13

PROJECT STAKEHOLDER MANAGEMENT

The PMBOK® Guide discusses stakeholders in Section 2 and Project Stakeholder Management in Section 13. This section presents some of the most important stakeholders common to construction projects of different types and sizes, and addresses their management in the context of construction. The following PMBOK® Guide Process Groups are addressed in this Knowledge Area: Initiating, Planning, Executing, and Monitoring and Controlling.

13.1Stakeholder Management in Construction

A contractor usually executes construction projects for an owner, with the assistance of an architectural or engineering designer as an intermediary. This group may be considered the primary stakeholders. They provide resources to form the project team, which is another primary stakeholder. Both the owner and contractor bring other stakeholders to the project, as described in the following:

• The owner typically mobilizes the following stakeholders:
  • Financing institutions;
  • Professional designers and technical consultants, architects, and engineers;
  • Agency construction manager (CM), CM at-fee, or CM at-risk;
  • Inspection third parties;
  • Licensors of proprietary technology and process engineers;
  • Lawyers and external legal advisors;
  • Insurance companies; and
  • Administrative and regulatory organizations.
• The contractor typically mobilizes the following stakeholders:
  • Subcontractors,
  • Lawyers and external legal advisors,
  • Insurance companies, and
  • Equipment and material suppliers.

Other stakeholders may be involved in the project due to their own interests, such as local communities and labor unions. Their influence on the project outcomes will vary according to local legislation, culture, and customs, which affect the application of stakeholder management processes throughout construction projects. Figure 13-1 provides a typical overview of stakeholder relationships in construction projects. According to PMI's Navigating Complexity: A Practice Guide [6], their interrelationships, interdependencies, and their interactions are primary project complexity enhancers.

Some of the most common stakeholders in construction projects are the community, labor unions, insurance providers, financial institutions, and regulatory agencies as described in Sections 13.1.1 through 13.1.5.

13.1.1Community

Most construction projects take place near a community and the interaction between project and community is usually high. For example, hiring unemployed workers from the community benefits both the community and the project: it eases unemployment and may reduce the cost of bringing in workers from other regions. However, it may also negatively impact the community. Heavy traffic caused by the project may damage highways or cause traffic jams, leading to possible additional repair work or special work shifts. Managing the relationship with the surrounding communities is important in construction project management, and its results may affect aspects ranging from environmental permits to bankability. Social responsibility is related to managing communities.

Society as a whole organizes itself in groups, such as NGOs (nongovernment organizations), with interests ranging from environmental protection to employment of people with special needs. These public groups influence construction projects, causing changes that may result in delays or the occasional cancellation of projects. The ability to create videos and share them via social networks has increased the impact of public groups on projects. In some countries, the government has established consultation processes with stakeholders before projects start, and the results may influence whether or not a permit is issued. The project management team should develop an appropriate approach to managing public groups.

13.1.2Labor Unions

The project team in construction projects may be divided into two groups: the project management team and the project execution team (see Section 9 for more information). The project management team, also referred to in the industry as indirect workers, mostly comprises skilled professionals who work with the performing organization. They are usually viewed and managed individually. The project execution team mostly comprises local people who have varying trades and skills. They are managed both individually and collectively, and may or may not be represented by labor unions.

Labor unions represent workers from a specific industry or trade. Some regions may have construction unions, while others may have unions for welders, civil workers, and others. Labor unions negotiate work parameters for the execution team, such as daily work hours, compensation for extra hours, transportation, catering, site conditions, and other issues. The project management team should apply stakeholder management to both the project execution team and the labor unions in order to enhance the probability of project success.

13.1.3Insurance Providers

Construction projects mobilize large numbers of people in the community who are under contract with specialized companies; the contracts may include performance requirements. The possible impact of risk events may be high due to the nature of construction activities; therefore, insurance is a common practice in the industry (see Sections 11 and 12). Insurance providers are important stakeholders, and the project management team should be aware of their requirements because restrictions may impact project execution.

13.1.4Financial Institutions

Financial institutions play an important role in construction projects and may impact the project outcomes depending on the amount of risk perceived in the project. Financial institutions are involved with the project at its earliest phases and their success is directly associated with the success of the project.

Financial institutions usually communicate independently with other important stakeholders, such as the owner, contractor, and insurance providers, in order to make their own assessment of the project status. The reporting structure designed in the communications plan should provide a complete and consistent picture of the project status. Some loan agreements may require the owner (who may transfer the responsibility to the contractor through the contract) to issue specific reports, which have to be approved prior to periodic disbursements.

13.1.5Regulatory Agencies

Construction projects usually require permits and certifications of various types. Local, regional, national, and international agencies issue permits and certificates and control certain aspects of the construction process. The requirements and conditions of the permits and certifications should be administered in order for the project to move forward.

13.2Project Stakeholder Management Initiating

As construction projects are executed in well-defined geographical locations, the list of stakeholders will be a function of the site location, to some extent. Other stakeholders will enter the project by invitation of the owner, the contractor, or another stakeholder. Thus, the project management team may benefit from including specific categories in its stakeholder register. For example, generally, project stakeholders in the construction industry can be classified as direct or indirect, according to their level of involvement in the project execution.

Direct project stakeholders are those stakeholders directly involved in the execution of the project and include, but are not limited to, the following:

• Project sponsors,
• Project owners,
• Architects or engineering designers,
• Contractors,
• Subcontractors, and
• Equipment and material suppliers.

The needs and requirements of direct project stakeholders will often be detailed in the contract(s), specifications, and work standards employed on the construction project.

Indirect project stakeholders are not directly involved in the execution of the project, but can influence project execution. Indirect project stakeholders may include, but are not limited to, the following:

• Regulatory agencies or authorities (i.e., regarding safety, occupational health, and environmental issues);
• Professional associations;
• General public, including local residents, groups;
• Land owners and project-affected people;
• Labor unions;
• Local government departments;
• Media;
• Lobbyist or petitioner groups;
• Other construction undertakings that might affect the project;
• National industry or business representatives and associations; and
• Police and other emergency services.

Stakeholders also differ in terms of their organization. Companies, authorities, or entities employing people usually have formal internal processes for interacting with the project toward the fulfillment of their interests, including decision making and communicating. On the other hand, stakeholders such as labor unions and organized communities typically have representatives who report to an assembly that is ultimately responsible for decision making. Identifying those characteristics in each stakeholder is necessary to develop an appropriate stakeholder register, and further, a stakeholder management plan.

13.3Project Stakeholder Management Planning

While it is the role of the project management team to identify and monitor all project stakeholders according to the stakeholder management plan, not necessarily all of them will be managed directly by the project management team.

Some stakeholders may have been brought to the project by the owner or the contractor, and responsibility for the management of those stakeholders may fall with one or the other. For example, a financing institution will usually be actively managed by the owner, while a subcontractor will typically be actively managed by the contractor.

The contract usually provides provisions for managing some of the direct stakeholders. In instances where the responsibility for managing those stakeholders is not clearly established and documented, it should be determined through a division of responsibilities. The resulting document may include both stakeholders that appear and do not appear in contractual provisions. The division of responsibilities should be a part of the stakeholder management plan.

Construction projects are undertaken in specific locations and access to the physical limits of the installation is usually easy, which may lead to complications with stakeholders. For example, the project owner may decide that it, and not the contractor, will be responsible for the relationship with the surrounding community. However, community members or representatives may approach a member of the contractor organization, even outside of the project site and during nonworking hours. The stakeholder management plan should address situations of this sort and the project team should be aware of the established approach for handling it.

13.4Project Stakeholder Management Executing

The creation and maintenance of relationships between the project and the stakeholders occurs during the execution phase of the project, and are typically at a personal level between the representatives of each of the stakeholders. The profiles of people representing each stakeholder may vary considerably, so interpersonal skills play a very important role in managing stakeholder engagement.

Few stakeholders in a construction project have the ability to thoroughly control project communications with any other given stakeholder. For example, the owner may be negotiating the cutting of some trees with the local community and promising not to proceed before negotiations are concluded. Meanwhile, the contractor is willing to overcome bureaucracy by filing a request for a permit to cut those trees. Someone within the community may have access to that information and interpret it as an intention of the owner to move forward regardless of negotiations. Situations like this may hinder trust building and the development of a proactive relationship between stakeholders.

The project team may decide to formally engage some of the indirect stakeholders via a license agreement or other negotiated requirements document that is signed off by the stakeholders.

13.5Project Stakeholder Management Monitoring and Controlling

PMI's Navigating Complexity: A Practice Guide details stakeholder behavior. The guide proposes possible actions to monitor and control such behaviors and their effects on the project. The complexity of a construction project may be amplified with the number of stakeholders.

While effective interactions among stakeholders contribute to success, the diversity, influence, and number of stakeholders involved in those interactions contribute to the complexities encountered in the project. Stakeholders can have a significant impact on the structural complexity of the construction project. Attempts to simplify the connections for a stakeholder group without proper analysis of the existing dependencies may also increase complexity in the project. Higher-complexity environments require the project manager's full engagement of key stakeholders to ensure successful business outcomes. Using a stakeholder engagement assessment matrix can mitigate engagement risks. It is important to develop and maintain communications networks with all key stakeholders, and closely monitor these ever-changing human or organizational relationships for signs of change that may indicate additional threats or opportunities.

Possible actions for Monitoring and Controlling Stakeholder Engagement in construction projects include:

• Develop a common language among stakeholders.
• Develop and maintain a web-based communication management system to share with all key stakeholders to allow for collaborating and tracking of requirements approval.
• Be aware of small changes in the tone and context of communications among stakeholders to capture early signs of potential issues that may have an impact on the future of the project.
• Hold workshops involving stakeholder groups to understand and resolve views and opinions regarding requirements.
• Continually engage stakeholders on success criteria as those can change over time.
• Identify potential biases among stakeholders, understand their motives, and then develop mitigation actions.
• Ensure that the stakeholder management plan is the key focus throughout the project life cycle.
• Ensure the scope of work includes adequate stakeholder engagement activities; for example, stakeholder assessment, buy-in, management strategies, and continuous monitoring or follow-up.
• Learn and understand the strategies or objectives of stakeholders to adopt the right communication techniques.
• Perform due diligence and continually monitor external stakeholders’ organizational strategy and behaviors in order to partner with them effectively.
• Consult and collaborate with stakeholders; everyone should be heard in the process.
• Partner with suppliers and key stakeholders to establish plans for communication and develop other ground rules for aligning different processes.
• Ensure that stakeholders, who are best placed to control risk, are assigned corresponding risks.
• Communicate new regulatory requirements to the stakeholders for awareness and action as necessary.
• Implement stakeholder analysis as an ongoing activity, not just at the beginning of the project.
• Follow up with stakeholders on the success or failure of remedies and seek additional help as needed.
• Be vigilant for changes in stakeholder attitudes and actions.
• Diligently monitor and promptly read project documents, and acknowledge the data transfer or undertake needed action.
• Foster personal connections with stakeholders and encourage collaboration.
• Emphasize a balanced use of technology but ensure follow-up with recipients.

Managing stakeholders in construction projects requires constant monitoring and controlling of some additional aspects. For example, stakeholder representatives such as labor unions and organized communities usually serve for a term and are replaced by vote, which requires developing new personal relationships. Some unwritten agreements may need to be revisited and things that were considered granted may fall into uncertainty. In some cases, it is important to monitor not only stakeholders’ engagement, but also some of their internal processes and decisions. The stakeholder list should be continuously updated during all project phases. Through appropriate risk and issue management, potential changes may be converted from threats into opportunities.