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International Journal of Project Management 32 (2014) 400 411
www.elsevier.com/locate/ijproman

Project risk: Theoretical concepts and stakeholders' perspectives

Budi Hartono , Sinta R. Sulistyo 1 , Poetry P. Praftiwi 1 , Danar Hasmoro 1
Industrial Engineering Program, Mechanical and Industrial Engineering Department, Jl. Grafika 2 Yogyakarta, Universitas Gadjah Mada, Yogyakarta, Indonesia
Received 7 December 2012; received in revised form 24 April 2013; accepted 28 May 2013

Abstract
Past empirical studies on risk conceptions in general management of developed countries provide compelling evidence to the discrepancy
between practitioners' perspectives on risk and the principles of the normative decision theory on which risk analysis tools are based. This study
provides a similar investigation for a specic context of project management within a developing country setting. It aims at identifying
stakeholders' perspectives on project risks in Indonesia and comparing them against assumptions of rational, normative theories and past ndings
from general management in developed countries. Two separate cross-sectional surveys were carried out with respondents composed of project
contractors (n = 96, response rate = 38.4%) and clients (n = 99, rate = 69.7%), respectively. Empirical results identify signicant gaps of riskrelated concepts between project stakeholders' perspectives and the rational assumptions of the normative decision theories. For instance, risk is
widely viewed by practitioners from the negative domain while the rational theory would suggest a more neutral perspective of risk. The pattern of
ndings is similar to those from previous empirical studies of developed countries within a general management context.
2013 Elsevier Ltd. APM and IPMA. All rights reserved.
Keywords: Project; Risk; Concept; Normative; Theory; Descriptive; Indonesia

1. Introduction
As project-based organizations, it is imperative for construction contractors to manage their projects more effectively
to maintain business sustainability. A good implementation of
project risk management (PRM) is believed to be one of the
leading factors attributable to project success and hence
companies' long-term success.
Past empirical studies in the general management domain
provided some evidences to the assertion that underlying principles in normative (rational) theory of risky decision making
(1998) differ from risk-related perspectives held by practitioners. Four key past studies considered relevant to the
reported study are briefly described as follows. A landmark
work by March and Shapira (1987) found substantial discrepancies between risk concepts which were developed in
the classic theory and those being held by perceptions of

Corresponding author. Tel./fax: +62 274 521673.

E-mail address: boed@gadjahmada.edu (B. Hartono).
1
Tel./fax: +62 274 521673.
0263-7863/$36.00 2013 Elsevier Ltd. APM and IPMA. All rights reserved.
http://dx.doi.org/10.1016/j.ijproman.2013.05.011

executives. Fifty top management from Israel and the United

States were inquired (by interview and questionnaire) to find
their perspectives on risk concepts, risk-and-return relationship,
and degree of controllability of risks. Another substantial study
by MacCrimmon and Wehrung (1990) was conducted with
respondents composed of 509 top-level business executives in
the United States by means of an empirical study. This study
aimed at identifying the risk-related attributes of top management in the general management setting. The result of this study
was that the managers could be influenced by various
determinants when making risky business decisions, including
personal (e.g. age, citizenship, and education), financial
(e.g. wealth and income), and professional characteristics
(e.g. occupation, type of industry and company size). Riabacke
(2006) conducted an empirical study with twelve managers in the
Swedish forest industry by using interview and experimental
studies. The study aimed at identifying the way the managers
define and address risks and the method of dealing with risky
decisions. Khan and Stylianou (2009) conducted another study of
top management (CEO or managers who report directly to the
CEO) in the information technology industry. This study focused
on exploring the phenomenon of overconfidence in the field of

B. Hartono et al. / International Journal of Project Management 32 (2014) 400411

information technology. The result was that there is a tendency to

be overconfident in the top management level.
While the past empirical studies had provided some initial
evidence to the existence of the discrepancies of risk-related
conceptions and behaviors between practitioners and normative
(rational) theories, some limitations are noteworthy. Firstly,
most pertinent past studies were conducted in the context
of general management. Hence the insights taken from such
studies may not be readily transferable to the specific characteristics of project management. Secondly, the studies were
mostlyif not allcarried out in developed countries.
Extensive cross-cultural studies by Hofstede (1984) suggested,
among other things, the variation of attitude towards uncertainty across different countries. Accordingly, it would be
beneficial to study the possible discrepancies within the context
of developing countries, in this case Indonesia. Thirdly, most
past studies focus on the executing managers and tend to
overlook the role of other stakeholders. Since in the project
management context, the role of contractors and clients are
equally important, the two groups of stakeholders need to be
studied in separate inquiries. This study attempts to address the
three research opportunities.
This study promises two significant contributions. From an
academic perspective, this study provides a pioneering exploratory work as a basis of further studies which attempt to understand the actual perceptions of risk and the behavior of project
practitioners under risky situation. In this sense, the work would
contribute to the more general body of knowledge of the actual
behavior of people working under uncertain circumstances
i.e. a knowledge advancement under the descriptive decision
theory paradigm (Bazerman, 1998). From a practical perspective,
this study provides some descriptive evidence on how project
practitioners perceive risks and the risky behavior under
uncertain circumstances. Scholars could then be aware of the
gaps and could consider the gaps when developing new tools and
methods in risk analysis which are closer to the practitioners'
belief and extant practices. With that, a less resistance towards
implementation of the proposed methods/tools could be
expected. From the practitioners' point of view, the identified
gaps could highlight the importance of enriching their perspective
towards risk with the pertinent risk-related, normative (rational)
theories. In short, the gaps could be reduced from both sides.
To provide a more insightful analysis, elaboration on the
findings from the perspectives of construction contractors and
clients of this study is juxtaposed to those in past key studies which
are earlier mentioned and the relevant, prominent, normative
(rational) theories whenever possible. The Von Neumann and
Morgenstern's Utility Theory, or VMUT, becomes the main
rational theory to which the empirical findings are gauged against,
due to its most general and popular description of rational choice
in the mathematical and behavioral sciences (Hastie and Dawes,
2001 p. 237).
2. Research method
The approach to the study was exploratory, an empirical
method capable to provide initial knowledge for a relatively

401

new area of study (Babbie, 1990). The method of inquiry used

was two separate empirical studies of cross-sectional surveys to
inquire pertinent information from Indonesian project stakeholders of construction contractors and clients, respectively.
Due to the difficulty to identify the sample frame and for
practical reasons, a convenience sampling was utilized. These
techniques tend to be cost effective and time-efficient but may
give some biased results.
Survey instruments were developed by administering three
activities. Firstly, literature reviews to identify pertinent
information to be inquired were carried out. Secondly, questionnaire items were developed. Thirdly, a pilot study to assess face
and content validities of the instruments was administered. The
finalized instruments along with the cover letter and return
envelope were distributed to the targeted respondents by various
means, mostly by surface mails or by visiting the respondents in
their respective offices. Appendix 1 provides a sample of the
survey form.
To improve response rates, anonymity as well as confidentiality of individual responses was highlighted. Moreover, upon
request, a summary of the finding would be provided to
respondents. The response rate for the Study #1 (contractors) is
38.4% (out of 250) while this for Study #2 (clients) is 69.72%
(out of 142). Hence the sample sizes were 96 and 99 for the
construction contractors and clients, respectively. The response
rates for both studies are considered high since a low response
rate is common in studies in the construction domain (Dulaimi
and Shan, 2002; Tan, 1995). Hence the results of the studies are
arguably useful to reflect Indonesian context despite the
convenience sampling utilized on both studies.
Upon completion of the survey, all collected data were
coded, cleansed, and double-checked for eliminating procedural errors. A data preparation procedure (Hair et al., 2006) was
carried out, including dealing with missing data and identifying
possible outliers. Summary of the research method is depicted
in Table 1.

3. Results and discussions

3.1. Profile of respondents
The two studies target respondents who worked in the
construction industry (either on the contractor or client side) and
have substantial roles in project-related risky decision making. In
order to determine whether the respondents meet the criteria,
respondents are given questions to identify their job profiles.

Table 1
Research method.

Respondents
Method of inquiry
Sampling method
Response rate
Sample size, n

Study #1

Study #2

Contractors
Cross-sectional survey
Convenience sampling
38.4% (out of 250)
96

Clients
Cross-sectional survey
Convenience sampling
69.7% (out of 142)
99

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B. Hartono et al. / International Journal of Project Management 32 (2014) 400411

For the contractors, respondents are project practitioners

who came from construction firms of various characteristics.
On average, respondents had been working for 7.8 years in the
construction domain. Moreover, respondents had been holding
their latest positions for 4.3 years on average. Respondents'
work experiences are ranging from one (1) year to 29 years.
The frequency of project-related risky decision making varied:
24% of respondents very often (almost every day) made
decisions, 32% of respondents often (few times in a week)
made decisions, and 40% of respondents seldom (once a week)
made risky decisions. The designations of respondents also
varied; ranging from the first line management to the top
management. For the contractor respondents, 48 respondents
came from the first line management such as estimators
and supervisors; 32 respondents were from the mid
management such as site managers, construction managers,
contract managers, and safety managers; and 16 respondents were of top management such as directors and senior
managers.
On the other hand, the client respondents came from multinational companies as well as state-owned companies and
government institutions, including ministries. The respondents
had an average working experience of eight (8) years in their
current positions. Client respondents' work experiences are
ranging from 3 years to 35 years. The designations of respondents also varied; 48 respondents came from the first line
management, 54 respondents came from the mid management,
and 2 respondents were from top management.
The previously mentioned facts become the basis to
ensure that the respondents are arguably representative for
the study.
3.2. Perspectives toward risk
3.2.1. Definition
Respondents from both contractor and client sides were
inquired to provide their perspectives on the definitions of risk
in project settings. Assumptions of rational, normative theories
are compared to the empirical findings as follows.
In the normative decision theory, risk is closely related to the
variation of the possible uncertain outcomes. Risk, hence,
reflects the possible deviation of actual outcome from the
expected value. The wider the variation, the riskier the
alternative as asserted by decision theory (Clemen and Reilly,
2001). Furthermore, the invariance axiom of the Von Neumann
and Morgenstern Utility Theory (VMUT) (Von Neumann and
Morgenstern, 1947) dictates that risk level is defined by only
two dimensions, namely: the probability and its severity or
consequence. The contractors in the study define risk as
operating condition (20.2%), unpredictable thing (17.7%),
financial control (16.6%), something can be solved (11.8%),
the mismatch between plan and actual condition (10.7%), and
bad outcomes (9.7%). It is shown that the majority of
contractors take negative or neutral terms with regards to risk.
Similar with the construction contractors, clients relate
risks as the loss that must be accepted during the project
(34.34%), a part of work and challenge to be reckoned

carefully (23.23%), various possible alternatives to be

selected or controlled (20.20%), one of the consequences as
a result of decision making (13.13%), and the uncertainty that
cannot be predicted (9.9%). Hence it can be seen that majority
of the contractor respondents (57%) view risk on the negative
terms (i.e. loss, challenge) while the remaining see risk from a
more neutral or positive side (e.g. various alternatives, consequences, uncertainty).
A further analysis about stakeholders' risk conception is
taken from respondents' responses to inquiry for providing five
keywords which come first to mind pertinent to risk in project.
Using a text analyzer software, 411 words and phrases were
collected and analyzed from the contractors resulting in 134
unique words or phrase. From the 134 words and phrases, top
three words or phrases identifiable are loss (7.3%), profit
(5.8%), and cost (5.4%). For the self-provided keywords by
clients; regulation with a 7.1 percentage is the most frequently
mentioned word. The word loss (4.9%) and profit (4.6%)
placed the second and the third, respectively. Appendix 2
provides the top twenty most cited risk-related words for
respective stakeholders.
This result is in line with the empirical finding by Shapira
(1986) that practicing managers consider risk as possible
negative outcomes and they overlook the positive outcomes.
March and Shapira (1987) found that in managers' perception,
risk is related to the worst outcome. In software development
projects, Keil et al. (2000) found that risk perceptions were
significantly affected by the magnitude of potential losses.
Riabacke (2006) also identified that risk is a condition where
the outcome is not known. This is consistent with the concept
of loss aversion asserting that losses loom larger than gains
(Hardie et al., 1993; Tversky and Kahneman, 1991). Loss
aversion asserts that the degree of satisfaction gained by
additional wealth is not the same as the degree of dissatisfaction perceived due to the decrease of an equal amount of
wealth. Most people respond to losses in a more significant
way than to gains; they are loss averse (Bazerman, 1998). This
condition has been long identified by scholars in the
descriptive camp.
In addition, current studies found that project stakeholders
tend to overemphasize the consequence side of risk and
overlook the probability dimension. The words cost and
profit which is prominently identifiable from respondents of
both sides to describe risk would suggest such a situation.
The result is consistent with a study by Fischhoff et al. (1984)
which identifies that risk is more about the consequence than
the unpredictability of the outcomesin the case: profit or
cost.
To sum up, rational theories suggest a more neutral concept
of risk. Risk could be positive (opportunities) or negative
(threats) and the degree of risk could be assessed from two
dimensions: probability and its severities. However, practitioners in both current and past studies hold a different view
from the theory. Indonesian project stakeholders as well as their
counterparts from developed countries tend to relate risks with
the possible negative sides of situation. Moreover stakeholders
tend to over-emphasize on the consequence of the risky

B. Hartono et al. / International Journal of Project Management 32 (2014) 400411

situation and less consider the probability of the occurrence as

suggested by the normative decision theory.
3.2.2. Risk attitude
Normative decision theories would assume that rational
decision makers have a consistent risk preference which
dictates their risk attitude and hence risky decisions. Moreover,
context is not a relevant determinant in risky decision making
in the sense that decisions on risky choice would only be
dictated by the probability, the possible outcome, and the risk
preference. Utility Theory suggests three types of risk attitudes,
namely: risk seeking, risk neutral, and risk averse. Classical
economic theories, in particular, would typically assume
rational decision makers' tendency towards risk aversion
(Clemen and Reilly, 2001, p. 151). Risk aversion suggests that
provided with two alternatives with the same expected value, risk
averse economic agents are assumed to choose an alternative with
less uncertain outcome.
In the reported studies, respondents were asked to state whether
they are risk averse, risk taker, or moderate (situational) types.
These statements are self-claimed, subjective, and not objectively
measured as reported in Table 2.
Table 2 shows that majority of respondents in both studies
have claimed a moderate or situational type of risk attitude. It
means that majority of project practitioners (either contractors
or clients) believe that their attitude on risk is adaptable to the
conditions on which they operate. The finding of the current
reported studies is consistent to those conjectured by Prospect
Theory (Kahneman and Tversky, 1979) of the descriptive
research camp. Prospect Theory, which was developed largely
on the basis of experimental studies, asserts that the way
decision makers behave would contingent on the way a risky
problem is framednegative or positive framing (Kahneman
and Tversky, 1979). Hence situational context is important
determinant affecting risky decisions.
The result is different from those of a past study. Riabacke
(2006) found that 50% of respondents are risk takers, 16.67%
of the respondents are risk averse, and the remaining respondents are of the moderate type. Another study in software
development projects, however, observed a consistent finding
to the current reported study. Ropponen and Lyytinen (2000)
found that environmental context is identifiable to affect risks
in software projects. A study by Figner and Weber (2011) also
highlighted the essential of situational environment in risky
decision making.
A possible explanation for the difference is due to the
cultural background as suggested by Hofstede (1984). Other

Table 2
Self-reported attitude towards risk.

403

empirical studies targeting Indonesian respondents (e.g. Hartono

and Saputra, 2012; Hartono et al., 2012; Pradiptyo et al., 2011)
also found different patterns of risk attitude from those in
developed countries. Another possible explanation is related to
the measurement method. Since risk propensity was measured by
self-reported, subjective judgment by respondents, biases are
likely to occur. Hence a follow-up study with a more objective
measure of risk attitudes using Utility Theory and psychometric
tool is underway.
For further analysis of risk attitudes, characteristics behind
risk taking decisions were investigated. Attitude towards risk
according to the normative (rational) theory is restrictedly
reflected by their decisions of risky choices. Utility Theory
asserts that risk seeking individuals are those who are willing to
trade as sure amount of wealth (S) with an uncertain alternative
with an expected value of G, where G N S. In this study,
respondents were asked to describe their opinion on the
characteristics reflecting risk taker individuals. Respondents
from both contractors and clients put strong personalities as
the most frequently cited risk taking characteristics. Dare to
make mistakes and have a high position are the second and
third traits, respectively as shown in Table 3. Other characteristics described by respondents include: experiences, responsibilities, and fast thinking.
A very similar pattern of finding is observed in a past study.
Riabacke (2006) suggested that practicing managers who
claim to be risk takers would be those who are not afraid to
make mistakes, has a strong personality, and has a high
position.
In summary, a difference is found between assumptions of
rational theories and perspectives held by project stakeholders.
Rational theories strictly suggest that attitude toward risk is
reflected by decisions of uncertain choices. On the other hand,
stakeholders see risk attitudes beyond risky choice such as
willingness to make mistakes or strong personality.
3.3. Risk and project performance
Scholars especially in the strategic management field had
carried out extensive empirical studies on the relationships
between performance and risk attitude with mixed results.
The traditional economic studies would expect a positive
correlation as in risk averse assumptionsi.e. the higher the
risk the higher the return (Clemen and Reilly, 2001). Later
empirical studies found a negative riskperformance relationship (Bowman, 1980; Fiegenbaum, 1990; Jegers, 1991; Sinha,
1994). The seemingly contradictory accounts are reconciled by

Table 3
Risk taking characteristics.

Attitude

Contractors
(n = 96)

Clients
(n = 99)

Characteristics

Contractors
(n = 96)

Clients
(n = 99)

Moderate (situational)
Risk taker
Risk averse

57.3%
30.2%
12.5%

51.5%
27.3%
21.2%

Strong personalities
Dare to make mistakes
Have a high position

50.4%
20.8%
16.3%

36.4%
17.2%
10.1%

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B. Hartono et al. / International Journal of Project Management 32 (2014) 400411

means of refining the definition of risk and performance

utilized by both. In other words, two different conceptions of
risk and performance would result in different relationships
between the two.
In the reported studies, perspectives held by project stakeholders on riskperformance relationship are investigated.
Utilizing the two versions of risk and performance definitions, results show that practitioners understand the difference
and rightly apply the concepts differently.
3.3.1. Risk (level) vs. (expected future) performance
The first version of the riskperformance relationship
utilizes a forward view assumption. Hence in this case, risk is
more accurately termed risk level and performance is future
expected project profitability. Classical economic theories
would suggest a risk aversioni.e. people would expect a
positive riskreturn relationship. In such a case, a rational
decision maker would be having a forward view for prospective
projects. The rational agent would accept a riskier project in the
future for a higher expected project performance in terms of
profitability.
In the reported studies, respondents were given three
possible alternatives of riskperformance relationships and
were required to select one alternative which is consistent to
their opinion. As shown in Table 4, majority of the respective
contractors (66%) and clients (67%) assert a positive risk
performance relationship. Hence in such a specific context of
observing future alternatives, majority of project stakeholders
would expect a higher project profitability (or performance) for
riskier projects.
The findings are consistent to those by Riabacke (2006).
Practicing senior managers would expect a greater return for
riskier decisions. An empirical study by Hartono and Yap
(2011) provides further refinement to the riskreturn concepts.
It is found that while majority of contractors expect profitability
for the projects, some would emphasize on long-term strategic
values beyond short-term profits. This is consistent to various
studies in project setting (e.g. Boughton, 1987; Egemen and
Mohamed, 2007; Friedman, 1956; Shash, 1995). Furthermore
one of the contractor respondents argued that the correlation is
not between risk and profitability but it is between risk and
opportunity.
3.3.2. Project on-going performance vs. risky decision making
The second version of the riskperformance relationship
utilizes a retrospective view assumption. In such a case,
decision makers are currently working on a project and are
experiencing the on-going performance of the project. In light

Table 4
Correlation between risk and expected profitability.
Proposed correlation

Contractors
(n = 96)

Clients
(n = 99)

Higher risk, higher expected profitability

No correlation
Higher risk, lower expected profitability

66%
11%
23%

67%
19%
14%

of the performance as a contextual background, decision

makers would have to make risky decision making. Hence in
this case, performance is accurately termed the on-going
project performance and risk is the level of risky decision
making.
A normative theory would assume that rational decision
makers would base their judgment only on the basis of current
states (Hastie and Dawes, 2001, p. 16). Thus, past conditions
would not affect risky decisions. Additionally, according to the
invariance axiom of Utility Theory, context (in this case
on-going project performance) is not relevant to risky decision
making.
To understand the stakeholders' preference on the relationship between performance and risky decision making in this
particular contexts, respondents are given choices of three
possible risky decision making under two scenarios. For the
scenario of on-going performance is below expectation
majority of stakeholders (contractors 94%, clients 82%) think
that they need to take a more aggressive stance by making
riskier decisions. The lower the (on-going) performance; the
riskier the decision is made. In this case a negative risk
performance relationship is observable. This result is consistent
to the finding by March and Shapira (1987) that risk taking
becomes more prevalent when managers are experiencing with
the failure to meet the targets.
For the above expectation scenario, most contractors
(56%) and half of clients (50%) tend to take less risky
decisions. The difference of proportion is smaller for the
above scenario than this of below expectation. This suggests
that the below-expectation context provides a more compelling effect towards the respondents to respond more conclusively than the above expectation context. The result is
consistent to the findings by Bowman (1980). For project
stakeholders, the only way to recover from the existing poor
condition is by taking bolder actions of riskier decisions. For
the above expectation context, respondents may see the
challenge differently. Some would think of a more conservative
decision making to maintain the existing condition; while
others may think otherwise. March and Shapira (1987) found
that managers tend to be more aggressive and to choose the
more risky decision alternatives when the on-going performance of the organization was of below expectation.
Past similar studies in strategic management had also
reported a similar pattern. Bowman (1982, 1984) using
company-level data had identified a negative relationship
between risk and return. Since the empirical evidence
deviates from the common wisdom of positive relationship
between risk and return of the classical economic assumptions, the phenomenon is well known as the Bowman's
Paradox. Further empirical investigations (Fiegenbaum, 1990;
Jegers, 1991; Sinha, 1994) were able to provide compelling
explanations on the relationships between the two variables by
using the retrospective view as stated earlier. By utilizing
Prospect Theory of the descriptive school, it is conjectured that
companies which are experiencing on-going poor performance
(i.e. negative context) would take more risky decisions and
those in a positive context would be of conservative.

B. Hartono et al. / International Journal of Project Management 32 (2014) 400411

It could be seen that a contextual condition of on-going

project performance seems to affect the way project practitioners make risky decisions. Since on-going project performance is an accumulated state of past and current
performances, the finding is on the contrary to the rational
theory which asserts that the only consideration for risky
decision is the current states of affair. The finding, however, is
explainable by Prospect Theory of the descriptive school of
thought.
3.4. Dealing with risk
Rational theory suggests the value of information. Value of
information has been used to examine situations in which
information is available and to show how decisions can be
made systematically regarding what source of information to
select and how much an expert's information might be worth
(Clemen and Reilly, 2001). Accordingly, for a better informed
risky decision making, rational decision makers understand the
importance of acquiring pertinent, timely information to
minimize risks.
Rational, normative theory would also assert that decision
makers should undertake systematic, deliberate approach in
gathering, analyzing data and eventually making risky decisions. Risk-related concepts may need to be applied such as
Probability Theory, Bayesian Analysis, and Utility Theory. In a
more complex setting, the rational camp would argue in favor
of the utilization of advanced, quantitative techniques to
prescribe the decision making.
The previous empirical study by MacCrimmon and
Wehrung (1990) found that managers felt confident for the
controllability of risks. Furthermore, March and Shapira (1987)
found that 75% of respondents agreed to the notion that risks
can be controlled. Practicing managers did not consider risk as
an inherent feature within the work that they have to face and
deal with. Nevertheless, it could be minimized with the expertise
to control the hazard (Strickland et al., 1966). Riabacke (2006)
indicated that 73% of respondents assumed that risk could be
controlled if the information and supporting data is available.
Riabacke (2006) also identified the managers' perspective that
risk can be regulated by certain methods. March and Shapira
(1987) also found that 75% of respondents agreed to the assertion
that capability of decision makers and sufficient information
will help reduce the uncertainty condition. Du et al. (2007) found
in an empirical study that perception of controllability is a
significant determinant to risk perception as well as decision
making.
In the reported studies, 94% of contractor respondents are
in agreement to the assertion that risk can be controlled,
particularly by minimizing the risks. Moreover, 92.9% of
clients expressed the same argument that risk can be controlled
by implementing a comprehensive plan, calculation, and
analysis. According to contractor respondents, risk cannot be
controlled if risk is not predictable.
Overall, current respondents from both contractors and
clients suggested several reasons for the possibility of controlling risks. The main reason is the confidence that risks can

405

be prevented or minimized. Secondly, well-prepared planning

could also be essential in risk control. Knowledge on risk
aspects and adherence to procedures are the third and fourth
reasons, respectively. The current studies also inquire the
possible utilization of advanced methods and tools of risk
analysis. For the contractors, only 14.6% of the respondents
utilize some sorts of advanced techniques of risk analysis. The
remaining respondents would have relied heavily on intuitions
or gut feelings (25.1%) or simple analysis (50.7%). The result
supports the finding by Riabacke (2006) on the limited usage of
advanced risk quantitative techniques.
In the current studies, respondents from contractors and
clients provide the same priority of preferences in dealing with
issues involving risks. The order of priority is to gather more
information, to determine various aspects pertinent to the
problem on hand, to directly address the problem to reduce
risks, to avoid taking risks, to postpone the decision, and to
pass the authority to others. In a past study by Riabacke
(2006), the responses toward similar inquiry are similar
especially for the top three. In the order of priority the methods
of dealing with uncertainties are: to gather more information,
to determine the various aspects related to the issue, to
directly address the problem to reduce the risk, to postpone
the decision, to avoid the risk, and to pass the decision to
others.
Responses from both types of stakeholders in the current
studies and the past study, to some extent, indicate compliance
to rational approaches. Respondents are aware of the importance of information and in cases would postpone the decisions
to get extra information. Furthermore, respondents also
demonstrate some degree of deliberative process of decision
making as highlighted by the importance of determining
various aspects pertinent to the problem on hand. Nevertheless, the fact that many respondents would mostly depend
on intuitions and overlook a more formal approach of using
risk quantitative analysis suggests that the rational assumptions of decision making has yet to be fully applied in project
settings.
3.5. Determinants affecting risky decision making
Risky decisions could always be viewed by its essence in
rational models in the form of risky choices or gambles. Most
risky choices could be represented by decision trees on which
various alternatives and the respective outcomes and probabilities could be deduced. Normative approaches would employ a
cold, mechanistic approach on which the only determinants of
risky decision making are those depicted in the decision tree. A
similar observation is found in software development projects
(Bannerman, 2008).
The current studies attempt to identify the possible existence
of other factors affecting risky decision making. Literature
reviews and pilot studies suggest numerous possible determinants which are eventually classified into two groups: internal
and external factors. The list of possible determinants was then
used for the survey. External factors include company culture,
country culture, law/regulation, socio-economic condition,

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B. Hartono et al. / International Journal of Project Management 32 (2014) 400411

geography, macro-economic condition, and involvement of

other institutions. Internal factor group include age, education level, gender, designation, compensation or bonus,
work experience, and personality type (risk averse or risk
taking). Project respondents were required to put a rank in order
of priority regarding the most influential factors affecting risky
decisions from the list. In the current studies, the top three
essential external factors affecting risky decision in Indonesia
are described in Table 5. The result is different from those of
the developed countries. MacCrimmon and Wehrung (1990)
had done a similar study, and found that the most important
external factors that influence the risky decision making are the
type and the size of the company. The difference indicates the
nature on which the decision makers operate. In the developed
countries, due to the stability of the environment in the
nation-level, factors such as socio-economic condition and
regulation are deemed less important. On the contrary, the
current studies in a developed country provide evidence on the
contrary. Project practitioners in the current studies think that
nation-level factors are considered most important because of
their uncertain nature in a developing country.
The most important internal factors for risky decisions
according project practitioners are described in Table 5. A
similar pattern could be observed from respondents of both
contractors and clients. Many respondents believe that
seniority level of decision makers within the company would
significantly affect risky decision making. These include
current designation and work experience. Many respondents believe that the higher the position of the decision
makers, the more risky decisions they could afford. This is
consistent to various reported studies (Anderson and Galinsky,
2006; Maner et al., 2007; Ronay and von Hippel, 2010)
suggesting the relationships between power and risky decision
making.
Hence some stakeholders believe that the riskiest decisions
should be resorted to those in a more senior level of organization. In a similar vein, work experience is believed to be an
important condition for risky decision making.
4. Insights
4.1. Risk perspectives held by practicing managers
The current study, in general, found a similar pattern of
risk-related perspectives held by two different groups of
Indonesian construction stakeholders: clients and contractors.

Furthermore, parallel conceptions are held mostly by

managers from developed countries as reported by past
studies.
Risk is largely seen by both Indonesia project groups from
the negative outcome. Practicing managers from developed
countries, as reported by past studies, saw the risk concept from
the same angle. Positive risks (opportunity) seem to be
overlooked by the respondents. The negative tone is represented by the main keyword: loss or worst outcome as in a past
study (Shapira, 1986).
In terms of risk attitude most respondents from both sides of
stakeholders claimed themselves as being situational. Hence,
they claimed that risky decisions are contingent to the context
on which the specific decision would operate. The result is
slightly different from those of past studies suggesting that risk
taking is the most self-described risk propensity (Riabacke,
2006). The difference may be attributable to various reasons
including the cultural differences or measurement biases. A
follow-up is currently administered to clarify the discrepancy.
Personal characters on risk are highly related to strong
personality and the willingness to make mistakes of the
individuals.
Most respondents from both Indonesian groups as well as
those from the developed countries seem to have a comparable
perspective on the riskperformance relationships. A positive
relationship was observable when the question is framed in a
forward view of risk (level) and (expected) performance.
Project stakeholders would expect a higher return when they
take riskier endeavor. In contrast, a negative relationship is
identifiable when the question is framed within the retrospective view of on-going performance and risk. Most project
clients and contractors would be willing to take more (less) risk
when the on-going project performance is below (above)
expectations.
In dealing with risk, overwhelming majority from both
camps in Indonesia believed that risk was principally controllable by proper planning and information gathering.
Practicing managers from developed countries held the
same confidence for the ability to control risk (MacCrimmon
et al., 1988; March and Shapira, 1987; Riabacke, 2006).
Respondents also highly regard the value of information to
deal with risk. For all studies it is found that risky decisions
were generally taken on the basis of intuitions and gut
feelings. Seniority (age, experience) and education background are believed by respondents to affect risky decision
making.

Table 5
Top three influential factors.
No

1
2
3

External factors

Internal factors

Contractors
(n = 96)

Clients
(n = 99)

Contractors
(n = 96)

Clients
(n = 99)

Socio economic condition

Company size
Company culture

Law/regulation
Macro-economic condition
Involvement of other institution

Current designation
Education level
Age

Current designation
Work experience
Education level

B. Hartono et al. / International Journal of Project Management 32 (2014) 400411

To sum up, the similarity of risk-related perspectives is

prevalent beyond domains (i.e. general vs. project management), national economy classifications (i.e. developed vs.
developing nations) and stakeholder sides (clients vs. contractors). Indonesian project clients and contractors seem to share
comparable, traditional risk-related views with their counterparts of general management in developed countries.
The current finding also suggests that despites various calls
and initiatives (e.g. Winter et al., 2006) to advance project
practitioners' understanding on the contemporary concepts of
risks and complexity, the knowledge adoption is slow at best.
For instance, Ward and Chapman (2003) suggest that risk
concept in project management should be broadened to
uncertainty perspective to emphasize the possible positive
effect of the situation and to highlight the importance of the
source of riski.e. uncertainty (Olsson, 2007). Risk,
however, is viewed by most project stakeholders from the
narrow perspective of the negative side of the possible
consequence. Hence the positive risks are often overlooked
by project stakeholders. In such a case, project opportunities
that arose from uncertainties would largely be missed due to the
lack of conceptual understanding and too much focus on
responding to the negative risks.
4.2. Practitioners' view and normative theory
The current study also found that in general the view of
practitioners on risk does not fit with the concepts and
underlying assumptions of the rational, normative theory of
risky decision making. Indonesian project practitioners as well
as their counterparts from developed countries see risk with
more nuances than suggested by theories. Risk was seen within
a richer perspective beyond choice problems. Risky decisions
were highly dependent on the specific setting on which the
decision makers were operating.
This is in a sharp contrast with the underlying principles of
normative decision theory. Theory would suggest a cold
approach in analyzing and hence making risky decisions.
Theory would also suggest that risky decisions could largely be
reduced into choice problems (perhaps represented by decision
tree) solvable by probability theory. Normative theory would
also assume that rational decision makers could make risky
decisions in a consistent way without being affected by
contexts.
In defining risk, practitioners tend to over-focus on the
negative sides while the theory would suggest a more neutral
view. Practitioners also exhibit a tendency of over-emphasizing
the impact of risk in contrast to the theory which considers both
impact and probability. Practitioners also relate personal
characters pertinent to risk with various factors, including: the
willingness to make mistakes and strong personality. Such factors
are not considered by normative decision theory.
4.3. Practical implications
The first practical implication could be related to the
possible decrease in the quality of risky decision making by

407

project practitioners in specific occasions. The significant

discrepancy between practitioners' perspective on risk and the
pertinent theory suggests the lack of awareness and consequently very limited utilization of normative (rational) theory of
risky decision making in the daily life of practitioners. It is
argued that in certain circumstances, project practitioners may
make less than optimum decision making due to systematic
judgmental errors.
Studies in cognitive psychology and descriptive decision
theory argued that human rationality is bounded (Jones,
1999; Kahneman, 2002; Simon, 1957). That is, while humans
may attempt to become rational, the cognitive capability is
limited. Decision makers also prefer to use intuition or gut
feelings to make fast decisions and to reduce cognitive
workloads. While in most cases intuition could provide good
decision results, it could give systematic judgmental errors in
various specific contexts (Cleaves, 1987; Hartono et al.,
2012; Mak and Raftery, 1992; Tversky and Kahneman,
1974). Such systematic errors or biases could significantly
decrease the quality of risky decisions in various project
contexts.
The second implication is the low adoption and limited
utilization of project risk models, tools, and methods which
were developed on the basis of normative decision theories.
Various methods and tools pertinent to project risk analysis and
management have been developed by scholars and practitioners, and the number is growing. For instance, McCabe
(2003) developed a Monte Carlo-based simulation for project
scheduling by considering uncertainty. Other quantitative
approaches have also been utilized, such as System Dynamics
(Rodrigues, 2001), Causal Mapping and Scenarios (Williams
et al., 1997), and Bayesian Belief Networks (Arzaga, 2007;
Gardoni et al., 2007).
Despites the rapid growth of development of tools in project
risk management, empirical studies on the actual implementation of such tools suggest a rather pessimistic pattern (Akintoye
and MacLeod, 1997; Lyons and Skitmore, 2004; Shen, 1997;
Wood and Ellis, 2003). The increasing number of the
developed methods and tools is not followed at the similar
rate by the adoption of such methods and tools by project
practitioners. Empirical studies across countries in different
point of time (e.g. Akintoye and MacLeod, 1997; Simu,
2007) suggested that practitioners adopt less formal approach
of project risk management. It is also found in the studies
that the utilization of quantitative analysis is very limited
(Lyons and Skitmore, 2004; Shen, 1997). Similar to the
finding of the current study, decision makers prefer using
their intuitive judgment and gut feelings during the course of
the projects (Akintoye and MacLeod, 1997; Wood and Ellis,
2003).
It is argued that one of the key factors for successful
adoption of any new methods and tools is a proper understanding of the human aspect of the process (Fellows and Liu,
2000). Since project risk management process is mostly
conducted by project managers, risk managers, or risk analysts
(i.e. project practitioners), it is very crucial for developers of
project risk methods and tools to understand the perspectives of

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B. Hartono et al. / International Journal of Project Management 32 (2014) 400411

users (i.e. project practitioners) about risks and the related

concepts.
A specific example is elaborated as follows. Risky choice
according to normative theories could be represented by its
possible consequence and likelihood (probability). Depending
on the risk preferences (attitude), decision makers would then
make cold, rational decisions accordingly to maximize their
expected utility. In practice, project stakeholders may view
risky decision in a perspective other than probability and utility
theories. Some practitioners may be willing to take more risk,
as found in the current study, in order to develop a self-image of
strong personality. In such a situation, practitioners may take
unnecessary risk beyond that the rational model would have
prescribed.
Another example of such a situation could be found in a
case of risky decision to determine the level of profit
margins on competitive bid mark-ups. Various quantitative
models utilizing rational decision theory had been developed to prescribe the right level of profit margins (e.g.
Dias and Weerasinghe, 1996; Dozzi et al., 1996; Friedman,
1956; Li and Love, 1999; Skitmore and Pemberton, 1994;
Wang, 2002). Most of the works assumed rational concepts
and axioms of probability theory. Empirical studies found a
very limited utilization of those models in the practical
context (Ahmad and Minkarah, 1988; Egemen and
Mohamed, 2007; Mochtar and Arditi, 2001). More specifically, the low usage could be attributed to the impracticability of the models (Wanous et al., 2000)i.e. the
models were too sophisticated for practitioners in terms of
the concepts yet oversimplified the complex process of bid
mark-up decisions due to unrealistic operational assumptions.
The models often assume the following: (a) maximizing the
expected profit is the only goal of bidding (Runeson and
Skitmore, 1999; Shash, 1993) and (b) no systematic changes
of bid behaviors of competitors (Boughton, 1987; Runeson
and Skitmore, 1999; Shash, 1993). On the contrary, a recent
empirical study by Hartono and Yap (2011) indicate that
those assumptions are frequently violated. The study found
that some goals other than profit maximization (as in
rational model) were readily observed in practice while
the behavior of the bidders would change systematically
depending on the contextual elements of the bidding
process.
Due to the wide discrepancy of perspectives, a call is then
needed to bridge the gap. Project stakeholders need to be
informed to the existence of gaps between their own
perspective toward risk and the normative, rational theories.
Furthermore, as pointed out by Hastie and Dawes (2001),
practitioners need to learn the rational, normative concepts to
enrich their vast experience and intuition in making risky
decisions. While those rational concepts may not be
necessarily adapted to actual decisions for all circumstances,
practitioners would get benefits from considering those
concepts as an alternative in complex risky decision making
process.
From the perspective of normative research camp (see
Bazerman, 1998), the empirical evidence would further raise

the awareness and help to understand the existence of the

discrepancy. The normative camp develops theories of
decision making under uncertainty which assume that decision
makers would behave rationally in accordance to some basic
assumed principles or axioms of rationality. Those theories
include: the Expected Utility Theory, Probability Theory, and
Bayesian Probability Theory. Many risk models, methods and
tools which were developed under the normative paradigm
would then assume that decision makers perceive risks and
hence behave in accordance to the underlying theories. The
current findings provide more motivation for normative
scholars to consider project stakeholders' perspectives on
risks when developing new methods or tools for project
analysis.
From the point of view of descriptive research school of thought
(Bazerman, 1998), the empirical finding provides additional
knowledge to understand the risk perspective of project
practitioners in making risky decisions. In subsequent follow-up
studies, scholars under the descriptive camp could attempt to
identify the possible systematic deviations of project risky
decisions as compared to the rational decisions and ultimately
to devise the remedial strategies. A possible intervention from the
cognitive neuroscience perspective is proposed by Schonberg et
al. (2011).

5. Concluding remarks
A current study had been carried out to investigate the
perspectives of project stakeholders (clients and contractors)
toward risk, risk attitude, riskperformance relationships,
approach to deal with risks and key determinants affecting
risky decisions. The study was carried out within the context of
a developing country of Indonesia.
It has been demonstrated that in general Indonesian project
groups of clients and contractors exhibit similar views on
risk-related concepts. This similarity is also extendable to
practitioners in general management of developed countries as
reported by past studies. Moreover, in agreement to past
studies, the current study identified significant discrepancy
between what the practitioners think and believe about project
risks and what is dictated by principles of normative (rational)
theory of decision making.
Two possible practical implications due to the discrepancy
were identified. Firstly, the lack of awareness and hence the
limited utilization of principles of normative theory in the
day-to-day decision process may result in systematic judgmental errors. Secondly, the gap would hinder the adoption and
implementation of normative risk models, methods and tools
despite growth of development.
A systematic approach is then required to narrow the gap.
Project practitioners need to enrich their knowledge in
theoretical principles of risky decision making and to utilize
them whenever appropriate. Scholar from both normative and
descriptive camps would need to consider the gap when
developing new models or cognitive interventions for a more
effective risk analysis and decision making.

B. Hartono et al. / International Journal of Project Management 32 (2014) 400411

409

Appendix 1. Questionnaire question list

No

Question

Question type

Response type

How do you define a risk in a project?

Risk in project is________________________________
______________________________________________
Please provide general comments about the risky decision making in a project!
Please mention 5 words that come right into your mind when you think about
the risk in project management!

Risk definition

Open ended

Risk definition
Risk definition

Open ended
Open ended

Risk attitude

Multiple choice
Open ended

Risk attitude

Multiple choice
Open ended

Decision making and project performance

correlation

Multiple choice

Decision making and project performance

correlation

Multiple choice

Decision making and project performance

correlation

Multiple choice

Dealing with risk

Multiple choice
Open ended

Dealing with risk

Multiple choice
Open ended

Dealing with risk

Open ended

Risk factors

Open ended

2
3

10

11

12

1. ______
2. ______
3. ______
4. ______
5. ______
Which one is closer to you, risk taking or risk averse? Please elaborate!
[ ] I am a risk taker. Reason:_______
[ ] I am a risk averse. Reason:_______
[ ] I am moderate towards risk. Reason:_______
Choose one of the bold characteristics of a decision maker!
[ ] Dare to make mistakes
[ ] Strong personalities
[ ] Have a high position
[ ] Others:______
In your opinion, is there any correlation between risk and profitability
of a project?
[ ] Higher project risk, higher profitability
[ ] Higher project risk, lower profitability
[ ] No correlation
How about the risky decisions that will be made when the on-going project
performance is below the expectation?
[ ] More risky decisions
[ ] Less risky decisions
How about the risky decisions that will be made when the on-going project
performance is above the expectation?
[ ] More risky decisions
[ ] Less risky decisions
In your opinion, do you think that risk can be controlled? Please give
some reasons!
[ ] Yes. Reason:______
[ ] No. Reason:______
When you take a risky decision, what is the method that you frequently used?
[ ] Gut feeling (intuition)
[ ] Simple analysis
[ ] Advance technique of risk analysis
[ ] Others:______
Based on the priority, please put in order for the following steps that
you will take
when you face a risky problem.
[ ] To avoid taking the risk
[ ] To gather more information
[ ] To determine some aspects related with the problem
[ ] To directly address the problem to reduce risks
[ ] To postpone the decision
[ ] To pass the authority to others
[ ] Others:______
Please put in order the determinants affecting risky decision making from the
listed external factors.
[ ] Company culture
[ ] Country culture
[ ] Country regulation
[ ] Social and politic condition
[ ] Geographic condition
[ ] Macro-economic condition
[ ] Other institution involvement
[ ] Others:______

(continued on next page)

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B. Hartono et al. / International Journal of Project Management 32 (2014) 400411

Appendix
(continued)1 (continued)
No

Question

Question type

Response type

13

Please put in order the determinants affecting risky decision making from the listed
internal factors.
[ ] Age
[ ] Education level
[ ] Gender
[ ] Position
[ ] Salary
[ ] Working experience
[ ] Personality traits
[ ] Others:______

Risk factors

Open ended

Appendix 2. The top 20 most frequently cited keywords

No

Clients

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Regulation
Loss
Profit
Cost
Planning
Decision
Control
Delay
Failure
Accident
Monitoring
Problem
Analysis
Bankrupt
Challenge
Financial
Human resource
Minimize
Overcome
Safety

Contractors
26
18
17
11
11
9
8
7
7
6
6
6
5
5
5
5
5
5
5
5

Loss
Profit
Cost
Time
Safety
Accident
Decision
Quality
Experience
Fired
Hazard
Analysis
Failure
Problem
Schedule
Solution
Minimize
Opportunity
Workers
Delay

30
24
22
16
13
12
9
9
8
8
8
7
7
7
7
7
6
6
6
5

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