How to Create Incentives for Project Results
A useful step in any project for project managers is to create incentives, disincentives, or both to assist contractors and all those involves in meeting project goalsA useful step in any project for project managers is to create incentives, disincentives, or both to assist contractors and all those involves in meeting project goals.
Incentives can be anything from traditional incentivized goals (cost, schedule time and safety factors) to external project impact (political/social and environmental issues, local engagement and traffic/infrastructure). The key focus in the creation of incentives/disincentives is understanding the big picture of the project and highlighting the major components of the project that can be incentivized.
Steps in the Process
The first step in creating these incentives is to use pre-established project goals and the project plan to understand the key performance metrics that will lead to project success. Including these metrics within worker contracts with specifically written language will help contractors understand these incentives and guide them to exceed bare minimum performance.
While traditional incentives tend to focus on cost, schedule and safety performance, project managers can write detailed contract incentives centered around performance topics. These topics may include public engagement, public relations, traffic volume and impact, teamwork, creativity and innovation, and environmental impact. This approach to creating incentives is also transferrable and can be used for financing, construction factors and individual worker contracts.
Why Incentivize these Areas?
The purpose behind incentivizing these project areas (cost, schedule, performance, etc.) is to ensure the project is approached in the most efficient way possible. In many projects, very few people will understand the full project and how all of the different pieces come together to achieve the project goals.
Through incentivization, all workers involved are given guidance to their area of focus and a goal to work toward without necessarily needing to understand how it fits in the big picture. For example, if a subcontracted construction crew is hired to build the foundation of an office building, their incentives will only focus on what they are focused on, and give them a goal without needing to know about the rest of the project.
When is the right time to incentivize project results?
The best time to implement project incentives and disincentives is as early as detailed incentives can be created and should be considered part of the project procurement plan. Creation of performance metrics and incentives can occur at different times throughout the duration of a project, especially if new team members join the project at different times.
With different project members joining at various stages of the project, Project Managers also have the flexibility to assign incentives based on the project status. For example, if the project is looking like it may come down to the wire in the final stages with a new subcontracted team coming in, the project manager may incentivize staying on schedule more than if there was extra slack at the end. Furthermore, more incentives that project managers can create, the more likely the workers on the project will align their interests with the interests of the project owner/organization.
A critical factor for creating project incentives is to understand how certain incentives may affect other areas of the project. For example, if keeping the project budget under a certain amount is incentivized, the quality of the work and the effectiveness of that area may become compromised. Therefore, incentives must be written strategically to ensure the overall quality of the project is not at risk.
In summation, them more that project managers are able to reward value-addition, the more likely that that project team members will align their focus with that of the project owners.
Incentives for Project Results Steps
With the primary goal of creating incentives for project results and aligning them to the interests of the project owner and the project employees, the following steps are the most efficient way to incentivize/disincentivize a project:
- Establish the critical success factors (see post “Defining Critical Success Factors”)
- Form the project team, and note when additional workers will be added to the project
- Identify project arrangements and develop the project web of connections and communications.
- Develop key performance metrics that align with the critical success factors from step 1.
- Performance metrics will determine what bare minimum performance vs adequate vs satisfactory performance
- Negotiate employment contracts and ensure workers understand the key performance metrics from the previous step
- Include the incentives within the contract for what is considered bare minimum performance vs adequate vs satisfactory performance
It is essential to connect the incentives/disincentives to the key performance metrics from step 4.