Solution Case

1. In this scenario, mileage, safety and fuel efficiency can be defined as the inputs and profits can be defined as outputs.

For the first plan:

 Advantage

 It can help the company to effectively control the fuel efficiency and safety issues.

 The effectiveness of reducing maximum speed to increase fuel efficiency was proven by practice. Just as the article indicates "at highway speeds, every decline of five mph improves an 18-wheeler's fuel economy by about half a mile per gallon" .

 Disadvantage

 It pays no incentive for the driver to increase the fuel efficiency. Fuel efficiency can still be lowered by the bad driving habit of truckers, like suddenly speeding up or constantly breaking.

For the second plan:

 Advantage

 Ownership provides the best incentive. This plan gives great incentive for drivers to increase fuel efficiency because they have the right to allocate the fund between fuel cost and income for themselves.

 This plan turns the measure of inputs (fuel efficiency) into the measure of outputs (profits).

 Disadvantage

 If define y=a1+a2+a3 (y is diver's contribution, a1 is mileage, a2 is safety and a3 is fuel efficiency), the second plan just provides p=a3. In other words, this plan cannot create incentives for a1 (mileage) and a2 (safety), which will lead the company missing the potential contribution to y.

 It is hard to estimate the costs of fuel because of different route has different driving environment.

For the third plan:

 Advantage

 This plan increases the line of sight for the performance measurement. It provides good measure for both mileage (a1) and fuel efficiency (a3).

 Disadvantage

 Drivers can "game" this incentive by sacrificing incentive from one measurement to gain more incentive from the other measurement. For example, if a driver wants to work shorter, he/she can drive faster regardless the fuel efficiency. This also may cause more accidents.

 It is hard to determine the optimal incentive weight for each measure.

2. The Boswell Medical Center (BMC) should outsource the janitorial service and develop its own lab work.

 To outsource the janitorial service is because:

 Janitorial service is not the main business for BMC. The total cost for BMC to establish its own