Suppose the Plant Owners Design an Incentive Scheme for the Plant

question 59

Multiple Choice

Suppose the plant owners design an incentive scheme for the plant manager in which the feasible production level is set equal to output from the previous quarter. The bonus payment is determined by the formula B = 0.2Q_f + 0.2(Q - Q_f) . What potential problems can arise with this scheme?

• A) If Q_f is unusually large, then the manager has little incentive to work hard during the following quarter because Q will likely fall back below Q_f.
• B) If Qf is unusually small, then the manager will receive a small bonus regardless of their efforts during the current quarter.
• C) The manager has an incentive to underperform and generate a small Q during the current quarter in order to provide a smaller benchmark for performance in the next quarter.
• D) The incentive scheme only depends on current output and does not measure performance relative to feasible production.

Identify factors that influence the organizational approach to managing projects, including team skills and knowledge.

Understand the significance of technology familiarity and newness in determining project complexity.

Grasp the importance of planning activities throughout the project life cycle.

Know the function and timing of creating a punch list during the project life cycle.

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Definitions:

Internal Rate of Return (IRR)

The yield rate at which all of a project's cash flows' net present value becomes null.

Required Return

The minimum expected return an investor views as acceptable for an investment, based on its risk level.

Depreciation Rate

The rate at which an asset loses its value over time, often used for tax and accounting purposes to spread the cost of an asset over its useful life.

Average Accounting Return (AAR)

This is a financial metric used to assess the profitability of an investment, calculated by dividing the average net income by the average investment.