This 12-Minute Read Could Save Your Project Months of Pain

The IDEAS Framework – A Project Manager’s Approach to Managing Stakeholders on Infrastructure Projects.

You’ve meticulously defined a strategic fit for your selected projects.

You have a dedicated internal project development and financing team.

You now have a pipeline of project sites or ideas you are ready to develop.

You have secured grants and/or sufficient internally generated income is in place to carry out the project development phase.

You're poised to dive into the five stages of project development that transform your idea into a deal attractive enough to secure construction capital.

You are ready to jump in.

But, Wait.

There is just one more aspect to consider:

Stakeholders

These are the human beings and groups whose:

• Foresight, motivation, and support are essential to deliver the project.

• Objectives must align sufficiently with yours to ensure a lasting, mutually beneficial outcome.

• Expertise you need to rely on to deliver projects to the right quality.

• Approvals are necessary to secure licenses, permits, and other regulatory requirements.

• Funds you need, to deliver the project.

Stakeholder management is Not my favorite aspect of infrastructure project development and financing.

I prefer spending time alone to:

• Map sector and business value chains on flip chart paper. – (Concept stage)

• Draft terms of reference for feasibility and viability studies for advisors. – (Early & Mid-stage)

• Review and critique project documentation and feasibility study outputs. – (Early and Mid-stage)

• Pour over spreadsheets to analyze operating and financial models, review budgets, and implementation plans. (Mid stage)

• Sketch out transaction structures with pen and paper. – (Late stage)

• Sorting through databases and records to organize information for investor due diligence – (Financial close)

Yet, even I recognize that projects often stall or fail because of people.

Every stage of project development and every phase of the infrastructure cycle requires stakeholder management.

I am not the best people person.

I rarely volunteer to lead stakeholder engagement efforts.

However, as a project manager overseeing project development that attracts financing, compels me to develop a method to make sense of, and then manage it all.

There are many tools and strategies for managing stakeholders.

What I offer you in this edition has been coined by my introverted self to maintain my sanity:

The IDEAS Framework

By applying this framework, I am compelled to proactively identify stakeholders, understand their objectives and requirements, determine the value they seek, and find ways to align those with that of the project and the sponsor I support.

The IDEAS Framework for Infrastructure Development and Project Finance Transactions

I : Identify – Who Are the Key Players?

Identify means you know who all relevant stakeholders are. Those who are already involved, will be involved, are or will be impacted, or whose support is needed for the project's success. In project finance transactions, this often involves a broad spectrum of entities, each with their perspectives and influence.

Key stakeholder groups in a typical project finance transaction include:

• Off-takers/Customers: Purchasers/users of the project's output. Their requirements regarding price, quality, and reliability are critical.

• Co-Sponsors/Co-Developers: Like you, they are the driving forces behind the project, initiating and developing the concept. They could eventually provide equity funding for the project Special Purpose Vehicle (SPV), in addition to bearing initial development risks with you the main sponsor, or if joining later, refund some of the project development costs.

• Lenders: Providers of debt financing, which could be commercial banks, bondholders, guarantors, export credit agencies, or multilateral agencies. You may not know exactly who they are at the start, but the fact that you will eventually submit all your work and convince them of your creditworthiness and your project’s debt-carrying capacity must factor into how you execute the project development stage.

• Government Agencies or Authorities: If your project is taking over or creating a public asset, then the government agency or department granting concessions, licenses, or entering into offtake agreements is an essential stakeholder.

If the government also provides special funds, subsidies, or grants for your type of project, the agency or department that handles this is also a stakeholder.

As a minimum, the respective government agencies that will issue required permits and licenses are stakeholders.

• Host Communities: The communities that will be most directly impacted by the project's environmental and social footprint of the project.

• Suppliers: Providers of essential inputs to the project (e.g., fuel, raw materials). If your success relies on a steady supply of strategic resources, then those groups of suppliers are important stakeholders.

• Construction Contractors (EPC): Responsible for the design, engineering, procurement, and construction of the project facilities. Timely and on-budget completion to agreed specifications is their primary deliverable.

• Operations and Maintenance (O&M) Providers: Responsible for the day-to-day operation and upkeep of the project assets after construction. Their efficiency directly impacts the project's profitability and longevity.

• Advisors (Financial, Legal, Technical): Provide specialized expertise during project development and financing. Their independence and objectivity are crucial for success during the early stages of feasibility and viability studies and later stages of due diligence and structuring.

The main question here

· Who needs to be involved in key discussions and decisions during this stage or phase?

To effectively identify these stakeholders, it's useful to:

• Create a comprehensive list categorized by their relationship to the project.

• Engage in brainstorming sessions and interviews to identify these parties.

• Review historical project data and lessons learned from past projects.

• Classify stakeholders by their relevance and potential influence on the project's goals for that stage.

D: Define – Objectives, Requirements, and Value Expected

Define involves a clear recognition of stakeholders' requirements and yours, and the value being expected and added. This understanding forms the basis for effective engagement, alignment, and agreements that will be negotiated.

• Off-takers: Their requirements could be securing the project's output at a predictable price and quality to meet their operational needs and volumes to meet demand.

  Your requirements could be predictable/stable demand, lower receivable days/timely payments, and reasonable and flexible tariff/price adjustment mechanisms.

• Co-Sponsors: Their objectives will include achieving target rates of return on investment, strategic market positioning, building a successful track record, and a clear path to profitability.

  Your requirements could be alignment in values, long-term value addition, strategic networks, project capital and sector expertise, and corporate governance support.

• Lenders: Their requirements are the ability to repay principal and interest within the agreed timeframe, strong debt service coverage ratios, acceptable credit risk levels, and comprehensive security packages.

  Your requirements could be longer tenors, lower interest rates, timely and clear due diligence processes, and large debt capital necessary for large-scale projects.

• Government Agencies or Authorities: Their requirements could be social development, job creation, economic growth, provision of essential services, local content development, and achieving specific service levels.

  Your requirements could be timely regulatory approvals, allocation of land, balanced concession terms, long-term political support, and stable regulations.

• Host Communities: Their requirements often relate to minimizing negative environmental and social impacts, maximizing local direct employment, and being consulted on major decisions throughout the asset phase.

  Your requirements will be peaceful and quiet possession, low-security challenges for the asset, clarity in stakeholder representation, transparency with valuation of livelihood restoration, and identification of displaced or project-affected persons.

• Suppliers: Their objectives are typically clear specifications, some predictability in demand ( to aid reliability) securing long-term supply contracts and ensuring timely payments.

  Your requirements will involve predictable and reliable delivery, adherence to the quality required and favorable payment terms, and sustainability of their operations.

• Construction Contractors (EPC): Their requirements will include clear project design and scope, budget and quality alignment, a defined and timely schedule of payments, and manageable risk allocation.

  Your requirements will include strong track record and capacity to execute, benchmarked fair & realistic pricing, adequate working capital reserves between payments, project delivery on time, on budget and on specifications.

• O&M Providers: Their requirements could include clear performance standards, defined tariff mechanisms, profit/revenue sharing, and inflation-linked cost or fee adjustment mechanisms, structured O&M contract.

  Your requirements will closely relate to, their adherence to performance targets, effective management, and maintenance of assets, protection of the surrounding environment, proper waste management, application of defined revenue/profit sharing, client services, progress monitoring and reporting.

• Advisors: Their requirements include clear project scopes, contracted mandates, timely access to necessary project information, and periodic progress reviews, your active participation and ownership of the project outcomes and timely payments.

  Your requirements will include, clear, practical and actionable advice, quality outputs that meets investors and stakeholder requirements, timely execution, and periodic updates.

The main questions in this phase

• What are their requirements? What are their non-negotiables?

• What are your requirements? What are your non-negotiables?

Limit assumptions – Just ask.

Anticipate and clarify their needs and be clear about yours too.

E: Engage - Building Trust and Collaboration

Engage focuses on actively building and maintaining relationships with stakeholders through intentional interaction – not just for the sake of it - Effective engagement strategies could include:

• Regular updates: Establish channels and frequencies for providing updates tailored to each stakeholder group's needs, preferences, and influence. This includes progress reports, emails, dedicated update meetings, brief chats, periodic visits, etc.

• Stakeholder Consultations: Actively seeking input and feedback from stakeholders on key aspects of the project, particularly those that directly impact them.

• Transparency: Sharing relevant information about the project's progress, risks, and challenges, proposed resolutions practically. Define to fit for the audience’s level of input, knowledge, and influence on the project.

• Proactive Issue Resolution: Addressing stakeholder concerns promptly and effectively, demonstrating responsiveness and a commitment to finding mutually acceptable solutions.

• Involving Key Stakeholders in Decision-Making: For high-power, high-interest stakeholders, their active involvement in relevant decision-making processes can significantly enhance buy-in and support.

• Utilising Collaboration Tools: Establishing forums, schedules, or digital platforms to facilitate smooth interactions and information sharing.

Key questions here are:

• What concerns are stakeholders expressing or have they expressed in the past, and how can we address them?

• How often should we meet with this stakeholder or provide updates to these stakeholders to ensure progress?

• Are engagement strategies providing the desired results or do we need to adapt them?

A: Align - Harmonising Expectations and Objectives

The Align stage is critical for achieving a shared understanding of roles, responsibilities, and expectations among all stakeholders. This involves actively working to harmonize potentially conflicting objectives and ensure that we are working towards the right project goals.

Key activities for Alignment include:

• Clearly Defining Roles and Responsibilities: Utilizing tools like RACI matrices (Responsible, Accountable, Consulted, Informed) to ensure clarity on who does what.

• Managing Expectations: Setting realistic expectations from the outset regarding project scope, timelines, deliverables, and potential risks. This is an ongoing process that requires continuous communication and adjustment as the project evolves.

• Negotiating Agreements: Reaching mutually acceptable terms and conditions in the various project agreements (e.g., concession agreements, construction contracts, financing agreements, offtake agreement) that balance the interests of different stakeholders.

• Establishing Clear Governance Structures: Defining the decision-making processes, reporting lines, and overall governance framework for the project.

• Agreeing Shared Project Objectives: Ensuring that the overarching project objectives are articulated, understood, and supported by all key stakeholders.

Important to ask here:

How will we handle conflicts of interest or misaligned priorities?

Potential conflicts of interest are inherent in project finance due to the diverse objectives of stakeholders. For instance:

• Sponsors may seek to maximize returns, while lenders prioritise minimizing risk.

• The government's desire for rapid infrastructure development might conflict with lenders' due diligence requirements for thorough risk assessment.

• Off-takers will seek the lowest possible price, while the project company needs to generate sufficient revenue.

• Governments seeking improved developmental access and social impact while concessionaires need profitability in negotiating tariff adjustment mechanisms.

S: Succeed - Delivering Mutual Benefits Together

Succeed, emphasizes the importance of delivering results that meet the agreed-upon expectations and provide mutual benefits for all key stakeholders at the various stages of the asset lifecycle.

Key aspects of Succeeding Together in project finance include:

• Monitoring Project Performance: Tracking key performance indicators (KPIs) related to project progress, financial performance, and operational efficiency to ensure that objectives are being met.

• Regular Reporting to Stakeholders: Providing timely and accurate updates on project performance to all relevant stakeholders.

• Addressing Changes and Challenges: Adapting to unforeseen circumstances and proactively managing any deviations from the original plan in consultation with stakeholders.

• Ensuring Compliance with Agreements: Adhering to the terms and conditions of all project agreements.

• Evaluating Stakeholder Satisfaction: Periodically assessing stakeholder satisfaction levels and taking corrective actions as needed.

• Learning from Experience: Conducting post-project reviews to identify lessons learned and improve future stakeholder management practices.

The key questions here are:

• How are we measuring success?

• How are tracking defined objectives?

Projects executed mindful of meeting the goals of major stakeholder groups usually meet deliverables and are deemed a collective success for all involved.

Bringing it all home

Neglecting stakeholder management can lead to project delays, increased costs, and ultimately, failure.

Legal, financial, and technical expertise is not enough.

Securing funding to complete project development is also not enough.

Effective stakeholder management is compulsory.

It is core to project progress and success.

There is no foolproof approach – humans are complex and unpredictable after all.

Yet adopting a proactive and structured framework like -IDEAS- and dedicating time and resources to it increases your chances of successfully developing a project that attracts financing while building trust with reputable partners.

You will have also taken a pragmatic approach to reducing your anxiety and stress while executing.

Books reviewed for this edition

• Navigating Strategic Decisions by John E. Triantis

• Project Finance for Business Development by John E. Triantis

• Navigating Project Selection and Execution for Competitive advantage by John E. Triantis

• Ethics in Business Decisions and Competitive Advantage by John E. Triantis

• Principles of Project Finance by E.R. Yescombe