The group is to provide a clear description of a reward mechanism.

The discussion of the

mechanism should include the following:

Based on the productivity level bonus are provided to the employees.

- The employees should meet the budget and in the event there are not able to meet the
budget, relevant and valid reason to be provided for the write-off.
- Job appraisals to be done so that any out of scope has been account for and its been
considered while awarding rewards.

a) Budget revisions and budget adjustments (5 marks)

Budget revision – changes in the scope.
Discuss the impact of scope changes on the reward mechanism. How the incentive caters for any
changes in the scope of work.
Who should absorb the losses made due to changes in the scope of work.

Budget adjustments – Same as budget revision but in in relation budget adjustments.

The adjustments are caused by the project leader realizing that the initial budget (or actual
performance) is not very good; performance is at least not meeting the budget. The budget
adjustments are a weak link in the system.
Actually, variances for which the company is responsible may be caused by any of the
following:
(1) conceptualization problems or calculation errors at budget-input time;
(2) actual
design differed from plan (either too elaborate, or cost savings discovered);
(3) production
efficiencies (design, fabrication, installation); or
(4) spending variances (labor, materials). If
these factors could be isolated, a very useful variance analysis format could be set up.

b) The right balance between motivation/performance and target difficulty (15 marks)
How does the chosen reward mechanism motivates.
How does the chosen reward mechanism impacts the performance.
Budget target difficulty – difficulty of meeting a budget target and the stability of the budget
environment affect performance
- Seems like the performance was not good therefore the profit margin reduced from 11% to
6%.
- The project leader was pessimistic about being able to hold even to the existing budget.
(wants to do budget adjustments.)
- Henry Stimson noted that this was not unusual, as the estimates of the sales engineers had
proven to be remarkably accurate (in total) over the years

c) Resource allocation issue as it relates to cost estimation (10 marks)

How the incentives leads to efficient use of resources.
Identify the resource allocation issue- relation to project leader.
How does the reward mechanism overcomes that issue