A bonus-malus approach to project management

Abstract

This paper concentrates on the management of delayed projects charged with penalty costs and of expedited projects rewarded with bonuses, based on an activity graph description of the projects. We propose a two-stage heuristic procedure to assist project managers to determine “fair” shares of penalties or compensations for agents involved when information regarding the project’s schedule and its actual execution is available. Incentives for better performance play a key role in this procedure, which combines a “bonus-malus” approach with a rationing approach. In the first stage, activities’ deviations from the schedule are computed using heuristic algorithms which implement incentives for better performance according to two alternative scenarios. In the second stage, the deviations of activities computed according to the chosen scenario are adjusted using well-known rules from the literature on rationing problems. A new family of compensations-penalties solutions, called Mutual Help Solutions, is introduced and illustrated.