Data Management

Pay For What You Get: Putting Performance-Based Contracting To The Test

Date Added: Oct 2009
Format: HTML

Suppose you are a hedge fund manager, and you have a $100 million hedged position, but you can't trade for 15 seconds because your Internet router goes down. How much could it cost you? That question is posed by Morris A. Cohen, professor of operations and information management at Wharton. Even during the recent stock market slump, the sum would be considerable, which is why hedge fund managers want to make sure such incidents are few and far between. One way to do that, says Cohen, is to set up a Performance-Based Contracting (PBC) arrangement with an IT service provider, which would charge a fee based on the amount of time it provides uninterrupted Internet access.