Incentives in new product development projects and the role of target costing

Incentives in new product development projects and the role of target costing

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Article ID: iaor20105825
Volume: 56
Issue: 8
Start Page Number: 1324
End Page Number: 1344
Publication Date: Aug 2010
Journal: Management Science
Authors:
Abstract:

This paper investigates how self-optimizing engineers affect new product development (NPD) project outcomes and development times. A variety of widely used NPD project management approaches, including heavyweight project management, may allow or even encourage engineers to introduce late design changes and exhibit weak cost compliance, reducing the product's profit or competitiveness. Providing specifically designed incentives for individuals can eliminate such encouragement, and thus improve cost compliance and project timeliness. This paper discusses several practical incentive schemes, including profit-sharing contracts and component-level target costing. For many industrial projects, component-level target costing makes the most efficient use of available information to optimize project outcomes and reduce development times.

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