Agency Theory

bas says : [font=Arial>[size=3>Agency theory[/size>[/font>

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[font=Arial>[size=3>If people have such a huge impact on a project, it would be nice if we have some kind of structure that addresses the issues. In my opinion agency theory can help us here. [Paragraph based upon Moldoveanu and Martin, 2001, University of Toronto>[/size>[/font>

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[font=Arial>[size=3>Agency theory addresses the separation of ownership and control (or authority and responsibiliy). The theory makes a distinction between the principal and the agent. The principal hires or retains the agent because of the agent’s specific talents, knowledge and capabilities to increase the value of an asset. In order to increase the value of that asset, all or some of the principal’s decision rights over that asset must be transferred to the agent, for a finite period of time.[/size>[/font>

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[font=Arial>[size=3>Agency theory assumes that the interests of principals and agents are not, per se, aligned. With a conflict of interests rational individuals always choose the option that makes them better of as they see it.[/size>[/font>

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[font=Arial>[size=3>Agency theory looks at three aspects the principle has to regulate the operation of the agent:[/size>[/font>

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[*>[font=Arial>[size=3>Decision rights, the right to excercise control over a particular asset[/size>[/font>
[*>[font=Arial>[size=3>Knowledge, general and specific[/size>[/font>
[*>[font=Arial>[size=3>Incentives, to motivate the agent to act in one way rather than another, given the choice[/size>[/font>
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[font=Arial>[size=3>Failure of the agency relationship can result whenever agents make decision for which they either do not have the right information to reach optimal conclusions, or they have incentives to take actions that decrease the value of the principals’ holdings. More generally, agency failures occur whenever decision rights, the necessary knowledge (information) and incentives are not co-located in the same person.[/size>[/font>


Again, comments are appreciated.
Bas

Bernard says : Politics and the recognition of the human element are very important and must be considered when developing a methodology for managing projects. Part of our system for industrial projects is designed to remove subjectivity from the process as much as possible to mitigate these problems.

bas says : Hi Bernard,

" Part of our system for industrial projects is designed to remove subjectivity from the process as much as possible to mitigate these problems"

Just curious, how would you do that?

BTW Merry Christmas
Bas

Bernard says : Merry Christmas to you as well!

IMO, the most important elements of our system for limiting subjectivity are:[list>[*>planning work as detailed as possible - this ensures everyone can understand the plan and schedule. Progress reports are more accurate as less guesswork is required to estimate percent complete for a given task.[*>requiring supervisors to update the schedule every shift - The supervisors in charge of the work execution are responsible for their schedule/progress. They must report the progress to ensure ownership and buy-in of the schedule. It does not work well if the planner/scheduler (who is not responsible for executing the work) defines the progress update. Management benefits from updated progress information from the computer every shift. They do not need to rely on subjective (verbal) opinions from supervisors on where they stand (and trying to spin things in a good light when correctable problems are developing).[*>high scope visibility - All necessary information needs are covered directly from our software. The reports are heavily focused on manhours and there is no possibility for anyone to fudge numbers (or paint pictures with the schedule) without causing obvious changes to all reports. Management can be confident that reports from our system are not being massaged to show what is politically less painful.[/list>