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Sourcing decisions of project tasks with exponential completion times: Impact on operating profits

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  • Dharma Kwon, H.
  • Lippman, Steven A.
  • Tang, Christopher S.
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    Abstract

    When managing a project, a firm must evaluate multiple strategic factors and operational issues before deciding which tasks to keep in-house and which to outsource. We focus on one operational aspect of this evaluation process by examining the impact of different sourcing decisions of project tasks with exponential completion times on operating profits. As an initial attempt, we present two stylized models that capture two simplest types of projects: (a) a project with two "parallel" tasks that can be performed simultaneously and (b) a project with two "serial" tasks that must be performed sequentially. For each model, we determine the optimal operating profit for the case when the firm outsources zero task, one task, or two tasks. These operating profits can be informative for making sourcing decisions of different project tasks.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Journal of Production Economics.

    Volume (Year): 134 (2011)
    Issue (Month): 1 (November)
    Pages: 138-150

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    Handle: RePEc:eee:proeco:v:134:y:2011:i:1:p:138-150

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    Web page: http://www.elsevier.com/locate/ijpe

    Related research

    Keywords: Project management Sourcing decisions Stackelberg game;

    References

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    1. Bartel, Ann P. & Lach, Saul & Sicherman, Nachum, 2008. "Outsourcing and Technological Innovations: A Firm-Level Analysis," IZA Discussion Papers 3334, Institute for the Study of Labor (IZA).
    2. Kamburowski, Jerzy, 1985. "An upper bound on the expected completion time of PERT networks," European Journal of Operational Research, Elsevier, vol. 21(2), pages 206-212, August.
    3. De, Prabuddha & James Dunne, E. & Ghosh, Jay B. & Wells, Charles E., 1995. "The discrete time-cost tradeoff problem revisited," European Journal of Operational Research, Elsevier, vol. 81(2), pages 225-238, March.
    4. Weidenbaum, Murray, 2005. "Outsourcing: Pros and cons," Business Horizons, Elsevier, vol. 48(4), pages 311-315.
    5. D. R. Fulkerson, 1961. "A Network Flow Computation for Project Cost Curves," Management Science, INFORMS, vol. 7(2), pages 167-178, January.
    6. Dharma Kwon, H. & Lippman, Steven A. & Tang, Christopher S., 2010. "Optimal time-based and cost-based coordinated project contracts with unobservable work rates," International Journal of Production Economics, Elsevier, vol. 126(2), pages 247-254, August.
    7. Paul, Anand & Gutierrez, Genaro, 2005. "Simple probability models for project contracting," European Journal of Operational Research, Elsevier, vol. 165(2), pages 329-338, September.
    8. Paul S. Adler & Avi Mandelbaum & Viên Nguyen & Elizabeth Schwerer, 1995. "From Project to Process Management: An Empirically-Based Framework for Analyzing Product Development Time," Management Science, INFORMS, vol. 41(3), pages 458-484, March.
    9. Turner, J.R., 2001. "Project Contract Management and a Theory of Organization," ERIM Report Series Research in Management ERS-2001-43-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
    10. Magott, Jan & Skudlarski, Kamil, 1993. "Estimating the mean completion time of PERT networks with exponentially distributed durations of activities," European Journal of Operational Research, Elsevier, vol. 71(1), pages 70-79, November.
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