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Incentive contract design for projects: The owner's perspective
Kerkhove, Louis-Philippe Vanhoucke, Mario
Kerkhove, Louis-Philippe
Vanhoucke, Mario
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Publication Type
Journal article with impact factor
Editor
Supervisor
Publication Year
2016
Journal
Omega - International Journal of Management Science
Book
Publication Volume
62
Publication Issue
July
Publication Begin page
93
Publication End page
114
Publication Number of pages
Collections
Abstract
Due to the adoption of more and more complex incentive contract structures for projects, designing the best contract for a specific situation has become an increasingly daunting task for project owners. Through the combination of findings from contracting literature with knowledge from the domain of project management, a quantitative model for the contract design problem is constructed. The contribution of this research is twofold. First of all, a comprehensive and quantitative methodology to analyse incentive contract design is introduced, based on an extensive review of the existing literature. Secondly, based on this methodology, computational experiments are carried out, which result in a set of managerial guidelines for incentive contract design. Our analysis shows that substantial improvements can often be attained by using contracts which include incentives for cost, duration as well as scope simultaneously. Moreover, nonlinear and piecewise linear formulae to calculate the incentive amounts are shown to improve both the performance and robustness across different projects.
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Keywords
Incentives, Contracting, Project Management, Decision Making, Strategy