Track: Doctoral Dissertation Competition

Abstract

Project management in practice has grown very fast in recent years, and the risks managers face become much more complexed. As project complexity increases, the randomness of project completion time makes it more difficult for manufacturers to incentivize suppliers. In this paper, we consider a situation when a manufacturer outsources two parallel tasks to two different suppliers, because of the randomness of the project completion time, one supplier will often complete the project earlier (faster) and one will complete the project later (slower). Based on this, we propose two different dimensions of the incentive mechanism: one concerns the faster supplier and the other concerns the slower supplier. We obtain nine kinds of contracts that a manufacturer can offer to suppliers by combining these two dimensions, and different payment schemes manufacturer can offer to the suppliers are included in our analysis. Suppliers’ optimal work rates are determined and compared among the nine contract types.

Keywords
Project Management, Incentive Contracts, Parallel Tasks, Delayed Payment Scheme, Stochastic Completion Time.