Impact of stakeholder management in the construction industry

INTRODUCTION

This section of the report covers literature by several authors. A literature review: “gives an overview of what has been said in the area of project stakeholders and project success , who the key writers are, what are the prevailing theories and hypotheses, what questions are being asked and what methods and methodologies are appropriate and useful” (Emerald, 2010).

This chapter seeks to investigate the impact of stakeholder management and its contributions to project success in the construction industry. Using the literature review mind map in Figure 2 below, this report will explore principles and concepts on the subject matter to satisfy its main objectives.

Figure 1- Literature review mind map

(Author)

This literature review will satisfy the following project objectives:

To explore the principles of stakeholder management and project success.

To assess the benefits and challenges of stakeholder management.

To correlate a relationship between stakeholder management and project success.

To propose a framework for measuring the impact of stakeholder management on project success thereby assessing its impact on project success.

To make recommendations for improved stakeholder management practices.

Overview of the UK Construction industry

The construction industry in the past 30 years has continued to evolve and expand (PMI 2008) and although changes within the industry are relatively slow (Kagioglou et al 1998), one cannot overlook what the construction industry has contributed to the UK economy (Bennett 2003 p.7).

The UK construction industry is the sixth largest industry in the UK in terms of turnover (Adamson and Pollington 2006) and it accounts for 10% of the UK’s GDP and employs 1.5 million people (Corporate Watch 2002). Recent studies such as Walker (2007 p.101) has shown that the:

“Construction process also has a challenging and vital task in defining and implementing the stakeholder’s requirements”.

This study considered this to be paramount. This was further asserted by McElroy and Mills (2007 p.758) clearly explaining the importance of stakeholder management. This report would discuss stakeholder management in the next section.

Overview of Project Stakeholder

A review of various literature and study on project stakeholder begs an explanation as to the origin of the word “stakeholder”. The word “stakeholder” was first recorded in text in 1708 according to (Ramirez 1999) from the word “stake”. Although the definition of a project stakeholder may remain debatable (Walker 2007 p.100), There is no consensus as to a common and widely used definition (McElroy and Mills 2007 p.760). It may be suggested that each author defines stakeholder(s) to suit the aim of individual academic research at that particular time. Below are some definitions of a project stakeholder from various literatures.

Vollans (2006 p.50-15) defines a project stakeholder as a:

“…person or organisation with vested interest (positive or negative) in the ultimate outcome of the project”.

According to Olanda and Landin (2005 p.321) it is:

“…a group of people who have vested interest in the success of a project and the environment within which the project operates”.

While project management for development organizations (PM4DV) (2009 p.71) suggested that stakeholders are:

“…people who have an interest in the project, whose satisfaction is the most critical element to define the success of a project”.

Other definitions include the ApmBok (2006 p.159) which defines project stakeholders as:

“…all those who have an interest or role in the project or are impacted by the project”.

For the purpose of this report an alternative definition would be suggested, this definition would incorporate various definitions as seen above. Project stakeholders are:

“Group(s) of people /Organisation who have an interest in and who can also impact a project positively or negatively within the project life cycle and whose satisfactions are the most critical element to define the success of a project”. (Olanda and Landin 2005; project management for development organizations 2009; Apm Bok 2006; Vollans 2006)

Projects are made of different stakeholders with different interest in the project. This study would look at the different types of stakeholder next.

Types of stakeholders

When considering stakeholders types, it could be suggested that person or organisation is not self sufficient hence the word “Globalization” came into being projects consist of various stakeholders. This can be seen in studies undertaken by Aaltonen and Sivonen (2009 p.132), where the author suggested that identifying the various stakeholders in a project involves taking into account their wants and requirement. Project stakeholders as identified by Kloppenborg (2009); Aaltonen and Sivonen (2009) are divided into internal and external stakeholders. This can further be subdivided into primary and secondary stakeholders.

Identifying both the primary and secondary stakeholders will help the project manager establish the project requirements and expectations, where the expectation is critical to project success (Kloppenborg 2009 p.362). This expectation is divided into three aspects: relationship, communications and lessons learnt. Aaltonen and Sivonen (2009 p.132) defined internal stakeholders as:

“those who are actively involved in the project implementation and this category of stakeholders usually support the project”.

The author also inferred that internal stakeholders are also called primary Stakeholders. Examples of primary stakeholders are the project owner, project sponsor and project manager. It could therefore be assumed that Stakeholder Participation specifically by primary stakeholder will increase the chances of success (Unruh 2005 p.413).

While the external stakeholders are;

“members of the project that may affect or be affected by the project” Aaltonen and Sivonen (2009 p.132).

These are often called secondary stakeholders. Examples of secondary stakeholders are government agencies, suppliers and special interest groups. These classifications will be illustrated in a Figure 3 which shows the level of importance given to primary stakeholders below:

Figure 2-Primary and secondary stakeholders

(Author)

Notwithstanding, neither primary nor secondary stakeholders can stand on its own given today’s project environment. A typical example of a primary stakeholder is the project manager who would not be able to proceed if the legislative requirements are not met, this could be in form of risk management system put in place on the construction site. These requirements are set by the government bodies in charge of monitoring and control, they are also known as the secondary stakeholders.

Principles of stakeholder management

During its years of development, stakeholder management has documented more success than failures in the area of project management (Aaltonen and Sivonen 2009). Due to the diverse nature of this subject matter, stakeholder principle and theories have been sought in national and international policies (Reed 2008). Examples of such success can be seen in research done by Narayan (2007) on Fiji Sugar Corporation; because sugar is the major source of income of Fiji, the presence of many stakeholders in the cooperation is evident but it can also be argued that the effectiveness of the management of all stakeholders present in the cooperation was key to the organisation’s success.

Atkin and Skitmore (2008 p.549) have suggested that project management in the constructions industry has a complex collection of activities required to deliver a construction project. It is therefore conclusive that stakeholder management within the project lifecycle is critical for the success of any construction project. Thus failure of a project manager to manage the concerns of a construction project stakeholder over the years has resulted in a countless number of construction project failures (Atkin and Skitmore 2008; Bourne and Walker, 2005). It must also be noted that stakeholder in the construction industry have the capability to terminate a construction project (Atkin and Skitmore 2008; Lim et al. 2005).

A report to the House of Commons by the Committee of Public Accounts (2004) on the issues of Wembley stadium has shown that inadequate planning in the initiation phase of the project lifecycle has lead to stakeholder conflict. Managing stakeholders from the initiation phase of a construction project or any project is essential. Where there is effective stakeholder management, benefits are realised at the end of the project on time, within budget and quality.

Due to suggestions made in the previous section by Walker (2007) and McElroy and Mills (2007) that the term stakeholder is difficult to identify, defining stakeholder management will still pose the same difficulty identified by the above authors.

Stakeholder Management can be defined as:

“…as the continuing development of relationships with stakeholders for the purpose of achieving a successful project outcome” (McElroy and Mills 2007 p.760)

It could be suggested that for stakeholder management to be successful, it must be strategic; various literatures have suggested a process called the Stakeholder management process; this approach is applicable to both internal and external stakeholder (OGC 2010),the stakeholder process(McElroy and Mills 2007 p.772)

are listed below and represented in the figure below:

Identification of project success criteria.

Identification of Resources Requirement.

Identify Stakeholders and level of interest

Conduct stakeholder Analysis

Develop Strategy for Each Stakeholder identified.

Table! : Stakeholder Process Explanation

Identification of project success criteria

McElroy and Mills (2007) suggested that sponsors success criteria should be in terms of time, cost and performance.

Identify Resource Requirement

Resource requirement maybe classified as tangible item which could include materials and finance (Burke 2007) and intangible resource such as support and emotions (McElroy and Mills 2007). For a project to be successful it could be suggested that a project manager need access to all this resources both tangible and intangible.

Identify Stakeholders and interest Levels

To identify project stakeholders McElroy and Mills (2007) have suggested that brainstorming key stakeholders and recording all stakeholders and there level of interest into a stakeholder register.

To Conduct Stakeholder Analysis

Stakeholder Attitude varies from one person to another. Some maybe in support and some in opposition of the project . Using a stakeholder commitment map the project team will be able perform a more effective assessment of current attitude of each stakeholder during the lifecycle phases. McElroy and Mills (2007)

Develop Strategy for each Stakeholder

After a stakeholder analysis has been carried out, the project team can build its strategies from the analysis. Such strategies can be the communication plan; this would include all the methods of communication to be used and frequency of the communication between the project team and project stakeholders.

Stakeholder Management and Project Lifecycle

The body of knowledge in project management (PMBOK) have suggested that:

“Because projects are unique and involve a certain degree of risk, companies such as the construction industry will generally subdivide their projects into several project phases to provide better management control”

Stakeholder management could be linked to project lifecycle, according to McManus (2004). Jawahar and Mclaughlin (2004) suggested that

“…at any given stage in the project lifecycle certain stakeholders will be more important than other”

Turner (2007) suggested the following phases; the definition phase where the initial objectives are defined by various stakeholder; the design phase according to Turner (2007) would be the matching the objectives with resources; the execution phase, would involve implementation of the actual work and monitoring and controlling of the project by key stakeholders which also include the project manager and finally the closeout phase involves the commissioning and hand over to key stakeholder.

Belout and Gauvreau (2003) suggested that

“…the effect of the critical factors on success varies as the project cycle stages change”

This can be seen in Figure used to link criteria’s for success and lifecycle by Belout and Gauvreau (2003) this is illustrated in the Figure below and can be linked to project success as seen below:

Figure! : A Link Between Criteria’s for Success and Lifecycle

PROJECT SUCCESS

The word project success is an indefinite word to say the least; this has lead to a set of definitions and perspectives by different professionals and academic in the field of project management. According to McManus (2004),

“…The most successful projects always involve both direct and indirect stakeholders… “

While Yu et al. (2005) suggests that a

“Project is a success if its created product adds value to the client, considering the cost to the client at the point of acceptance”

Ika (2009 p.6) suggested that project success be defined in terms of concepts such as efficiency and effectiveness, Lock (2007 p.5) argues that project success should be defined using the three objectives listed below:

Project Completion within the Budget.

The project delivered or handed over to customer on time.

Good performance, requiring all components of the project to meet the sponsor’s requirements.

Source: Lock (2007, p.5)

The author is invariably suggesting that we use the project management triangle seen below in Figure 4 to determine if a project is successful.

Figure 3- Success triangle by Lock 2007

(Author)

While Lock (2007) and Ika (2009) have presented various ways in which project stakeholders should be defined in the context of project management, Assudani and Kloppenborg (2010) have preferred to summarise their definition of project success in terms project stakeholders. It was suggested that for a project to be successful, it must meet the customer’s requirements and manage their relationships though effective communication. Accordingly Pinto (2004) went from the Iron triangle suggested by Lock (2007) in Figure 4 and linked it to the benefits gained by the organisation and the project stakeholder(s) at the completion of the project.

In a study carried out by Sofia (2003) titled ‘project success in relation with organizational roles and project managers’ skills and capabilities’, the author identified the following in Table 3:

Table 1- Project success definition, Source : Sofia (2003)

Definition Of Project Success

Percentage

It meets the target cost, schedule, quality and functionality

88.5%

It meet the customer’s satisfaction

85.9%

It creates organisational improvement with the learning from failures and successes (lessons learned)

44.9%

It was performed efficiently and effectively

43.6%

It succeeds in executing the desired changes because one cannot expect every project to proceed exactly as planned

37.2

Others

7.7%

The above table has indicated that studies carried out by Sofia (2003) are in accordance with Lock (2007) and Ika (2009) definitions. This report would define project success as:

The satisfaction of stakeholders needs in teams of time, cost, and quality/performance (Lock 2007; Sofia (2003); Ika 2009; Assudani and Kloppenborg 2010; ApmBok 2009).

The satisfaction mentioned in the above definition could be suggested to mean the benefit realised at the handover phase of the project. Since projects are unique endeavours (ApmBok 2009), it is right to suggest that satisfying stakeholders requirements using the criteria’s set aside by the stakeholder should be what success should be measured against.

Critical Success factor (CSFs) for construction projects

Achieving success is the goal of any project; the construction industry is not different from other industries in achieving success (Yu et al.200). The Apm Bok (2009, p.2) suggested that to satisfy stakeholders, one must have measurable criteria (OGC 2010) to measure success. Since Construction projects have been identified as having issues such as lack of trust, lack of cooperation and ineffective communication which have lead to adversarial relationship among all project stakeholders (Chan et al.2004), partnering with various stakeholders and identifying their view on CSFs using questionnaires (Jing et al. 2010) is important because it gives the project manager a clear view of each stakeholder expectations. Milosevic and Patanakul (2005) suggested that

“Critical success factors are correlated to a construct of an aggregate measure of project success”

According (PMI 2008; Wang and Huang 2009);

“…Project success criteria shall include the golden triangle and key project stakeholders’ satisfaction of the project…”

The following CSFs have been identified from literature and can be employed in the construction industry (Yu et al. 2004; Lock 2007; Hill et al., 2008), these CSFs are listed below:

Clear and agreed upon objective.

Project requirement must be carefully thought out.

Trusting relationship between all members of the project

Support from top management

Availability of sufficient funds and other resource

Technical competence with the project team.

Good communication

Benefits and Challenges of Stakeholder Management

Stakeholder management has both benefits and challenges to construction organisations which are determined by the role played by each stakeholder organisation during the execution of project (Zutshi and Sohal 2002, p.371).

The benefits of effective stakeholder management can be linked to an organisation or a country’s financial success (Zutshi and Sohal 2002; Reed et al 2009). Since the construction industry is copious with a sizeable number of stakeholders across the political, social, cultural and economic sector (Moodley et al.2008), identifying those benefits and challenges faced by the construction industry will be a priority for any project manager.

Benefits

The benefits of stakeholders in the construction industry are explored below thus:

Stakeholder Analysis

Vollans (2002 p.50-15) suggested that a key benefit of stakeholder management is the principle of analysing stakeholder which simply put is:

“a technique used to identify and assess the importance of stakeholders”

Guarded with knowledge gained from analysing various project stakeholders, it could be inferred that the knowledge will be used to make judgement regarding how each stakeholder could help or hinder the project (McElroy and Mills 2007). This early assessment of stakeholders at the planning stage of the project life cycle would identify and improve quality (Vollans 2002) by increasing the level of support from stakeholders and reducing opposition (ApmBok 2009).

By identifying each stakeholder and analysing their various interests it could be suggested that this would reduce conflict by resolving issues at an early stage of the project. This analysis must be reviewed throughout the project life cycle phase (ApmBok 2009).

Monitoring and Control

McElroy and Mills (2007) identified better monitoring and control as a benefit of effective stakeholder management. It is suggested that management of stakeholders with regards to their ever changing interest using project management tools such as change control process and configuration management in conjunction with stakeholder management theories, should enable the project manager manage changes (Zutshi 2004).

In the area of cost management, stakeholder management has been able to reduce ambiguity, duplication and waste of resources as a result of conflicts and legal issues (Zutshi 2004; Atkinson 1999)

Project Governance

Turner (2007) have suggested that

“Project are governed on behalf of stakeholders which includes owners and contractors”

The above author also suggested two paradigms of project governance as it relates to organisations. This paradigm suggests that projects are governed on behalf of all stakeholders, which will include both primary and secondary stakeholders. The author suggested that the responsibility of managing this relationship is that of the project manager and project team. This relationship will be managed using the principles of stakeholder management.

Challenges

In discussing challenges facing stakeholder management in the construction industry the following were identified:

Globalization

Carson (2002) defined globalisation as:

“a multidimensional process whereby national resources become more and more internationally mobile while national economies become increasingly interdependent”

Moodley et al. (2004) in recent studies identified globalisation as a challenge faced by the construction industry and argues that with the ever changing construction industry, recent issues that exists in stakeholder management such as (Communication and Scope Management ) falls within a global context. Since major construction companies in the world including UK construction companies undertake projects in various parts of the world (Steger 2003) and source for materials globally (Moodley et al. 2004), adopting stakeholder management principles and strategies from one region into a new region or culture may lead to failure due to gaps in culture and communication (Tone et al. 2009 p.27). An example of this can be seen in stakeholder management practices adopted during the construction of the Burj Al Arab in Dubai (reference).

Effective Knowledge Transfer

Some professionals in project management discipline may refer to this as “Lessons Leaned”. The Ontario health care information (reference) described knowledge transfer as:

” …a process of developing, identifying, and disseminating best practices, and planning, producing, disseminating, and applying existing or new research in stakeholder management…”

Senaratne and Sexton (2008) stressed the importance of sharing knowledge within the area of stakeholder management and also noted the role of knowledge in managing change in the construction industry. Egbu (2003) also went further to identify change as the key cause of knowledge production in construction projects. It could be suggested that though knowledge is been transferred in projects through journals in project management and the construction journals, key issues concerning individual project and stakeholder management issues and how this issues are resolved are still kept as confidential documents within various organisations resulting in a gap in the management of stakeholders within the construction sector.

Organisational Policy

Kamann (2007) suggested that;

“Organizations usually adapt or adjust their objectives and strategy in order to minimize strategic drift”

These objective and strategy may impact the project adversely (Aaltonen 2010), the stakeholder defines the scope of the work (ApmBok 2009), if this scope is adjusted or strategy changed as suggested by Kamann (2007) on a regular basis, the ApmBok (2009) has suggested that it would lead to what is known as a Scope Creep. The construction industry is known to be complex and full of different stakeholder with different level of power, the policy of organisation can either help to manage stakeholders more effectively or it may result in difference of option and invariably conflict.

2.7 Relationship between Stakeholder Management and Project Success

A survey involving 109 professionals on how best to define project success, shows that 88.5% of respondents agreed that project success should be judged on the basis of cost, schedule, quality, functionality (Sofia 2003), the link between stakeholder management process and success cannot be overemphasised (Bones 2007). McElroy and Mills (2007) illustrated the various stakeholder management processes to project success as seen in the figure!!! below :

Project Stakeholder

Success Criteria

Resources Requirement

Stakeholder Identification

Stakeholder Analysis

Stakeholder Strategy

Project Success

(Author)

Figure!! : The Relationship between Stakeholder Management & Project Success

While (Wit 1988) suggested that:

“When measuring project success, one must consider the objectives of all stakeholders throughout the project life cycle and at all levels in the management hierarchy”

The above author also suggested that:

“…it is unlikely that a project can be a complete success for all stakeholders during the entire life of the project…”

The above statement is reinforced by Aaltonen et al. (2008) when the author proposed critical success factors for stakeholder management in the construction industry. Although the depth of literature linking stakeholder management to project success in the construction industry is minimal, but a general literature into the link between stakeholder management and project success (McElroy and Mills 2007), the (ApmBok 2009; OGC 2010) suggested that to satisfy stakeholders, one must have measurable criteria to measure success.