns fairly closely with the structure of the Stakeholder Circle® methodology we have been developing for the last decade. Within the PMBOK:

• Process 13.1 deals with the identification of stakeholders and the creation of a stakeholder register.   This is directly supported by the Identify and Prioritise steps in the Stakeholder Circle® methodology. The key difference is the PMBOK tends to classify stakeholders based on simple 2×2 matrices, the Stakeholder Circle uses a more sophisticated analysis that prioritises stakeholders based on their importance to the project rather than just their attitude (positive or negative).
• Process 13.2 Plan Stakeholder Management, links the stakeholder management section of the PMBOK to the Communication  section and focuses on defining the current  attitude of each stakeholder, the realistically desirable attitude we would like the stakeholder to have, and the communication strategy needed to maintain satisfactory attitudes and beneficially change  attitudes that need improving.  These concepts directly align with the Visualise and Engage stages in the Stakeholder Circle methodology.
• Then the hard work of effectively engaging and communicating with the important stakeholders begins (without ignoring the less important ones).  The planning, managing and controlling of communications (from Chapter 10) link to process 13.3 Manage Stakeholder Engagement. Issues identification and management is a key element in this process and a core element in our Stakeholder Circle database tool.  The next upgrade of the Stakeholder Circle database tool will add a contact management module to facilitate the rest of this process.
• The final process in the PMBOK® Guide, 13.4 is the standard PMBOK controlling process that actively encourages the regular review of the overall stakeholder management process and aligns exactly with Stage 5, Monitor changes in the Stakeholder Circle® methodology.  As with effective risk management, the environment needs to be continually scanned for emerging stakeholders, and if the current engagement strategies are not working with identified stakeholders, new ones need to be tried.

The good news is the framework we developed in the Stakeholder Circle® methodology nearly 10 years ago and the framework adopted by PMI in the PMBOK® Guide and most other competent stakeholder management methodologies all lay out the same basic steps.  And, as PMI claims for the PMBOK in general, these processes have become generally accepted good practice.

The challenge now is to build these good practices into the culture of organisations so they become simply ‘the way we do business’.  Maturity models such as P3M3, CMMI and OPM3 look at the stages of developing and implementing good practices in organisations.  The SRMM® Maturity Model has been designed to provide a similar framework for organisations seeking to develop an enhanced stakeholder management capability.

The five levels of the Stakeholder Relationship Management Maturity (SRMM®) Model are:

1. Ad hoc:  some use of processes
2. Procedural:  focus on processes and tools
3. Relational:  focus on the Stakeholders and mutual benefits
4. Integrated:  methodology is repeatable and integrated across all programs and projects
5. Predictive:  used for health checks and predictive risk assessment and management.

And for each level of maturity, the SRMM Model defines the key features, the good practice components, and the expected tools and reporting process expected at that level of maturity, together with some general guidance.

SRMM is designed to be an open system that would support any effective stakeholder management methodology (not just the Stakeholder Circle), which means SRMM is a useful tool for implementing a stakeholder management methodology based on the PMBOK’s processes as effectively as one using the more sophisticated capabilities of the  Stakeholder Circle.

The SRMM® Model is available for downloading and use by any organisation planning to implement effective stakeholder management under a free Creative Commons licence. Download you copy of the SRMM® Model.

The Stakeholder Mutuality Matrix

Whilst the stakeholder community for any project or program can be a very diverse group of people and organisations, there is a key sub-set that either require goods, services or other outputs from the project, or have to supply resources, services or support to the project. These ‘logistical’ relationships need careful management as they directly affect the project’s ability to achieve its defined goals.

Altruism and charitable actions are wonderful, but it is dangerous to base the success of your project on the assumption that all of your ‘logistical’ stakeholders are automatically going to be altruistic and generous. The Stakeholder Mutuality Matrix™ described in this post provides a pragmatic framework to help craft communications and build relationships with the stakeholders that matter from a logistics management perspective, within the project’s overall stakeholder management framework.

Understanding your Stakeholder Community

Project communication takes time and effort, both of which are in limited supply. Therefore, most of your communication effort needs to be focused on stakeholders that are important to the success of your project. This requires answering two key questions about each stakeholder:
1.  Who are the most important stakeholders at this point in time?
2.  Why are they important?

Understanding who is important is fairly straightforward, based on an assessment of the stakeholder’s power and involvement in the project. The Stakeholder Circle® uses a combination of power, proximity and urgency to define the most impotent stakeholders. The amount of power held by a stakeholder and their degree of involvement with the work of the project (proximity) are fairly static. Urgency, defined as a combination of the value of the stakeholders ‘stake’ in the project and the degree of effort they are likely to use to protect that ‘stake’ changes significantly and can be influenced by the effectiveness of the project’s communications and the strength of the relationships between the project team and the stakeholder. (See more on prioritising stakeholders).

Whist this process is highly effective at defining who the most important stakeholders are ‘at this point in time’, from a logistics perspective there is a second important group that also needs attention. Care needs to be taken to ensure that lower priority stakeholders who have to provide the support and resources needed for the project’s work are not overlooked in the communication framework. Effective ‘preventative’ communication can keep this group of logistically important stakeholders happy and low on the priority listing, whereas failing to communicate effectively can lead to problems and the person rapidly moving up the prioritisation listing.

Using the Stakeholder Mutuality Matrix

Once you know who is important either from a logistical or prioritisation perspective, you also need to understand why each of these stakeholders is important to define the type of relationship you need to develop and plan your communication accordingly.

The Stakeholder Mutuality Matrix™ provides a useful framework to help in this part of your communication planning. The matrix has two primary dimensions:

• Each stakeholder will either need something from the project to further their interests or alternatively need nothing from the project.
• Similarly the project either needs the active support of the important stakeholders, usually in the form of assistance or resources; or alternatively requires nothing from the stakeholder.

The result is four quadrants that provide a framework for communication and within this framework each stakeholder will also be either supportive or negative towards the project (for more on supportiveness see the SHC Engagement Matrix).

All high priority stakeholders need to be considered plus any low priority stakeholders that have to supply goods, services or support to the project.

• Project needs nothing / stakeholder needs nothing: Important stakeholders in this quadrant are almost invariably ‘protestors’ or ‘objectors’ attempting to block or change the project. Occasionally very powerful and interested stakeholders have no requirements of the project.
  • Approach for positive stakeholders: Keep informed and engaged.
  • Approach for negative stakeholders: There are two communication options:
    – You may be able to defuse the ‘protests’ by providing better information, but this only works if the protest is based on false assumptions.
    – The alternative is to choose not to communicate with the stakeholder beyond some necessary minimum.
    The only other alternative is to change the project to remove the cause of objection but this is rarely within the authority of the project team.
• Project needs nothing / stakeholder needs something: These stakeholders are the easiest to manage from a logistical perspective; providing their requirements are part of the projects deliverables. If their requirements are outside of the project’s scope the stakeholder needs to initiate a change request.
  • Approach for positive stakeholders: All that is needed is regular reassurance that their needs will be fulfilled.
  • Approach for negative stakeholders: Provide information to clearly demonstrate your deliverables to them will be beneficial and are aligned with their core interests. These stakeholders are typically an organisational change management challenge.
• Project needs something / stakeholder needs something: This group needs active management. Project communication needs to clearly link the provision of the required support or resources by the stakeholder to the project being able to fulfil the stakeholder’s requirements. Time needs to be spent developing robust relationships to facilitate an effective partnership that supports both parties interest.
  • Approach for positive stakeholders: A strong relationship is important to ensure a good understanding of both parties’ requirements. Including clearly defined information on what you need from them and when it’s required, linked to reassurance that their needs will be fulfilled.
  • Approach for negative stakeholders: Significant effort is required to change the dynamic of the relationship. You need their support and they need to understand that this is in their best interest if their needs are going to be fulfilled.
  • Approach for low priority stakeholders: All that is usually needed is clearly defined information on what you need from them and when it’s required, linked to reassurance that their needs will be fulfilled.
• Project needs something / stakeholder needs nothing: This group are your major risk; it typically consists of regulatory authorities and others who have to inspect or approve the project’s work as part of their normal business. Care is needed to build a proper ‘professional’ relationship that respects the integrity of the stakeholder’s position whilst at the same time ensuring your communications are received and acted upon.
  • Approach for positive stakeholders: A good relationship is helpful; however, the key requirement is clearly defined information on what you need from them, when it’s required and why their input is important to the project.
  • Approach for negative stakeholders: Significant effort is required to change the dynamic of the relationship. They are important to you, but you are not important to them and have very little to ‘trade’. To change their attitude, you need to understand the source of the negativity and use any available option to build rapport either directly or through other supportive managers, or by appealing to some greater good.
  • Approach for low priority stakeholders: Ensure clearly defined information on what you need from them, when it’s required and why their input is important to the project is provided in adequate time to allow the stakeholder to do its work.

Once you understand the mutuality matrix, the way you communicate with each of the important stakeholders can be adjusted to ensure both parties in the communication achieve a satisfactory outcome.

Communication!

The recently released Sixth edition of the APM-BoK consists of four major sections: context, people, delivery and interfaces. Typical ‘hard’ project management processes such as scope, schedule, cost, resource, risk, integration and quality comes in the section focused on delivery. This is after the section concerned with people and interpersonal skills and the first area featured in the APM-BOK under the people area is communication. The APM-BoK recognises that communication is fundamental to the project management environment, and makes a very powerful statement: “None of the tools and techniques described in this body of knowledge will work without effective communication”.

To an extent the PMBOK is playing ‘catch-up’ with other key standards including the Association of Project Management (UK) Body of Knowledge (APM-BoK) 6th Edition and ISO 21500. The good news is all three standards now see identifying the important stakeholders in and around a project or program and then communicating effectively with each stakeholder as the fundamental driver of success.

The recently released Sixth edition of the APM-BoK consists of four major sections: context, people, delivery and interfaces. Typical ‘hard’ project management processes such as scope, schedule, cost, resource, risk, integration and quality comes in the section focused on delivery. This is after the section concerned with people and interpersonal skills and the first area featured in the APM-BOK under the people area is communication. The APM-BoK recognises that communication is fundamental to the project management environment, and makes a very powerful statement: “None of the tools and techniques described in this body of knowledge will work without effective communication”.

The PMBOK® Guide 5th Edition has followed PMI’s standard practice of retaining existing chapters and adding new sections at the back so the positional prominence in the APM-BoK is not possible. However understanding the changes between the 4th and 5th Editions and comparing these to ISO 21500 does show the extent of the increased focus in the PMBOK on communication and the stakeholders you communicate with.

MANAGE STAKEHOLDERS

This is a new section in the PMBOK® Guide 5th Edition (Chapter 13). It is based on two processes moved from the communication section of the 4th edition and has been expanded.

Identify stakeholders is a beefed up version of the same process in the 4th Edition, focused on understanding who the project’s stakeholders are.

Plan Stakeholder Management is a new process that describes how the stakeholder community will be are analysed, the current and desired levels of engagement defined and the interrelationships between stakeholders identified. It highlights the fact that levels of engagement may change over time.

Manage stakeholders remains basically the same as in the 4th Edition and is similarly defined in ISO 21500.

Control Stakeholder Management is a new process that ensures new stakeholders are identified, current stakeholders are reassessed and stakeholders no longer involved in the project are removed from the communication plan. The process requires the on-going monitoring of changes in stakeholder relationships the effectiveness of the engagement strategy, and when required, the adaption of the stakeholder management strategy to deal with the changed circumstances.

As with ISO 21500, the early parts of the PMBOK discussing the management or projects in organisations also has a strong emphasis on stakeholders (Chapters 1, 2 and 3).

COMMUNICATIONS MANAGEMENT

This section of the PMBOK® Guide 5th Edition has been consolidated and expanded and is very similar to ISO 21500 in its effect.

Plan Communications remains basically unchanged, the key input is the stakeholder analysis.

Manage Communications is a new process that amalgamate the 4th Edition processes of Distribute Information and Report Performance, and in doing so removes a lot of unnecessary confusion. This new process goes beyond the distribution of relevant information and seeks to ensure that the information being communicated to project stakeholders has been received and understood, and also provides opportunities for stakeholders to make further information requests. ISO 21500 has an interesting additional function (not in the PMBOK) which is the management of the distribution of information from stakeholders to the project in order to provide inputs to other processes such as risk management.

Control Communications is a new process that identifies and resolves communications issues, and ensures communication needs are satisfied. The outputs are accurate and timely information (resolved communications issues) and change requests, primarily to the communication plan.

Summary

Communication is the means by which information or instructions are exchanged! Communication is the underpinning skill needed to gather the information needed to make project decisions and to disseminate the results from all of the traditional ‘hard skills’ including cost, time, scope, quality and risk management. Good communication makes these processes effective, whereas poor communication leads to misunderstood requirements, unclear goals, the alienation of stakeholders, ineffective plans and many other factors leading to failure

The common theme across all three standards is that communicating the right information to the right stakeholders in the right way (and remembering communication is a two-way process) is fundamental to success. The basic requirement is to deal effectively and fairly with people, their needs, expectations, wants, preferences and ultimately their values – projects are done by people for people and the only way to influence people is through effective communication.

Project communication skills include expectation management, building trust, gaining user acceptance, stakeholder and relationship management, influencing, negotiation, conflict resolution, delegation, and escalation.

What’s really pleasing to me is how similar these ‘standard’ requirements are to the ideas embedded in my Stakeholder Circle® methodology, books, blogs, White Papers and tools. I have no idea how much influence my writings have had on the various standards development teams but it is pleasing to see a very common set of ‘best practices’ emerging around the world. Now all we need is the management will to implement the processes to improve project and program outcomes.

The value of stakeholder management

One of the questions I’m regularly asked is to outline the business case for using stakeholder management in a business or project. This is a difficult question to answer accurately because no-one measures the cost of problems that don’t occur and very few organisations measure the cost of failure.

The problem is not unique; it is very difficult to value the benefits of an effective PMO, of improving project delivery methods (eg, improving the skills of your schedulers), of investing in effective communication (the focus of my September column in PMI’s PM Network magazine) or of better managing risk. The costs of investing in the improvement are easily defined, but the pay-back is far more difficult to measure.

There are two reasons why investing in effective stakeholder analytics is likely to deliver a valuable return on investment (ROI).

• The first is by knowing who the important stakeholders are at any point in time, the expenditure on other processes such as communication can be focused where it is needed most, generating efficiencies and a ‘bigger bang for your buck’.
• The second is stakeholders are a major factor in the risk profile of the work, their attitudes and actions can have significant positive or negative consequences and understanding the overall community provides valuable input to a range of processes including risk identification, requirements definition and schedule management.

At the most fundamental level, improving the management of stakeholders is directly linked to improving the quality of the organisation’s interaction with the stakeholders and as a consequence, the quality of the goods or services delivered to the end users or client (ie, stakeholders) as a result of being better informed whilst undertaking the work.

Quality was defined by Joseph Juran as fit for purpose, this elegant definition applies equally to the quality of your management processes as it does to your production processes and to the deliverables produced. And the three elements are interlinked; you need good management systems and information to allow an effective production system to create quality outputs for delivery to the client. A failure at any point in the chain will result in a quality failure and the production on deliverables that do not meet client requirements.

Placing stakeholder management within the context of quality allows access to some reasonably well researched data that can be interpolated to provide a reasonable basis for assessing the ‘return’ likely to be generated from an investment in stakeholder management.

Philip B. Crosby invented the concept of the ‘cost of quality’ and his book, Quality Is Free set out four major principles:

1. the definition of quality is conformance to requirements (requirements meaning both the product and the customer’s requirements)
2. the system of quality is prevention
3. the performance standard is zero defects (relative to requirements)
4. the measurement of quality is the price of nonconformance

His belief was that an organization that established a quality program will see savings returns that more than pay off the cost of the quality program: “quality is free”. The challenge is knowing you fully understand who the ‘customers’ actually are, and precisely what their various requirements and expectations are, and having ways to manage mutually exclusive or conflicting expectations. Knowing ‘who’s who and who’s important’ is a critical first step.

Feigenbaum’s categorization of the cost of quality has two main components; the cost of conformance (to achieve ‘good’ quality) and the cost of poor quality (or the cost of non-conformance).

Derived from: Feigenbaum, Armand V. (1991), Total Quality Control (3 ed.), New York, New York: McGraw-Hill, p. 109, ISBN 978-0-07-112612-0.

The cost of achieving the required level of quality is the investment made in the prevention of non-conformance to requirements plus the cost of testing and inspections to be comfortable the required quality levels have been achieved.

The cost of poor quality resulting from failing to meet requirements has both internal and external components. The internal costs are associated with defects, rework and lost opportunities caused by tying people up on rectification work. External failure costs can be much higher with major damage to an organisation’s brand and image as well as the direct costs associated with fixing the quality failure.

The management challenge is balancing the investment in quality against the cost of quality failure to hit the ‘sweet spot’ where your investment is sufficient to achieve the required quality level to be fit for purpose; overkill is wasted $$$$. But first you and ‘right stakeholders’ need to agree on precisely what fit for purpose actually means.

Also, the level of investment needed to achieve the optimum cost of quality is not fixed. The better the organisation’s quality systems, the lower the net cost. Six sigma proponents have assessed the total cost of quality as a percentage of sales based on the organisations sigma rating.

This table demonstrates that as the quality capability of the organisation improves, the overall cost of quality reduces offering a major competitive advantage to higher rating organisations. Most organisations are rated at 3 Sigma so the opportunity for improvement is significant.

Within this overall framework, the costs and risks associated with poor stakeholder engagement are significant and follow the typical pattern where most of the costs of poor quality are hidden. Using the quality ‘iceberg metaphor’ some of the consequences of poor stakeholder engagement and communication are set out below:

 

Effective stakeholder analysis and management directly contributes to achieving the required quality levels for the organisation’s outputs to be fit for purpose whilst at the same time reducing the overall expenditure on the cost of quality needed to achieve this objective. The key components are:

• Effective analysis of the stakeholder community will help you identify and understand all of the key stakeholders that need to be consulted to determine the relevant aspects of fit for purpose.
• Understanding the structure of your stakeholder community facilitates the implementation of an effective two-way communication strategy to fully understand and manage the expectations of key stakeholders.
• Effective communication builds trust and understanding within a robust relationship.
  o Trust reduces the cost of doing business.
  o Understanding the full set of requirements needed for the work to be successful reduces the risk of failure.
  o Robust relationships with key stakeholders also contribute to more effective problem solving and issue management.
• Maintaining the stakeholder engagement effort generates enhanced information that will mitigate risks and issues across all aspects of the work.

Calculating the Return on Investment:

Effective stakeholder management is a facilitating process that reduces the cost, and increases the efficiency of an organisations quality and risk management processes. Based on observations of similar process improvement initiatives such as CMMI, the reduction in the cost of quality facilitated by improved stakeholder engagement and management is likely to be in the order of 10% to 20%.

Based on the typical ‘Level 3’ organisation outlined above, a conservative estimate of the efficiency dividend per $1million in sales is likely to be:

     Total cost of quality = $1,000,000 x 25% = $250,000
     Efficiency dividend = $250,000 x 10% = $25,000 per $1 million in sales.

Given the basic costs of establishing an effective stakeholder management system for a $5million business, using the Stakeholder Circle®, (See: http://www.stakeholder-management.com) including software and training will be between $30,000 and $50,000 the efficiency dividend will be:

      ($25,000 x 5) – 50,000 = $75,000
      (or more depending on the actual costs and savings).

The element not included above is the staff costs associated firstly with maintaining the ‘culture change’ associated with introducing an effective stakeholder engagement process and secondly with actually performing the stakeholder analysis and engagement. These costs are embedded in the cost of quality already being outlaid by the organisation and are inversely proportional to the effectiveness of the current situation:

• If current expenditures on stakeholder engagement are relatively low, the additional costs of engagement will be relatively high, but the payback in reduced failures and unexpected risk events will be greater. The overall ROI is likely to be significant.
• If the current expenditures on stakeholder engagement are relatively high, the additional costs will be minimal (implementing a systemic approach may even save costs), however, the payback in reduced failure costs will be lower because many of the more obvious issues and opportunities are likely to have been identified under the current processes. The directly measurable ROI will be lower, offset by the other benefits of moving towards a higher ‘Sigma level’.

Conclusion:

The introduction of an effective stakeholder management system is likely to generate a significant ROI for most organisations. The larger part of the ‘return’ being a reduction in the hidden costs associated with poor stakeholder engagement. These costs affect reputation and future business opportunities to a far greater extent than their direct costs on current work. For this reason, we feel implementing a system such as the Stakeholder Circle is best undertaken as a strategic organisational initiative rather than on an ad hoc project or individual workplace basis.

The path to organisational Stakeholder Relationship Management Maturity (SRMM®) is discussed at: http://www.stakeholdermapping.com/srmm-maturity-model