Stakeholders: Definition and relevance for projects

If you have ever worked on a project, you have probably come across the term stakeholder. Although stakeholders play an important role in project work, or in a company in general, the question often arises as to what exactly characterises them and how one should deal with them. Before we explore these questions, let's first take a look at the name: The term stakeholder in relation to a project, means a person who has a vested interest in a project (outcome) because he holds a "stake" in it. But what exactly is his "stake"? How do stakeholders differ from shareholders and what should good stakeholder management look like? You will learn all of it in the following article.
Group of people In a conference room.

What are stakeholders?

Instead of using the cumbersome term "person who has a vested interest in a project outcome", stakeholders could simply be called interested parties or interest groups. The stakeholders of a project include the project team, the sponsors, but also customers or other employees of the company. 

Stakeholders are characterised by the fact that they have an influence on a project but are also affected by the project results. Both stakeholders and project participants are aware that they can influence the project positively or negatively. For this reason, the interests of the stakeholders must be identified and taken into account. However, the first step is to identify the stakeholders in order to deduce which interests they pursue.

Since the interested party can have a great influence on the project, the project manager should not lose sight of their interests and needs. If a project's stakeholder is properly involved, the project can benefit. They either become supporters or at least pose less risk to the project, as appropriate communication can minimise the threat they pose.

What are the different types of stakeholders?

There are different types of stakeholders in a project. One can differentiate between internal (or active), external (or passive) and critical. Both external and critical stakeholders can have a negative as well as a positive attitude towards the project, while internal stakeholders are usually positive towards the project because they are actively involved in the project. Internal ones include the project staff, the sponsors or the project management.

External stakeholders, on the other hand, only have an indirect influence on the project or are only passively affected by the project's impact. Consequently, they are not responsible for the project results. As described above, they can have a positive or negative attitude towards the project. Suppliers, for example, are indirectly involved and have a positive attitude towards the project because they benefit from the project's success, for example in the form of follow-up orders. External stakeholders who have a negative attitude towards a project could be residents who are affected by the construction of a motorway and are upset about it.

The third type we would like to introduce to you are the critical stakeholders. These people are in a position to influence the framework conditions of a project in such a way that the course of the project is affected. This can mean that the project is delayed, that more resources are tied up than planned or, in extreme cases, that the project fails. Critical stakeholders who are negative towards the project pose a particularly high risk and need to be monitored closely.

Since it makes a huge difference what kind of interest groups one is dealing with, it is necessary to structure them at the beginning of the project. This way, on the one hand, the interested parties are involved in the project and, on the other hand, the project manager can adapt the goals and the strategy to the interests, expectations and demands of the groups. The result of the stakeholder analysis also influences the project environment analysis, but also the risk analysis. To take up the example of critical stakeholders again: If a project leader identifies possible critical stakeholders at the beginning of a project that could have a negative impact on the project, then risk work packages can already be defined at the beginning of the project and, if necessary, strategies for dealing with the risks can be developed.

Stakeholder or Shareholder?

The stakeholder approach is often seen as an alternative to the shareholder approach. In principle, both variants deal with the same questions: whose interests should the company mainly take into account and what goals should it pursue on this basis? However, depending on whether the stakeholder or the shareholder approach is followed, the answers differ.

The shareholder approach focuses primarily on the interests of shareholders. For example, these include owners or partners. If the focus is on the shareholders, an attempt is made to increase the value of the company as much as possible. Stakeholders are only marginally considered, as they cannot influence the value of the company either directly or indirectly.

In the stakeholder approach the company takes into account the interests of many groups and implements their interests to a certain extent or tries to reconcile the different needs. In doing so, it can happen that the implementation of the interests leads to a reduction in profit - the increase in the value of the company is therefore not the first priority.

In principle, it can be said that shareholders can also be interested parties if the project is carried out in a company in which shareholders are involved, as they have both influence and interest in the project. In most cases, however, stakeholders and shareholders are different groups of people with different goals that the company has to deal with in different ways.

Tips for good stakeholder management

One of the characteristics of a project is that it is a complex undertaking involving many different people. Therefore, the different interest groups, by definition, play an important role in the project. The project manager should pay special attention to stakeholder management.

Questions you should ask yourself

Project managers should ask themselves the following questions:
 
  • Which stakeholder groups are particularly relevant and why?
  • How have stakeholders' interests and demands been dealt with so far, what problems have arisen and how have they been managed?
  • What positive and negative impacts do stakeholders have on the project?
  • What measures can be taken to steer critical individuals or groups in a positive direction?
  • What is the relationship between the company and its customers and vice versa? Do the customers tend to be positive or negative towards the company? 
  • What are the expectations of the employees and how does the project manager deal with them? Can the project manager count on the support of the employees?
  • How is the project perceived by the public? 
  • Are there suppliers on whom the project is particularly dependent? How does the project manager deal with the lack of risk diversification?
 
By answering these questions, potentials can be identified and risks for the project can be assessed. Project managers can better understand why interested parties behave the way they do and what measures need to be taken to avoid, neutralise or positively influence certain conflicts of interest.

Clustering and development of a communication plan

Realistically, however, it is hardly possible to enforce the interests of all parties. Therefore, it is important to cluster the various stakeholders in order to decide which interests should be weighted more heavily, how information can be conveyed appropriately and based on this, develop an optimal communication plan. For this purpose, it is useful to divide the interested parties into four groups, depending on how much interest they have in the project (high or low) and how much influence they have on the project (high or low).
Most important for the success of the project are those who have the most influence on and the highest interest in the project. These include, for example, the project manager or the project team. These stakeholders are closely connected to the project and if they are not part of the project team, it may be useful to include them in the steering committee.
Second are the parties who also have a major influence on the project but only a minor interest in its outcome. These include, for example, authorities. They should be involved in important decisions.
The next group that has a great interest but little influence on the project can be environmental organisations - they can be allies as well as opponents and should therefore be proactively involved in the project and regularly informed.
The last group has neither a great interest nor particularly much influence on the project; this includes, for example, the media. Here it is often sufficient to communicate with them superficially and irregularly.

Take needs into account

Besides clustering the stakeholders in a matrix something else is part of a successful communication plan: Considering the needs of the different people involved. If the managers have a busy schedule, the presumably tight time slots should be used as effectively as possible. On the other hand, groups of people who have little interest in the project should not be bothered with too many details. For example, users simply want to know what benefits the project will have for them, but how the project will be technically implemented usually does not interest or concern them.

Don't ignore the human factor

Although stakeholders can also be legal entities, the human factor plays a central role in communication, because ultimately it is always people who communicate with each other. People can drive the project forward, but they can also delay it; they can motivate or demotivate the team. Project managers should not lose sight of the human component. It is important to give constructive criticism and feedback or to ask questions. The more project managers maintain contact with interest groups, the earlier possible negative effects can be noticed. If problems or conflicts arise, the project manager should try to solve them in a factual way.

Communication in all directions

In all activities involving stakeholders, the project manager should ensure that the team's progress is communicated in all directions. External interest parties should receive less comprehensive information than internal ones. This way, each stakeholder knows how far the project has progressed and whether there is still a need for action on their part.

Final words

Stakeholder management and communication with them are indispensable in project management. By communicating with the project's interest groups, project staff get to know them and learn what influence they can have on the project. In this way, those involved in the project learn which opportunities come from the stakeholders and which risks they need to be prepared for. Based on this, appropriate measures can be defined and the project team can implement actions that take the interests into account in the best possible way. This leads to sustainable and long-term project success.

Stakeholder - The IAPM logo
Author: IAPM internal
Keywords: Project management, Term, Tips, Stakeholder

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