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I think brief time limits for specific challenges are the way to go, and there should never be an absolute failure state attached. An easy example is a mini-game inside a mini-game collection like Mario Party - the timer creates tension, yes, but even if you fail, there's plenty more chances to make it up because that challenge was one of many you'll be taking on. When you do eventually lose the game, it feels fair because your failure is a result of repeat losses, not one. In an RPG context, the same approach works fine - give the player a limited time to accomplish an objective, perhaps with negative ramifications for failure, but allow the game to continue. Fallout would have actually worked with this; its open-world nature meant that the player could still win without ever saving Vault 13, so why not simply give the player a different ending if the Water Chip is never recovered? There's a story consequence (your friends all die), and a gameplay consequence (less direction/info on taking out the Master), and none of it would feel especially unfair either. Perhaps saving Vault 13 could have been a more multi-part objective with a mix of different limitations, hard and soft. Multiple outcomes with a sort of granularity in success would have also been just as fair. For example, perhaps you side with the rebels and convince them to open up to the Wasteland, saving the Vault but ruining its safety and lifestyle. The details of course require tweaking to make everything interact and operate smoothly (which endings trump which?) but you get the idea. As you brought up, System Shock 2 had time limits attached to inventory items (upgrades), and I think this is also a much more fair sort of limit to include in a game. While charging stations were fairly plentiful (at least one per deck of the ship) it still provided benefits while also encouraging the player to make ideal use of time. It's a timer, yes, but it's disguised both in gameplay and narrative. In that sense, a game like Fallout also has a timer - ammunition - but you can also use others like food supplies to accomplish the same. Instead of an annoyance, it becomes a game mechanic for the player to consider. The only real issue here is development time and priorities. I can appreciate the want to tell a specific story and limiting the player's choices because of it, just as I can also appreciate that implementing so many different outcomes may not be feasible for most games. Ultimately the question isn't just how to implement time limits in a fair and effective way, but whether it's feasible. Doing it mechanically is probably the best bet when budget is a concern - building unique situations and outcomes for different possibilities is tough, but expressing that same thing as a game system is comparatively much less work.

That's not an elegant solution. It's kind of lame. And doesn't even pertain directly to quests. Fortunately, I've got your solution for you. It's something I puzzled out a while ago as I too am interested in time limits on quests and other ways to make my beloved video games more sophisticated, challenging and consequential. The solution is that you alter the quest itself. You allow a certain amount of time for the simple solution to be taken. If the player dilly dallies that time away, the simple path is closed, and only the difficult path is left. Example: say you're playing a spy type RPG. You've received intelligence that a certain contact has valuable information you need to advance the quest. However, you're also warned that you should hurry to find him, because the Big Evil Semi-Secret Society of Bad Guys (BESSSBG, "Big Bess" for short) is out to get him. If you find him within a game day, say, then you can talk to him and get the info through a simple dialogue puzzle. But if it takes you more than a day to find him, you find him dead. Then you're on your own, chump. You've got to search his house. You know the info's in there somewhere, but the tricksie developers don't give you any clue that they've hidden it in a floor safe in a closet in the dead dude's bedroom. Hell, you can even add a timer to that path too. If you search for more than a game hour, the assassin from Big Bess comes back to the house because he left his cell phone on the kitchen counter when he hit the head to relieve himself after killing the dude and before taking the long drive back to bad guy headquarters. Now you have to deal with him too. There you have it. Problem solved. Quest is still complete-able, just harder to complete because your spy apparently doesn't take his job seriously enough to prioritize his time appropriately.