Stakeholder Management in the Construction Sector

 

Stakeholder influence in the implementation of construction projects

Stakeholder ManagementStakeholder Management is about relationships between an organization and their groups interested or stakeholders. These relationships impact on the individuals and their organizations, that could be positive, or have a negative influence on any successful project. Therefore the stakeholders from any project should be managed by the organizations with the outlook to minimize the negative impacts and make sure that there are no obstacles in the way of a successful project.

At the moment the stakeholder management is considered, at least in theory by the building construction sector, as important for their business as other areas, for example subcontracting, security or the environment.

Who are the Project Stakeholders?

The most formal sources, like Project Management Institute (2001) defines the stakeholders as: “individuals and organizations who are actively involved in the project, or whose interests may be positively or negatively affected as a result of project execution or successful project completion.”

A more concise definition of the stakeholders would be: “those groups or individuals with whom the organization interacts or has interdependencies…any individual or group who can affect or is affected by the actions, decisions, policies, practices or goals of the organization”. (Carroll, 1993).

The stakeholder in a project can be divided into (Calvert 1995; Winch and Bonke 2002):

  • Internal Stakeholders to the organization, who are the team members of the project or those who provide for the financing of it.
  • External Stakeholders like the people affected by the project in some significant way.

In the majority of projects from the construction sector there will be a lot of stakeholders and the diversity of its nature and demands will produce a conflict of interests.

The checklist of stakeholders in a construction project is often big and includes the owners and facility users, project management, team members, facilities managers, designers, shareholders, public administration, workers, subcontractors, services suppliers competitors, banks insurance companies, media, community representative, neighbors, general public, clients, regional development agencies. Each one of these could influence in the course of the project at some time. Even though some could influence in the project more than often, the majority of whom will do so at a set time.

If we are able to identify as many stakeholders in a construction project, the construction industry should be able to manage their expectations in a proactive way from the first moment of the project.

First time round, the companies worry more about registering the stakeholder who they think are a risk to the project, with a negative influence; while the stakeholders who make the project easy, are not even registered. In this sense it´s normal that these organizations worry more about these agents who have a great influence and power over the success of the project, taking into account that it could not go through without their consent. The organizations often depend on the external stakeholders for financing, licenses, services, resources etc.

MappingStakeholderA consensus and simple way to register the stakeholders in a project is a Power–Interest Matrix, which puts them in groups depending on their level of power and interests with respect to the result of the project.

In addition to this Power-Interest dimension, Newcombe (2003) considers a Power-Predictability Matrix. A risk perspective overshadows the predictability of stakeholders. How predictable the stakeholders are, which affect the degree of uncertainty of a specific risk. In this sense, an organization should be able to identify those stakeholders who can create an uncertain risk or a power over the project.

As projects can create unexpected situations from the stakeholders it´s necessary to monitor the progress of the agents, the evolution of their power of influence, and the triggers that can originate these reactions. Therefore the urgency of which each stakeholder should be treated is changeable throughout the development of the project. This urgency associated with stakes and interests is often not static but dynamic. Therefore it should be controlled regularly to detect important changes.

An updated and dynamic matrix helps an organization to (Vogwell, 2002):

  • Bring order to a very complex situation.
  • Transmit and understand the different agents, even though they have been registered through different members of the organization or team.
  • Suggest updated strategies for the management and communication between the different groups interested.
  • Manage the resources and time in the management of the stakeholders in the best way possible.

 

Construction Stakeholder Management

The special nature of the construction projects makes the stakeholder management in this sector take into account these special factors, such as types of contracts or the nature of the project object. The organizations in the construction sector operate nowadays in a globalized market, with large project teams and jointed projects with international companies in which they manifest cultural differences, professional ethics and different ideas about how to conduct business.

The relationships between different process agents in the building construction sector can be regulated or limited by contracts, for example between the client and the builder. The contractual deposits or the laws about contacts with the administration limit the strategic use of stakeholder management. For example the obligation to finish a job within a limited time, with budgetary targets attached, makes the stakeholders management work effective within a pressured environment

This activity goes beyond the sentence of a construction project. The users of the facilities, clients, etc, can enjoy their interests after the building construction fase, so that the stakeholders management extends throughout the construction lifecycle.

ConstructionManagement2In order to achieve a more successful project result , the project director should be skillful in the management of the different stakeholders during the whole process of the project, from the beginning until after the building of it. The regular communication with the different stakeholders makes this inform their management of diverse stakes .

 

 

Impact of Stakeholders on Projects and Organizations

As we have seen, the probability of project success is greatly reduced if stakeholders are ineffectively management.

Specially .the aspects that are considered with the projects objectives, the ones who are affected by lack of participation from the stakeholders. In this case, the project manager has problems to clearly define the objectives of the project. without clear and precise objectives neither the project manager nor the rest of the stakeholders will know when the project will have accomplished its objectives.

Furthermore even though the project will be successful from the managers point of view or the company, except if the project doesn´t fit the demands of the objectives of both parties, the stakeholders won`t be satisfied with the project results. (Jergeas).

Other potential problems associated with a ineffectively management are: a poor scope because of the lack of definition in, work problems coming from assigned sources to the project, regulatory changes that affect the project, or a negative reaction from the community against the project. All these problems put together with the lack of participation of the stakeholders in the project which affects the budget and schedules.

The stakeholder management is intimately related to Corporate Social Responsibility. CSR which could also be understood as a voluntary social and environmental concern in the business transaction and the interactions with the stakeholders (Enquist, 2006). The organizations assume that they have a social obligation that goes much further than their responsibilities with the shareholders. (Doh y Guay, 2006).

From the CSR perspective the organizations understand that they have a moral obligation with the stakeholders based on ethic, social and economic respect. The companies which are socially responsible try to use the ethic behavior in an agreement with the stakeholders. However the natural of this moral responsibility and how it can be interpreted into actions and corporate behavior is not defined. In other business areas , the social corporate responsibility is interpreted in precise actions demanded from society as for example cheap labor, fair trade, etc. However in the construction sector morality and ethical responsibility are less defined.

These moral obligations usually hit head on against the business imperatives. The company has the requirements from the shareholders to build a project as soon as possible, within a budget; while they have to attend the demand of other stakeholders. If the management stakeholders are getting more and more important in the companies it`s because they are feared as a risk for the consequences of the commercial imperatives in the case of a business case.

StakeholderManagement-salineropampliegaWhat the stakeholder management do is to look for a happy medium between the different interests. Identify the interests from all areas, organizations and clients, and look for an optimal balance that satisfies all stakeholders within certain circumstances. The project manager should have a wide perspective of the story.

 

 

 

 

 

Effective Stakeholder Management

Given the growing number of stakeholders and their multiple variable expectations, it would see that there is a theory consensus collected by Chinyio & Olomolaiye (2010): “when the differing expectations of stakeholders cannot be achieved at the same time, compromises become worthwhile”. As stakes are not static but dynamic, there is a need to manage the constantly shifting balance between the interests of stakeholders.

The stakeholder management should include the management of their relation with the project and the organization in order to support their objectives. In this sense they should create a positive environment in which to develop a firm trust in one another.

To be able to manage between the expectations and the stakeholders and the business needs, the organizations could opt from three approaches or three types of relation with the stakeholders (Goodpaster, 1991):

  • Strategic Approach – This tactic gives more priority to the shareholders over the stakeholders or management.
  • Multifiduciary Approach – This assumes a fiduciary responsibility to stakeholders, allotting them equal stakes with shareholders.
  • Stakeholder Synthesis Approach – This approach assumes a moral but non-obligatory responsibility to stakeholders, e.g. dealing with them ethically.

For the organizations, the key considerations in the management should include the following questions (Caroll y Buchholtz, 2006):

  • Who are our stakeholders?
  • What are their stakes in the project?
  • What opportunities do they present?
  • What challenges or threats do they present?
  • What responsibilities do we have towards our shareholders?
  • What strategies o actions should we use to implicate our interest groups?
  • Should we deal directly or indirectly with our interest groups?
  • Should we be aggressive or defensive in our treatment with the stakeholders?
  • When and how should we accommodate, negotiate or oppose to the demands of our stakeholders?

In general, the communication with the interest groups will be a key to give or receive information to process the planification or bring in this case the needs of the stakeholders. In the case of vital actors, like the head of external financiation, it would be convenient to even integrate them in the project team so they can participate and make decisions during the project lifecycle.

Talking about lessons learned, the project manager should register his tactics for future projects. In this case It would be advisable to formalize the processes used to identify stakeholders, such as checklist of verifications for the identification, and procedures to ensure effective interviews.

Conclusion

The organizations from the building construction sector should implicate their moral obligations with the project stakeholders and agree in the results how it can impact in the business case.

The majority of these organizations are small or medium sized companies. For the majority to maintain or loose a client could be critical for them to continue. The need to retain clients obliges the companies to have an effective stakeholder management.

A good stakeholder management permits the organization to understand in a better way their stakeholders, manage in a better way their expectations, and improve the business opportunities.

Those companies who administrate in a better way their stakeholders , guarantee major benefits over a larger period of time in their results.

 

Construction Management-salineropampliega

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References:

  • Carroll, A.B. and Buchholtz, A.K. (2006). Business & Society: Ethics and Stakeholder Management.
  • Chinyio, E. and Olomolaiye, (2010). Construction Stakeholder Management.
  • Collinge, W.H, (2011). Re-Thinking Stakeholder Management in Construction: Theory & Research. 
  • Doh, J.P. and Guay, T.R. (2006). Corporate social responsibility, public policy, and NGO activism in Europe and the United States: An institutional-stakeholder perspective. 
  • Enquist, B., Johnson, M. and Skale’n, P. (2006). Adoption of corporate social responsibility – Incorporating a stakeholder perspective. 
  • Goodpaster, K.E. (1991). Business ethics and stakeholder analysis.
  • Jergeas, G. F., Williamson, E., Skulmoski, G. J., & Thomas, J. L. (2000). Stakeholder management on construction projects. 
  • Newcombe, R. (2003). From client to project stakeholders: A stakeholder mapping approach. Construction Management and Economics.
  • PMI. (2001). A Guide to the Project Management Body of Knowledge.
  • Kennedy, Thomas. Stakeholder Management in Construction Projects. The PM Coach
  • Smith, J. and Love, P.E.D. (2004). Stakeholder management during project inception: Strategicneeds analysis. Journal of Architectural Engineering,
  • Vogwell, D. (2002). Stakeholder Management. 

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