Project Governance - The Principal-Agent relationship
4 important questions on Project Governance - The Principal-Agent relationship
What are 3 necessary conditions for project success?
- The project participants, especially the project manager and sponsor should work together in a partnership.
- The project manager should be empowered but not given total license.
- The sponsor should take an interest in progress
When does a Principal-Agent relationship exist?
This is clearly the relationship the sponsor (principal) has with the project manager (the agent).
What costs does the Principal-Agent relationship create over and above the cost of work?
- The cost of forming asnd managing the contractual relationship
- The cost of communication between the PM and sponsor
- Bonding costs where the PM binds the sponsor into the relationship
- Residual loss because the new asset does not perform precisely as required.
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What is the Sponsor/PM relationship subject to?
- The adverse selection problem
- The moral hazard problem
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