Formularising two-stage target-cost arrangements for use in practice

2016 ◽  
Vol 9 (1) ◽  
pp. 147-170 ◽  
Author(s):  
Pertti Lahdenperä
Keyword(s):  
Service Provider ◽  
Cost Efficiency ◽  
Design Methodology ◽  
Development Process ◽  
Two Stage ◽  
Content Type ◽  
Target Cost ◽  
Third Stage ◽  
The Cost ◽  
Practical Feasibility

Purpose – Early involvement of the project team with the construction resources seems to be gaining popularity as it aims to improve the cost efficiency of a project as there is significantly more potential to influence the project solution at that point in time. The missing price during early involvement/selection and the principal-agent setting, however, tend to leave the project owner in doubt of the reasonableness of pricing when it is fixed only later after the joint design phase involving the service provider and the owner. The purpose of this paper is to find a solution for this challenge. Design/methodology/approach – A two-stage target-cost (2STC) arrangement has been proposed as the solution. In this model the service provider earns a bonus by suggesting a lower target cost than the reference set at the time of the involvement of the provider. The amount of bonus also impacts the cost over-run risk transferred to the service provider to avoid overly optimistic promises. Besides the initial conceptualisation of the idea, earlier research has also produced a framework for developing and assessing alternative formulations of the 2STC model. By means of mathematical modelling and optimisation and critical review the work seeks to provide formulations that meet the set requirements. Findings – The study establishes concrete formulations that are believed to function as intended with certain reservations. Two potential mechanisms, the constant and variable share models, are generated and presented, and recommendations are given for their use in practice. In the former, the extent of cost efficiency improvement in the development phase has no impact on percentage shares, but in the latter the service provider’s relative development bonus and share of cost over-runs are the bigger, the bigger the improvement. Research limitations/implications – The study suggests piloting the formulations in carefully selected projects in order to discover their practical feasibility. Originality/value – The 2STC model is a unique concept and no comparable construct is known to exist. The study produced concrete formulations for a 2STC construct while ensuring and illustrating their functioning to avoid surprises in their use. The study presented in this paper forms the third stage in the overall 2STC development process focussed on benefiting project owners and the industry.

Preparing a framework for two-stage target-cost arrangement formulation

2016 ◽  
Vol 9 (1) ◽  
pp. 123-146 ◽  
Author(s):  
Pertti Lahdenperä
Keyword(s):  
Service Provider ◽  
Development Process ◽  
Cost Effective ◽  
Two Stage ◽  
Content Type ◽  
Investment Projects ◽  
Second Stage ◽  
Target Cost ◽  
The Cost ◽  
Concrete Model

Purpose – Early involvement of the project team with the construction resources seems to be gaining popularity as it aims to improve the cost efficiency of a project as there is significantly more potential to influence the project solution at that point in time. The missing price during early involvement/selection and the principal-agent setting, however, tend to leave the project owner in doubt of the reasonableness of pricing when it is fixed only later after the joint design phase involving the service provider and the owner. The purpose of this paper is to find a solution for this challenge. Design/methodology/approach – A two-stage target-cost (2STC) arrangement has been proposed as the solution. In this model the service provider earns a bonus by suggesting a lower target cost than the reference set at the time of the involvement of the provider. The amount of bonus also impacts the cost over-run risk transferred to the service provider to avoid overly optimistic promises. The proposition encompassed just the basic idea, and did not really delve into actual model formulations and their functioning under practical realities. Therefore, the required work is presented here in the form of a conceptual, discursive study focusing on relevant theories and empirical findings from major investment projects. Findings – The study produces a requirement framework for the 2STC model to allow functioning models to be formulated and tested. The framework incorporates numerous requirements, constraints and a suggested path forward. For instance, while the model may not be manipulatable, it must incentivise the service provider to seek more cost-effective project solutions, be feasible also from the view of the project owner and adapt to various project risk profiles and ranges of efficiency improvements. Research limitations/implications – The study suggests more concrete model formulations to be provided under the guidance of the presented framework. Originality/value – The 2STC model is a unique concept and no comparable construct is known to exist. Besides the requirement framework, the study also strengthens the foundation of and need for the 2STC model by a thorough survey of its theoretical linkages. Accordingly, the study presented in this paper forms the second stage in the overall 2STC development process focused on benefiting project owners and the industry.

Investigating cost efficiency in the branch network of a Greek bank: an empirical study

2008 ◽  
Vol 34 (3) ◽  
pp. 160-171 ◽  
Author(s):  
Athanasios G. Noulas ◽  
Niki Glaveli ◽  
Ioannis Kiriakopoulos
Keyword(s):  
Regression Analysis ◽  
Commercial Bank ◽  
Cost Efficiency ◽  
Comparative Evaluation ◽  
Design Methodology ◽  
Future Research ◽  
Data Envelopment ◽  
Content Type ◽  
Dea Method ◽  
The Cost

PurposeThe purpose of this study is to examine the cost efficiency of 58 branches of a major Greek commercial bank, in six major Greek cities, for the years 2000 and 2001.Design/methodology/approachThe efficiency is measured through the data envelopment analysis (DEA) method. Using regression analysis, the effect of size on cost efficiency is also examined.FindingsThe results indicate that there is a room for substantial efficiency improvements. The average inefficiency is about 30 per cent. It has also been observed that rural branches tend, on average, to be more efficient than urban branches.Research limitations/implicationsA direction of future research would be to extend the analysis of determinants of bank branch efficiency in order to investigate the role that the region and the characteristics of the branch play in relation to efficiency.Originality/valueThe paper provides a comparative evaluation of the efficiency of 58 branches of a major Greek commercial bank using the DEA method.

Innovative sustainable methodology for managing in-house software development in SMEs

2018 ◽  
Vol 25 (3) ◽  
pp. 1085-1103 ◽  
Author(s):  
Abbas Tarhini ◽  
Manal Yunis ◽  
Abdul-Nasser El-Kassar
Keyword(s):  
Design Methodology ◽  
Development Process ◽  
System Development ◽  
Content Type ◽  
Agile Methodology ◽  
The Past ◽  
Database Technology ◽  
The Cost ◽  
Selection Of

Purpose The purpose of this paper is to present an innovative agile methodology that proposes fundamental changes in managing the development of in-house information systems in small- and medium-sized enterprises (SMEs) and benchmarks it with one of two database technologies enabling these systems to be both efficient and competitive. Design/methodology/approach The objectives are achieved by presenting an elaborated design of the agile methodology that manages the system development process by addressing three basic components: roles played by system players, process needed to fulfill the system development, and artifacts to document the project. A case study is conducted as a proof of the effectiveness of the proposed methodology and measures whether the selection of the database technology affects the effectiveness of the system development process. Findings Results show that, compared with traditional methodologies, the proposed methodology reduced the cost of system development and testing by 30 percent and enhanced the IT – business alliance. Further, this work found that the selection of a suitable database technology is strongly related to the complexity and interrelationships between the data used. Originality/value Such research did not receive the needed attention (Hunter, 2004) even in the past decade. Successful adoption of IT by companies could be in the form of customized IS which could be expensive for SMEs to adopt due to a lack in technical expertise and financial resources. The proposed methodology has the potential to promote sustainable development through helping SMEs in reducing the time and cost of IT project development.

An optimal target cost contract with a risk neutral owner

2014 ◽  
Vol 21 (5) ◽  
pp. 586-604 ◽  
Author(s):  
S. Mahdi Hosseinian ◽  
David G. Carmichael
Keyword(s):  
Design Methodology ◽  
Maximization Problem ◽  
Risk Averse ◽  
Content Type ◽  
Cost Uncertainty ◽  
Target Cost ◽  
Risk Neutral ◽  
Optimal Target ◽  
The Cost ◽  
Practical Implications

Purpose – Target cost contracts are commonly used to share the monetary outcome of work or a project. However, discussion is ongoing, as to what constitutes optimal sharing. The purpose of this paper is to examine optimal sharing and derives a result for defined risk assumptions on the owner (risk neutral) and contractor (risk-averse ranging to risk neutral). Design/methodology/approach – The derivation is based on solving a constrained maximization problem using ideas from principal-agent theory. Practitioners were engaged in a designed exercise in order to validate the approach and propositions. The influence of the contractor's level of risk aversion, the cost uncertainty and the contractor's effort effectiveness are examined. Findings – The paper shows that, at the optimum, the sharing ratio between contractor and owner needs to reduce and the fixed fee needs to increase when the contractor becomes more risk-averse, the level of the cost uncertainty increases, or the effectiveness of the contractor effort decreases. Practical implications – The paper's findings provide practitioners with a useful benchmark for outcome sharing in target contracts. Originality/value – Existing work on outcome sharing in target contracts is limited to being qualitative and anecdotal in nature. This paper extends existing knowledge by providing a quantitative treatment of optimal sharing.

An evaluation of German active labour market policies: a review of the empirical evidence

2018 ◽  
Vol 7 (4) ◽  
pp. 377-410 ◽  
Author(s):  
Moritz Zoellner ◽  
Michael Fritsch ◽  
Michael Wyrwich
Keyword(s):  
Labour Market ◽  
Cost Efficiency ◽  
Design Methodology ◽  
Success Rates ◽  
Active Labour Market Policy ◽  
Content Type ◽  
Market Policy ◽  
Active Labour Market Policies ◽  
Active Labour ◽  
Future Challenges

PurposeThe purpose of this paper is to review the results of studies that investigate the most important active labour market policy (ALMP) measures in Germany. A focus is also on programmes devoted to foster entrepreneurship which can make important contributions to a country’s growth and social welfare.Design/methodology/approachThe study relies on quantitative and qualitative assessments and a comparison of results of previous studies on ALMPs.FindingsThe available evidence suggests that most ALMP measures increase labour market prospects of the participants. In particular, evaluations of the entrepreneurship promotion activities show high success rates as well as high cost efficiency. The bulk share of participants of entrepreneurship measures is still self-employed after several years and nearly one-third of these businesses had at least one employee. The authors mention problems regarding the evaluation of previous programmes and highlight future challenges of German ALMP.Originality/valueThis is the first study on ALMP that has an extensive and explicit focus on entrepreneurship-promoting programs.

The prosocial leadership development process as a means to prepare the next generation of organizational leaders

2018 ◽  
Vol 26 (3) ◽  
pp. 225-237
Author(s):  
Timothy Ewest
Keyword(s):  
Social Justice ◽  
Leadership Development ◽  
Design Methodology ◽  
Development Process ◽  
Leadership Behaviors ◽  
Pedagogical Practices ◽  
Organizational Leaders ◽  
Content Type ◽  
Social Challenges ◽  
Practical Implications

Purpose This paper aims to outline the prosocial leadership development process for guiding pedagogical and social justice course goals as a means to foster prosocial leadership values within the millennial generation. Design/methodology/approach The paper is guided by a social justice framework and proven classroom pedagogies as a means to align millennial characteristics within the four stages of the prosocial leadership development process. Findings An educational rubric is provided as a means to guide classroom pedagogies, course goals and millennial characteristics through a prosocial leadership development process. Research limitations/implications The paper is conceptual in nature, and therefore, theoretical correspondence remains speculative. Practical implications The research in this paper provided guidelines for educators to use pedagogical practices as a means to develop prosocial values as a basis for organizational leadership behaviors. Social implications This leadership development process when facilitated through proven pedagogical techniques (guided by established social justice curriculum goals) and is within the context of millennial characteristics (those born between the years 1982 and 2005) becomes catalytic in empowering leaders to be a remedy for the world’s environmental and social challenges. Originality/value This paper connects characteristics of millennials to a prosocial leadership development model.

Autopilot design for an aircraft by using Luenberger observer design

2018 ◽  
Vol 90 (5) ◽  
pp. 858-868 ◽  
Author(s):  
Muhammad Taimoor ◽  
Li Aijun ◽  
Rooh ul Amin ◽  
Hongshi Lu
Keyword(s):  
Design Methodology ◽  
Research Work ◽  
Linear Quadratic Regulator ◽  
Observer Design ◽  
Linear Quadratic ◽  
Content Type ◽  
Luenberger Observer ◽  
Level Flight ◽  
Aerial Vehicle ◽  
The Cost

Purpose The purpose of this paper is to design linear quadratic regulator (LQR) based Luenberger observer for the estimation of unknown states of aircraft. Design/methodology/approach In this paper, the LQR-based Luenberger observer is deliberated for autonomous level flight of unmanned aerial vehicle (UAV) which has been attained productively. Various modes like phugoid and roll modes are exploited for controlling the rates of UAV. The Luenberger observer is exploited for estimation of the mysterious states of the system. The rates of roll, yaw and pitch are used as an input to the observer, while the remaining states such as velocities and angles have been anticipated. The main advantage of using Luenberger observer was to reduce the cost of the system which has been achieved lucratively. The Luenberger observer proposes sturdiness at the rate of completion to conquest over the turmoil and insecurities to overcome the privileged recital. The FlightGear simulator is exploited for the endorsement of the recital of the Luenberger observer-based autopilot. The level flight has been subjugated lucratively and has been legitimated by exploiting the FlightGear simulator. The authenticated and the validated results are offered in this paper. Microsoft Visual Studio has been engaged as a medium between the MATLAB and FlightGear Simulator. Findings The suggested observer based on LQR ensures the lucrative approximation of the unknown states of the system as well as the successful level flight of the system. The Luenberger observer is used for approximation of states while LQR is used as controller. Originality/value In this research work, not only the estimation of unknown states of both longitudinal and lateral model is made but also the level flight is achieved by using those estimated states and the autopilot is validated by using the FlightGear, while in most of the research work only the estimation is made of only longitudinal or lateral model.

Factors explaining a cost-based pricing essence

2019 ◽  
Vol 34 (8) ◽  
pp. 1850-1865
Author(s):  
Juliana Ventura Amaral ◽  
Reinaldo Guerreiro
Keyword(s):  
Design Methodology ◽  
Empirical Studies ◽  
Pricing Strategy ◽  
Company Size ◽  
Price Setting ◽  
Marketing Theory ◽  
Content Type ◽  
Industrial Companies ◽  
Five Factors ◽  
The Cost

Purpose Empirical studies have found that cost-based pricing remains dominant in pricing practice and suggest that practice conflicts with marketing theory, which recommends value-based prices. However, empirical studies have yet to examine whether cost-plus formulas represent the pricing approach or essence. Design/methodology/approach This study aims to address the factors that explain price setting whereby the cost-plus formula is not just the pricing approach but also the pricing essence. This examination is grounded in a survey conducted on 380 Brazilian industrial companies. Findings The results show that, for price-makers, the cost-based pricing essence is positively associated with four factors (two obstacles to deploying value-based pricing, company size and differentiation), but it is negatively related to one factor (premium pricing strategy). For price-takers, the cost-based pricing essence is positively associated with four factors (two obstacles to deploying value-based pricing, coercive isomorphism and use of full costs), but it is negatively related to five factors (one obstacle to deploying value-based pricing, company size, competitors’ ability to copy, normative isomorphism and experience). Originality/value The key contribution of this paper is demonstrating that cost-plus formulas do not go against the incorporation of competitors and value information. This study reveals that it is possible to set prices based on either value or competitors’ prices while simultaneously preserving the simplicity of the cost-plus formulas. Via the margin, firms may connect costs to information about competition and value. The authors also demonstrate the drawbacks of not segregating companies into price-makers and price-takers and an excessive focus on the pricing approach at the expense of pricing essence.

Stigmatized products: how conflicting laws can influence decisions to proceed

2020 ◽  
Vol 42 (1) ◽  
pp. 41-49
Author(s):  
Stephanie Geiger-Oneto ◽  
Betsy D. Gelb ◽  
Travis Simkins
Keyword(s):  
Design Methodology ◽  
State Legislatures ◽  
Strategic Decisions ◽  
Content Type ◽  
State Laws ◽  
Product Categories ◽  
Plastic Bags ◽  
Single Use ◽  
The Cost ◽  
Different Levels

Purpose The purpose of this paper is to offers the authors’ perspective on a problem rarely considered by those making strategic decisions: conflicting laws at different levels of jurisdiction, specifically those related to stigmatized products. Design/methodology/approach The authors use as examples of product categories from marijuana to single-use plastic bags, describing the conflicting laws that add to costs for marketers and consumers. Findings The authors find that conflicting laws add to the uncertainty, legal expenses, and therefore, the cost of marketing a stigmatized product, whether stigmatized because of its impact on the environment, on health or on moral grounds. Research limitations/implications The examples are not exhaustive, but their implications are significant: that as state legislatures are preempting local bans, Congress may preempt state laws. Originality/value This paper adds one more complexity to decision-making in the area of products to offer and/or merger/acquisition decisions that may bring company products that face conflicting laws.

Market concentration, diversification and bank performance in China and India

2016 ◽  
Vol 42 (10) ◽  
pp. 980-998 ◽  
Author(s):  
Thanh Pham Thien Nguyen ◽  
Son Hong Nghiem
Keyword(s):  
Cost Efficiency ◽  
Market Concentration ◽  
Two Stage ◽  
Profit Efficiency ◽  
Data Set ◽  
Content Type ◽  
Bootstrap Procedure ◽  
Chinese Banks ◽  
Using Data ◽  
Indian Banks

Purpose The purpose of this paper is to examine the operational efficiency and effects of market concentration and diversification on the efficiency of Chinese and Indian banks in the 1997-2011 period. Design/methodology/approach This study employs the two-stage bootstrap procedure of Simar and Wilson (2007) to obtain valid inferences on the efficiency scores and the efficiency determinants. Findings Using data set for each country separately, the authors found that the bias-corrected cost efficiency displays an upward trend in Chinese and Indian banks. This trend is consistent with profit efficiency among Chinese banks, but the trend is unclear in Indian banks. Market concentration is negatively related to cost and profit efficiencies of Chinese banks. However, market concentration is positively associated with cost efficiency, but unrelated to profit efficiency of Indian banks. In Chinese banks, diversification of revenue, earning assets and non-lending earning assets are associated with increasing profit efficiency, but their effects to cost efficiency are not clear. In Indian banks, diversification of earning assets increases profit efficiency while there are cost efficiency losses from diversification of revenue and earning assets. Practical implications Bank regulators and supervisors in China should consider establishing policies to reduce market concentration and encourage diversification of revenue, earning assets and non-lending earning assets, while increasing concentration and diversification of earning assets should be encouraged in Indian banks. Originality/value To the best of the authors’ knowledge, this is the first study employing the double bootstrap procedure proposed by Simar and Wilson (2007) which can address the problem of the two-stage data envelopment analysis or SFA estimator in the efficiency literature on Chinese and Indian banks that efficiency scores obtained in the first stage are inter-dependent, and hence violating the basic assumption in regression analysis in the second stage.

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