Puzzles in software development contracting

Lichtenstein, Yossi

doi:10.1145/966389.966391

Cited by 50 publications

(31 citation statements)

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“…In contrast, project size attributes, such as price and duration, are easily observed. Managers thus frequently base their contract choices solely on project size attributes (Lichtenstein, 2004). The reasoning and findings of our contracting-cost mediation model suggest that managers should pay more attention to project detail and vendor familiarity in making contract choices.…”

Section: Implications and Limitationsmentioning

confidence: 89%

“…Research on software development outsourcing similarly distinguishes between FP contracts, in which the price for delivery is prespecified, and T&M contracts, in which the vendor is reimbursed for its costs plus a predetermined profit (Banerjee & Duflo, 2000;Gopal et al, 2003;Lichtenstein, 2004;Whang, 1992).…”

Section: Contract Choice In Software Development Outsourcingmentioning

confidence: 99%

“…The choice of contractual mechanism, typically between fixed-price (FP) and time-and-materials (T&M) contracts, encapsulates important economic and organizational aspects of software development outsourcing (Kautz, 2009;Lichtenstein, 2004). From an economic standpoint, these two contract types allocate risk very differently.…”

Section: Introductionmentioning

confidence: 99%

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Why project size matters for contract choice in software development outsourcing

Fink

Lichtenstein

2014

SIGMIS Database

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Abstract:The contractual mechanism of software development outsourcing, typically either fixedprice (FP) or time-and-materials (T&M), determines the nature of incentives, risk sharing, and coordination between client and vendor. While software engineering considers project size as crucial for project planning and success, neither economic nor organizational theory considers size per se among the determinants of contract choice. In this paper, we address the gap between the centrality of project size in the software engineering literature and the attention it receives in software contracting research by modeling and testing the association between project size and contract choice. Existing empirical evidence indicates that FP contracts are appropriate for small development efforts whereas T&M contracts are suitable for larger projects, based on the reasoning that cost and schedule are difficult to estimate in larger projects. This prediction that size is directly associated with contract choice is the basis upon which two models are developed. The first model draws on the contracting efficiency approach to hypothesize that the effect of project size on contract choice is mediated by project detail. The second model draws on the contingency approach to software development risk management to hypothesize that the effect of project size on contract choice is moderated by project detail and vendor familiarity. We test these models using a large portfolio of software development contracts entered into by a leading European bank, and the results confirm that both mediation and moderation are at play. Powered by Editorial Manager® and ProduXion Manager® from Aries Systems Corporation Powered by Editorial Manager® and ProduXion Manager® from Aries Systems Corporation 1 Why Project Size Matters for Contract Choice in Software Development Outsourcing AbstractThe contractual mechanism of software development outsourcing, typically either fixed-price (FP) or time-and-materials (T&M), determines the nature of incentives, risk sharing, and coordination between client and vendor. While software engineering considers project size as crucial for project planning and success, neither economic nor organizational theory considers size per se among the determinants of contract choice. In this paper, we address the gap between the centrality of project size in the software engineering literature and the attention it receives in software contracting research by modeling and testing the association between project size and contract choice. Existing empirical evidence indicates that FP contracts are appropriate for small development efforts whereas T&M contracts are suitable for larger projects, based on the reasoning that cost and schedule are difficult to estimate in larger projects. This prediction that size is directly associated with contract choice is the basis upon which two models are developed. The first model draws on the contracting efficiency approach to hypothesize that the effect of project size on contract choice is mediat...

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Section: Implications and Limitationsmentioning

confidence: 89%

Section: Contract Choice In Software Development Outsourcingmentioning

confidence: 99%

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Why project size matters for contract choice in software development outsourcing

Fink

Lichtenstein

2014

SIGMIS Database

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“…Ang & Beath, 1993;Banerjee & Duflo, 2000;Banker & Kemerer, 1992;Richmond & Seidelmann, 1993;Richmond, Seidmann, & Whinston, 1992;Wang, Baron, & Seidmann, 1997;Whang, 1992) describe features of contracts, contract types and pricing structures and investigate their economical role, but do not relate them to actual systems development practice. Lichtenstein and McDonnell (2003) and Lichtenstein (2004) are an exception. Considering software development as outsourcing and based on an economical perspective they formulate a number of hypotheses about the relationship between frequency of milestones, project risk, uncertainty and price structure as determined in systems development contracts, but they do not obtain any clear results.…”

Section: Introductionmentioning

confidence: 98%

Principals, Agents and Prisoners: An Economical Perspective on Information Systems Development Practice

Kautz

Nielsen²

2006

IISIT

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Information systems development takes place within an economical context. However, the economical conditions, which shape systems development in practice, are hardly researched. In this paper we are investigating the question how a given price structure influences systems development projects. Our analysis is based on a multi case study and a Grounded Theory inspired research approach. Our work is informed by economic theories, which deal with the relationship of suppliers and customers and their mutual dependency. We thus apply principal-agent theory and economic game theory in form of the prisoner's dilemma. As a result we provide three interlinked models for understanding the impact of pricing structure on systems development practice. The main elements of these models are pricing structure, risk distribution and price level, and opportunistic behavior. We discuss how these elements are interrelated and examine their impact on information systems development in practice.

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“…According to Kerzner [5], research and analyses of projects completed based on outsourcing should consider the relations between the client and the supplier. We need to indicate, following Lichtenstein [6], that there is a partial incompatibility of interest between the client and the supplier, manifesting itself in a clear contradiction between the maximization of the supplier's profit and the client's wish to complete the project at the lowest possible cost. My research [2] has confirmed Lichtenstein's observations-the goals and interests of a client and a supplier implementing an IT project are partially contradictory.…”

mentioning

confidence: 99%

Critical Success Factors in IT Projects–From the Practice of Polish Clients

Wachnik

2017

Annals of Computer Science and Information Systems

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Abstract-The article presents research results concerning critical success factors in IT projects consisting in ERP, CRM, BI and DM system implementations, completed between 2013 and 2017. The research stems from the need to update knowledge concerning critical success factors in projects completed in commercial enterprises. The research was carried out in medium and large enterprises implementing outsourcing-based projects. The research was conducted on five types of IT projects: standard implementation, upgrade, re-implementation, roll-out and implementation of a standard system with an add-on. The article will help better understand the influence of critical success factors on the implementation of IT projects during the whole project life cycle. I. INTRODUCTIONHE article belongs to a cycle [1] [2] of publications concerning critical success factors in IT projects consisting in the implementations of ERP, CRM, BI and DM management information systems completed based on outsourcing, defined by Auksztol [3] as a contract with an external body or internal organizational unit, set up in order to obtain IT services along with the supporting HR management, resource management and processes. The article presents the most recent research results on Critical Success Factors (CFSs) in Poland in the group of ERP, CRM, BI and DMS implementations in enterprises, thus updating Soja's research conducted in the group of ERP [4] system implementations. During the research, two important assumptions were made, differentiating this study from others:

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Puzzles in software development contracting

Abstract: Current outsourcing practices are relatively unsophisticated in comparison with the techniques prescribed by economic theory. Customers end up bearing all long-term risk, and vendors have no direct incentive to achieve long-term system effectiveness

Cited by 50 publications

References 9 publications

Why project size matters for contract choice in software development outsourcing

Why project size matters for contract choice in software development outsourcing

Principals, Agents and Prisoners: An Economical Perspective on Information Systems Development Practice

Critical Success Factors in IT Projects–From the Practice of Polish Clients

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