The Effectiveness of Risk Management: An Analysis of Project

Risk Planning across Industries and Countries

Zwikael, O., Ahn, M. (2011). The effectiveness of risk management: an analysis of project

risk planning across countries and industries. Risk Analysis: An International Journal, 31(1),

25-37.

ABSTRACT

This paper examines the effectiveness of current risk management practices to reduce project

risk using a multinational, multi-industry study across different scenarios and cultures. A

survey was administered to 701 project managers, and their supervisors, in seven industries

and three diverse countries (New Zealand, Israel, and Japan), in multiple languages during

the 2002-2007 period. Results of this study show that project context—industry and country

where a project is executed—significantly impacts perceived levels of project risk, and the

intensity of risk management processes. Our findings also suggest that risk management

moderates the relationship between risk level and project success. Specifically, we found that

even moderate levels of risk management planning are sufficient to reduce the negative effect

risk levels have on project success.

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 The Effectiveness of Risk Management: An Analysis of Project

Risk Planning across Industries and Countries

1. INTRODUCTION

“One doesn't discover new lands without consenting to lose sight of the
shore for a very long time” – Andre Gide

The global business environment involves high levels of risk and complexity, which is a

necessary condition for future growth and development. In particular, managers have to cope

with several types of risk including technological, 1,2 financial,3,4,5 insurance-related,6

environmental safety,7 and regulatory.8 As a result, risk management is a critical consideration

in many business areas which impacts profitability, efficiency and sustainability.9-15

Risk management is particularly important in the project management area, as this

discipline involves many organizational functions and their related risks.16 In addition,

projects usually possess high levels of uncertainty derived from their compressed schedules,

inadequate or uncertain budgets, designs that are near the feasible limit of achievable

performance, and frequently changing requirements.10 For example, Huchzermeier and Loch17

identified five types of uncertainty in projects: market payoff, project budget, product

performance, market requirements, and project schedule. Consequently, project risk

management is considered a core area in the literature, 18-21 and as a result, many new tools

have been introduced to manage uncertainty in practice.22

Due to its importance, one would expect project risk management practices to be not only

state of the art, but also highly effective. However, some recent studies have raised concerns

regarding the effectiveness of risk management tools in the project environment. 23-25 The

objective of this paper is to further investigate the effectiveness of current risk management

practices to reduce project risk using a multinational, multi-industry study across different

scenarios and cultures.

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 At the outset, it must also be stated that this study focuses on the project planning phase

due to the following reasons: (1) project management literature suggests there are

heterogeneous managerial approaches required for different project phases, hence each

project management study should focus on only one distinct phase to increase salience, 26 (2)

planning is a critical phase in project management 27-29 and a critical tool for uncertainty

reduction,10 and (3) most risk management practices are performed during the planning phase

of a project.10,19,30 Project planning is defined as the establishment of a set of directions

provided in sufficient detail to inform the project team of exactly what must be done, when it

must be done, and what resources to use in order to produce the expected results of the

project successfully.18 Planning also involves the product concept’s specifications to be

translated into design plans,31 as well as commercial scale and distribution. It has been found

that project managers invest more effort in planning when the perceived level of risk is

higher, and these endeavors improve project success.25

The next sections include an analysis of current project risk management practices, an

outline of the theoretical framework and research hypotheses, and a review of the results of

an empirical study conducted in eight industries and three countries.

2. CURRENT PROJECT RISK MANAGEMENT PRACTICES

A project is defined as any series of activities and tasks that have a specific objective to

be completed within certain specifications, have defined start and end dates, and funding

limits.10 As project managers increasingly have to deal with higher levels of uncertainty, risk

management has become a generic area in most project management books and in relevant

professional associations.10,19,32-34

Within this context, project risk is defined as a “measure of the probability and

consequence of not achieving a defined project goal.” 10 As risk in projects cannot be fully

eliminated, Chapman and Ward35 have defined ‘risk efficiency’ as the minimum risk level for

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a given level of expected performance. Risk management dynamically minimizes risk levels

by identifying and ranking potential risk events, developing a response plan, and monitoring

actively during project execution.19

As risk management is highly developed in project management, most organizations have

a formal policy for project risk management, 36 as well as supportive analytical tools.10,22,37

These analytics include risk identification tools (e.g., brainstorming, checklists, influence

diagrams, cause and effect diagrams), risk analysis tools (e.g., probability and impact grids,

event tree analysis, sensitivity analysis and simulation, Delphi techniques, expert judgment),

risk response tools (e.g., influence-predictability matrix, risk response planning chart, project

risk response planning), and risk evaluation tools (e.g., decision tree analysis, portfolio

management, multiple criteria decision-making tools). Software packages for project risk

management are also available including @Risk, Risk+, Crystal Ball simulation tool, PERT-

Master Project Risk, PERT Master Risk Expert, and Predict. 38 Most of these tools focus on

risk planning processes-risk identification, analysis, and response development.19,35,39,40

Despite the popularity of risk planning tools, some drawbacks with current risk planning

practices have been identified in the literature in recent years. They may be summarized as

follows:

1. Limited variety of tools used: Although a wide variety of risk planning tools exists, in

practice most project managers use risk events ranking as their major or only tool.9,35,41

For example, the 2008-9 global financial crisis was in large part caused by a

widespread belief that securitizing loans reduced the overall risk in the financial

system that proved to be misguided.

2. Poor quality of use: Many project managers perform poorly on some of the most

important risk planning processes such as risk identification, 42 as well as the

development of effective strategies.9

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 3. High complexity of existing tools: As size and complexity of projects increase, the

effort required for effective risk planning exponentially rises, making current tools

difficult to use. 42

4. Low authority of project managers: Typically, functional managers have the

necessary information and authority for most risk planning processes. 43 This may limit

the project managers’ ability to effectively manage risk management processes.

5. Perceived low effectiveness: Risk management is ranked relatively low across studies

identifying ‘project critical success factors’.23 Moreover, studies that support the

positive impact of risk management on project success suffer from limitations (e.g., a

self-selected sample of members from ‘risk special interest groups’, who may not

represent the larger project management community).36

Notwithstanding, risk management has a high degree of importance in the project

environment, especially during the planning phase. However, substantial drawbacks exist in

current project risk planning practices. Moreover, as discussed above, the literature does not

agree on the role risk management planning has in projects. A major reason for this is that a

limiting ‘one size fits all projects’ approach 75 has been used in these studies, without

distinguishing between various project scenarios. To address this research gap, this study

analyzes the role of risk management planning in uncertainty reduction and improving project

success in different scenarios and institutional contexts, through addressing a series of

hypotheses outlined in the next section.

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3. RESEARCH HYPOTHESES

Based on inconsistent relationships among risk levels, risk planning, and project success

in various project contexts found in the literature, the following research hypotheses may be

posited:

3.1. The Impact of Contextual Environment on the Level of Project Risk

The literature finds significant differences towards risk across countries 44,45 and industries.46,47

For example, cultural diversity theory44,48 identifies differences across countries. As these

contextual variables are relevant in any project analysis, their effect on the level of project

risk will be examined. For this purpose, the first two hypotheses were developed:

H1: The level of project risk varies across countries.

H2: The level of project risk varies across industries.

3.2. The Impact of Risk Level on Project Success

High level of project risk is perceived to become a problem19 that project managers try to

resolve throughout the entire project management process. Organizations spend significant

funds and resources in risk management based upon the commonly held belief that high risk

levels are an obstacle to success:10

H3: Project risk is negatively correlated with project success level.

3.3. The Interaction between the Level of Project Risk and Risk Management Planning

on Project Success

Most studies have analyzed project risk planning efforts and project success with limited

consideration of project risk level. Of note, Zwikael and Sadeh 25 found that for different

levels of project risk, project managers decide to invest varying levels of effort in risk

planning which increases monotonically with perceived project risk. As a result, the last

hypothesis focuses on the moderating effect that risk management planning has on risk levels

and project success. This hypothesis may be expressed as:

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 H4: Risk management planning moderates the relationship between levels of project

risk and project success.

4. RESEARCH FRAMEWORK

This study investigates the impact of risk level on project success and the moderating

effect of risk management planning on this relationship. Specifically, the hypotheses suggest

mediating and moderating effects of project risk level, country, and industry typology on

these relationships, which are operationalized in the following section.

4.1 The Research Model

In order to investigate the above hypotheses, the research model includes two parts: (1)

contextual variables, which explore the effect of industry and country on the level of project

risk; and (2) ‘risk management planning’ as a moderating variable for the relationship

between ‘project level risk’ and 'project success'. This model is expressed in Figure 1.

< Figure 1 >

The dependent variable of this study, ‘project success’, is traditionally measured using the

‘golden’ or the ‘iron’ triangle defined as the project being completed on time, within budget,

and to specification.19,49 However, this approach is criticized as it represents the operational

mindset, which is influenced by the ‘get the job done’ approach.50 As a result, several studies

support the inclusion of ‘customer satisfaction’ as an additional dimension of success. 10,36,49,51-

53
Consequently, in this research, four project success variables are used as dependent

variables: schedule overrun, cost overrun, project performance, and customer satisfaction.

As noted, two contextual variables were also included in the model-industry and country-

as they may impact the level of project risk at the beginning of the project. 44,45 Finally, ‘risk

management planning’ is a potential moderating variable in exploring the relationship

between risk level and project success. Risk management planning includes the identification,

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scoring, and ranking of risk events that may hinder project success, as well as the

development of a mitigation plan.

This research framework, however, includes several limitations. The study focuses solely

on the ‘planning phase’ of a project. The justification for using the project phase as a unit of

analysis is its relative importance, as well as the potential confounding effects from different

managerial behaviors observed during different project phases.26,54 In addition, we focused on

this important phase through multiple foci by including a range of developed and developing

countries, as well as across several industries. Finally, regression analyses will be used

throughout this paper for both continuous and scale variables, instead of ordered probit

analyses that provide no better approach in this case76.

4.2 Data Collection

We collected data through questionnaires to: (1) gather information from a large number

of projects across industries and countries, (2) increase contact with senior managers, (3)

expand geographic coverage, and (4) guarantee anonymity to participants (particularly

important when managers are asked to report on project failure).

The objective of the questionnaire was to collect data regarding processes executed in

projects, as well as the success of their projects. In the questionnaires, project managers were

asked to estimate the frequency of use of project risk management planning, using a 1-5

Likert scale, for their most recently completed projects. In order for the project managers to

make accurate estimates, the relevant risk management planning tools were introduced to all

participants in this research as sub-processes that comprise the variables under investigation.

Project managers were also asked to identify their industries among a list of seven coded

choices.

While the independent variables were collected from project managers, the dependent

variables were collected from their supervisors to avoid ‘same source bias.’ Hence, the four

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dimensions of ‘project success’ were reported by the supervisors of project managers,

measured as follows:

1. Cost overrun was measured in percentage deviation versus the original plan.

2. Schedule overrun was measured in percentage deviation versus the original plan.

3. Project performance, referring to achieving project scope targets, was measured on a

scale of 1 (low performance) to 10 (high performance).

4. Customer satisfaction was measured on a scale of 1 (low customer satisfaction) to 10

(high customer satisfaction).

In accordance with previous studies,25,43 the wide scale for the last two variables was

selected to allow a clear distinction between successful and unsuccessful projects.

The unit of analysis was a project, and the research population included projects from

selected industries and countries. The sampling design of projects guaranteed a sample that

reflected the various industries where projects were undertaken in each country.45,57 The

questionnaire was administered during the 2002-2007 period to project managers and their

supervisors in seven different industries (communications, construction, engineering,

government, production, services, software) and three diverse countries (New Zealand, Israel,

and Japan). These countries were selected to represent different cultures (Asian and Western),

country sizes (population of 4-7 versus 130 million), and geographic locations. The

questionnaire was available in English, Hebrew, and Japanese, all of which were developed

and translated by native speakers.

Initial data collection involved project managers who are members of the Project

Management Institute (PMI), which supported this study in all targeted countries.

Notwithstanding, recognizing the danger of this type of data collection as a sole source, the

other half of questionnaires were collected from organizations selected and personally visited

by the research team. For that reason, the research team assembled organization names from a

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variety of local sources to ensure that the research sample included firms of different sizes,

multiple industry sectors, and varying levels of project risk. Further, the two groups were

compared to ensure they were broadly representative of the study population.

The research team sent emails and/or called senior managers of target organizations, and

asked them to participate in a self-administrated study. Managers were assured of anonymity,

data confidentiality, and that only aggregated data would be reported. A project was included

in the final data analysis only if at least 80% of questionnaire items were answered. All

analyses in this study have been conducted using SPSS v17.

In all, 701 valid questionnaires were collected across three countries – 301 in New

Zealand, 275 in Israel, and 125 in Japan. The average project duration was 11.9 months, with

a standard deviation of 9.2 months (ranging from 2 months to 6 years). The number of

questionnaires from each industry broadly represented the share of these industry sectors in

each of these economies,45 hence this sample may be seen as representative of each of these

countries. Each industry or country was represented by 50 to 301 projects to allow enough

data for further analysis. One exception was the construction industry which was

underrepresented in this sample. Although this is not an obstacle for hypotheses testing per

se, the small sample size did not allow us to make definitive conclusions about the

construction industry.

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5. RESULTS

To place the results in context, we first present an international and cross industry

comparison of perceived risk levels, use of risk planning practices, and project success.

5.1 The Use of Risk Planning Practices and Project Success

The use of risk planning practices can represent the importance of risk management, as

perceived by project managers. Descriptive statistics in Table I includes the mean, standard

deviation, and F statistics to compare industries and countries.

< Table I >

As can be seen from Table I, most project managers use risk management tools, with an

average as high as 3.92 (in New Zealand) and 3.63 (in engineering projects), on a 1-5 scale.

‘Project success’ scores, as estimated by the project manager’s supervisor using the four

variables provided, show that Israeli projects face higher schedule and cost overruns, as

compared to other countries. Japanese projects, while excelling in meeting targeted

schedules, do not deliver all objectives to customers. New Zealand projects perform relatively

high in all dimensions. Reasons for these differences are not the focus of this paper, however

various studies suggest cultural differences between Japan and Israel, 45 as well as across

countries globally,48,56 may be helpful in assessing aggressive versus conservative goal setting

behavior.

In addition, F tests indicate a significant effect of both country and industry on all study

variables. These initial results strengthen the importance of the hypotheses focusing on the

contextual environment of a project noted earlier.

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5.2 Hypotheses 1 and 2 - The Impact of Contextual Environment on the Level of Project

Risk

The first two hypotheses posit that the level of project risk varies across industries and

countries. Table I compares the average level of risk across the three study countries, and

then the seven industries. We used an F test to analyze whether differences in means were

statistically significant. Results allowed us to reject the first two null hypotheses and

conclude that the level of project risk varies across industries and countries which

participated in this study. Specifically, higher levels of perceived risk are estimated in New

Zealand, compared to lower levels in Israel and Japan. Among industries, engineering and

construction projects have the highest levels of perceived risk, while projects in the service

industry have the lowest.

5.3 Hypothesis 3 - The Impact of Risk Level on Project Success

The next hypothesis assumes that projects with higher levels of risk succeed less than

projects with lower level of risk. An analysis of correlations among all project variables was

conducted and presented in Table II.

< Table II >

We found the correlation between risk level and all four project success measures were

low and insignificant. These results suggest that risk levels do not directly affect project

success in all project scenarios, which lead us to further investigate whether a moderating

variable may influence this relationship.

5.4 Hypothesis 4 - The Interaction between Level of Project Risk and Risk Management

Planning on Project Success

This section investigates whether different levels of risk management planning moderate

the negative impact risk has on project success. We conducted a two-way ANOVA test with

split median of ‘risk level’ and ‘risk management planning’, and the interaction between

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them. We also confirmed the results with split-mean to replace split-median. For each

analysis, a different success measure was used as the dependent variable (schedule overrun,

cost overrun, project performance, and customer satisfaction). Table III presents the results of

these analyses, including F values, number of observations, and degrees of freedom for each

model.

< Table III >

We found that the interaction between risk level and risk management planning was

significant for three project success measures (cost overrun, project performance, and

customer satisfaction). Moreover, all four models were found to be significant. It was also

found that risk management planning does not always impact project success, as it depends

upon the level of project risk.

In order to understand the nature of the interaction between risk level and risk

management planning, a graphical representation is suggested in Figure II. The graphs

illustrate the effect of two levels of project risk (with a median of 7) on project success when

different levels of risk management intensity are practiced (low intensity versus a combined

medium/high category, as was suggested by a previous analysis). Each graph uses a different

project success measure.

< Figure II >

The graphs suggest that if only low risk management planning effort is invested, project

success levels reduce as the level of risk increases (for example, higher cost overrun and

lower customer satisfaction). This analysis represents the net impact of risk on success, with

only minimal risk management effort made to mitigate risk. However, when a medium or

high level of risk management planning is practiced, an increase in the level of risk no longer

reduces project success rates. Of note, a significant change in success is observed as the level

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of risk management planning increases from ‘low’ to ‘medium’ (and even before it reaches

‘high’).

6. DISCUSSION

Projects involve risk by nature. As found in this study, the level of perceived risk varies

among industries and countries. Reducing the level of risk is extremely important in projects,

and indeed results of this study suggest that project managers often use risk management

planning practices, consistent with previous studies.10,22,36,57 Specifically, we found that risk

management planning efforts are effective only when the level of project risk is medium-to-

high. In projects with low risk levels, risk management planning is ineffective and may be

unnecessary, also consistent with previous studies.25 This indicates that project managers who

oversee high-risk projects preferentially invest more planning effort in an attempt to cope

with risk.

6.1 The Level of Risk across Industries and Countries

As project characteristics vary according to the context they operate in, we found that the

level of perceived project risk differs across industries and countries. The cultural diversity

literature can explain the different attitudes across cultures towards uncertainty. 44,48 For

example, the GLOBE study48 analyzed, among its nine dimensions, the level of uncertainty

avoidance for each country. It suggests that among the selected countries of this study, New

Zealand has the highest level of uncertainty avoidance. This indicates that New Zealanders

strive more to avoid uncertainty by reliance on social norms, rituals, and bureaucratic

practices to alleviate the unpredictability of future events. Results of this study show that

findings from the cultural diversity literature are also relevant in the project context. We

found that projects in New Zealand have a higher perceived level of risk and, as a result, a

heightened focus on risk management practices. In countries with lower levels of uncertainty

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avoidance (i.e., Japan and Israel), the perceived levels of project risk were lower and, as a

result, less effort in risk management planning was invested. This suggests that culture affects

the way risk is perceived and operationalized in projects.

Different levels of risk were also found across industries, which may be explained by the

different nature of projects across industries. Industries and companies also vary widely in

their relative degree of innovation and risk. From a legitimacy theory based view, the

‘liability of newness’ may increase perceived risk levels and project management activities. 60

Consider for example the biotechnology industry which is perceived to possess high levels of

product and regulatory risk.61 Another explanation may lie with the fact that perceived levels

of risk are associated with the experience and maturity of the project manager, organization,

and industry. Maturity models, which evaluate the overall effectiveness of organizational

processes,58 have found that construction and engineering organizations have the highest

levels of maturity.47,57,59 Consequently, this study found that these industries deal effectively

with high levels of risk to complete projects with higher levels of success, compared to other

industries. This means that these organizations comprehend the unique approach required for

each initiative.

6.2 The Impact of Risk Level on Project Success

Building on prior studies that established the relationship between project risk level and

project success, a major contribution of this study to the literature is the investigation of the

moderating effect of risk management planning. This study found that when no or low levels

of risk management planning are invested in a project, the level of risk is negatively

correlated to project success. That is, higher risk levels reduce project success rates. Thus,

these results suggest that risk management provides effective processes to reduce uncertainty

and improve project success rates. This finding challenges previous studies that showed risk

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management tools are effective only when unforeseeable uncertainty and complexity are

low.62

6.3 Project Risk Management Practices

In this study, risk management planning was found to be an effective process to reduce

the impact of risk levels on project success rates. However, as the literature has identified

some drawbacks with current risk management practices, this section suggests possible

implications for future research and practice.

According to most project management methodologies, 19,33,34 risk management is defined

as a separate project management area. For example, the Project Management Body of

Knowledge (PMBOK) defines risk management as one of the nine project knowledge areas,

along side other topics such as scope, schedule, quality, and cost management. 19 The fact that

risk management is isolated from other project management processes may prevent project

managers from integrating risk management effectively. A typical example under current

project risk management methodology is for a technical team to reduce technological risk

during the software implementation phase by increasing training content. However, these

changes are not always integrated by the financial manager into the project budget or by the

human resources department into the training plan, as these are different project areas and

teams. Hence, one may posit that integrating risk management with other project

management and organizational practices will contribute to project success. This is suggested

because in some project contexts, risk management is perceived as a separate activity that is

not directly related to the broader organizational processes, as arises from this study’s

findings:

1. In countries with low levels of uncertainty avoidance, project managers place lower

importance on risk management and hence do not always follow required processes.

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 2. In industries with low levels of maturity, project managers do not frequently perform

the risk management process.

Additional support for integrating risk management into other project and organizational

areas can be found in the literature. For example, while most project management textbooks

devote a separate chapter to risk management, Meredith and Mantel’s18 widely used textbook

presents risk management content throughout the book. They assert that “the fact that risk

and uncertainty are inherent in all aspects of a project life cycle led us to incorporate

discussions of risk management when they were relevant to the problem in hand.”73 Cleland

and Ireland32 and others22,63 with similar approaches, together with the results of this study,

strengthen the idea of integrating ‘risk management’ with other project management areas

and organizational groups.

In order to support the future development of a new ‘integrated risk’ approach, some key

constituents have been identified from the literature. 69 These include collaboration and

coordination to integrate risk at the project, organizational, and system levels of analysis.

Studies have shown, for example, that large, complex organizations use strategic focus to

evolve systems and processes to fulfill their target customer needs. The focus in this case is

that risk can impede innovation and increase the risk that a series of small errors will

eventually lead to a catastrophic organizational failure. Achieving a narrow functional focus

while simultaneously maintaining broad organizational awareness is a key antidote for this

type of corporate myopia. In practice, however, this is a difficult balance to achieve precisely

because team and individual “integration is an on-going accomplishment and partly because

rules, orders, directives, procedures, checklists, and instructions are largely static tools, ill-

fitted to meet the ever-changing requirements of a dynamic system.”73,74

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 Based on these principles of integration, core principles of an integrated risk management

approach suggested in these findings and based on the authors’ experience, are provided in

the following:

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Integration of risk management with other project management processes

The current practice: The project management literature identifies several knowledge areas

(e.g., scope, schedule, cost, quality) of which risk management is one. For example, the

PMBOK19 includes nine knowledge areas, including risk management. This means that risks

are identified and analyzed at the project level.

A drawback with current practice: As has been described in this paper, the added value of

decisions derived from risk management analysis is low in immature organizations.

Responses aimed at reducing the level of risk generally have a low impact when they are not

simultaneously implemented across various aspects of a single project’s activities.

A suggested principle: An 'integrated risk' approach might combine the ‘risk analysis’

paradigm into various project management processes. As a result, risk assessment would

occur not only at the project level, but also on the single activity level (e.g., analyzing the risk

related to resources, knowledge gaps, duration of uncertainty, or cost of an individual

activity). While this practice is commonly conducted by many project managers, it should

also be reflected in formal methodologies, processes, and procedures to enhance institutional

capacity.

Increasing the formal involvement of functional managers

The current practice: Project managers are responsible for all risk management processes

related to their project, while functional managers hold most of the power in immature

organizations.

A drawback with current practice: In many cases, necessary information about potentially

risky events and best available technical solutions lies with the functional manager, rather

than with the project manager. For example, the engineering department manager usually has

more information than the project manager with regards to technological risks involved with

the development of a new product.

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A suggested principle: Risk management may be practiced and integrated by functional

managers. Functional managers may have more authority in decision-making, which is

related to risk management practices since they have the requisite knowledge and experience

with related risks, and they are the ones who are responsible for executing these tasks.

Integration of risk management with stakeholder management

The current practice: Risk is typically managed by a small group of people leading the

project. In immature organizations, moreover, risks are sometimes hidden from the view of

some project stakeholders.

A drawback with current practice: A limited number of opinions may cause the organization

to miss efficient solutions to cope with potential risk events and/or seize new opportunities.

A suggested principle: Risk management planning may involve relevant team members and

project stakeholders in an open forum. Decisions which are a result of such discussions may

improve project outcomes and customer satisfaction. However, care should be exercised to

ensure that conflicting perspectives of multiple stakeholders are discussed openly and

analyzed systematically, for example using a systems thinking approach for stakeholder

management.70,71,72

In summary, these risk management principles, which integrate several projects, teams

and knowledge areas, can be further developed to enhance organizational effectiveness in

project contexts of countries with low uncertainty avoidance and industries with low project

maturity levels. These principles may improve the integration of risk management practices

with other project areas, as well as improve the involvement of project stakeholders,

functional managers, and senior executives—towards ensuring that risk management

becomes an overall organizational effort.

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7. CONCLUSIONS

Building on diverse findings in the literature regarding the effectiveness of project risk

management, this study found that risk management practices moderate the effect of project

risk on project success in multiple project scenarios. While risk levels reduce project

performance, effective risk management planning was found to moderate this relationship. As

a result, we sometimes face high risk projects that are completed more successfully than

projects with low levels of perceived risk.

This study also found that environmental context determines the level of perceived

project risk. Specifically, we found that the perceived level of risk, and hence risk

management planning are lower in countries characterized by low levels of uncertainty

avoidance (e.g., Japan and Israel) in cultural diversity terms; and in industries with immature

project management practices (e.g., production). On the other hand, we found the perceived

level of risk, and hence risk management planning are higher in cultures with higher levels of

uncertainty avoidance (e.g., New Zealand) and industries with higher levels of project

maturity (e.g., engineering). While we used multiple foci to increase the robustness of our

findings, generalization of these results may require additional studies on a wider cross

section of countries and industries. For example, countries where cultural diversity studies48

identified as having low uncertainty avoidance levels (e.g., Russia, Argentina, and Italy) may

also focus less on risk management practices.

In summary, principles suggested in this paper—integrating risk into various project

management processes, adding the responsibility for risk management to functional

managers, and discussing risks with relevant team members and project stakeholders in open

forums—may be useful for organizations operating in countries with low levels of

uncertainty avoidance and industries with low project management maturity, as means to

mitigating risks and enhancing value.

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ACKNOWLEDGEMENTS

The authors would like to gratefully acknowledge the Area Editor, Karen Lowrie, and the

anonymous reviewers for their excellent guidance and encouragement. All views and errors

are ours. We would also like to acknowledge the support from the Victoria University of

Wellington in New Zealand.

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TABLES

N Level of Risk Schedule Cost Project Customer

risk management overrun overrun performance satisfaction
planning
(1-10) (1-5) (%) (%) (1-10) (1-10)
Countries:

New Zealand 301 6.89 3.92 10.37 8.22 8.05 8.03

(1.87) (1.33) (10.96) (14.56) (1.54) (1.35)
Israel 275 6.49 2.77 28.29 21.74 8.08 8.16
(1.96) (1.25) (20.37) (15.99) (1.33) (1.19)
Japan 125 6.60 2.88 7.40 6.41 5.55 5.58
(2.07) (1.19) (13.13) (16.61) (2.00) (1.74)
F1 3.03* 74.02*** 115.87*** 65.88*** 133.16*** 64.58***

Industries:

Engineering 88 7.11 3.63 13.52 13.42 8.45 8.30

(1.68) (1.43) (16.47) (23.00) (1.02) (1.02)
Software 212 6.52 3.02 19.43 15.74 7.03 7.58
(1.84) (1.31) (20.57) (18.37) (2.05) (1.64)
Production 62 6.71 3.06 14.01 10.39 6.98 7.18
(2.21) (1.18) (13.69) (13.78) (2.05) (1.60)
Construction 20 7.71 3.00 5.10 5.10 8.39 8.40
(1.66) (1.12) (5.14) (5.34) (1.50) (1.35)
Communications 87 6.78 3.47 16.26 11.59 8.07 8.22
(1.95) (1.21) (16.36) (11.94) (1.47) (1.20)
Services 50 6.39 3.62 11.86 11.45 7.82 7.68
(2.05) (1.31) (16.14) (16.02) (2.03) (1.58)
Government 143 6.56 3.32 22.06 15.46 7.69 7.87
(2.05) (1.38) (19.36) (15.44) (1.67) (1.43)
F2 2.10* 3.53*** 4.70*** 2.08* 8.76*** 5.46***

Table I. Differences in risk level, intensity of risk management planning and project success across industries
and countries (standard deviation values in brackets)
(*p<0.05; **p<0.01; ***p<0.001; significant results in bold)
1
F value indicates the difference between countries
2
F value indicates the difference between industries

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 Mean Standard Risk Schedule Cost Project Customer
deviation management overrun overrun performance satisfaction
planning
Level of risk (1-10) 6.67 1.95 0.20*** -0.02 0.01 -0.02 -0.02

Risk management 3.29 1.32 -0.20** -0.28*** 0.13** 0.11**

planning (1-5)
Schedule overrun 18.59 24.18 0.67*** -0.08* -0.12**
(%)

Cost overrun (%) 14.22 22.91 -0.09* -0.09*

Project 7.60 1.83 0.72***

performance (1-10)
Customer 7.82 1.48
satisfaction (1-10)

Table II. Pearson correlations among the study’s continuous variables (significant values in bold)
(*p<0.05; **p<0.01; ***p<0.001; significant results in bold)

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 Schedule Cost Project Customer
overrun overrun performance satisfaction
(%) (%) (1-10) (1-10)
Level of risk (L) 0.03 4.81* 7.85** 14.90***
Risk management planning (P) 18.01*** 59.33*** 2.16 8.85**
Level of risk * Risk management 1.69 8.29** 10.09** 17.59***
planning (L*P)
F 8.45*** 20.39*** 3.41* 6.41***
N 666 651 670 670
Degrees of freedom 3; 662 3; 647 3; 666 3; 666

Table III. Two-way ANOVA for the interaction between level of risk and risk management planning on project
success (F values)
(*p<0.05; **p<0.01; ***p<0.001; significant results in bold)

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FIGURES

Risk
management
planning Project success:
Country H1 1. Schedule overrun
H4
Level of 2. Cost overrun
project risk H3
Industry H2 3. Project performance

4. Customer satisfaction

Figure I. The research model

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 Figure II a – Impact on schedule overrun Figure II b – Impact on cost overrun

Figure II c – Impact on project performance Figure II d – Impact on customer satisfaction

Figure II. The interaction between risk level and risk management planning on various project success
dimensions

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