Good governance lessons from Hollywood
Over the past 25 years I’ve had the privilege of working across numerous sectors and on a variety of different project types – for example civil engineering, new product development, business change, social change, R&D, to name a few. Whenever I’ve worked on a project or programme that’s at the ‘creative’ end of the spectrum I’ve often faced resistance to applying a structured approach to project and programme management. As films are by their very nature creative, I’ve been looking into how Hollywood manages to complete their films (aka projects) on time and repeatedly as a source of lessons.
Firstly, let’s have a look at the key players in the film industry:
- Producer – who commits to delivering a film (a new ‘product’) to the distributor based on an agreed script, cast and budget.
- Distributor – who markets the ‘product’ and commits payments to the producer based on minimum distribution guarantees for certain territories.
- Financier(s) – who will provide the cash the producer needs to make the film.
In project speak we can relate the producer to the project team/supply chain, the distributor to the client/marketer and the financier to the funder. So, nothing unusual so far.
What is unusual though is the use of completion guarantees (known as a completion bond). A completion bond is a form of insurance offered by a completion guarantor company in return for a percentage fee based on the film’s budget. It provides a guarantee that the producer will complete and deliver the film to the distributor(s) on time. The fee is typically between three and five per cent of the budget based on the risks assessed by the completion guarantor. I regard the completion guarantor as the fourth ‘player’ as their role is significant – they provide an active not passive role in the overall governance.
Here’s how it works. The producer will need cash upfront to finance the film, so the producer uses its contract with the distributor as collateral to get a production loan from a financier (typically a bank). The financier will require a completion bond to provide them with security against the risk of non-delivery by the producer – as it’s the delivery of the film that triggers the minimum payment by the distributor to the producer who then repays the production loan. The risk assessment by the completion guarantor includes assessing the capability of the key people in the production team (e.g. the director, assistant director, production manager, cinematographer and some cast members) - since the capability of these key people influence the likelihood of the film being delivered on budget, on schedule and to specification.
If we relate this back to our traditional project world, this is akin to assessing the capability of the sponsor, the project manager and key project personnel as a means of risk rating a project. Now, I have heard discussions at portfolio and programme boards as to the confidence in a project being linked to the personal track record of a project manager. When I’m asked what level of project tolerances a board should set when delegating to a project manager my first response is often, “it depends on how well you know the project manager and what their delivery track record is”. Additionally, I will often comment on the appropriateness and competence of the sponsor. However, I’ve never seen formal capability (or competency) assessments being used as an explicit predictor for project delivery or overall success. This is something we can learn from Hollywood. Back in our project world, project managers regularly undergo competency assessments covering behaviour as well as technical and contextual elements in line with the APM Competence Framework. But how many organisations assess the capability of their sponsors (a role which is key to overall success)? But, what would we assess them against? Many would agree that defining sponsor competencies is still ‘work in progress’ for our profession.
Another factor on the completion bond is that all four ‘players’ are parties to the agreement - the producer, the distributor, the financier(s) and the completion guarantor. By binding all the parties together the completion guarantor ensures that all parties’ objectives and incentives are aligned and is also provided with regular updates on production progress (milestones, resourcing, costs, etc) and gains some additional rights if production falls behind plan – this can range from approving key appointments, firing and replacing production personnel (even the director or key cast members) and ultimately to ‘step in’ rights where they have the option to take control of production – effectively replacing the project/delivery team. Generally, guarantors don’t really make great production companies so it’s rare for them to use the nuclear ‘step in’ option. Instead, they become part of the governance arrangement by providing embedded and proactive project assurance. So, is this another thing we can learn from Hollywood? Should we consider on our traditional projects having a governance agreement that binds the parties (including the independent assurer).
So, how about making your next project a blockbuster? Consider applying the Hollywood approach to risk assessments by assessing the competence of the sponsor (assuming a named sponsor has been appointed!), project manager and project team and then establish governance arrangements that bind together all the ‘players’ involved. Perhaps even go that one step further and invite a completion guarantor to join the project set-up!
Find out more: APM guidance Directing Change 3rd edition (new release) and Governance of Co-owned Projects cover many of the practices that enable the film industry to repeatedly deliver creative projects on time.