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Managing Systems Development 101: A Guide to Designing Effective Commercial Products & Systems for Engineers & Their Bosses∕CEOs

James T. Karam
James T. Karam
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ASME Press
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As you progress upward in responsibility and labor grade within an organization, you will often encounter some incentive or bonus plans. Initially, you will not have much say in its details, but eventually you may. Most companies have some sort of quantified incentive criteria so that it is not just viewed as a beauty pageant or teacher's pet. I recommend three classes of objective measures: individual financial success, overall division success, and mid-term improvements. Each class needs a target value, preferably with scaled awards ranging from zero to, say 150% of target.

Individual Financial Success: Most staff has a clear, direct budgetary (cost and schedule) responsibility for a specific program(s)∕project(s)∕contract(s), product, or functional department. Some will supervise those with direct responsibility. Supervisors' objectives can simply be a weighted average of the incentives earned by subordinates. Meaningful quantified objectives for those directly responsible for execution are thus the key to this incentive strategy. Objectives are being rolled up, rather than flowed down. This is a bit unusual, but improves ownership in the results.

An annualized Cost Performance Index (CPI), excluding rate variances, is proposed as the most meaningful indicator of individual cost control. Recall, CPI is simply the ratio of the Budgeted Cost of Work Performed to the Actual Cost of Work Performed, or CPI = BCWP∕ACWP. Use of an annual measure lets each staff member start the year with a clean slate. Rate variances are excluded since most staff can only directly control person-hours and other direct costs (ODC). Other members of management are held accountable for rates and indirect costs. One should also note that this strategy has the benefit of penalizing the holding of excessive funds in management reserve or the working of unplanned activities since such would limit everyone's performance. You cannot get credit for the work unless it is planned and budgeted.

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