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Who are Project Stakeholders and Why They are Important?

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19th Feb, 2024
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    Who are Project Stakeholders and Why They are Important?

    One of the critical challenges that project managers face to ensure project success is managing stakeholder expectations. The project's success is almost guaranteed when the project manager can drive consensus and influence the stakeholder community toward a shared purpose. But unfortunately, the reverse is equally true. This article introduces you to who a project stakeholder is, what stakeholder management is, why it is critical, and how to go about it.

    Who is a Project Stakeholder?

    You can divide Project stakeholders into two broad groups. One group is the people who will be affected by the project outcome, for example, customers and users. As a result of the project outcome, their way of working or behavior will change, and hence, they are critical stakeholders for the project. 

    However, there will be another group who can influence the project outcome through their decisions. It can be the executives of the performing organizations and project sponsors who decide on the resource availability for your projects or even your customers who can provide you with the feedback that determines your project's direction. These people or entities are also your project stakeholders. 

    Beyond the above broad categorization, the interest in the project outcomes determines the extent to which the stakeholder is critical for project success. Here is a concise definition of who is the project stakeholder. 

    Any person or entity, who is influenced by or can influence project outcomes and is interested in those outcomes, is a project stakeholder. Project Management Institute (PMI) provides the following project management stakeholder definition. 

    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. 

    Why is Project Stakeholders Important?

    Beyond the ability to influence the outcomes, the stakeholders in a project are essential for several reasons.

    1. Stakeholders with a positive interest in the project outcome can help you mitigate risks and respond to challenges effectively. 
    2. Stakeholders typically have profound domain knowledge and expertise. As a result, they can bring valuable insights that significantly benefit the project execution and outcome. 
    3. Given their experience, expertise, and position, they can provide significant support for identifying and mitigating possible risks.
    4. Stakeholders often control budgets and resources. As a result, they can impact the project's availability of funds, people, and other required assets.
    5. They can identify any additional consequences of the project outcome and may influence further execution. 
    6. On the other hand, specific stakeholders may also be impacted. If that impact is not favorable for them, they may oppose the project's execution or outcome and may alter the course of execution. 

    Given the ability of the stakeholders to determine the project's success, their role is vital and thus requires active management efforts from the project managers. Taking up an online course for Project Management, that helps you understand the nature and scope of stakeholders in the context of project management could be a good idea for your career growth. 

    Types of Project Stakeholders in Project Management

    Stakeholders can exist both within the project organization and outside of it. Therefore, classifying stakeholders in project management is essential for project managers to develop better stakeholder management strategies and plans. 

    1. Internal stakeholders in project management

    Internal stakeholders can include various people groups inside the organization and the project team such as: 

    1. Project Team Members: project management stakeholders include the project manager and team members responsible for the project deliverables. 
    2. Management: This group of stakeholders includes the project sponsor, who controls the project budget, and other senior executives who can influence various dimensions, including resource availability, goals, and project objectives.
    3. Shareholders: Shareholders of the company will have an interest in the financial outcome of the project and the subsequent impact of those outcomes on the company's growth.
    4. Employees: The overall employee group may be impacted by the project outcome or may influence it, depending upon the type of project.

    2. External stakeholders in project management

    There are many kinds of external project stakeholders, ranging from customers to regulatory agencies and competitors; a project manager should be aware of them and their functions.

    1. Customers: The customers of your project are the most critical stakeholders for apparent reasons. In many cases, your projects' success depends on their acceptance. But even if it is not the case, your project's deliverables will impact them the most.
    2. Suppliers: The project execution and outcome may depend on the resource and skills available from the suppliers. Hence, they are also considered stakeholders for projects.
    3. Competitors: What competitors do may impact your project execution and outcome. This impact is especially true if the project involves launching a new feature or service into the market.
    4. Regulators, Government bodies, and communities: Certain projects may involve considering regulations and compliance with other government laws or guidelines. Some projects also impact citizens and may need to consider local communities for bi-directional influences.

    Examples of Project Stakeholders in a Project

    1.  Project manager: From the initiation to closing, a project manager is the most critical stakeholder throughout all the project phases as they are the project's leaders. 
    2.  Team members: Team members are equal, if not more, critical stakeholders for the project's success. They are ultimately responsible for the execution and outcome and can significantly impact project success. 
    3.  Managers: Functional managers are considered stakeholders, too, as they ensure skills availability and subject matter expertise for the project team members.
    4.  Resource managers: You need the right resources at the right time for the project execution to ensure the project is not impacted. 
    5. Executives: Executives decide project priorities and may influence project budgets. Therefore, they are critical stakeholders in the project. 
    6. Senior management: Senior management, too, like executives, influences priorities and budgets. In addition, they can also provide subject matter expertise. Hence, they can be valuable stakeholders.
    7.  Company owners: They may have ultimate control over project resources, budgets, and outcomes.
    8.  Investors: Investors are interested in the project outcome and how that impacts their Returns on Investments (RoI).
    9.  Sponsors: Sponsors are management representatives and hence, one of the key project stakeholders. Consequently, they influence the budget and priorities. However, they are also champions of the projects. Therefore, they can bring a positive impact and are almost as invested in the project outcome as project managers and team members.
    10.  Financiers: Like investors, they would be keen on the RoI based on project outcomes.
    11.  Suppliers: Suppliers also influence resource availability. In addition, they may also be concerned about the project outcome and opportunities for them as a result. For example, a successful project may mean more orders to particular suppliers in the future. 
    12. 12. Consultants: Consultants are typically process or domain experts. They can influence project execution and success through their advice.
    13. 13. Customers: One of the most critical stakeholders for any project since the project outcome will have the most impact on this group. At the same time, for many projects, the success or failure of the project depends on their acceptance.
    14. 14. End users: In a Business-To-Business (B2B) segment, your end users and customers may be different, while in B2C (Business-To-Consumer) segment, they are more likely to be the same. Irrespective of this difference, the end users are critical stakeholders, as the outcome of your project will most impact them. And especially in the B2C segment, how they perceive your project outcome may well determine the success or failure of the project.

    How to Identify Project Stakeholders?

    Effective project stakeholder management starts with identifying the right stakeholders. Specific stakeholders are easy to identify, as is evident from the list above. However, identifying the right project stakeholders in project management takes effort. These are a few actions you can take to do just that: 

    1. Consult your project charter. Your project chart may list critical stakeholders. In addition, the project objectives and constraints may help you identify implicit stakeholders for your project even though the charter doesn't list them directly. 
    2. Consult your project sponsor. Given their experience and knowledge, your project sponsor may help you identify a few stakeholders that may be vital for your projects. 
    3. Refer to your Organizational Process Assets (OPA) and Enterprise Environmental Factors (EEF) to get guidance on who the stakeholders can be. 
    4. Collaborate and brainstorm with your project team to identify possible stakeholders—also interview subject matter experts in the project domain. Brainstorm questions like who is expected to gain or lose from the project and who may influence priorities, resource availability, and any approvals for the project to move ahead. 
    5. Lessons learned from previous projects of your organization and talking to other project managers who may have handled similar projects can also help you uncover critical stakeholders. 

    How to Manage Your Project Stakeholders?

    It is essential that once you have identified project stakeholders, you manage them effectively throughout the project. Therefore, it is crucial to understand what Project stakeholder management is and what it entails. Project management frameworks like the PMBoK and PRINCE2 expand on project stakeholder management as a critical aspect of a project manager's responsibilities. Taking up certified PMP training online or a PRINCE2 Project Management certification course will prepare you further in this area. However, the following is an indicative list of actions you can take for your reference.

    1. Analyze stakeholders for various parameters to gauge their influence on project outcomes and classify and prioritize them. There are many frameworks and tools available to classify stakeholders. Power-Interest Grid or Influence-Interest Grids are primary among those. These tools will help you understand how you should engage with the stakeholders.

    2. Create a stakeholder communication and engagement plan. The plan can be represented with a RACI Matrix or any variation thereof. Such a matrix defines project stakeholders' roles and responsibilities. However, the plan will enable you to ensure that you engage with the stakeholders appropriately and monitor their engagement and approach toward the project. 

    3. Ensure the stakeholders know project objectives, key assumptions, and risks. Understand their requirements and expectations from the project and work out a strategy to balance those expectations with project plans. While doing that, ensure that you adopt the stakeholders' point of view (POV). 

    4. Continuously engage with the stakeholders to proactively assess changing needs or expectations and manage such challenges. Ensure they know the project's progress and any issues and risks the team faces. 

    5. Gauge their reactions and attitude through continuous communication and appropriately adjust your stakeholder management strategy. 

    Advantages of Managing Stakeholder's Expectations

    There are many advantages to effectively managing stakeholder expectations. Let us take a look at a few primary ones. 

    1. When you manage stakeholders' expectations effectively, you create an environment of valuable collaboration that can help you uncover hidden aspects of the project, including possible challenges and risks and ways to handle those. In addition, you gain insights for better project decisions through stakeholder knowledge and experience.
    2. With engaged stakeholders, you get fewer surprises as the project progresses. In addition, such stakeholders will help you remove the project's impediments, including resource-related ones. Finally, managing expectations improves stakeholder buy-in.
    3. Your team may get a mentor or a guide that can help the team acquire better skills and knowledge. 

    Effective Stakeholder Management Can Be Simple

    Effective stakeholder management builds a strong foundation for project success. Identifying the stakeholders can be tricky given the diversity. They can be internal to your organization or external. Some of them can be obvious, like project sponsors or customers. But others, like government agencies or social groups, may not be easily identifiable. But once you identify them, generate a sense of shared purpose and common success criteria. Then, build a communication plan around those expectations and engage with them throughout the project lifecycle. Taking up any of KnowledgehHut's certification courses for Project Management will prepare you to manage your project stakeholders effectively and significantly increase the chances of your project's success. 

    Frequently Asked Questions

    1What skills should a project stakeholder have?

    A good stakeholder must have relevant domain knowledge, communication skills, the ability to help project managers manage expectations of other stakeholders, and objectivity to evaluate the outcomes appropriately. In addition, an ideal project stakeholder should be able to work collaboratively with other stakeholders to guide the project manager and project team.  

    2How will the project's success be measured for each stakeholder?

    To understand the success criteria for each stakeholder, you must first be clear about their expectations from the project, hidden and explicit. For everyone, these criteria may be different, sometimes even competing. That's why, while performing stakeholder management, it is essential to lay out the set of common criteria that will be considered for measuring project success.  

    3How will the project's progress be reported to the stakeholders?

    While developing the stakeholder communication plan, consider each stakeholder's preferences. For example, some prefer "pull" communication, while others prefer "push" communication. In addition, some prefer formal emails to report progress, while others prefer summary presentations and analysis through project management systems. Identify the best possible medium and frequency for each stakeholder and use the communication plan to report the project's progress.  

    Profile

    Ruchir Karanjgaokar

    Blog Author

    With over 20 years of experience leading software products and projects, Ruchir brings practical insights into his writing and training. He has helped teams and organizations adopt agile approaches and optimize the value streams to deliver effective outcomes.

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