Cost overruns are a common feature of projects and studies of major construction projects show that nine out of ten have significant cost overruns, while cost overruns above 100 percent are quite common. How can projects be managed, such that such cost overruns are minimized?
Managing often hundreds of suppliers or subcontractors is an enormously difficult task, necessitating much focus on coordination and monitoring in a context where parties often have not worked together, lack shared understanding or rules, and where there is a great need to get up to speed quickly. Starting from this coordination and monitoring challenge, we study, in the context of 429 completed construction projects, how duration of the project and reliance on prior ties relate to selection criteria and pricing.
We find that selection and pricing that are reflective of key characteristics of the project, including the size of the project, duration, the type of customer etc. are best at reducing a significant part of the cost overruns observed. We also show that simple managerial heuristics, such as only relying on price-based selection or deploying fixed pricing, are unlikely to be effective in minimizing cost overruns.
A lot of marketing activity is embedded in projects. Yet, managing a large set of suppliers or subcontractors is an enormously difficult task in a project context where parties often have not worked together, lack shared understanding or rules, and where there is a great need to get up to speed quickly. These slides discuss how value can be generated through projects.
Many marketing transactions between buyers and suppliers involve short-term collaborations or so-called temporary organizations. Such organizations have considerable value-creation potential but also face challenges, as evidenced by their mixed performance records. One particular challenge involves relationship governance, and in this respect, temporary organizations represent a conundrum: On the one hand, they pose significant governance problems due to the need to manage numerous independent specialists under time constraints. On the other hand, temporary organizations lack the inherent governance properties of other organizational forms such as permanent organizations. The authors conduct an empirical study of 429 business-to-business construction projects designed to answer two specific questions: First, how are particular selection and pricing strategies deployed in response to monitoring and coordination problems? Second, does the joint alignment between the two mechanisms and their respective attributes help mitigate cost overruns? The authors follow a formal hypothesis test with a series of in-depth interviews to explore and to gain insight into the validity of the key constructs, explanatory mechanisms, and outcomes. Managerially, the authors answer the long-standing question of how to mobilize a temporary organization. Theoretically, they develop an augmented “discriminating alignment” heuristic for relationship management involving multiple governance mechanisms and attributes.
Journal of Marketing, Volume 85, Issue 4, March 2021, Pages 85–104
Erik Mooi is professor in Marketing at the University of Melbourne. His research has explored inter-firm agreements and innovation and has considered for example the role of formal contracting in reducing IT problems from occuring, the impact of the design of technology agreements on investors' reactions and stock prices, and the role of enforcement in bringing about desired improvements in IT procurement.His work has also focused on how projects can de configured or shaped for innovation.