  We present a principal-agent model of a one-shot, shallow, systems
engineering process. The process is one-shot in the sense that decisions are
made during one time step and that they are final. The term shallow refers to a
one-layer hierarchy of the process. Specifically, we assume that the systems
engineer has already decomposed the problem in subsystems, and that each
subsystem is assigned to a different subsystem engineer. Each subsystem
engineer works independently to maximize their own expected payoff. The goal of
the systems engineer is to maximize the system-level payoff by incentivizing
the subsystem engineers. We restrict our attention to requirement-based
system-level payoffs, i.e., the systems engineer makes a profit only if all the
design requirements are met. We illustrate the model using the design of an
Earth-orbiting satellite system where the systems engineer determines the
optimum incentive structures and requirements for two subsystems: the
propulsion subsystem and the power subsystem. The model enables the analysis of
a systems engineer's decisions about optimal passed-down requirements and
incentives for sub-system engineers under different levels of task difficulty
and associated costs. Sample results, for the case of risk-neutral systems and
subsystems engineers, show that it is not always in the best interest of the
systems engineer to pass down the true requirements. As expected, the model
predicts that for small to moderate task uncertainties the optimal requirements
are higher than the true ones, effectively eliminating the probability of
failure for the systems engineer. In contrast, the model predicts that for
large task uncertainties the optimal requirements should be smaller than the
true ones in order to lure the subsystem engineers into participation.
