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Project Management and Regulatory Compliance

Authors:
BUSINESS COMPLIANCE 05/2015 © Baltzer Science Publishers48
* Joseph Schwierking is a Marine Safety Specialist Engineer with the United States Coast Guard and
Vittal Anantatmula is a Professor at Western Carolina University, USA.
THE EFFECTIVE PRACTITIONER
PROJECT MANAGEMENT AND
REGULATORY COMPLIANCE:
THE MISSING INGREDIENT?
By Joseph D. Schwierking and Vittal S. Anantatmula*
It’s easy to fall into the trap of taking a big decision, or
delegating a smaller one, based on the headline numbers and
arguments for and against the launching of an initiative. All too
frequently, the task of establishing a project management team
and monitoring its composition, schedule and risk taxonomy is
left as a matter of detail. This task-oriented process tends to prioritise efficiency
of speed and cost effectiveness. Too few are those organisations that auto-
matically consider the inclusion of regulatory compliance and requirements
from the kick-off of a project. More common is the long walk to the corporate
compliance office for “sign-offin the hope that this will be a mere formality.
In this article, Joseph Schwierking and his co-author Vittal Anantatmula review
the current understanding of best practice for the management of regulatory
risk within project management, and add the illuminating conclusions of their
own research, identifying the conditions under which the risk of project failure
due to regulatory omission is at its highest, how to effectively identify, plan
for and meet regulatory requirements, as well as to build a lasting, positive
relationship with regulatory agencies for future projects. Be it for a project, or
a firm, herein there are lessons to be learnt.
Regulations;
and more regulations
Most major projects fall under the scrutiny
of least one form of professional, local,
state and/or federal regulatory agency
regulations. This is especially true for
projects in which its implementation,
end product or service involves the
safety or security of its stakeholders. For
such projects, failure to plan for or meet
regulatory requirements can result in a
failure to meet the core requirements of
the project; even litigation by stakeholders
and enforcement actions.
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financial services, it is almost certain that
its project manager will have to ensure that
the project accommodates and complies
with some type of regulatory agency and
the requirements they enforce. Failure to
identify applicable regulatory authorities;
provide appropriate plans and build to
accepted specifications; schedule for
inspections; prove successful product
tests; and meet the intent of the law or
regulation, can result in failure to meet
cost, scope, schedule and/or quality
requirements.1 Failure to meet regulatory
requirements can also result in a loss of
certification, lawsuits, fines and civil and/
or criminal enforcement actions.
The purpose of our research was to
identify common shortfalls in regulatory
compliance preparedness in project
planning and develop some forward
thinking measures to assist project
managers in planning for and meeting
regulatory requirements. The results of
this paper will emphasize the importance
of developing a dialog with regulators;
being aware of requirements; planning
for regulatory inspection; and meeting
1 (Deikmann et al.,1996).
Business history is marked with severe
injustices to employees, customers,
community and destruction to the
sustainable environment. These are evident
in our recent history with examples like
Enron Corporation embezzling billions
of investors’ dollars or the estimated 200
million gallons of oil that was discharged
into the Gulf of Mexico during the BP
Deepwater Horizon oil spill. To ensure
that history does not repeat itself,
governments, special interest groups,
and other organizations have developed
laws and regulations as well as regulatory
agencies to monitor and intervene in
business practices that could be harmful.
As business and technology evolve
and products become more complex,
it has become the natural consequence
that regulatory involvement increases.
Furthermore, awareness, expectations,
and ultimately the protection of end-users
also led to regulatory and legal restrictions
of products, services, and business.
Recognition of such regulatory require-
ments by the project manager is crucial
for project success over time. Whether
a project consists of clinical research,
construction, product development or
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regulations require the use of some form
of risk management in contract work3 and
might cause litigations and project delays.
I’m from Compliance: I’m here to help …
Past studies have revealed that total
devotion to regulatory requirements
have both positively and negatively
impacted projects. Most noteworthy of
those negative impacts were the costs
related to compliance. Redenbaugh &
McHughen found that companies that
produce fruits and vegetables in nations
with lenient regulatory requirements in
the field of horticultural biotechnology
have a substantial cost advantage over
companies that operate in nations with
stricter standards. Kuzma takes this idea
even further by identifying compliance
difficulties in the genetically engineered
food industry. In their examples, industry
spends millions of dollars over several
years to complete a single project. This long
term approval process results in stagnated
development of new products and process
innovation. Kuzma does come to the
3 (Kahler, 2013)
the requirements of the law or regulation
in managing projects.
Academic Research
There is a significant body of literature on
the pitfalls and best practice of successfully
embedding compliance concerns into
the project management process. What
is clear is that not taking the necessary
steps can be expected to be a costly and
disruptive omission. What past studies
show is that unidentified changes in
regulatory requirements account for cost
and schedule overruns of 30 to 50% in
remediation projects.2 We may find that
regulations from different authorities
and/or jurisdictions overlap. However,
past research studies suggest that in many
instances, material differences in related
subject areas can be found and could
cause problems. Failure to prepare and
plan for these differences will result in cost
and schedule overruns, loss of credibility
with regulators and public disapproval.
Specifically, regulations are in place to
enforce contract management such as the
US Sarbanes–Oxley Act of 2002 in which
2 (Deikmann, Featherman, Mo
2 (Deikmann, Featherman, Moody, Molinaar,& Rodriguez-Guy, 1996).
3 (Kahler, 2013).
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realization however, that compliance is
necessary in order to achieve the level of
public confidence necessary for a project to
be truly successful. Other positive impacts
related to regulatory requirements are
establishing credibility with regulatory
agencies and protection from litigation or
enforcement actions. Bleidt explains how
credibility with regulatory scientists in the
pharmaceutical development industry can
build confidence in a project and result
in increased and speedier acceptance of
its product.
Best practice principles
A thorough review of scholarly journals
and professional articles allows us to
identify some best practices for meeting
regulatory requirements in project
management terms. Experience shows
that compliance should be integrated into
a project at its conception and needs to be
followed up until the project is completed.
Studies also conclude that compliance
is the responsibility of all members of
an organization and should be directly
monitored by management. Research and
4 The list is compiled from the conclusions of Barefoot & Sommerfield (2011) ; Bleidt (2001);
Eveld et al. (1981); Kennedy (2001); Sallinen et al. (2011). See end notes for detail.
academic writings4 will point to compliance
best practices when initiating a project.
PROJECT MANAGEMENT
COMPLIANCE BASICS
Include the regulatory impact assess-
ment process at project initiation
Add compliance to schedule of tasks
Assign regulatory management
responsibility
Map and understand regulatory
requirements
Know the regulators and their
expectations
Establish and maintain a dialog
with regulators
Monitor for any changes in regulation
Be aware of regulatory overlap
and conflict
Confront compliance difficulties
with candor
Respect the internal compliance
approval and regulatory appeal
processes
4 The list is compiled from the conclusio
Experience shows that compliance
should be integrated into a project at its
conception and needs to be followed
up until the project is completed
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regulated. Participants of this survey
represented project management fields
in construction, recruiting, software
development, flood plains management,
research, product development and
internet server manufacturing. Their
employers are composed of an array of
government and corporate entities.
The survey results indicated that
managements strategic approach
towards regulatory compliance in
general, seems to provide insight as to a
project’s likely performance in meeting
regulatory requirements. In this survey,
30% of the survey participants indicated
that their organization did not support
communication with regulatory agencies.
Of those participants whose organization
prefers no interaction with regulators;
100 % reported not knowing of any
outreach provided by their regulators,
85% did not know of any reporting
requirements, did not know how
to contact applicable regulatory
authorities and have never attended
any regulatory agency sponsored
industry training.
In summary, academic literature confirms
that projects experience cost and schedule
overruns due to unidentified regulatory
compliance issues and the impact is
negative in most cases. However, these
studies also suggest that identifying
and addressing regulatory compliance
would lead to successful completion of
projects and useful project outcomes. Past
research also suggested that regulatory
compliance issues should be planned and
integrated into project planning. Finally,
project culture should be that regulatory
compliance is a responsibility of all the
parties involved in the project, and not a
game of hide and seek with those deemed
to “own” compliance risk.
Regulatory engagement pays
To better understand the effects of
management’s attitude toward regulatory
agencies, awareness of regulatory
requirements and the involvement
of regulatory agencies with project
managers, we developed a survey
questionnaire using the above literature
review findings and presented this to a
group of professional project managers
from the US. We chose the US for this
initial study, because it is one of the most
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Costs and Delays
The regulatory agencies are responsible to
the general citizenry as protectors of their
health and welfare from unacceptably
risky products, from fraudulent research,
and from misleading promotion.5 Such
protections provide customers and other
stakeholders with the necessary security
to freely utilize products and services with
a minimal threat from unknown harm.
However, this security comes at a cost
for the project sponsor that may be too
great for them to sustain. Furthermore,
introducing regulatory requirements into
project planning has extended project
schedules dramatically.
For example, in the fields of horticulture
biotechnology and genetically modifying
organisms, the increased cost of meeting
new regulatory compliance standards
has skyrocketed to tens of millions of
dollars per project. In the case of Aqua
Bounty Technologies, it has been awaiting
regulatory approval for a genetically
modified fish variety for almost a decade.6
5 Bleidt, 2001. See end notes for detail.
6 Kuzma et al, 2011. See end notes for detail.
Of the 70% of respondents whose
organization promotes communications
with regulators;
less than 13% were unaware of any
outreach provided by their regulators.
only 25% do not know reporting
requirements and did not know how
to contact regulatory authorities,
only 35% had never participated
in regulatory agency sponsored
industry training.
Cost and Benefit
of Regulatory Compliance
An examination of research literature and
survey results provides three points of
discussion regarding regulatory compliance.
The cost of compliance and the
benefits it provides.
The cost of non-compliance and the
risk involved.
Common mistakes and best
practices for establishing regulatory
compliance in a project.
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THE MAKE OR BREAK
OF PUBLIC CONFIDENC E
Authors do admit that compliance with
regulatory requirements instills public
trust in the organization and promotes
confidence in their product. Without those
two conditions, organizations are sure to
fail. And there appear to be some reason
for skepticism as genetically modifying
organisms have already been found
to aggravate allergic reaction, contain
increased toxicity, and contain decreased
nutrition.7 The regulatory requirements
for genetically modified organisms do
not appear without due cause, but are
established to secure the wellbeing
of a products end user. Without these
regulations and the strict adhesion to their
guidance, consumers will lose confidence
in an organization and avoid their product.
BUILDING CREDIBILIT Y
W I T H R EGULATORS
Another positive benefit of ensuring project
regulatory compliance is establishing
credibility with the regulating authority.
The cornerstone of working relationships
between a regulated institution and
7 Bakshi, 2003. See end notes for detail.
Faced with these two factors for meeting
regulatory compliance and extension of
project schedule, project sponsors are
taking a second look at their bottom line
and reconsidering their options. As a
result, studies have found a slowdown
in research innovation and a stagnate
search for developing new products in
the specializations of biotechnology and
genetically modified organisms.
Redenbaugh’s et al identifies that
regulatory challenges prohibit these
products from being financially profitable.
They reinforce their argument by citing
genetically modified agricultural products
that met regulatory requirements, but
failed to successfully compete in the open
market. What these conclusions do not,
however, take into account is that if a
product cannot be financially profitable,
the demand for the product is not great
enough or they have failed to inspire
the necessary trust of their innovative
products. In other words, non-compliance
would attribute to non-acceptance of
the project deliverable, in other words
a lack of consumer confidence in the
product, and it is therefore likely not to
be financially viable.
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Cost of Non-Compliance
and the Risk Involved
COST AND SCHEDULE OVERRUN
Gosling et al (2013) and Othman (2012)
established that regulatory agencies have
the highest probability of impacting
the cost and schedule of a project not
in compliance. Failure to identify and
comply with regulatory requirements
can result in a product considered
substandard to regulators and require
the project team to rework portions or
even to completely start the project all
over again. Evidently, this unplanned-
for cost will negatively impact earned
value and return on investment, and
lead to incomplete development of the
work breakdown structure and schedule
with potential knock-on effects to other
critical processes. This was found to be
true in waste remediation projects where
it is asserted that it is not uncommon for
projects to exceed 30 to 50% of the original
cost estimate due to these problems.9
RE P U TAT ION AND L I T IGATION R ISKS
Regulatory requirements provide
9 Deikmann et al. (1996). See e
its functional regulator are trust and
credibility. When trust and credibility
are established, communication flows
freely, ideas are exchanged as to the
interpretation or intent of regulations
and regulators are more inclined to assist
organization when they run into some
regulatory issues.8
A SHIELD FROM
ENFORC E M ENT A CTIONS
Regulatory agencies are provided the
jurisdiction to oversee project regulatory
requirements and their designated
officials are provided the authority to
ensure all applicable parties abide by
those requirements. These officials have
the power to stop work, enact limitations,
impose penalties, and recommend
suspension or revocation of a required
license and credentials when regulations
are violated. Adherence to regulations
prevents regulatory officials from
resorting to enforcement actions, just as
greater regulatory trust may diminish
the costly and disruptive incidence of
regulatory inspections.
8 Barefoot et al., 2011; Bleidt, 20
8 Barefoot et al., 2011; Bleidt, 2001. See end notes for detail.
9 Deikmann et al. (1996). See end notes for detail.
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the licensing and credential issuance
and renewal of work done under their
responsibility. Furthermore, regulatory
authorities have the power to stop work,
enact limitations and impose penalties.
As many organisations have discovered
to their cost, disobedience of regulatory
requirements may results in sanctions,
such as fines or loss of licenses. Even
after a project has been completed,
many regulatory authorities have the
authority to stop the assembly, sales and
use of product or service that is under
their responsibility. In cases where the
regulatory agency finds evidence of
purposeful neglect, regulatory agencies
can assess fines per day of illegal
operation or per individual product
produced.
Beware the regulator scorned
The results from the survey indicate
that management’s approach towards
regulatory compliance may provide
insight as to a projects performance in
meeting regulatory requirements. In this
survey, 30% of responders indicated that
their organizations do not encourage
communications with regulatory
authorities, of which 85% were not even
the minimum level of assurance that
stakeholders will not be subjected to harm
that has been previously identified and
addressed by government stakeholders.
Failure to meet these requirements may
tarnish the name of the client and strain
relations among project stakeholders.
Furthermore, attempts to hide and cover-
up non-conformities with regulatory
officials could lead to a total breakdown
of credibility as has been evidenced many
times in the past.
Stakeholders, especially employees
and customers, rightfully assume that
an organization involved in a project is
aware of regulatory requirements and are
competent in meeting their obligations.
Any injustice or wrongful harm done
to another is grounds for litigation, and
failure to meet regulatory requirements
during and after project completion
can result in lawsuits against the project
sponsor by any affected stakeholder.
These lawsuits can appear at any time
and some have no statute of limitations.
REGULATORY WRAT H :
ENFORC E M ENT
Many regulatory authorities govern
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means making time for events such as
meetings, planning for inspections,
conducting tests and allotting time for
plan review and review of successful
testing procedures.
Assign regulatory management responsibility
This does not mean that one person
should be responsible for the regulatory
work for the entire organization, but
a centralized individual, such as a
Compliance Officer, should be made
aware of all regulatory activities and
should have the authority to make
changes to processes and procedures
to ensure compliance.
Know the requirements This translates
into project managers knowing the
regulations and being aware of any
change. The easiest way to accomplish
this is by reviewing the regulators’
web page and downloading their
list of references pertaining to your
project. Other relevant information
may be derived from a review of the
most common inspection deficiencies
that year, review any recent safety
bulletins and evaluate any notices
of enforcement actions recently
aware of any reporting requirements
imposed on them.
This lack of relationship management with
applicable regulatory authorities appears
to be the basis of many of the issues project
managers face, and result in failure to
identify regulatory requirements, plan
for compliance and/or meet reporting
requirements. Many of these deficiencies
result in what is typically considered a
major violation. Establishing a process
for project managers to communicate
with regulatory authorities would remedy
this problem.
Best Practices
for Managing Compliance
In our review of literature, the following
best practices were identified for successful
management of regulatory requirements.
Start the regulatory process at project
initiation Bring in the subject matter
experts for compliance, identify
the applicable regulatory agencies
and dedicate resources to ensure
compliance throughout the project.
Add compliance to the work schedule This
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heading. This can be very beneficial
when planning budget, schedule and
resources on project that will be in
play once the proposed rule goes into
effect. Additionally, most regulations
are presented to stakeholders in a con-
sultation document inviting comment.
This is a valuable opportunity, regret-
tably spurned by many both as an
influencing and learning opportunity.
Be aware of regulatory overlap and
conflict Many projects fall under the
jurisdiction and authority of many
levels of regulatory entities. Some of
these authorities overlap one another
and in some cases have conflicting
requirements. These entities include
Federal, State, and local regulators as
well as professional organizations and
even foreign regulators. As an example,
some permits or procedures approved
by one authority may, regrettably, not
be acceptable to another.
Be upfront with compliance difficulties
Many regulatory organizations
require the disclosure of substandard
practices or conditions, especially
when licensing and credentialing is
taken. Being on top of regulatory
requirements helps the project
manager seem competent to agents
in regulatory compliance
Know the regulators Failure to identify
those mandated to supervise your
activities, and to understand their
responsibilities and authority can
lead to noncompliance of regulatory
requirements and reporting
procedures.
Establish and maintain a dialog with
regulators No-one likes to be kept
in the dark. Turning projects into a
transparent, collaborative approach
between the project team and the
regulators will likely prompt the
project team and regulator to approach
periodic examinations or reviews in a
less adversarial way Also, consider
sharing business proposals with
regulators, you may find that an idea
may take more effort than it is worth.
Monitor for changes in regulation No-
tices of proposed rulemaking provides
organizations a look into the future of
what direction regulatory agencies are
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effective ways in which organizations
can manage regulatory requirements
and eliminate the risk associated
with noncompliance. Failure to meet
regulatory requirements can result in
the many issues outlined in this article
already that may eventually lead to early
project termination or worse, including
fines, litigation and even imprisonment.
We have also sought to explain how
compliance with regulatory requirements
also provides many benefits to an
organization. These benefits are what
keep good businesses strong, productive
and highly sought after, including the
maintenance of high credibility and
reputation as a responsible business or
product provider and not least, protection
from litigation or enforcement actions.
In order to ensure project regulatory
success, this research has established and
explained effective methods, listed above,
to ensure projects are in alignment with
regulatory requirements and that project
managers can develop a lasting positive
relationship with regulatory agencies.
Finally, our Regulatory Agency Survey
required. Make sure you notify the
applicable regulatory authority when
a problem arises in their realm of
responsibility. Maintaining a dialog
with regulators does not mean only
telling them the good news, your
organizations credibility is enhanced
when potentially bad news is disclosed
voluntarily and proactively.
Know the appeal process – Realize that
regulatory officials are not always
educated or experienced in the
specialized field of your project. Their
interpretation of the regulation is not
the final word. In many cases, if the
intent of a regulation is known and
met, higher authorities in a regulatory
agency can provide acceptance to an
alternate proposal, especially when
dealing with innovation or newer
technology. Whatever the case may
be, always ensure that you recap the
approved proposal and do exactly
what is agreed upon.
Conclusion
Maintaining regulatory compliance is no
easy task, nor is it something organizations
can just ignore! However, there are
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References
Bakshi, A. (2003). Potential adverse health
effects of genetically modified crops. Journal
of Toxicology and Environmental Health.
Barefoot, J. A. & Sommerfield, L. J. (2011).
Regulatory relationship management: building
trust, credibility with regulators. The Bureau
of National Affairs, INC.
Bleidt, B. (2001). Planning, coordinating,
and monitoring clinical trials. Clinical Research
& Regulatory Affairs.
Deikmann, J., Featherman, D., Moody, R.,
Molenaar, K., & Rodriguez-Guy, M. (1996).
Project cost risk analysis using influence
diagrams. Project Management Journal.
Eveld, R.J. (1981). An overview of the
regulatory process. Project Management Quarterly.
Gosling, J., Naim, M., & Towill, D. (2013).
Identifying and categorizing the sources of
uncertainty in construction supply chains.
Journal of Construction Engineering & Management.
Kahler, L. (2013). Contract-management
duties as a new regulatory device.
Law & Contemporary Problems.
Kennedy, T. (2001). Strategic project
management at the project level.
Clinical Research & Regulatory Affairs.
results suggest that organizations
that restrict project managers from
communicating with regulatory agencies
fail to understand their regulatory risks,
to know of any outreach provided by
their regulators, and even little know
of any reporting requirements, how to
contact applicable regulatory authorities
and attend regulatory agency sponsored
industry training. This would indicate
that these organizations do not self-
report as required by law, fail to know
of any new regulatory requirements, do
not participate in proposed rulemaking,
and that project managers of these
organization are not fully aware of the
requirements that they are assigned to
fulfill. Perhaps the greatest risk of all
is to not engage with regulatory intent
and ensure an appropriate level of
understanding of the expectations placed
upon the organization?
M
Organizations that restrict project
managers from communicating
with regulatory agencies fail to
understand their regulatory risks
BUSINESS COMPLIANCE 05/201561
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Kuzma, J., Najmaie, P., & Larson, J. (2009).
Evaluating oversight systems for emerging
technologies: A case study of genetically
engineered organisms. Journal of Law,
Medicine & Ethics.
Muller, R., Turner, R., Anderson, E., Shao,
J., & Kvalnes, O. (2014). Ethics, Trust, and
Governance in Temporary Organizations.
Project Management Journal.
Othman, A. (2012). A study of the causes and
effects of contractors’ non-compliance with
the health and safety regulations in the South
African construction industry. Architectural
Engineering & Design Management.
Redenbaugh, K., & McHughen, A. (2004).
Regulatory Challenges Reduce Opportunities
for Horticultural Biotechnology. California
Agriculture.
Sallinen, L., Ahola, T., & Ruuska, I. (2011).
Governmental stakeholder and project owner’s
views on the regulative framework in nuclear
projects. Project Management Journal.
Sutinen, J. G., & Kuperan, K. (1999). A socio-
economic theory of regulatory compliance.
International Journal of Social Economics,
Vol. 26.
Joseph Schwierking is a regulatory
compliance officer in the United States Coast
Guard. His experiences include 21 years of
recreational and commercial vessel inspection;
project oversight of new construction, major
overhaul and repairs of commercial passenger
and freight vessels; investigation of marine
casualties, and the conduct of mariners
issued a United States Coast Guard Merchant
Mariners Document. Joseph’s experiences
also include the project management of major
overhaul and repairs to Coast Guard owned
ships, small boats, and facilities. Joseph’s
education consists of a Bachelor of Science
in Engineering Technology and a Master of
Project Management from Western Carolina
University.
Dr. Vittal Anantatmula is professor in
the College of Business, Western Carolina
University; a campus of University of North
Carolina. He is also the Director of Graduate
Programs in Project Management. He is a
guest professor at Keio University, Yokohama,
Japan and a visiting faculty member of Embry-
Riddle Aeronautical University. He taught at
George Washington University in the past.
Dr. Anantatmula has worked in the petroleum
and power industries for several years as an
electrical engineer and project manager and as a
consultant in several international organizations
including the World Bank. Dr. Anantatmula
has authored more than 60 publications and
five books. He has a doctor of science from
George Washington University and is a project
management professional and certified cost
engineering professional.
Perhaps the greatest risk of all is to not
engage with regulatory intent and ensure an
appropriate level of understanding of the
expectations placed upon the organization?
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