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Task Interdependence, Uncertainty, and Incentive Metrics for Team Projects

34 Pages Posted: 12 May 2010 Last revised: 16 Jul 2016

Jeremy Hutchison-Krupat

University of Virginia - Darden School of Business

Stelios Kavadias

University of Cambridge - Judge Business School

Date Written: April 20, 2016

Abstract

Strategic projects are mostly executed by teams of specialists, each of whom are responsible for the completion of specialized, uncertain, and, in many cases, interdependent tasks, i.e. a challenging triad. Unfortunately, senior management can rarely determine, or verifiably measure, the true effort specialists commit to their tasks. Therefore, the organizational context within which projects are executed assumes greater importance. In particular, the type of incentives, and the metrics upon which incentive compensation is based. We compare incentives based on either the technical performance or the overall profit, at either the individual or the team/project level. The choice of metric requires senior management to balance the precision with which a metric approximates a specialist’s true effort, with their aspiration to align the specialists’ objectives to the those of the organization; and, at the same, time minimize the specialists' propensity to free-ride. We map the optimal choice of incentives to the properties of a project to establish an insightful 2x2 managerial framework.

Keywords: incentives, metrics, interdependence, project management

JEL Classification: D23, J33, M52, M54, O31, O32

Suggested Citation

Hutchison-Krupat, Jeremy and Kavadias, Stelios, Task Interdependence, Uncertainty, and Incentive Metrics for Team Projects (April 20, 2016). Available at SSRN: https://ssrn.com/abstract=1604727 or http://dx.doi.org/10.2139/ssrn.1604727

Jeremy Hutchison-Krupat (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Stylianos Kavadias

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, Cambridgeshire CB2 1AG
United Kingdom

HOME PAGE: http://www.jbs.cam.ac.uk/research/kavadiass.html

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