Hidden inefficiency: strategic inflation of project schedules

Matej Lorko, Maroš Servátka and Le Zhang

MPRA Paper from University Library of Munich, Germany

Abstract: Establishing realistic project plans and completing the resulting business projects on schedule is crucial for organizations striving to effectively utilize their resources. However, incentivizing on-time project delivery may result in moral hazard, as people could respond to estimation accuracy incentives by strategically inflating duration estimates and subsequently prolonging project execution. While the project is delivered on time, the resources are underutilized. We conjecture that the possibility of moral hazard can be mitigated by introducing speed incentives in addition to the schedule accuracy incentives. We conduct a diagnostic test of the effect of accuracy and speed incentives on the process of project estimation and delivery. Our study presents direct empirical evidence that the incentive structure rewarding solely the estimation accuracy can result in hidden inefficiency due to inflated estimates and deliberately slower project execution. However, when speed incentives are implemented alongside estimation accuracy incentives, the estimates are significantly lower and the project is completed more quickly, without compromising the schedule accuracy or output quality. Aligning the objectives of a project owner with those of planners, by incentivizing the planners for both estimation accuracy and quick project completion, fosters more compressed but still accurate and reliable project schedules, and accelerated project delivery.

Keywords: project management; project planning; time management; duration estimation; moral hazard (search for similar items in EconPapers)
JEL-codes: C91 D82 D83 O21 O22 (search for similar items in EconPapers)
Date: 2022-10-15
New Economics Papers: this item is included in nep-exp and nep-ppm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/115047/1/MPRA_paper_115047.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/115759/1/MPRA_paper_115047.pdf revised version (application/pdf)

Related works:
Journal Article: Hidden inefficiency: Strategic inflation of project schedules (2023)
Working Paper: Hidden inefficiency: Strategic inflation of project schedules (2022)
Working Paper: Hidden inefficiency: Strategic inflation of project schedules (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:115047

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().