Abstract
Incentives for individual engineers in New Product Development (NPD) projects have been under-studied in research and neglected in practice.
This paper investigates the impact of individual incentives on project outcomes and development times in a game theoretic setting: A variety of widely used NPD project setups, including heavyweight project management, have unintended incentive effects that encourage late design changes and weak cost compliance, reducing the product's profit or competitiveness.
Providing specifically designed incentives for individuals can eliminate the need for late design changes and improve cost compliance. This article discusses several ways of providing such individual incentives, including linear contracts, Bayesian mechanisms, 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.