Risk Analysis, Vol. 31, No. 1, 2011 DOI: 10.1111/j.1539-6924.2010.01470.

The Effectiveness of Risk Management: An Analysis of

Project Risk Planning Across Industries and Countries

Ofer Zwikael1, and Mark Ahn2

This article 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 20022007 period. Results of this study show that project contextindustry and coun-
try where a project is executedsignificantly 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.

KEY WORDS: Project management; project success; technology management

1. INTRODUCTION Risk management is particularly important in

One doesnt 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 par-
ticular, managers have to cope with several types
of risk, including technological,(1,2) financial,(35)
insurance-related,(6) environmental safety,(7) and
regulatory.(8) As a result, risk management is a crit-
ical consideration in many business areas, which im-
pacts profitability, efficiency, and sustainability.(915)
1 School of Management, Marketing and International Business,
ANU College of Business and Economics, The Australian Na-
tional University, Australia.
2 Willamette University, OR, USA.
Address correspondence to Ofer Zwikael, PhD, PMP, School of
Management, Marketing and International Business, ANU Col-
lege of Business and Economics, The Australian National Uni-
versity, Canberra, ACT 0200, Australia; tel: +61-2-61256739; fax:
+61-2-61258796; ofer.zwikael@anu.edu.au.
the project management area, as this discipline in-
volves many organizational functions and their re-
lated risks.(16) In addition, projects usually possess
high levels of uncertainty derived from their com-
pressed schedules, inadequate or uncertain budgets,
designs that are near the feasible limit of achiev-
able performance, and frequently changing require-
ments.(10) For example, Huchzermeier and Loch(17)
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,(1821) 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 re-
cent studies have raised concerns regarding the ef-
fectiveness of risk management tools in the project
environment.(2325) The objective of this article is to
further investigate the effectiveness of current risk

25 0272-4332/11/0100-0025$22.00/1 
C 2010 Society for Risk Analysis
26
management practices to reduce project risk using
a multinational, multi-industry study across different
scenarios and cultures.
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 litera-
ture suggests there are heterogeneous managerial ap-
proaches required for different project phases, hence
each project management study should focus on only
one distinct phase to increase salience,(26) (2) plan-
ning is a critical phase in project management(2729)
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 to produce
the expected results of the project successfully.(18)
Planning also involves the product concepts spec-
ifications 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 con-
ducted 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 man-
agers increasingly have to deal with higher levels of
uncertainty, risk management has become a generic
area in most project management books and in rele-
vant professional associations.(10,19,3234)
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
Ward(35) have defined risk efficiency as the min-
imum risk level for a given level of expected per-
formance. Risk management dynamically minimizes
risk levels by identifying and ranking potential risk
events, developing a response plan, and monitoring
actively during project execution.(19)
Zwikael and Ahn
As risk management is highly developed in
project management, most organizations have a for-
mal policy for project risk management,(36) as well
as supportive analytical tools.(10,22,37) These analyt-
ics include risk identification tools (e.g., brainstorm-
ing, checklists, influence diagrams, cause and effect
diagrams), risk analysis tools (e.g., probability
and impact grids, event tree analysis, sensitiv-
ity analysis and simulation, Delphi techniques, ex-
pert 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 manage-
ment, multiple criteria decision-making tools). Soft-
ware packages for project risk management are also
available, including @Risk, Risk+, Crystal Ball sim-
ulation tool, PERT-Master Project Risk, PERT Mas-
ter Risk Expert, and Predict.(38) Most of these tools
focus on risk planning processesrisk 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 exam-
ple, the 20082009 global financial crisis was
in large part caused by a widespread belief
that securitizing loans reduced the overall risk
in the financial system, which proved to be
misguided.
2. Poor quality of use: Many project managers
perform poorly on some of the most impor-
tant risk planning processes such as risk iden-
tification,(42) as well as the development of
effective strategies.(9)
3. High complexity of existing tools: As size and
complexity of projects increase, the effort re-
quired for effective risk planning exponen-
tially rises, making current tools difficult to
use.(42)
4. Low authority of project managers: Typically,
functional managers have the necessary infor-
mation and authority for most risk planning
processes.(43) This may limit the project man-
agers ability to effectively manage risk man-
agement processes.
5. Perceived low effectiveness: Risk manage-
ment is ranked relatively low across studies
The Effectiveness of Risk Management in Projects
identifying project critical success fac-
tors.(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 earlier,
the literature does not agree on the role risk man-
agement planning has in projects. A major reason for
this is that a limiting one size fits all projects ap-
proach(69) has been used in these studies, without dis-
tinguishing between various project scenarios. To ad-
dress 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 se-
ries of hypotheses outlined in the next section.
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 to-
wards risk across countries(44,45) and industries.(46,47)
For example, cultural diversity theory(44,48) identi-
fies 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 de-
veloped, which are as follows:
H 1 : The level of project risk varies across countries.
H 2 : The level of project risk varies across indus-
tries.
3.2. The Impact of Risk Level on Project Success
High level of project risk is perceived to become
a problem(19) that project managers try to resolve
27
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)
H 3 : 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 manage-
ment planning has on risk levels and project success.
This hypothesis may be expressed as:
H 4 : Risk management planning moderates the re-
lationship 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. Specif-
ically, the hypotheses suggest mediating and mod-
erating effects of project risk level, country, and
industry typology on these relationships, which are
operationalized in the following section.
4.1. The Research Model
To investigate the above hypotheses, the re-
search 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 Fig. 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,
28
Risk
management
planning
Country H1
H4
Level of
project riskError!
H3
Industry H2
which is influenced by the get the job done ap-
proach.(50) As a result, several studies support the
inclusion of customer satisfaction as an additional
dimension of success.(10,36,49,5153) 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 in-
cluded in the modelindustry and countryas they
may impact the level of project risk at the beginning
of the project.(44,45) Finally, risk management plan-
ning is a potential moderating variable in exploring
the relationship between risk level and project suc-
cess. Risk management planning includes the identi-
fication, 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 sev-
eral 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 rela-
tive 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 devel-
oping countries, as well as across several industries.
Finally, regression analyses will be used throughout
this article for both continuous and scale variables,
instead of ordered probit analyses that provide no
better approach in this case.(70)
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 cov-
erage, and (4) guarantee anonymity to participants
Zwikael and Ahn
Project success:
1. Schedule overrun
Fig. 1. The research model.
2. Cost overrun
3. Project performance
4. Customer satisfaction
(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 fre-
quency of use of project risk management planning,
using a 15 Likert scale, for their most recently com-
pleted projects. In order for the project managers to
make accurate estimates, the relevant risk manage-
ment planning tools were introduced to all partici-
pants in this research as subprocesses that comprise
the variables under investigation. Project managers
were also asked to identify their industries among a
list of seven coded choices.
Although the independent variables were col-
lected from project managers, the dependent vari-
ables were collected from their supervisors to avoid
same source bias. Hence, the four dimensions of
project success were reported by the supervisors of
project managers, measured as follows:
1. Cost overrun was measured in percentage de-
viation versus the original plan.
2. Schedule overrun was measured in percent-
age 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 perfor-
mance).
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 un-
successful projects.
The unit of analysis was a project, and the re-
search population included projects from selected
industries and countries. The sampling design of
The Effectiveness of Risk Management in Projects
projects guaranteed a sample that reflected the var-
ious industries where projects were undertaken in
each country.(45,56) The questionnaire was adminis-
tered during the 20022007 period to project man-
agers and their supervisors in seven different in-
dustries (communications, construction, engineering,
government, production, services, and 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 47 versus 130 million), and geo-
graphic locations. The questionnaire was available in
English, Hebrew, and Japanese, all of which were de-
veloped and translated by native speakers.
Initial data collection involved project managers
who are members of the Project Management Insti-
tute, which supported this study in all targeted coun-
tries. 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 orga-
nization names from a variety of local sources to en-
sure that the research sample included firms of differ-
ent sizes, multiple industry sectors, and varying levels
of project risk. Further, the two groups were com-
pared to ensure they were broadly representative of
the study population.
The research team sent e-mails and/or called
senior managers of target organizations, and asked
them to participate in a self-administrated study.
Managers were assured of anonymity, data confiden-
tiality, and that only aggregated data would be re-
ported. A project was included in the final data anal-
ysis only if at least 80% of questionnaire items were
answered. All analyses in this study have been con-
ducted using SPSS v17.
In all, 701 valid questionnaires were collected
across three countries301 in New Zealand, 275 in
Israel, and 125 in Japan. The average project du-
ration 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 sec-
tors in each of these economies,(45) hence this sam-
ple may be seen as representative of each of these
countries. Each industry or country was represented
by 50301 projects to allow enough data for further
analysis. One exception was the construction indus-
try, which was underrepresented in this sample. Al-
though this is not an obstacle for hypotheses test-
ing per se, the small sample size did not allow us to
29
make definitive conclusions about the construction
industry.
5. RESULTS
To place the results in context, we first present an
international and cross-industry comparison of per-
ceived 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 in-
clude the mean, standard deviation, and F statistics
to compare industries and countries.
As can be seen from Table I, most project man-
agers use risk management tools, with an average
as high as 3.92 (in New Zealand) and 3.63 (in engi-
neering projects), on a 15 scale. Project success
scores, as estimated by the project managers super-
visor using the four variables provided, show that Is-
raeli 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 article; however, various studies suggest that cul-
tural differences between Japan and Israel,(45) as well
as across countries globally,(48,55) 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.
5.2. Hypotheses 1 and 2The 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 indus-
tries. We used an F-test to analyze whether differ-
ences 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 that participated in this
30 Zwikael and Ahn

Table I. Differences in Risk Level, Intensity of Risk Management Planning, and Project Success Across Industries and Countries
(Standard Deviation Values in Parentheses)

Level of Risk Management Schedule Cost Project Customer

Risk Planning Overrun Overrun Performance Satisfaction
N (110) (15) (%) (%) (110) (110)

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)
Fa 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)
Fb 2.10 3.53 4.70 2.08 8.76 5.46

p < 0.05; p < 0.01; p < 0.001; significant results in bold.

a F-value indicates the difference between countries.
b F-value indicates the difference between industries.

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 3The Impact of Risk Level
on Project Success
The next hypothesis assumes that projects with
higher levels of risk succeed less than projects with
lower levels of risk. An analysis of correlations
among all project variables was conducted and is pre-
sented in Table II.
We found the correlations between risk level and
all four project success measures were low and in-
significant. These results suggest that risk levels do
not directly affect project success in all project sce-
narios, which leads us to further investigate whether
a moderating variable may influence this relation-
ship.
5.4. Hypothesis 4The Interaction Between Level
of Project Risk and Risk Management Planning
on Project Success
This section investigates whether different lev-
els of risk management planning moderate the neg-
ative impact risk has on project success. We con-
ducted a two-way ANOVA test with split median
of risk level and risk management planning, and
the interaction between 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 over-
run, project performance, and customer satisfaction).
Table III presents the results of these analyses, in-
cluding F values, number of observations, and de-
grees of freedom for each model.
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
The Effectiveness of Risk Management in Projects 31

Table II. Pearson Correlations Among the Studys Continuous Variables

Risk
Management Schedule Cost Project Customer
Mean SD Planning Overrun Overrun Performance Satisfaction

Level of risk (110) 6.67 1.95 0.20 0.02 0.01 0.02 0.02
Risk management planning (15) 3.29 1.32 0.20 0.28 0.13 0.11
Schedule overrun (%) 18.59 24.18 0.67 0.08 0.12
Cost overrun (%) 14.22 22.91 0.09 0.09
Project performance (110) 7.60 1.83 0.72
Customer satisfaction (110) 7.82 1.48

p < 0.05; p < 0.01; p < 0.001; significant results in bold.

Table III. Two-Way ANOVA for the Interaction Between Level of Risk and Risk Management Planning on Project Success (F values)

Schedule Cost Project Customer

Overrun Overrun Performance Satisfaction
(%) (%) (110) (110)

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 planning (L P) 1.69 8.29 10.09 17.59
F 8.45 20.39 3.41 6.41
N 666 651 670 670
df 3; 662 3; 647 3; 666 3; 666

p < 0.05; p < 0.01; p < 0.001; significant results in bold.

also found that risk management planning does not 6. DISCUSSION

always impact project success, as it depends upon the
Projects involve risk by nature. As found in this
level of project risk.
study, the level of perceived risk varies among in-
To understand the nature of the interaction be-
dustries and countries. Reducing the level of risk
tween risk level and risk management planning, a
is extremely important in projects, and indeed re-
graphical representation is suggested in Fig. 2. The
sults of this study suggest that project managers of-
graphs illustrate the effect of two levels of project risk
ten use risk management planning practices, con-
(with a median of 7) on project success when differ-
sistent with previous studies.(10,22,36,56) Specifically,
ent levels of risk management intensity are practiced
we found that risk management planning efforts
(low intensity vs. a combined medium/high category,
are effective only when the level of project risk is
as was suggested by a previous analysis). Each graph
medium-to-high. In projects with low risk levels, risk
uses a different project success measure.
management planning is ineffective and may be un-
The graphs suggest that if only low risk manage-
necessary, also consistent with previous studies.(25)
ment planning effort is invested, project success lev-
This indicates that project managers who oversee
els reduce as the level of risk increases (e.g., higher
high-risk projects preferentially invest more planning
cost overrun and lower customer satisfaction). This
effort in an attempt to cope with risk.
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
6.1. The Level of Risk Across Industries
of risk management planning is practiced, an increase
and Countries
in the level of risk no longer reduces project success
rates. Of note, a significant change in success is ob- As project characteristics vary according to the
served as the level of risk management planning in- context they operate in, we found that the level
creases from low to medium (and even before it of perceived project risk differs across industries
reaches high). and countries. The cultural diversity literature can
32
(a) Impact on schedule overrun
(c) Impact on project performance
Fig. 2. The interaction between risk level and risk management planning on various project success dimensions.
explain the different attitudes across cultures toward
uncertainty.(44,48) For example, the GLOBE study(48)
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 avoid-
ance. This indicates that New Zealanders strive more
to avoid uncertainty by reliance on social norms, rit-
uals, and bureaucratic practices to alleviate the un-
predictability of future events. Results of this study
show that findings from the cultural diversity liter-
ature are also relevant in the project context. We
found that projects in New Zealand have a higher
Zwikael and Ahn
(b) Impact on cost overrun
(d) Impact on customer satisfaction
perceived level of risk and, as a result, a height-
ened focus on risk management practices. In coun-
tries with lower levels of uncertainty avoidance (i.e.,
Japan and Israel), the perceived levels of project risk
were lower and, as a result, less effort in risk manage-
ment planning was invested. This suggests that cul-
ture affects the way risk is perceived and operational-
ized in projects.
Different levels of risk were also found across
industries, which may be explained by the differ-
ent nature of projects across industries. Industries
and companies also vary widely in their relative
degree of innovation and risk. From a legitimacy
The Effectiveness of Risk Management in Projects
theory based view, the liability of newness may in-
crease perceived risk levels and project management
activities.(59) Consider, for example, the biotechnol-
ogy industry, which is perceived to possess high
levels of product and regulatory risk.(60) 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,(57)
have found that construction and engineering orga-
nizations have the highest levels of maturity.(47,56,58)
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 re-
lationship between project risk level and project suc-
cess, a major contribution of this study to the lit-
erature 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 lev-
els reduce project success rates. Thus, these results
suggest that risk management provides effective pro-
cesses to reduce uncertainty and improve project suc-
cess rates. This finding challenges previous studies
that showed risk 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 im-
pact of risk levels on project success rates. However,
as the literature has identified some drawbacks with
current risk management practices, this section sug-
gests possible implications for future research and
practice.
According to most project management method-
ologies,(19,33,34) risk management is defined as a sep-
arate project management area. For example, the
Project Management Body of Knowledge (PMBOK)
defines risk management as one of the nine project
knowledge areas, alongside other topics such as
33
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 effec-
tively. A typical example under current project risk
management methodology is for a technical team
to reduce technological risk during the software im-
plementation 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 train-
ing plan, as these are different project areas and
teams. Hence, one may posit that integrating risk
management with other project management and or-
ganizational practices will contribute to project suc-
cess. This is suggested because in some project con-
texts, risk management is perceived as a separate
activity that is not directly related to the broader
organizational processes, as arises from this studys
findings:
1. In countries with low levels of uncertainty
avoidance, project managers place lower im-
portance on risk management and hence do
not always follow required processes.
2. In industries with low levels of maturity,
project managers do not frequently perform
the risk management process.
Additional support for integrating risk manage-
ment into other project and organizational areas can
be found in the literature. For example, although
most project management textbooks devote a sep-
arate chapter to risk management, Meredith and
Mantels(18) widely used textbook presents risk man-
agement content throughout the book. They assert
that the fact that risk and uncertainty are inher-
ent 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.(67) Cle-
land and Ireland(32) and others(22,62) with similar ap-
proaches, together with the results of this study,
strengthen the idea of integrating risk manage-
ment with other project management areas and or-
ganizational groups.
To support the future development of a new in-
tegrated risk approach, some key constituents have
been identified from the literature.(63) These include
collaboration and coordination to integrate risk at
the project, organizational, and system levels of anal-
ysis. Studies have shown, for example, that large,
complex organizations use strategic focus to evolve
systems and processes to fulfill their target customer
34
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 organi-
zational failure. Achieving a narrow functional fo-
cus while simultaneously maintaining broad organi-
zational awareness is a key antidote for this type of
corporate myopia. In practice, however, this is a dif-
ficult balance to achieve precisely because team and
individual integration is an on-going accomplish-
ment and partly because rules, orders, directives,
procedures, checklists, and instructions are largely
static tools, ill-fitted to meet the ever-changing re-
quirements of a dynamic system.(67,68)
Based on these principles of integration, core
principles of an integrated risk management ap-
proach, suggested in these findings and based
on the authors experience, are provided in the
following.
6.3.1. Integration of Risk Management with Other
Project Management Processes
6.3.1.1. The current practice. The project manage-
ment literature identifies several knowledge areas
(e.g., scope, schedule, cost, quality) of which risk
management is one. For example, the PMBOK(19) in-
cludes nine knowledge areas, including risk manage-
ment. This means that risks are identified and ana-
lyzed at the project level.
6.3.1.2. A drawback with current practice. As has
been described in this article, the added value of deci-
sions derived from risk management analysis is low in
immature organizations. Responses aimed at reduc-
ing the level of risk generally have a low impact when
they are not simultaneously implemented across var-
ious aspects of a single projects activities.
6.3.1.3. A suggested principle. An integrated
risk approach might combine the risk analysis
paradigm into various project management pro-
cesses. As a result, risk assessment would occur not
only at the project level, but also on the single activ-
ity level (e.g., analyzing the risk related to resources,
knowledge gaps, duration of uncertainty, or cost
of an individual activity). Although this practice is
commonly conducted by many project managers, it
should also be reflected in formal methodologies,
processes, and procedures to enhance institutional
capacity.
Zwikael and Ahn
6.3.2. Increasing the Formal Involvement
of Functional Managers
6.3.2.1. The current practice. Project managers are
responsible for all risk management processes re-
lated to their project, whereas functional managers
hold most of the power in immature organizations.
6.3.2.2. 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.
6.3.2.3. A suggested principle. Risk management
may be practiced and integrated by functional man-
agers. Functional managers may have more author-
ity in decision making, which is related to risk man-
agement practices, because they have the requisite
knowledge and experience with related risks, and
they are the ones who are responsible for executing
these tasks.
6.3.3. Integration of Risk Management with
Stakeholder Management
6.3.3.1. The current practice. Risk is typically man-
aged by a small group of people leading the project.
In immature organizations, moreover, risks are
sometimes hidden from the view of some project
stakeholders.
6.3.3.2. 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.
6.3.3.3. A suggested principle. Risk management
planning may involve relevant team members and
project stakeholders in an open forum. Decisions
that are a result of such discussions may im-
prove 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 ex-
ample, using a systems thinking approach for stake-
holder management.(6466)
The Effectiveness of Risk Management in Projects
In summary, these risk management principles,
which integrate several projects, teams, and knowl-
edge areas, can be further developed to enhance
organizational effectiveness in project contexts of
countries with low uncertainty avoidance and indus-
tries with low project maturity levels. These princi-
ples 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 executivestoward ensuring
that risk management becomes an overall organiza-
tional effort.
7. CONCLUSIONS
Building on diverse findings in the literature re-
garding the effectiveness of project risk management,
this study found that risk management practices
moderate the effect of project risk on project suc-
cess in multiple project scenarios. Although risk
levels reduce project performance, effective risk
management planning was found to moderate this re-
lationship. 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 con-
text 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 man-
agement practices (e.g., production). On the other
hand, we found the perceived level of risk, and
hence risk management planning, are higher in cul-
tures with higher levels of uncertainty avoidance
(e.g., New Zealand) and industries with higher levels
of project maturity (e.g., engineering). Although 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 coun-
tries and industries. For example, countries cultural
diversity studies(48) have identified as having low un-
certainty avoidance levels (e.g., Russia, Argentina,
and Italy) may also focus less on risk management
practices.
In summary, principles suggested in this article
integrating risk into various project management
processes, adding the responsibility for risk manage-
ment to functional managers, and discussing risks
with relevant team members and project stakehold-
ers in open forumsmay be useful for organizations
35
operating in countries with low levels of uncertainty
avoidance and industries with low project manage-
ment maturity, as means to mitigating risks and en-
hancing value.
ACKNOWLEDGMENTS
The authors would like to gratefully acknowl-
edge the Area Editor, Karen Lowrie, and the anony-
mous reviewers for their excellent guidance and
encouragement. All views and errors are ours. The
authors would also like to acknowledge the support
from the Victoria University of Wellington in New
Zealand.
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