34 Pages Posted: 12 May 2010 Last revised: 16 Jul 2016
Date Written: April 20, 2016
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: 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