Impacts of uncertain project duration and asymmetric risk sensitivity information in project management

Yang, Kai; Zhao, Ruiqing; Lan, Yanyan

doi:10.1111/itor.12156

Cited by 37 publications

(21 citation statements)

References 41 publications

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“…Using the framework of principal-agent theory, they investigate the impacts of information asymmetry on the optimal compensation contracts and the firm's profit. (K. Yang et al, 2016) investigates the impacts of uncertain project duration and asymmetric risk sensitivity information on the structure of the incentive contracts in a project with a risk-neutral project manager and a risk-averse contractor. In their problem, the project manager can offer a duration-based incentive contract to the contractor to ensure that he invests his best effort to shorten the project duration and reveals his risk sensitivity information truthfully.…”

Section: Incentive Contracts Under Information Asymmetrymentioning

confidence: 99%

A Decision Support Contract for Cost-Quality Trade-Off in Projects under Information Asymmetry

Hosseini¹

2020

IJBM

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The three key drivers of a project success include cost, completion time, and scope, the interplay of which have a significant impact on the decision making in project management. In this study, we propose a theoretical framework to be used as a Project Management Decision Support System for understanding and balancing the interplay between the project cost and quality, which is a key component of the project scope. To this end, we develop a Decision Support Contract (DSC) for a project manager when outsourcing to a contractor whose delivery outcome is subject to quality risk. On the one hand, to reduce the risk of project failure, the contractor can invest in a quality improvement effort, the cost of which is the contractor's private information. On the other hand, the contractor's decision on quality improvement is unobservable to the project manager. In designing the DSC, we consider both problems resulting in information asymmetry between the project manager and the contractor. We first obtain the first-best solution assuming that the cost efficiency of the contractor is publicly known, and then solve for the second-best optimal cost plus incentive fee (CPIF) contract under information asymmetry. Our comparative study between the first-and second-best contracts reveals that the project manager may prefer to incur efficiency loss due to underinvestment decision by the high-cost contractor to reduce the information rent demanded by the low-cost contractor. Finally, we compare the effectiveness of CPIF contract to that of fixed-price contract, which enables us to characterize the value of incentive fee term for the project manager. This latter analysis reveals that incentive-fee term is more valuable when the improvement effort is more likely to reduce the quality failure risk.

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Section: Incentive Contracts Under Information Asymmetrymentioning

confidence: 99%

A Decision Support Contract for Cost-Quality Trade-Off in Projects under Information Asymmetry

Hosseini¹

2020

IJBM

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“…Li et al (2008) study airlines' optimal seat allocation for multiple fare classes given a differential cost structure of the competing airlines, and compare the competitive equilibrium with the possibility of collusion between airlines. Yang et al (2016) investigate the impact of uncertain project duration and asymmetric information about contractors' risk preferences on a project manager's optimal design of incentive contracts. None of these studies, however, extended the newsvendor model into a vertically related multilayer newsvendors setting as we do in this paper.…”

Section: Related Literaturementioning

confidence: 99%

“…Cakanyıldırım et al (2012) present an adverse selection model to analyze channel coordination with menu contracts to induce self-selection under asymmetric information, and they show that the optimal contract offered by the retailer depends on the size of the outside market that the retailer may serve. Yang et al (2016) investigate the impact of uncertain project duration and asymmetric information about contractors' risk preferences on a project manager's optimal design of incentive contracts. They find that the more volatile the project duration and the more risk averse the contractor is, the optimal incentive contract will lean more toward risk sharing relative to incentive provision, and also the project manager would be more willing to acquire information on contractors' risk preferences.…”

Section: Related Literaturementioning

confidence: 99%

Does uncertainty spread vertically? A theory of multilayer newsvendors under asymmetric information

Yang

Liu

Lamb

2019

Int Trans Operational Res

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Using a vertically related multilayer newsvendors framework, this paper analyzes the impacts of market uncertainties and asymmetric information between firms at successive stages of a supply chain on their optimal stocking (and/or pricing) decisions. The asymmetric information along the supply chain effectively transmits the downstream uncertainty backward to the preceding stages of the supply chain. Our results imply that for industries in which there are lead times and asymmetric information in multiple successive stages along the supply chain, it is essentially important for the upstream firms to study the market conditions facing the vertically related downstream firms, and it is important for them to design incentive-compatible mechanisms to facilitate efficient information sharing among vertically related entities. In these industries, the entities might also have stronger incentives to invest in lead time reduction and in information acquisition, if such options exist. Our framework offers a good starting point for a more comprehensive study in the future on the interactions among and the impact of differential lead times across successive stages in supply chains.

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“…Kolisch and Padman () have shown that not only makespan has been considered as objective in the RCPSP literature, but revenues, costs, resources leveling, and even uncertain project duration (Yang et al., ) impact project managers' (PMs) decisions. As they want to finish projects as soon as possible with maximum net present value (NPV) and minimum resource utilization levels, the RCPSP becomes an inherently multiobjective problem (Ballestín and Blanco, ).…”

Section: Introductionmentioning

confidence: 99%

“…The RCPSP has traditionally been solved as a single-objective problem with makespan as the most widely applied objective (e.g., Pritsker et al, 1969;Alcaraz and Maroto, 2001;Tormos and Lova, 2001;Hartmann and Briskorn, 2010;Kopanos et al, 2014;Koulinas et al, 2014). Kolisch and Padman (2001) have shown that not only makespan has been considered as objective in the RCPSP literature, but revenues, costs, resources leveling, and even uncertain project duration C (Yang et al, 2015) impact project managers' (PMs) decisions. As they want to finish projects as soon as possible with maximum net present value (NPV) and minimum resource utilization levels, the RCPSP becomes an inherently multiobjective problem (Ballestín and Blanco, 2011).…”

Section: Introductionmentioning

confidence: 99%

A lexicographic approach to the robust resource‐constrained project scheduling problem

Palacio

Larrea

2016

Int Trans Operational Res

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The resource-constrained project scheduling problem (RCPSP) is one of the most studied problems in the context of project scheduling. Given the NP-hardness nature of the problem, the RCPSP has been solved mainly using heuristics. Moreover, most of the studies consider a single objective for the problem. This paper presents an exact approach based on two mixed-integer linear programming (MILP) models to solve the RCPSP. The first MILP aims to minimize makespan, while the second MILP maximizes the robustness of the schedule. The mathematical formulations are solved using a lexicographic approach. We illustrate the effectiveness of the proposed models by solving standard instances for the RCPSP available in the project scheduling problems library (PSLIB) library. Computational results show that it is possible to find alternate optimal solutions with the maximum robustness subject to the minimum makespan for instances with up to 90 activities.

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Impacts of uncertain project duration and asymmetric risk sensitivity information in project management

Cited by 37 publications

References 41 publications

A Decision Support Contract for Cost-Quality Trade-Off in Projects under Information Asymmetry

A Decision Support Contract for Cost-Quality Trade-Off in Projects under Information Asymmetry

Does uncertainty spread vertically? A theory of multilayer newsvendors under asymmetric information

A lexicographic approach to the robust resource‐constrained project scheduling problem

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