So you’ve just started a new project, and you’re not sure what you’re supposed to create. Do you need a project charter? Or will a Terms of Reference (ToR) do the job?
The challenge is that neither document has a single universal definition, so if you join a new company and find they use ToRs instead of Charters, then it can be hard to know what they are actually looking for as part of project governance.
And don’t get me started on how Project Initiation Documents fit in! Let’s cover that a different day – in this article I’m going to cover what each document is, how they are different, when to use which and what to do when your organization uses both (or uses the terms interchangeably).
Project charters 101
A project charter is the document that formally authorises a project to exist. It names the project, defines the objectives, identifies the sponsor and project manager, and gives the project manager the authority to use organizational resources.
In PMI’s framework (The
[A] document issued by the project initiator or sponsor that formally authorizes the existence of a project and provides the project manager with the authority to apply organizational resources to project activities.
PMBOK Guide, 8th Edition
PM2’s definition is a bit longer and more specific:
The Project Charter is a document that captures the essence of the envisaged solution in the form of high-level needs and features that gives the reader an overview of the final project deliverable(s). It includes information regarding the project scope, cost, time, and risks, as well as information such as milestones, deliverables, and project organization and approach. It is a document initiated by the business sponsor that formally authorizes the existence of the project and the project team and provides the Project Manager (PM) with the authority to use organizational resources to staff project activities. The final responsibility for the quality of the Project Charter lies with the Project Manager (PM).
PM2 Methodology Guide, Version 3.1
I’d argue that you could skip content on project risks and the budget, as this will be covered in the business case, but it’s up to you (or your PMO template).
PRINCE2 calls these Project Briefs.
Here are the key things a charter typically contains:
- Project purpose and justification: why are we doing this?
- High-level scope: what’s in, what’s out and/or a list of deliverables
- Named project sponsor and project manager
- High-level budget and project timeline, even a table of milestones will do
- Extract from the stakeholder register listing key individuals (or at least the departments impacted by the work)
- Assumptions, dependencies and constraints
- Formal sign-off / authorization i.e. someone approves the document.
You won’t have any info on resource allocation, the work breakdown structure or any of that detail, so don’t worry about including it.
A charter is often more formal in tone and structure than a ToR. It’s typically signed by someone senior. It’s a statement of intent and authority, not a working governance document.
Technically, it should be written by someone who is not the project manager, but in practice, you can normally count on your senior leaders to need your help to get it together. And if you’re using the PM2 methodology, then it’s firmly on your To Do list to get the document done.
Charters are typically a one-pager, or as short as possible! Some organizations have them as project posters, which is a nice option if your team is co-located and you can put it up on the wall.
Terms of reference explained
A ToR defines how a group works, what it’s responsible for, and what authority it has. It’s primarily a governance document, it’s about people and process rather than project justification.
It’s a really versatile document. You can have a ToR for a steering group, a workstream, a change advisory board, a program board. A ToR can exist without a project charter, and vice versa.
Read this next: How to write a Terms of Reference (includes a free template!).
‘Terms of Reference’ isn’t a phrase you’ll find in the
PM2 also has no reference to Terms of Reference.
Where they overlap and why people get confused
I think part of the challenge of using a ToR is that of the 3 project management frameworks/methodologies I’ve looked at (PRINCE2, the
Running a meeting or defining what a committee should do is the perfect use case for a ToR but that’s not a project management-specific job, so the guidance doesn’t cover it.
So, let’s review. Both documents can contain:
- Project objectives and scope (pull this from the business case to save writing it again)
- Roles and responsibilities
- Stakeholder information
- Some level of governance or decision-making process
In some organizations, the project charter has grown over time to absorb what would traditionally be ToR content, particularly roles, responsibilities, and governance. In others I’ve seen the ToR is used at project initiation in place of a charter. And in fact, I have done this, to define workstreams within a larger project and where it helped the team see what they were responsible for.
The practical difference
So where does that leave us in the charter vs terms of reference debate? Here’s a simple way to look at it.
A project charter says: this project is authorized, here’s what it’s for, here’s who’s in charge
A ToR operates one level down. It either defines how a governance group functions within the project, or scopes out a piece of work within a larger initiative. It assumes the project has already been authorized; it’s dealing with how things work inside it.
In other words, if the document is answering the question, “Why does this project exist and who’s sanctioned to run it?” then it’s a charter.
If it’s answering, “What is this group responsible for, or what is this workstream here to deliver?” then pull out your ToR template.
On a large program you could use both, and you’d expect several ToRs at different levels: like having one for the program board, one per workstream, possibly one for any specialist advisory or review groups.
When to use a project charter
You would use a project charter when:
- You need formal sign-off to start a project — particularly where resources, budget, or cross-functional commitment are needed
- You are working in a PMI or PMBOK-aligned environment where the charter is an expected artefact (sorry, some governance structures and PMOs mandate it!)
- The project needs visible executive authorization because the charter signals seriousness and gives you credibility as the project manager
- You’re starting something new and there’s no existing governance structure around it, because you have to have something that sets out what you’re doing, right?
Unsurprisingly, this document is created at the beginning of the project lifecycle.
I would also use a charter if you’re already worried about scope creep at this stage, because having it all written down will help you control it later.
When to use a terms of reference
You would use a terms of reference when:
- Setting up any recurring group or committee e.g. steering group, working group, review board
- Defining a workstream within a larger program or project
- A group has been running informally and needs to be formalized
- You need to document decision-making authority clearly like who can approve what and what happens when there is conflict or a voting tie
If you’re producing both, make sure they’re consistent. The scope in the steering group ToR should align with the scope in the charter. The decision-making authority in the ToR should make sense relative to what the charter has authorized. Otherwise your stakeholders are just going to get confused.
What if your organization uses the terms interchangeably?
If you’re anything like me, you’ll work with stakeholders who don’t have a great understanding of project management terminology. They could use the phrases interchangeably to mean the same thing.
My advice is: don’t get into a terminology argument. Find out what the document is actually supposed to do in your context: is it authorizing the project, or governing a group? Or do they actually mean a Project Initiation Document that is completely different again?!
When you know what they think they want, you know what you’re supposed to be writing.
Your next steps
Honestly, what you call it matters less than getting the content right. Whether your organization calls it a charter or a ToR (or something else), what matters is that someone has written down what the project is for, who’s in charge, and how decisions get made, and that the people involved have agreed to it.
Save it to a shared drive, Teams or link to it somewhere in your project management software so everyone can see it.
If you’re building out your project governance documents, the terms of reference template is a good starting point. And if you need more help, book a power hour call.
