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Why project size matters for contract choice in software development outsourcing

Authors:

Yossi LichtensteinAuthors Info & Claims

ACM SIGMIS Database: the DATABASE for Advances in Information Systems, Volume 45, Issue 3

Pages 54 - 71

https://doi.org/10.1145/2659254.2659258

Published: 01 August 2014 Publication History

Abstract

The contractual mechanism of software development outsourcing, typically either fixed-price (FP) or time-and-materials (T&M), determines the nature of incentives, risk sharing, and coordination between client and vendor. While software engineering considers project size as crucial for project planning and success, neither economic nor organizational theory considers size per se among the determinants of contract choice. In this paper, we address the gap between the centrality of project size in the software engineering literature and the attention it receives in software contracting research by modeling and testing the association between project size and contract choice. Existing empirical evidence indicates that FP contracts are appropriate for small development efforts whereas T&M contracts are suitable for larger projects, based on the reasoning that cost and schedule are difficult to estimate in larger projects. This prediction that size is directly associated with contract choice is the basis upon which two models are developed. The first model draws on the contracting efficiency approach to hypothesize that the effect of project size on contract choice is mediated by project detail. The second model draws on the contingency approach to software development risk management to hypothesize that the effect of project size on contract choice is moderated by project detail and vendor familiarity. We test these models using a large portfolio of software development contracts entered into by a leading European bank, and the results confirm that both mediation and moderation are at play.

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Cited By

Fink LWyss SLichtenstein Y(2018)Aligning flexibility with uncertainty in software development arrangements through a contractual typologyJournal of Global Operations and Strategic Sourcing10.1108/JGOSS-11-2016-003311:1(2-26)Online publication date: 19-Feb-2018
https://doi.org/10.1108/JGOSS-11-2016-0033
Jørgensen MMohagheghi PGrimstad S(2017)Direct and indirect connections between type of contract and software project outcomeInternational Journal of Project Management10.1016/j.ijproman.2017.09.00335:8(1573-1586)Online publication date: Nov-2017
https://doi.org/10.1016/j.ijproman.2017.09.003
Gefen DGefen GCarmel E(2016)How project description length and expected duration affect bidding and project success in crowdsourcing software developmentJournal of Systems and Software10.1016/j.jss.2015.03.039116:C(75-84)Online publication date: 1-Jun-2016
https://dl.acm.org/doi/10.1016/j.jss.2015.03.039
Show More Cited By

Index Terms

Why project size matters for contract choice in software development outsourcing
1. Social and professional topics
  1. Professional topics
    1. Management of computing and information systems
      1. Project and people management
      2. Software management
2. Software and its engineering
  1. Software creation and management
    1. Software development process management
  2. Software notations and tools
    1. Software configuration management and version control systems

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Published In

cover image ACM SIGMIS Database: the DATABASE for Advances in Information Systems

ACM SIGMIS Database: the DATABASE for Advances in Information Systems Volume 45, Issue 3

August 2014

64 pages

ISSN:0095-0033

EISSN:1532-0936

DOI:10.1145/2659254

Editors:
Andrew Schwarz
Louisiana State University
,
Wm. David Salisbury
University of Dayton
,
Colleen Schwarz
Louisiana State University

Issue’s Table of Contents

Copyright © 2014 Authors.

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Association for Computing Machinery

New York, NY, United States

Publication History

Published: 01 August 2014

Published in SIGMIS Volume 45, Issue 3

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Cited By

Fink LWyss SLichtenstein Y(2018)Aligning flexibility with uncertainty in software development arrangements through a contractual typologyJournal of Global Operations and Strategic Sourcing10.1108/JGOSS-11-2016-003311:1(2-26)Online publication date: 19-Feb-2018
https://doi.org/10.1108/JGOSS-11-2016-0033
Jørgensen MMohagheghi PGrimstad S(2017)Direct and indirect connections between type of contract and software project outcomeInternational Journal of Project Management10.1016/j.ijproman.2017.09.00335:8(1573-1586)Online publication date: Nov-2017
https://doi.org/10.1016/j.ijproman.2017.09.003
Gefen DGefen GCarmel E(2016)How project description length and expected duration affect bidding and project success in crowdsourcing software developmentJournal of Systems and Software10.1016/j.jss.2015.03.039116:C(75-84)Online publication date: 1-Jun-2016
https://dl.acm.org/doi/10.1016/j.jss.2015.03.039
Gaebert C(2016)Protection of Customers’ and Suppliers’ Knowledge in Software Development Projects with Fixed-Price Contract: Using Property Rights TheorySoftware Technologies10.1007/978-3-319-30142-6_12(210-227)Online publication date: 25-Feb-2016
https://doi.org/10.1007/978-3-319-30142-6_12
Huijgens HGousios Gvan Deursen A(2015)Pricing via Functional Size - A Case Study of a Company's Portfolio of 77 Outsourced Projects2015 ACM/IEEE International Symposium on Empirical Software Engineering and Measurement (ESEM)10.1109/ESEM.2015.7321211(1-10)Online publication date: Oct-2015
https://doi.org/10.1109/ESEM.2015.7321211
Gaebert C(2015)Reliable Customers and Credible Fixed-Price Contracts for Software Development Projects: A Study of One Supplier’s ContractsPerspectives in Business Informatics Research10.1007/978-3-319-21915-8_2(18-32)Online publication date: 18-Aug-2015
https://doi.org/10.1007/978-3-319-21915-8_2

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