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The Incentives Infrastructure

One of the pillars of successful Project Management is the need for a project to have a clearly defined goal. Establishing a goal provides a basis for the project’s scope to be established, provides a way to measure success and provides a reference point for use when making project related decisions.

There’s no doubt that establishing clear, measurable goals is an important step in setting a project on the road to success, but a clear goal is sometimes insufficient to ensure that everyone is moving in the same direction. As well as there being a project goal, there are other types of goal that exist in the project environment as well. There are the personal goals of the various team members involved, the goals of the different stakeholders and the goals of the different vendors participating in the project. Although in theory everyone is working towards the same project objectives, in practice personal and organizational goals sometimes get in the way and influence how decisions are made.

In most projects people are able to put aside their own goals and focus on the needs of the project and its customer, but unfortunately in my career I have seen several situations in which hidden agendas have done serious damage to a project. In most cases the problems can be traced to the project’s incentives infrastructure.

The term incentives infrastructure is a general term that refers to the structure of incentives that are influencing the decisions made by individuals and organizations who are participating in the project. Ideally the incentives for everyone involved are fully aligned with the project’s stated objectives, but unfortunately in practical situations there are often other layers of incentives that can negatively influence how project related decisions are made.

The classic example is of course the sales person. In many organizations the sales team are paid using bonuses that are tied to the dollar value of the contracts they secure. Those bonuses form a powerful incentive and many people will have seen projects in which the sales teams promised more than could be achieved just so that they could secure the contract. As Project Managers and development teams who have been on the rough end of such an arrangement know, the power of a poorly structured incentive program can be very nasty indeed.

The salesman dynamic is unfortunately an inherent element in most project situations. As Max Wideman (PMI Fellow and chair for the development of the original version of the Project Management Institute’s Project Management Body of Knowledge) has pointed out there is an inherent conflict present in almost all projects. While customers are interested in the value the project’s final product brings, those who work on the project are interested in what they can get out of participating in the project. In most cases the inherent conflict does not directly affect the project, but unfortunately in some situations it certainly can. In my career I’ve seen several projects in which Vendors have made recommendations to their customers based on self-interest rather than by the best interests of the project. In several cases those poor recommendations have added millions of dollars in unnecessary spending to the project tab.

Of course for those planning projects paying attention to the incentives infrastructure is a powerful tool for helping make sure everyone is focused on attaining the project’s stated objectives. By structuring the rewards and penalty sections in the contracts properly customers have the opportunity to help shape the incentives that vendors and those participating in the project have. Unfortunately too many organizations fail to recognise the power of the incentives infrastructure and how it can negatively affect the project unless directly considered.

4 Comments on “The Incentives Infrastructure”

  1. #1 Robert Wood
    on Mar 26th, 2009 at 1:19 am

    If I understand this correctly, you’re saying that the Incentives Infrastructure can be more powerful than the project’s goal(s) in directing resources and that if not set up correct, can misdirect resources. I’d agree with this, I’ve certainly seen my fair share of projects in which the incentives don’t align well enough with the goals. One that comes to mind is the “hero recognition” incentive: resources who are highly regarded because they save the day in a crisis, but the same resources don’t focus on doing the job right next time around, intentionally or otherwise contributing to another crisis and need for a hero.

    Good website. Great articles.

  2. #2 RG
    on Mar 26th, 2009 at 11:53 am


    Yes your understanding is correct. There are projects in which the incentives system (more money, more recognition, save my job, etc) can be more of an influence over the way people make project related decisions than the project’s formally stated objectives. Fortunately it doesn’t happen in every project and most people are professional enough to put their own incentives to one side so that they can focus on achieving the project’s goal. Unfortunately it is however more common than many people would perhaps like to admit and it can be a serious concern when dealing with external vendors who have their own profit considerations to take into account.


  3. #3 Robert Wood
    on Mar 30th, 2009 at 6:58 pm

    I see how the customer can leverage this to their best interests and why they’d want to – do you have any suggestions for incentives that they should consider?

    Any tips for the poor PM who’s handed the project and team and current incentives program on a plater and told to dig in?

  4. #4 RG
    on Apr 2nd, 2009 at 9:05 pm


    For new projects, organizations need to tie incentives to the desired project outcomes. That will likely mean different things in different circumstances, however the basic message is to avoid tying incentives to short term goals that may be counter productive to long term success. As a general proxy for desired outcomes organization can always use customer satisfaction (at project closure) as one element of a well structured incentives program.

    Ah for the poor PM who is saddled with a poorly structured incentives program it can be a frustrating experience. Although some of these issues may be out of the control of the Project Manager and as such the Project Manager has to live with the consequences, as general guidance I would say to constantly remind the project team and everyone involved what the success of the project looks like from the customer’s perspective. Although that in itself is not an incentive, it does help set the context within which project decisions can be made. In addition most PM’s do have the opportunity to provide team feedback at the end of the project and when establishing the team make it clear that the end of project feedback will be tied to the project outcomes the project achieves rather than personal preferencs for one individual over another.