  Systems engineering processes coordinate the effort of different individuals
to generate a product satisfying certain requirements. As the involved
engineers are self-interested agents, the goals at different levels of the
systems engineering hierarchy may deviate from the system-level goals which may
cause budget and schedule overruns. Therefore, there is a need of a systems
engineering theory that accounts for the human behavior in systems design. To
this end, the objective of this paper is to develop and analyze a
principal-agent model of a one-shot (single iteration), shallow (one level of
hierarchy) systems engineering process. We assume that the systems engineer
maximizes the expected utility of the system, while the subsystem engineers
seek to maximize their expected utilities. Furthermore, the systems engineer is
unable to monitor the effort of the subsystem engineer and may not have a
complete information about their types or the complexity of the design task.
However, the systems engineer can incentivize the subsystem engineers by
proposing specific contracts. To obtain an optimal incentive, we pose and solve
numerically a bi-level optimization problem. Through extensive simulations, we
study the optimal incentives arising from different system-level value
functions under various combinations of effort costs, problem-solving skills,
and task complexities.
