CIO Wisdom II: More Best Practices

Compensation Structure

The compensation structure is the mechanism by which you will pay the vendor. The most common types of compensation structures are lump sum and time and materials, but there are others. Compensation structures allocate risk between the parties, and different structures allocate risk in different ways. There is nothing harmful with this in and of itself. However, because your compensation structure allocates risk, it will create incentives and disincentives for you and your vendor. You should give some thought to whether the compensation structure is putting unnecessary strain on your relationship and whether a different structure would more closely align your interests with those of your vendor.

Typical Assumptions About ...