Naturally, a good contextual understanding offers many benefits; however, each one is easier to talk about than to achieve.
Minimizes negative conflict and fosters positive conflict. The reason is that project managers will have a good knowledge of the circumstances facing them. If smart, they will encourage positive conflict early to reveal what is and is not important, such as when developing the project charter and planning.
Greater teaming becomes a likely result. Good contextual understanding enables stakeholders as well as project managers to have a realistic appraisal of circumstances and assumptions. This understanding is very important because if something important in the context is not revealed up front, it could prove very costly later during the life cycle.
Better communication. A thorough understanding of project context relies heavily on effective communication among all the stakeholders, especially the important ones. It is safe to state that without good communication, project managers cannot acquire a good contextual understanding. The opposite is also the case.
Results in better coordination downstream in the project life cycle. Project managers and other stakeholders will have a good understanding of circumstances and can respond accordingly and rather reactively.
Enables better decision making. Project managers can make better decisions because they can discern what is and is not important. They will also have more data and information to make decisions.
Allows for more ownership and commitment by all stakeholders on a project. To gain understanding, project managers will need to interact with key stakeholders and work with them to obtain the necessary information. This interaction will, naturally, engender even more commitment and ownership later.
Gives others a greater sense of direction. Everyone will understand what is within the scope and will recognize how their actions add or deviate from scope. Hence, a side benefit is that it provides everyone with more focus.