Hidden inefficiency: Strategic inflation of project schedules

Matej Lorko, Maroš Servátka*, Le Zhang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

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. 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.

Original languageEnglish
Pages (from-to)313-326
Number of pages14
JournalJournal of Economic Behavior and Organization
Volume206
Early online dateJan 2023
DOIs
Publication statusPublished - Feb 2023

Keywords

  • Duration estimation
  • Moral hazard
  • Project management
  • Project planning
  • Time management

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