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Sourcing decisions of project tasks with exponential completion times: Impact on operating profits

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  • Dharma Kwon, H.
  • Lippman, Steven A.
  • Tang, Christopher S.

Abstract

When managing a project, a firm must evaluate multiple strategic factors and operational issues before deciding which tasks to keep in-house and which to outsource. We focus on one operational aspect of this evaluation process by examining the impact of different sourcing decisions of project tasks with exponential completion times on operating profits. As an initial attempt, we present two stylized models that capture two simplest types of projects: (a) a project with two "parallel" tasks that can be performed simultaneously and (b) a project with two "serial" tasks that must be performed sequentially. For each model, we determine the optimal operating profit for the case when the firm outsources zero task, one task, or two tasks. These operating profits can be informative for making sourcing decisions of different project tasks.

Suggested Citation

  • Dharma Kwon, H. & Lippman, Steven A. & Tang, Christopher S., 2011. "Sourcing decisions of project tasks with exponential completion times: Impact on operating profits," International Journal of Production Economics, Elsevier, vol. 134(1), pages 138-150, November.
    • Handle: RePEc:eee:proeco:v:134:y:2011:i:1:p:138-150
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    Cited by:

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    5. Tony Chen & Ted Klastorin & Michael R. Wagner, 2015. "Incentive Contracts in Serial Stochastic Projects," Manufacturing & Service Operations Management, INFORMS, vol. 17(3), pages 290-301, July.

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