Bad governor; No.
Air in fuel; Maybe.
Poor set-up; Probable.
If hunting RPM at idle and certain the racks, control tubes and control rods are not binding or rubbing on anything. Know solid the injector racks and timing are perfect, then it could just be an idle buffer adjustment.
On the stb side of the governor box (follow your throttle cable to the correct box) is your idle buffer screw with lock-nut, using 3/8 & 9/16 open end wrenches, back that screw out 3 - 4 turns.
Set you idle as best as you can,, aiming for 15RPM less than your spec in the middle.
If the idle will not settle down to less than 100RPM total swings (up&down), something is binding. It does not take much.
It should settle down to <50RPM swings as the engine gets warmer.
Don't goose or rev up the engine.
If all good, screw in that buffer screw slowly, when it makes contact the RPM swings should just start reducing it self.
If your are wanting to idle at 600RPM warm, screw in that buffer screw until it swings averaging 590RPM. If needed, go back and adjust your idle to 590.
Then adjust that buffer screw until that smooth 600 settles in.
600rpm above is my example. You may want fast or slower but it's the same. Once that spring at the end of the idle buffer screw touches the internal throttle controller, 10 and no more than 15 RPM can be added to the final idle speed with the buffer screw.
I recall the book states 25RPM max. I have found that old engines don't recover well during docking maneuvers then.
Also the book assumes a fresh buffer spring at the end of that screw.
Do you have any pressure or vacuum gauges on your engines or fuel systems?
Good tools chasing air in fuel issues.
If your flow scans are not steady under load at higher RPM, there is another problem.
Lets us know how that works out.