Assessing The Goals Of The Principal And Agents Will Help Mitigate The Agency Problem

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conflicting with project manager’s responsibility. Therefore, aligning the goals of both the principal and agents will help mitigate the agency problem. Beringer et al., (2012) argued that role clarity and understanding organisation maturity allow principals and agents to become more effective when they understand what must be accomplished. In project managements, lack of clarity in roles leads to well-intended but ill-resulted intervention. Role clarity indicates whether each task is preformed exclusively by the stakeholder. On the other hand, Mahaney and Lederer (2003) proposed an out-come-based contract, to mitigate this issue, where the agent is compensated by successfully achieving the goals of the firm. For goal conflicts, a…show more content…
The two researchers concluded, based on the result, such conflict warrants an outcome-based contract. Muller and Turner (2005) also interprets the agency theory as suggesting the solution to this problem is to realign the two parties’ interest through contracts where the principal yields the highest payoff for the agent. However, they also note that other factors influence contract selection, most notably cost, as contracts are commonly selected to minimise the overall cost for governing projects. Issue of Communication between Principals and Agents Based on the adverse selection problem and moral hazard problem listed by Moe (1995), the project owner knows less about the progress of the project than the project manager. As a result, principals and agents will suffer from divergence of goal as outlined above. Muller and Turner (2005) describes the depth of knowledge required by the owner is subject to the contract chosen. On the other hand, project manager’s need for communication and information changes over the life-cycle of a project. During the early stages, the manager needs to know the owner’ actual requirement and project context. Both forms of information give the project manager an estimate of the company objective for the project. Information given at the planning stage by the owner includes objectives, specification, priorities and possible limitations. As the project progresses, the owner’s role of providing information and data changes to review
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