Escalation, De‐escalation, or Reformulation: Effective Interventions in Delayed NPD Projects

<jats:p>At the start of any project, new product development (NPD) teams must make accurate decisions about development time, development costs, and product performance. Such profit‐maximizing decision making becomes particularly difficult when the project runs behind schedule and requires intervention decisions too. To simplify their decision making, NPD teams often use heuristics instead of comprehensive assessments of trade‐offs among the aforementioned metrics. This study employs a simulation based on a system dynamics approach to examine the effectiveness of different decision heuristics (i.e., time, cost, and product performance). The results show that teams are better off if they decide to intervene rather than do nothing (escalation of commitment), but in making these interventions there is no single best decision heuristic. The most effective interventions combine decision heuristics, and the most effective combination is a function of the development time elapsed. For teams that discover schedule problems relatively early on in the development process, the best possible intervention is to increase both team size and product performance (combining the time and product performance heuristic). When teams discover schedule problems relatively late, the best intervention option is to decrease product performance and increase team size (combining the time and cost heuristic). In both situations, however, the best intervention combines two heuristics, with a trade‐off across time, cost, and performance. In other words, trading off three project objectives outperforms trading off only two of them. These findings contribute to the extant literature by suggesting that, when the project is behind schedule, the choice extends beyond just escalating or de‐escalating commitment to initial project objectives. Other than sticking to a losing course of action or cutting losses, there is an alternative: Commit to renewing the project. In this case, project lateness represents an opportunity to reformulate project objectives in response to new market information, which may lead to new product ideas and increased product performance.</jats:p>