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This study explores the relationship between organizational control modes (behavior, outcome, and clan) andsoftware quality. Much of the previous work on organizational control has examined the choice of modes giventask characteristics. This research extends work in control theory by considering the impact of control modeson the increasingly critical organizational outcome of software quality. The research is set in the context ofsoftware development organizations in three of the largest software developing countries: India, Ireland, andIsrael (the 3Is). A cross sectional survey of 400 software development organizations across the 3Is will be usedto test the developed model. In addition to the theoretical contributions, the study will provide practicalimplications to support software project managers in making better organizational control choices.

This paper studies the pricing of software development outsourcing. Two pricing techniques – time and material and fixed price – are described and the economic conditions for selecting between them are discussed. Using agency theory and transaction cost economics, it is predicted that risky and specific systems will be priced on time and material basis while other projects will be fixed price. An additional prediction is that confidence in the vendor’s auditing of resources is essential for time and material contracts. The predictions are tested on fourteen external software development projects in two large corporations. Quantitative measures of risk, specificity and confidence are utilised, but the data-set does not support the theoretical predictions. In order to explain this result, interviews with senior managers at the two corporations have been conducted. Both disagree with the theoretical prescriptions: one contracts risky projects on fixed price basis, preferring to pay a risk-premium rather than to rebudget. The second expert allows fixed price only with trusted vendors, preferring time and material with all other vendors.

The IS research literature has tested the applicability of option pricing models to IS projects mostly through detailed case studies. The current study complements this literature by considering a wide set of IS projects and assessing, albeit crudely, their optional value. We test the literature’s assumption that IS projects embed significant optional value. Our research site is a European plant of a leading multinational manufacturer of sophisticated products. The portfolio of current and recent IS projects is studied through a questionnaire administered to all project managers. Seventeen project managers were interviewed concerning thirty-one projects with median cost of $325k and median benefit of $1.2m. We find strong support to the prediction that IS projects include considerable optional value. The thirty one projects we studied embed forty seven options, many of them with benefits comparable to the value of the original projects. Only four projects had no optional value. A comparison between a subset of the portfolio and the corresponding scale-up options shows that the exercise price of the options is 20% of the original projects’ cost, and that the value of these options is about 70% of the original projects’ value. This data also demonstrates the large return, of scale-up options – the median return is 1500%, five fold the median return of projects. The main practical implication of this study is that real option evaluation is useful for IS projects in general, and should not be confined to special cases. A further implication is that real option thinking may be of particular value in recognising reduction and deferral options. The project managers in our study found such options difficult to identify and considered their time to expiration as relatively short. Proactive management of reduction and deferral options should thus increase the flexibility and value of IS projects.