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Escalation of commitment to unprofitable projects: An experimental

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Volume 16, number 1 & 2, 2010 Accounting, Accountability & Performance

Escalation of commitment to unprofitable projects:

An experimental investigation of the effect of
conformity pressure and self-esteem

Vincent K. Chong1
UWA Business School
University of Western Australia

Imran Syarifuddin
Audit Board of the Republic of Indonesia
Jl. Andi Pangeran Pettarani
Makassar, South Sulawesi, Indonesia

Abstract

This paper examines the effect of conformity pressure and the personality trait of
self-esteem on managers’ project evaluation judgements. A laboratory
experiment was conducted to test the hypotheses formulated in this study. The
results of this study suggest that project managers tend to escalate when
conformity pressure is present. In addition, the results reveal that, when
conformity pressure is present, project managers with high self-esteem are more
inclined to continue pursuing a failing project than those with low self-esteem.

Keywords: conformity pressure, escalation of commitment, project evaluation,

judgements, self-esteem

Acknowledgments

We would like to thank Graeme Harrison, Chong Man Lau, Michele Leong,
Lokman Mia (the editor), one anonymous reviewer and participants at the
Australian National University, Macquarie University, the 2007 Accounting and
Finance Association of Australia and New Zealand (AFAANZ) Conference and
the 2007 European Accounting Association (EAA) Conference for their
comments and suggestions on earlier drafts of this paper. This project was
funded by a research grant at the UWA Business School, University of Western
Australia.

1
Corresponding Author: Professor Vincent K. Chong, Accounting and Finance (M250),
UWA Business School, University of Western Australia, 35 Stirling Highway, Crawley,
WA 6009. Tel: 61 8 6488 2914; Fax: 61 8 6488 1047; Email:
Vincent.Chong@uwa.edu.au

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Accounting, Accountability & Performance Volume 16, Number 1 & 2, 2010

Introduction
Numerous studies have sought to understand why managers continue their
commitment to a particular course of action despite evidence to suggest the
course of action is failing (Chong & Syarifuddin, 2010; Harrell & Harrison,
1994; Harrison et al., 1999; Kida et al., 2001; Ruchala, 1999). Studies that rely
on agency theory have noted that managers’ escalation behaviour is motivated
by self-interest (Harrell & Harrison, 1994; Harrison & Harrell, 1993). Escalation
of commitment is perceived to be a way to protect their reputation and
marketability (e.g. promotion and substantially higher salary) from damage as a
result of managing a failing project. It has also been suggested that this incentive
can only be exercised if managers possess relevant information not available to
others in the firm or industry.

In addition, previous studies have signalled the importance of interpersonal

relationships between firm members (Chalos & Poon, 2000; Swain & Haka,
2000). Chalos and Poon (2000) noted that capital budgeting, for example, often
involves negotiations between parties and/or interdivisional teams. They
suggested that such relationships allow better information sharing, which leads
to better performance among team members. Swain and Haka (2000) also
suggested that the delegation of tasks in capital budgeting projects is often
carried out within a managerial hierarchy. A firm can thus provide guidance
about the number of alternative investments to be considered by managers
through manuals and control procedures, which reduces the need for managers to
construct and review all relevant information about alternative investments.
Despite these potential benefits, it has been suggested that interpersonal
relationships between members of a firm can lead to social influence pressures
creating dysfunctional behaviours within the organisation (Chong & Syarifuddin,
2010; DeZoort & Lord, 1994, 1997; Lord & DeZoort, 2001; Young, 1985).2
Since it is increasingly common for capital budgeting decisions to be made by
teams and small groups, it is likely that social influence pressure, such as
conformity pressure, plays a significant role in managers’ project evaluation

2
DeZoort and Lord (1997) suggested that there are three types of social influence
pressure: (1) compliance, (2) conformity and (3) obedience. Compliance pressure refers to
the pressure to go along with explicit requests from individuals at any level. Conformity
or peer pressure refers to pressure under which individuals tend to alter their attitudes or
behavior to be consistent with perceived group norms. Finally, obedience pressure refers
to the pressure to submit to the directions of authority. Prior auditing studies (Chong &
Syarifuddin, 2010; DeZoort & Lord, 1994; Lord & DeZoort, 2001) have recognised that
social influence pressures can lead to decision biases among auditors. For example,
Chong and Syarifuddin (2010) found that project managers’ tendencies to escalate are
most prominent under obedience pressure and in private information situations. Lord and
DeZoort (2001) found that obedience and conformity pressures have led auditors to sign
off on materially misstated client financial statements. In the budgeting literature, Young
(1985) suggested the use of social influence as a control tool for organisations to prevent
managers from misrepresenting private information and found social pressure to be
negatively associated with budgetary slack. Our study focuses explicitly on conformity
pressure.

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Volume 16, number 1 & 2, 2010 Accounting, Accountability & Performance

processes. To date, no studies have attempted to examine the impact of

conformity pressure on managers’ project evaluation judgements. This gap in the
literature forms the first motivation for our paper.

In addition, prior accounting literature (Chong, 1998; Chong & Eggleton, 2003;
Gul, 1984) has recognised the importance of decision-makers’ personality traits
in decision-making processes. Gul (1984), for example, noted that understanding
decision-maker’s personality traits ‘may be able to guide the design of
information systems toward more effective user decisions’ (p. 264). Chong and
Eggleton (2003), on the other hand, found that under situations of high task
uncertainty, internal locus of control managers improved their performance when
they made greater use of broad scope management accounting system (MAS)
information for decisions, while external locus of control managers were
insensitive to such use. Given that personality traits are important factors in
decision-making processes, this study also attempts to investigate the influence
of managerial self-esteem and conformity pressure on project evaluation
decisions.3 Theoretical support has also been found for the linkage between self-
esteem and conformity pressure (Adler, 1983; Bandura, 1977; Blaine & Crocker,
1993; Brown, 1993; Coopersmith, 1967; Sorensen & Franks, 1972).
Collectively, these studies have suggested that the personality trait of self-esteem
may be used to predict project managers’ escalating behaviour when confronted
with conformity pressure.

A laboratory experiment was conducted to test the impact of self-esteem and

conformity pressure on project managers’ project evaluation decisions. A total of
53 subjects participated in the experimental study. The independent variables
were conformity pressure (present or absent) and the personality trait of self-
esteem (high or low). The dependent variable was the subject’s preference for
continuing and discontinuing a failing or unprofitable project.4 Analysis of
variance (ANOVA) was used to test the hypotheses formulated for this study.
Our results reveal that conformity pressure significantly influences project
managers to escalate their commitment to a failing project. In addition, our study
shows that under conformity pressure, project managers with high self-esteem
are more inclined to continue a failing project than those with low self-esteem.

In the next section of this paper, we provide a review of the relevant literature
and develop the underlying hypotheses of this study. The research method and
results are discussed and a conclusion, also outlining the limitations of this study,
is provided at the end of the paper.

3
Self-esteem refers to ‘the evaluation which individual makes and customarily maintains
with regards to himself. It expresses an attitude of approval or disapproval, and indicates
the extent to which the individual believes himself to be capable, significant, successful
and worthy’ (Coopersmith, 1967, p. 4).
4
The terms ‘failing’ and ‘unprofitable’ are used interchangeably in this paper to describe
projects.

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Accounting, Accountability & Performance Volume 16, Number 1 & 2, 2010

Hypothesis development
The effect of conformity pressure
The first hypothesis examines the effect of conformity pressure on project
managers’ escalation behaviour. Conformity pressure refers to the influence of
external peer pressure in the decision-making process. Such pressure causes an
individual to frame and justify decisions on the basis of what others do (Brehm
& Kassin, 1993; DeZoort & Lord, 1997). In the auditing context, the effects of
conformity pressure on auditors’ attitudes and behaviors have received
considerable attention. For instance, Lightner et al. (1982) and Ponemon (1992)
found that conformity pressure can lead to auditors’ underreporting behaviour.
Lord and DeZoort (2001) suggested that conformity pressure has also induced
auditors to sign off on clients’ materially misstated account balances.

The effects of conformity pressure on project managers’ escalation of

commitment was previously noted by Whyte (1993) in a group decision-making
context.5 However, that study did not directly test these effects. Nevertheless,
Whyte suggested that the increase in uncertainty of appropriate responses leads
to a stronger tendency for group members to conform to the majority standpoint.
The need to maintain good relationships with other group members also
contributes to this tendency. Similarly, Brehm and Kassin (1993) suggested that
under conformity pressure conditions, individuals’ conformity to their peers’
opinions may result from fear of social rejection and the negative social
consequences of defiance. This feeling is sometimes exacerbated by the fact that
this pressure represents the majority of the peers’ opinions (Asch, 1951; Eagly &
Chaiken, 1993), leading individuals to doubt the correctness of their own
judgement (Asch, 1951; Brehm & Cohen, 1962).

Meanwhile, willingness to conform is also determined by the extent to which

project managers share goals with their peers (Eagly & Chaiken, 1993).
Unanimous group decisions can serve as motivational tools for project managers
to go along with their peers’ line of decision to escalate. Working together to
achieve a common goal can also create the perception among group members
that they will share in any consequences resulting from pursued actions.
Accordingly, such a diffusion of blame among group members lowers their
expectancy of being censured and concomitantly boosts their feelings of
security. This permits them to choose the more offensive preference to pursue
the group’s decision to escalate, over a defensive one, which would avoid the
company’s possible punishment (Rettig, 1969). Therefore, to the extent that any
consequences of a group decision can be shared by all group members, as well as
the importance of maintaining group harmony, project managers who are subject
to peer pressure that represents the decision of the group’s majority have a
higher tendency to go along with their peers to continue a project even when it is

5
Whyte (1993) used the term uniformity pressure to describe conformity pressure, that is,
the tendency for group members to agree with the majority position as a dominant form of
behaviour in the group.

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Volume 16, number 1 & 2, 2010 Accounting, Accountability & Performance

failing, compared to project managers who are not subject to the same
conditions. This is stated formally as follows.

H1: Project managers who are subject to conformity pressure exhibit a greater
tendency to continue a failing project than project managers not subject to
conformity pressure.
The effect of self-esteem under conformity pressure
The second hypothesis examines the effect of the personality trait of self-esteem
and conformity pressure on project managers’ escalation behavior. It has been
suggested that individuals with high self-esteem are willing to take self-
presentation risks and use elaborate strategic self-presentational ploys to enhance
their reputations.6 On the other hand, individuals with low self-esteem avoid self-
presentation risk to minimise the risk of being humiliated or embarrassed
(Baumeister et al., 1989). High self-esteem individuals also tend to perceive
project failure to external factors and attribute future negative consequences to
other group members in a team-based setting (Blaine & Crocker, 1993; Brown,
1993). They also tend to feel free to use others for their own benefits
(Coopersmith, 1967; Sorensen & Franks, 1972).

Numerous studies (Janoff-Bulman & Brickman, 1982; McFarlin, 1985; Yao &
Cui, 2010) have examined the influence of the personality trait of self-esteem on
the use of information and decisions. Janoff-Bulman and Brickman, for example,
noted that high self-esteem individuals tend to make better use of information
telling them when to persist than low self-esteem individuals. McFarlin (1985)
found that, following an initial failure, high self-esteem individuals who received
information linking persistence to performance tended to persist longer than low
self-esteem individuals. A recent study by Yao and Cui (2010) suggested that
high self-esteem individuals are more likely to escalate their commitment to a
failing project than their low self-esteem counterparts. In addition, Bandura
(1977) noted that, in a modelling context, high self-esteem individuals are more
likely than their low self-esteem counterparts to imitate their supervisors when
they perceived them to be competent. Likewise, Adler (1983) suggested that the
modelling behaviour for those with high self-esteem tends to follow their greater
instrumental orientation toward achievement and competence, while that for
individuals with low self-esteem tends to be related to personal attraction and
emotional identification.

Based on the above discussions, it is predicted that in a team-based setting under

conformity pressure, high self-esteem project managers are more likely to
escalate their commitment than those with low self-esteem. This is stated
formally as follows.

6
Self-presentation refers to behaviour designed to communicate some information about
the self or some image of self to others (Baumeister, 1982, 1986; Tedeschi, 1981).

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Accounting, Accountability & Performance Volume 16, Number 1 & 2, 2010

H2: When conformity pressure is present, high self-esteem project managers

have a greater tendency to continue a failing project than their low self-esteem
counterparts.
Method
The participants in our experiment consisted of 57 undergraduate students in a
second-year management accounting course at an Australian university. The
course taught the students the concepts and issues related to capital budgeting.
The use of students as surrogates is justifiable because the decision task in our
experiment does not require actual project investment experience. It was simply
a problem-solving type of exercise that required the subjects to understand
capital budgeting techniques, such as the use of the net present value (NPV)
method, to evaluate an investment proposal. In addition, prior studies (Harrell &
Harrison, 1994; Schulz & Cheng, 2002) suggested that students who have just
studied normative decision-making (e.g. capital budgeting analysis) are
considered to have sufficient background knowledge for the project evaluation
decision task described in this study. The subjects were asked to make a decision
related to continuing or discontinuing a project that they had initiated and were
managing at the time. Four participants responded incorrectly to either one or
both manipulation check questions. Their data were excluded, leaving 53 usable
responses for final data analysis.

The decision scenario used was developed for this study (see Appendix A).
Participants assumed the role of project manager within a five-member
investment team called the Delicious Choc Company. They were asked to make
a decision regarding continuing or discontinuing a specific project (Project
Chocolate) that their team had initiated and managed. The team held the sole
responsibility for the project’s success or failure.

Project Chocolate was at the end of the third year of its seven-year lifetime and,
so far, its past performance was unfavourable; in year three it was suffering from
a negative cash inflow of $50 000. However, despite the project’s poor
performance, the board of director of Delicious Choc Company decided to
allocate an additional $1 million for Project Chocolate to improve its
performance. The investment team decided to ask the marketing division to
conduct a market research, and the marketing division reported that Project
Chocolate would suffer a further loss of up to $150 000 negative cash inflow if
the team decided to continue the project. Based on these historical and
prospective performance data, the optimal decision from the firm’s perspective
would be to discontinue the project.

Participants were randomly assigned to one of two different treatments: (1) when
conformity pressure was absent and (2) when conformity pressure was present.
The participants in the absence of conformity pressure assumed the role of a
senior project manager with 20 years experience and a very solid industry-wide
reputation as a highly talented manager. They were told upon their return from
an overseas holiday that two of their team members had decided to discontinue

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Volume 16, number 1 & 2, 2010 Accounting, Accountability & Performance

Project Chocolate, while the other two had decided to continue it. At the same
time, the participants were also made aware that an investment decision to
continue a project must be backed by more than 50% of the team members’
votes.

Participants under the presence of conformity pressure assumed the role of a

junior project manager with four years experience with Delicious Choc
Company after completing an undergraduate business degree from a local
university. They were told upon their return from an overseas holiday that all
their team members had unanimously decided to continue Project Chocolate in
spite of its unprofitability. The participants were also made aware of the
company’s investment policy that decisions must be unanimous among team
members. Under such circumstances, participants experienced conformity
pressure to go along with their team’s decision to continue Project Chocolate.

Participants were also asked to respond to two manipulation check questions (see
Appendix B): first, they were asked whether they experienced pressure to adhere
to their peers’ or team members’ behaviour or expectations; second, they were
asked whether they realised their role as a junior project manager or as a senior
project manager. After these manipulation checks, participants were asked to
respond to a self-esteem scale (see Appendix C). Participants’ self-esteem
personality was measured by a 10-item, 7-point Likert-type scale developed by
Rosenberg (1965). This scale was originally designed to measure adolescents’
global feelings of self-worth or self-acceptance (Robinson et al., 1991). The
instrument is anchored by (1) ‘strongly disagree’ and (2) ‘strongly agree’ in the
direction of self-worth or self-acceptance. Unlike previous studies that
demonstrate a uni-dimensional factor underlying this scale (Hensley, 1977) or
two highly correlated factors with an additional factor reflecting negatively key-
worded questions (Dobson et al., 1979; Hensley & Roberts, 1976), the results of
our factor analysis reveal that the self-esteem scale consists of four factors and
accounts for 67.53% of the total variance explained. Therefore, three items are
dropped (i.e. items 3, 4 and 9) to reach a uni-dimensional factor for the scale as
shown in Table 1. Cronbach’s (1951) alpha obtained from this reduced 7-item
scale is 0.73. This result suggests satisfactory internal reliability for the scale.
We use the mean to dichotomise the participants’ self-esteem into high and low,
according to whether their self-esteem scores are above or below the mean,
respectively. The mean score is 36.23. Accordingly, 27 participants scored above
the mean and are grouped as high self-esteem project managers. The other 26
participants scored below the mean and are grouped as low self-esteem project
managers.

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Accounting, Accountability & Performance Volume 16, Number 1 & 2, 2010

Table 1: Factor analysis of self-esteem scale

Questions Factor
loading

1. I feel that I am a person of worth, at least on an equal 0.546

basis with others.
2. I feel that I have a number of good qualities. 0.806

5. I feel I do not have much to be proud of. 0.630

6. I take a positive attitude toward myself. 0.643

7. On the whole, I am satisfied with myself. 0.492

8. I wish I could have more respect for myself. 0.692

10. At times I think I am no good at all. 0.574

Eigenvalue = 2.807; Total variance explained = 40.1%

The dependent variable used in the experiment is the participants’ preference for
discontinuing an unprofitable project or continuing with an additional investment
of $1 million. The decision to continue or discontinue the project was indicated
on a 10-point Likert-type scale numbered from 1 to 10, where 1 indicated
‘definitely continue’ and 10 indicated ‘definitely discontinue’. The two
independent variables were: (1) conformity pressure (absent or present) and (2)
the subject’s personality trait of self-esteem (high or low).
Results
Hypothesis 1 predicts that project managers who experience conformity pressure
will exhibit a greater preference to continue a failing project than those who do
not experience such pressure. The results in Table 2, Panel B show that the mean
response given by project managers who did not experience conformity pressure
(7.27) is significantly higher (F = 17.988, p = 0.001) than for project managers
who did (3.78), indicating that the latter tend more toward escalation behavior
than the former. Consequently, H1 is supported.

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Volume 16, number 1 & 2, 2010 Accounting, Accountability & Performance

Table 2: One-way analysis of variance (ANOVA), the mean score for

preference responses across conformity pressure conditions
Panel A: One-way ANOVA

sum of mean
squares d square F-value p-value
Between
161.463 1 161.463 17.988 0.001
groups
Within
457.782 51 8.976
groups
Total
619.245 52
Panel B: Mean and standard deviation for preference responses

Conformity pressure n mean standard deviation

Absent 26 7.27 2.88

Present 27 3.78 2.41
Total 59

H2 predicts that when conformity pressure is present, high self-esteem project

managers are more likely to continue a failing project than those with low self-
esteem. The results shown in Table 3 suggest that there is a statistically
significant (F = 2.543, p < 0.059, one-tailed) two-way interaction between self-
esteem and conformity pressure. This result provides initial support for H2. A
closer look at Table 4 reveals the nature of this interaction. The results presented
in Table 4 show that the mean scores between low self-esteem project managers
(cell 3 = 4.64) and high self-esteem project managers (cell 4 = 2.85) subject to
conformity pressure are in the predicted direction. That is, high self-esteem
project managers have a higher inclination to continue a failing project than low
self-esteem project managers, both subject to conformity pressure.7 Figure 1
(below) illustrates this result. Taken together, these results provide further
support for H2.

7
Note that a lower mean score suggests a higher tendency to continue a failing project.

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Accounting, Accountability & Performance Volume 16, Number 1 & 2, 2010

Table 3: ANOVA results

Source sum of mean
squares df square F- p-
value value
(one-
tailed)
Self-esteem (SE) 3.215 1 3.215 0.365 0.274

Conformity pressure (CP) 161.064 1 161.064 18.279 0.001

SE x CP 22.409 1 22.409 2.543 0.059

Error 431.788 52 8.812

R-squared = 0.303; (adjusted R-squared = 0.260); F-value = 7.091; p < 0.001

Table 4: Mean preference responses for individuals across conformity

pressure (present versus absent) and self-esteem (high versus low)
conditions

Conformity Low High

pressure self-esteem self-esteem

mean = 6.83 mean = 7.64

Absent S.D. = 3.19 S.D. = 2.65
n = 12 n = 14
Cell 1 Cell 2
Cell 3 Cell 4
mean = 4.64 mean = 2.85
Present S.D. = 3.61 S.D. = 2.23
n = 14 n = 13

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Volume 16, number 1 & 2, 2010 Accounting, Accountability & Performance

9.00

8.00 7.64

7.00 6.83

6.00
Managers' Preference Responses

5.00

4.64 Self-Esteem-Low
Self-Esteem-High
4.00

2.85
3.00

2.00

1.00

0.00
Conformity Pressure-Absent Conformity Pressure-Present

Figure 1: Influence of conformity pressure (present or absent) and self-

esteem (high or low) on managers’ preference responses

Discussion and conclusion

The escalation of commitment tendency is one of the most widely researched
topics in management accounting. To date, prior research in accounting has
attempted to identify various factors that can trickle this tendency (Chong &
Syarifuddin, 2010; Harrell & Harrison, 1994; Harrison et al., 1999; Kanodia et
al., 1989; Schulz & Cheng, 2002). Our study extends this line of research by
proposing that conformity pressures can induce managerial escalation behavior.
Apart from conformity pressure, our study also examines whether project
managers’ self-esteem personality trait affects their decisions when faced with
conformity pressure.

As predicted, the results of this study reveal that the unanimous decisions of
others have a significant impact on driving project managers to continue a failing
project. In contrast, when there is no such pressure, project managers show a
higher tendency to terminate the project. Overall, the results suggest that
conformity pressure significantly influences project managers to escalate their
commitment to a failing project. A closer look into the mean responses between
the two groups of project managers (i.e. high and low self-esteem managers)
suggests that the results are in the predicted direction. That is, when conformity

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Accounting, Accountability & Performance Volume 16, Number 1 & 2, 2010

pressure is present, high self-esteem project managers are more inclined to

continue a failing project than project managers with low self-esteem.

The results of our study make the following contributions to the literature. First,
this study’s findings suggest that conformity pressure can be generalised to
capital budgeting practice as a moderating factor that can trickle project
managers’ escalation behaviour. Specifically, the results suggest that project
managers who are subject to conformity pressure are more likely to continue a
failing project than project managers not subject to such pressure. This finding
suggests the need for firms to develop control mechanisms to help project
managers counteract such pressures. For example, a firm’s management control
system should be explicitly set up in accordance with ethical values and
behaviour throughout all firm members (Booth & Schulz, 2004). It must also
create an environment that motivates project managers to follow policies for
documenting and resolving disagreements (Lord & DeZoort, 2001) and to create
a balance of power between management and employees by allowing the latter to
join a labour union.

Second, this study’s findings emphasise the importance of the moderating effects
of personality traits on managers’ escalation of commitment behaviors. For the
personality variable of self-esteem, the tendency of high self-esteem project
managers to support group decisions and the need for support suggest their
superiors should be concerned with job delegation policies (i.e. to the extent to
which job characteristics are in line with their subordinates’ self-concepts). A
difficult job with high uncertainties is more challenging and may therefore be
suitable for high self-esteem subordinates, since they have a greater ability to
search for additional, relevant information (see McFarlin, 1985) and are more
certain about their self-knowledge and abilities (Brockner et al., 1993). On the
other hand, a job that is characterised as being more routine may therefore be
more suitable to individuals with low self-esteem.

A number of limitations of this study should be noted. First, this study relies on
an experimental method to examine the effects of conformity pressure and the
availability of information variables on managers’ project evaluation decisions.
The case materials used reflect a simplified business world situation and,
therefore, care should be taken to generalise the findings. Second, the decisions
made by junior managers under conformity pressure are based on hypothetical
group dynamics, or a make-believe group or team setting. In other words, the
other group or team members are not physically present in the group or team
setting. The lack of real interpersonal interaction may not capture the actual
group dynamics observed in a real business environment. Future studies could
propose a more comprehensive research framework, relying on variables that

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Volume 16, number 1 & 2, 2010 Accounting, Accountability & Performance

were omitted from the current study such as group polarisation,8 information
asymmetry and managerial incentive. These variables may influence managers’
escalation behaviors in a team-based decision setting. Notwithstanding the
aforementioned limitations, this study has improved our knowledge of factors
that can trickle project managers’ escalation behaviors, with important
implications for effective management control systems.
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Harrison, P. D. and A. M. Harrell (1993) "Impact of 'Adverse Selection' on

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Volume 16, number 1 & 2, 2010 Accounting, Accountability & Performance

Appendix A
Case materials
No conformity pressure condition
The Delicious Choc Company
Background
You are the senior project manager of a team in one of the investment divisions
of The Delicious Choc Company, a firm that manufactures and sells chocolates.
You have 20 years of relevant working experience and have gained an industry-
wide reputation as a highly talented manager. Your team consists of four other
members. Mr Bean has 10 years of working experience while Mrs Clever has
nearly 8 years of experience. The other team members, Mr Smart and Mr Sharp,
both have 5 years of working experience.

Your team has been delegated by the Vice-President of Finance to look out for
potential viable investment projects. It has been agreed that if a viable
investment project is identified, your team can go ahead with the investment
project. However, your team will hold sole responsibility for the success or
failure of a project.

Investment project: Project Chocolate

In year 0, your team made a recommendation to invest $1 million in Project
Chocolate, which involved buying a new machine to produce different types of
chocolates. This new machine has an estimated useful life of 7 years.

The financial information related to the new machine is shown as follows:

Initial investment (year 0) $1 000 000

Project life 7 years
Annual expected cash inflows $450 000 p.a.

Your team’s recommendation to invest in Project Chocolate was adopted by the

firm and implemented in Year 1.
Performance evaluation
It has been three years since your team has initiated Project Chocolate. It’s time
now to review the success of your team’s initial investment decision. However,
the actual performance for Year 3 did not compare favourably with expectations,
and was rather disappointing!

The performance of Project Chocolate in the past three years is summarised as

follows:

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Accounting, Accountability & Performance Volume 16, Number 1 & 2, 2010

Year 1 2 3
Expected cash inflow $450 000 $450 000 $450 000
Actual cash inflow $500 000 $450 000 $400 000
Variance in cash inflow $50 000 $0 $(50 000)

Despite the performance of the Project Chocolate in Year 3 (negative cash

inflow of $50 000), the Board of Directors has decided to put aside additional $1
million for Project Chocolate. Your team can use the $1 million for a
comprehensive marketing campaign to promote Project Chocolate and improve
its sales demand.

To help your team to make the decision, you have asked the marketing division
of The Delicious Choc Company to conduct market research on the future sales
demand of Project Chocolate, and they have come up with the following
financial information, the projected performance of Project Chocolate for the
next four years:

Year 4* 5* 6* 7*
Expected cash $450 000 $450 000 $450 000 $450 000
inflow
Projected cash $475 000 $400 000 $350 000 $300 000
inflow
Variance in cash $ 25 000 $(50 000) $(100 000) $(150 000)
inflow
*Includes the effect of the $1 million marketing campaign expenses.

Investment policies
You have missed the recent meeting regarding the Project Chocolate as you
have just returned from an overseas holiday with your family. However, you
immediately learned upon your return, that two of your team members have
decided to discontinue the Project Chocolate while the others have decided to
continue the project.

You are fully aware of one of the company’s investment policies as follows:

‘… investment decision must be more than 50% of the vote for it to carry.’

Thus, as the senior project manager, who has gained an industry-wide reputation
as a highly talented manager, your decision (vote) will ultimately determine the
faith of Project Chocolate. In other words, your decision will determine whether
Project Chocolate will continue or discontinue.

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Volume 16, number 1 & 2, 2010 Accounting, Accountability & Performance

Managerial decision
Will you choose to continue or discontinue Project Chocolate?
(Please circle an appropriate number)

(Continue) Option 1 (Discontinue) Option 2

1 2 3 4 5 6 7 8 9 10
Definitely Definitely
continue discontinue

Conformity pressure condition

The Delicious Choc Company

Background
You are a junior project manager of a team in one of the investment divisions of
The Delicious Choc Company, a firm that manufactures and sells chocolates.
You joined The Delicious Choc four years ago immediately after you completed
your undergraduate business degree from a local university.

Your team consists of four other members. Your team leader, Mr Bean, has
gained an industry-wide reputation as a highly talented manager. He has 20 years
of relevant working experience. Your assistant team leader, Mrs Clever, also has
a very solid investment experience. She has nearly 15 years of experience. The
other team members, Mr Smart and Mr Sharp, have 10 years and 8 years of
working experience, respectively.

Your team has been delegated by the Vice-President of Finance to look out for
potential viable investment projects. It has been agreed that if a viable
investment project is identified, your team can go ahead with the investment
project. However, your team will hold sole responsibility for the success or
failure of a project.

Investment project: Project Chocolate

In year 0, your team made a recommendation to invest $1 million in Project
Chocolate, which involved buying a new machine to produce different types of
chocolates. This new machine has an estimated useful life of seven years.

The financial information related to the new machine is shown as follows:

Initial investment (year 0) $1 000 000

Project life 7 years
Annual expected cash inflows $450 000 p.a.

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Accounting, Accountability & Performance Volume 16, Number 1 & 2, 2010

Your team’s recommendation to invest in Project Chocolate was adopted by the

firm and implemented in Year 1.

Performance evaluation
It has been three years since your team has initiated Project Chocolate. It’s time
now to review the success of your initial investment decision. However, the
actual performance for Year 3 did not compare favourably with expectations and
was rather disappointing!

The performance of Project Chocolate in the past three years is summarised as

follows:

Year 1 2 3
Expected cash inflow $450 000 $450 000 $450 000
Actual cash inflow $500 000 $450 000 $400 000
Variance in cash inflow $50 000 $0 $(50 000)

Despite the performance of the Project Chocolate in Year 3 (negative cash

inflow of $50 000), the Board of Directors has decided to put aside additional $1
million for Project Chocolate. Your team can use the $1 million for a
comprehensive marketing campaign to promote Project Chocolate and improve
its sales demand.

To help your team to make the decision, your team has asked the marketing
division of The Delicious Choc Company to conduct market research on the
future sales demand of Project Chocolate, and they have come up with the
following financial information, the projected performance of Project
Chocolate for the next four years:

Year 4* 5* 6* 7*
Expected $450 000 $450 000 $450 000 $450 000
cash
inflow
Projected $475 000 $400 000 $350 000 $300 000
cash
inflow
Variance $ 25 000 $(50 000) $(100 000) $(150 000)
in cash
inflow
*Includes the effect of the $1 million marketing campaign expenses.

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Volume 16, number 1 & 2, 2010 Accounting, Accountability & Performance

Investment policies
You have missed the recent meeting regarding the Project Chocolate as you
have just returned from an overseas holiday with your family. However, you
immediately learned, upon your return, that all your team members have
unanimously decided to continue the Project Chocolate despite the project not
being profitable.

You are fully aware of the company’s investment policies that decisions must:

• be unanimously agreed amongst all team members

• promote goal congruence
• foster team-spirit among team members
• prevent duplication of investment activities
• encourage cooperation among employees.

Thus, as a junior project manager, your decision (vote) will ultimately

determine the faith of Project Chocolate. In other words, your decision will
determine whether Project Chocolate will continue or discontinue.

Managerial decision
Will you choose to continue or discontinue Project Chocolate?
(Please circle an appropriate number)
(Continue) Option 1 (Discontinue) Option 2

1 2 3 4 5 6 7 8 9 10
Definitely Definitely
continue discontinue

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Accounting, Accountability & Performance Volume 16, Number 1 & 2, 2010

Appendix B
Manipulation check questions
Instruction: Please respond to the following questions:

1. Please tick (√) which of the following two descriptions best indicates the
circumstances related to Project Chocolate.

[ ] You are experiencing the pressure to adhere to peer or team

members’ behaviours or expectations.

[ ] You are not experiencing the pressure to adhere to peer or

team members’ behaviours or expectations.

2. Please tick (√) which of the following two descriptions best indicates the
circumstances related to Project Chocolate.

[ ] You are a junior project manager with only four years of

working experience. There are still a lot of things for you to
learn from your team members as they are highly experienced
managers, especially your team leader.

[ ] You are a senior project manager with 20 years relevant

working experience. You have gained a solid industry-wide
reputation as a highly talented manager.

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Volume 16, number 1 & 2, 2010 Accounting, Accountability & Performance

Appendix C

Self-esteem scale

Instruction: Please state your agreement or disagreement with the following

statements by circling one of the numbers on the scale below. The following
statements describe you as an individual. Please answer each question as
honestly as possible in order to reflect your personality.

Strongly Strongly
disagree agree

1. I feel that I am a person of

worth, at least on an equal 1 2 3 4 5 6 7
basis with others.
2. I feel that I have a number
1 2 3 4 5 6 7
of good qualities.
3. All in all, I am inclined to
1 2 3 4 5 6 7
feel that I am a failure.
4. I am able to do things as
1 2 3 4 5 6 7
well as most other people.
5. I feel I do not have much
1 2 3 4 5 6 7
to be proud of.
6. I take a positive attitude
1 2 3 4 5 6 7
toward myself.
7. On the whole, I am
1 2 3 4 5 6 7
satisfied with myself.
8. I wish I could have more
1 2 3 4 5 6 7
respect for myself.
9. I certainly feel useless at
1 2 3 4 5 6 7
times.
10. At times, I think I am no
good at all. 1 2 3 4 5 6 7

23
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Copyright of Accounting, Accountability & Performance is the property of Griffith University, Department of
Accounting, Finance & Economics and its content may not be copied or emailed to multiple sites or posted to a
listserv without the copyright holder's express written permission. However, users may print, download, or
email articles for individual use.

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