nep-ppm New Economics Papers
on Project, Program and Portfolio Management
Issue of 2013‒06‒09
nine papers chosen by
Arvi Kuura
Parnu College - Tartu University

  2. Optimism bias in project appraisal: deception or selection? By Eliasson, Jonas; Fosgerau, Mogens
  3. Firm R&D units and outsourcing partners: A matching story By Barge-Gil, Andrés; Conti, Annamaria
  4. Volume Uncertainty in Construction Projects: a Real Options Approach By João Adelino Ribeiro; Paulo Jorge Pereira; Elísio Brandão
  5. A Two-Factor Uncertainty Model to Determine the Optimal Contractual Penalty for a Build-Own-Transfer Project By João Adelino Ribeiro; Paulo Jorge Pereira; Elísio Brandão
  6. Born to be alive? The survival of innovative and non-innovative French micro start-ups By Tristan Boyer; Regis Blazy
  7. Are multinational teams more successful? By Hartmut Haas; Stephan Nuesch
  8. Clean-Development Investments: An Incentive-Compatible CGE Modelling Framework By Christoph Böhringer; Thomas F. Rutherford; Marco Springmann
  9. Are There Myths on Road Impact and Transport in Sub-Saharan Africa?. By Monica Beuran; Marie Castaing Gachassin; Gaël Raballand

  1. By: Thomas Gillier (MTS - Management Technologique et Strategique - Grenoble École de Management (GEM)); Sophie Hooge (CGS - Centre de Gestion Scientifique - MINES ParisTech - École nationale supérieure des mines de Paris); Gérald Piat (EDF R&D - EDF)
    Abstract: Organizations often launch exploration projects (EP) aiming at developing innovative products (or services) by the exploration of new technologies, users, ecosystems or business models. Because a fundamental purpose of any project is to create value, the approach of value management (or value engineering) has been largely adopted in the organizations to manage the projects. However, the fact to move beyond the existing markets and the established technologies imply great difficulties and uncertainties for managing creative projects. Indeed, because exploration projects precisely aim to invent products (or services) that do not exist before, the value to create is unknown at the start of such project. So, what does value management precisely mean in situation of exploration project? This research aims to clarify the nature, the beneficiaries, and the ways to manage the value in such situations. After reviewing the historical development of the two traditional approaches of value management in project management literature, we then show we show their inadequacies for managing exploratory situations. This article is based on a longitudinal of two case-studies into a collaborative management research conducted with a major French car manufacturer. The two case-studies are an inter-firm EP corresponding to the joint exploration of an innovative multimodal urban platform by the automotive firm and two other industrial partners and an intra-firm EP aiming at generating innovative projects for the development of the electric vehicles. We propose an expansive value management model (EVM) towards three main propositions: 1) evaluating and stimulating the creation of value with a constant comparison with the dominant designs - (2) sustaining the exploration by tuning the degree of undecidability - (3) stimulating the emergence of new ecosystems by the creation of new platforms projects. Finally, this research proposes key managerial principles for EP management and a set of indicators to monitor the exploration process (i.e. identifying design rules to break, managing two kind of design paths...) and the collective dimension (i.e. the beneficiaries...) of EP.
    Keywords: value management; exploration; radical innovation; exploratory projects; creativity; dominant design
    Date: 2013–04–19
  2. By: Eliasson, Jonas (KTH Royal Institute of Technology); Fosgerau, Mogens (DTU Transport)
    Abstract: A number of highly cited papers by Flyvbjerg and associates have shown that ex-ante infrastructure appraisals tend to be overly optimistic. Ex post evaluations indicate a bias where investment cost is higher and demand lower on average than predicted ex ante. These authors argue that the bias must be attributed to intentional misrepresentation by project developers. This paper shows that the bias may arise simply as a selection bias, without there being any bias at all in predictions ex ante, and that such a bias is bound to arise whenever ex ante predictions are related to the decisions whether to implement projects. Using a database of projects we present examples indicating that the selection bias may be substantial. The examples also indicate that benefit-cost ratios remains a useful selection criterion even when cost and benefits are highly uncertain, gainsaying the argument that such uncertainties render cost-benefit analyses useless.
    Keywords: Cost overruns; Forecast accuracy; Cost-benefit analysis; Appraisal; Selection bias; Winner’s curse
    JEL: R40 R42
    Date: 2013–06–03
  3. By: Barge-Gil, Andrés; Conti, Annamaria
    Abstract: We present a theory that examines the optimal match between firm R&D units and external partners for projects that involve problem solving. We have a firm selecting an external partner conditional on the learning costs of its internal R&D unit. We show that there exists a matching equilibrium with property that external partners with low learning costs for a project work with R\&D units that also have low learning costs for the same project. Empirically, we use a dataset of Spanish R\&D firms and relate their share of R&D outsourcing to universities to the composition of their R&D units, described by the presence of staff with a PhD. Our main finding is that, controlling for endogeneity, firms that employ R\&D staff with a PhD outsource relatively more to universities than to firms. We interpret this result as evidence that R&D units with relatively low learning costs for basic projects tend to match with external partners, universities, with relatively low learning costs for the same projects.
    Keywords: Firm R&D Units; Outsourcing; External Partners; Optimal Matching
    JEL: D23 O32 L24
    Date: 2013–05
  4. By: João Adelino Ribeiro (Faculdade de Economia, Universidade do Porto, Portugal); Paulo Jorge Pereira (cef.up, Faculdade de Economia, Universidade do Porto, Portugal); Elísio Brandão (Faculdade de Economia, Universidade do Porto, Portugal)
    Abstract: The levels of uncertainty surrounding construction projects are particularly high and construction managers should be aware that adequately managing the effects of the different types of uncertainty may lead to an increase in the project’s final Net Present Value (NPV). The model proposed focus on the impact that a specific type of uncertainty - volume uncertainty - may produce in the project’s expected NPV. Volume uncertainty is present in most construction projects since managers do not know, during the bid preparation stage, the exact volume of work that will be executed during the project’s life cycle. Volume uncertainty leads to profit uncertainty and the model integrates a discrete-time stochastic variable, designated as “additional value”, i.e., the value that does not directly derive from the execution of the tasks specified in the bid documents, and which can only be quantified with precision by undertaking an incremental investment in human capital and technology. The model determines that, even only recurring to the skills of their own experienced staff, contractors will produce a more competitive bid, provided that the expected amount for the additional profit is greater than zero. However, construction managers often need to hire specialized firms and highly skilled professionals in order to quantify, with accuracy, the expected amount of additional value and, hence, the precise impact of such additional value in the optimal bidding price. Based on the option to sign the contract and to perform the project by the selected bidder, identified and evaluated by Ribeiro et al. (2013), the model’s outcome is the threshold value for this incremental investment. A decision rule is then reached: construction managers should invest in human capital and technology provided that the cost of such incremental investment does not exceed the predetermined threshold value. The model also proposes new forms of reaching the optimal bidding price, considering solely the effects of the non-incremental investment and also considering the possible impact of the incremental investment in human capital and technology.
    Keywords: real options; construction projects; investment decisions; optimal bidding.
    JEL: G31 D81
    Date: 2013–05
  5. By: João Adelino Ribeiro (Faculdade de Economia, Universidade do Porto, Portugal); Paulo Jorge Pereira (cef.up, Faculdade de Economia, Universidade do Porto, Portugal); Elísio Brandão (Faculdade de Economia, Universidade do Porto, Portugal)
    Abstract: Public-Private Partnerships (PPP) became one of the most common types of public procurement arrangements and Build-Own-Transfer (BOT) projects, awarded through adequate bidding competitions, have been increasingly promoted by governments. The theoretical model herein proposed is based on a contractual framework where the government grants leeway to the private entity regarding the timing for project implementation. However, the government is aware that delaying the beginning of operations will lead to the emergence of social costs, i.e., the costs that result from the corresponding loss of social welfare. This fact should motivate the government to include a contractual penalty in case the private firm does not implement the project immediately. The government also recognizes that the private entity is more efficient in constructing the project facility. Considering both the existence of social costs and the private firm’s greater efficiency, the model’s outcome is the optimal value for the legal penalty the government should include in the contract form. A two-factor uncertainty approach is adopted, where the facility construction costs and the cash-flows to be generated by running the subsequent activities follow geometric Brownian motions that are possibly correlated. Adkins and Paxson (2011) quasianalytical solution is followed since homogeneity of degree one can not be invoked in all of the model’s boundary conditions. Sensitivity analysis reveals that variations both in the correlation coefficients and in the standard deviations have a strong impact on the optimal contractual penalty. Sensitivity analysis also demonstrates that there is a level of social costs above which the inclusion of a legal penalty is necessary and, similarly, that there is a level for the comparative efficiency above which the inclusion of a legal penalty is not justifiable. The analytical solution to determine each of these values is presented. Finally, the effects of including a non-optimal penalty value in the contract form, which result from overestimating or underestimating the selected bidder’s real comparative efficiency are examined, using a numerical example. Results demonstrate that overestimating (underestimating) the selected bidder’s real comparative efficiency leads to the inclusion of a below-optimal (above-optimal) value for the legal penalty in the contract and produces effects that the government would prefer to prevent.
    Keywords: real options; two-factor uncertainty models; public-private partnerships; optimal contractual penalty.
    JEL: G31 D81
    Date: 2013–05
  6. By: Tristan Boyer; Regis Blazy
    Abstract: Based on French data describing the characteristics of the entrepreneurs and their project, this paper studies the differences between the determinants of survival for innovative and non-innovative micro-enterprises. We show that the survival of innovative and non-innovative enterprises is linked to personal criteria such as age, gender, minority, professional experience and financing sources. Our results also highlight the positive effect of not being alone in the start-up design phase, whereas being involved in a business network after the start-up period has no significant influence. The survival time of innovative enterprises, which is significantly lower than that of the non-innovative ones, seems adversely influenced by the entrepreneur’s previous management experience. Finally, when considering both innovative and non-innovative start-ups, there appears to be a type of “pecking order” as bank financing has a much more positive effect on survival than a personal one, albeit when focusing solely on innovative ones this difference does not exist.
    Keywords: entrepreneur, innovation, micro-enterprise, survival, pecking order.
    JEL: L26
    Date: 2013–05
  7. By: Hartmut Haas (Towers Watson, Executive Compensation); Stephan Nuesch (Department of Business Administration, University of Zurich)
    Abstract: Teams have become increasingly multinational in many sectors. The impact of national diversity on team performance is controversial, however. On the one hand, multinational teams may have access to a greater variety of task-relevant expertise, which should increase team performance. On the other hand, national diversity may complicate team collaboration and increase team conflict. Applying panel econometrics to 4,284 team observations in a globalized sector, we find evidence that multinational teams perform worse than teams with less national diversity.
    Keywords: Controlled field environment, multinational teams, national diversity, professional sports, professional sports, team performance
    Date: 2013–05
  8. By: Christoph Böhringer (University of Oldenburg, Department of Economics); Thomas F. Rutherford (University of Wisconisn-Madison); Marco Springmann (University of Oldenburg, Department of Economics)
    Abstract: The Clean Development Mechanism (CDM) established under the Kyoto Protocol allows industrialized Annex I countries to offset part of their domestic emissions by investing in emissionsreduction projects in developing non-Annex I countries. We present a novel CDM modelling framework which can be used in computable general equilibrium (CGE) models to quantify the sector-specific and macroeconomic impacts of CDM investments. Compared to conventional approaches that mimic the CDM as sectoral emissions trading, our framework adopts a microeconomically consistent representation of the CDM incentive structure and its investment<br>characteristics. In our empirical application we show that incentive compatibility implies that the sectors implementing CDM projects do not suffer, and that overall cost savings from the CDM tend to be lower than suggested by conventional modelling approaches.
    Keywords: Clean Development Mechanism, Computable General Equilibrium Modeling
    JEL: C68 Q58
    Date: 2013–03
  9. By: Monica Beuran; Marie Castaing Gachassin (Centre d'Economie de la Sorbonne); Gaël Raballand (The World Bank)
    Abstract: As planned large investments in road infrastructure continue to be high on the agenda of many African countries, only few of these countries have actually ammended their investments strategy. In many cases, there seems to be a preference for a status quo that can easily be explained by political economy factors driving the policies in the sector. This paper first presents data on the state of roads in Sub-Saharan Africa (length, density, condition) as well as on investments in the sector over the last decades. It then demonstrates how most countries' strategies are based on some misperceptions and recommends some changes to improve the developmental impact of roads investments. Better prioritization of investments, better procurement and contract management, better projects implementation and better monitoring are still needed, in spite of the efforts observed in the last 10 years.
    Keywords: Transport, roads, Sub-Saharan Africa, strategy, infrastructure, procurement.
    JEL: H41 O18 O55 R42
    Date: 2013–05

This nep-ppm issue is ©2013 by Arvi Kuura. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.