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International Journal of Project Management 31 (2013) 307 312

www.elsevier.com/locate/ijproman

A comparative study of the measurements of perceived risk among

contractors in China
Shaokai Lu a,, Hong Yan
a

School of Economics and Management, Southwest Jiaotong University, China

b
Department of Logistic, Hong Kong Polytechnic University, Hong Kong

Received 4 April 2012; received in revised form 31 May 2012; accepted 7 June 2012

Abstract
Due to the unique character of construction projects, perceived risk is widely used to quantify risks in the construction industry. This study
investigates the two main types of measurement of perceived risk used in construction projects: direct measurement and expected utility-based
measurement. Project managers from contract rms in China assess 15 independent risks using three different strategies: direct measurement, risk
probability and potential impact. The last two are combined to create the expected utility-based measurement. The results show that the risk
ranking order obtained from the direct measurement strategy is signicantly different from that obtained from the expected utility-based
measurement. Moreover, the former measurement is in general a better predictive indicator of relative managerial input than the latter. Based on
these conclusions, some suggestions are presented for better risk management and cooperation in the construction industry.
2012 Elsevier Ltd. APM and IPMA. All rights reserved.
Keywords: Perceived risk; Measurement; Risk management; Contractor

1. Introduction
It is widely acknowledged that risk management is an essential
part of construction projects (Project Management Institute,
2004). Although there has been a large amount of research
devoted to developing methods to identify, analyze and evaluate
the relative importance of risks associated with particular
political, geographic, economic, environmental, regulatory and
cultural factors (e.g., Ashley and Bonner, 1987; Chua et al., 2003;
Dikmen et al., 2007; Khattab et al., 2007), most of these analyses
are heavily dependent on the risk perceptions of the top
management of construction companies (Ramgopal, 2003). In
these studies, a few individuals' perceptions of risk may have a
significant effect on the validity and reliability of the results.
Therefore, our understanding of how construction groups or
individuals perceive risk is still very limited. Although
Corresponding author at: School of Economics and Management, Southwest
Jiaotong university, 610031, Chengdu, Sichuan, China. Tel.: +86 028 87603604;
fax: +86 028 87603822.
E-mail address: shaokailu@163.com (S. Lu).
0263-7863/$36.00 2012 Elsevier Ltd. APM and IPMA. All rights reserved.
doi:10.1016/j.ijproman.2012.06.001

psychologists have studied the factors that influence perceived

risk and its components (Weber and Hsee, 1998; Weber et al.,
2002), this psychological perspective has seldom been applied to
a construction project context.
This topic is of particular importance in developing countries
like China, where rapid economic growth has led to a boom in
infrastructure building, but where few professionals in the
construction industry have sufficient training in risk management. For example, Fung et al. (2012) state that safety
professionals make risk assessments based on their personal
experiences rather than on systematic processes. Obviously, to
survive in today's construction market, contractors must shoulder
a high degree of risk. Although China's rapid economic growth
provides many opportunities for overseas construction companies, foreign participants usually cooperate with local contractors,
in part to reduce the risk level. Thus, understanding how risk is
perceived by contractors in China not only provides useful
guidelines for effective cooperation, but also helps to establish
better cooperation between local partners and international firms.
This study conducts pioneering research on how contractors
in China perceive risk and develops helpful suggestions for

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S. Lu, H. Yan / International Journal of Project Management 31 (2013) 307312

more effective risk management. The rest of the paper is

organized as follows. In the next section, the primary risk
ranking or risk evaluating methodologies for construction
projects are reviewed. Using a list of 15 independent risk
factors associated with construction projects, 76 project
managers from contractors in China are invited to assess these
risk factors using different methodologies. A series of
regression models are then established to investigate which
measurement is a better indicator of relative managerial input.
Based on these findings, practical applications are proposed
and discussed in the conclusions.
2. Risk measurements for construction projects
Risk in the construction industry is often defined as the
presence of potential events that influence the objectives of a
project as a consequence of uncertainty (Project Management
Institute, 2004. Although risk can be an opportunity for both
gains and losses (Dias and Ioannou, 1995), most risk
assessment efforts in the construction field are focused on
risks associated with the possibility of loss. According to the
established literature on construction risk management, the
analysis and assessment of risk are two vital steps in the
formulation of an effective response (Kangari, 1995; Smith,
1999). Due to the lack of data and the unique nature of
construction projects, most measurements for ranking the
relative importance of risk factors depend upon the professionals' subjective perceptions. Existing systems can be
classified into two types.
Traditional risk assessment for construction projects evaluates perceived risk directly by soliciting experts' opinions with
questions such as How risky do you think this factor is? (e.g.,
Choi et al., 2010; Ghosh and Jintanapakanont, 2004). Various
types of numerical rating scales are applied to help professionals to quantify the answers. The mean scores of the
investigated risk factors are then used to rank their relative
importance.
Another type of risk assessment is based on the expected
utility theorem (Tversky and Kahneman, 1992). In this type of
measurement system, the respondents, experts in the construction industry, are required to provide rough assessments of the
probability of occurrence and the degree of impact associated
with a particular risk factor. Numerical scales are used to score
each risk factor in terms of its impact and the probability of
occurrence, and the product of these two values is often taken
as the basis for a rank ordering of risks (e.g., Chan et al., 2011;
El-Sayegh, 2008).
Although the above types of risk measurement are based on
individuals' subjective estimates, Ward (1998) states that the
quantification of the risk categories in the expected utilitybased approach makes the classification of risks less subjective.
Moreover, if statistically significant numbers of experts are
sampled, the expected utility measures should provide objective baselines for risky decisions (e.g., Fu et al., 2012; Shen et
al., 2001; Zou et al., 2007). A similar position is held by Baloi
and Price (2003), who further state that individual knowledge,
experience, intuitive judgment and rules of thumb should be

used to facilitate the risk assessment of a particular project.

Given the above discussion, we classified existing measurements of perceived risk into the two main types of direct
measurement and expected utility-based measurement.
Some studies analyze perceived risk using methods such as
the analytic hierarchy process or the fuzzy set theory to assess
the risk degree of a project (Dikmen et al., 2007; Gunhan and
Arditi, 2005). However, a number of studies in the behavior
field indicate that the human perceptions may have a systematic
bias against objective truth (Kahneman and Tversky, 1979;
Loewenstein et al., 2001). Differences in risk behaviors may be
caused by differences in the way risk is perceived (Kutsch and
Hall, 2010). For example, some people may assess the riskiness
of an event based on the expected utility. That is, they truly
assess risk with a cross-consideration of probability and impact.
Other people may have a different subjective impression of
riskiness and focus only on the impact of potential loss. Indeed,
although the expected utility-based measurements are widely
recommended in most recent studies, many scholars use only
probability measurements to quantify risk levels (Lam et al.,
2007).
Understanding how risk is perceived is of critical importance
because managerial strategies are based on the results of the
risk assessment. On the one hand, any deviation between the
subjective judgment of risk and the truth may cause serious
adverse outcomes. On the other hand, differences in the way
risk is perceived may also provide opportunities for collaboration. When the results of risk assessment differ and the groups
involved can determine the nature of these differences, it is
possible to generate tradeoffs that make increase the satisfaction of all of the parties involved (Deutsch, 1973; Weber and
Hsee, 1998).
3. Research methodology
We conduct two investigations to explore how contractors in
China perceive risk and to determine which of the two
measurement types most accurately predict the relative
managerial input. In the following sections, we discuss each
study in detail.
3.1. Study 1
3.1.1. Procedure
This study uses a questionnaire to investigate the risk
perception of contractors in China. The questionnaire consists
of 15 risk factors associated with construction projects. These
risk elements are culled from four primary sources: a literature
review (Zou et al., 2007); the expertise of the research team;
structured interviews with five senior managers of contract
firms; and further review by three industrial representatives.
The final list of risks is refined and an agreement is reached
regarding the exact terms and nomenclature of element
definitions. Table 1 presents the descriptions of the risk
factors.
Each respondent sees each of the 15 risks three times in
random order. The first time they see an element they are asked

S. Lu, H. Yan / International Journal of Project Management 31 (2013) 307312

309

Table 1
The descriptions of risk factors.
Adapted from Zou et al. (2007).
Risk factors

Descriptions

1. Lack of insurance
2. Lack of professionals
3. Defective materials
4. Poorly trained laborers
5. Inflation
6. Amphibolous contract
7. Design variations
8. Government bureaucracy
9. Inaccurate cost estimate
10. Poor communication
11. Unavailability of funds
12. Long term of investment
13. Deregulation of safety
14. Theft
15. Pollution

Not buying insurance for major equipment and employees

A majority of Chinese contractors lack high-quality staff to manage large projects
Defective construction materials that do not meet the building requirements
Poorly trained laborers may lead to poor quality outcomes for the project
The price of construction materials rises with inflation
The clauses of the contract are hard to understand because of the loose or awkward way in which they are worded
Design variations may result from issues such as changes by the client or defective designs
Excessive approval procedures in government departments
Many unforeseen factors may occur in construction activities causing the estimated cost to deviate from the real cost
Lack of effective communication among project partners
Client's poor management of funding in the development of construction projects
Some project delivery approaches, such as BT, require the contractor to make large endowments in advance
Poor safety awareness of project managers and inadequate safety measures
Employees may steal construction materials and equipment
Dust, harmful gases, noise, solid and liquid wastes, etc.

to assess its riskiness using their subjective judgment. The

second time they see it they are asked to assess the probability
of occurrence, and the third time to rate the degree of impact.
Using the research team's experience, the literature review and
standard industrial practices (Gibson and Walewski, 2004), we
develop numerical scales to help respondents quantify their
answers. Table 2 gives the probability division for the
likelihood of occurrence, the relative impact definitions, and
the numerical scale for subjective measures used in the
research.
The 76 participants are all project managers employed by
contractors and enrolled in a part-time training program at a
midsize university in southern China. According to Chinese
law, these project managers must attend the training program to
maintain their professional qualifications. In construction
projects, the project manager is solely responsible for the
overall management. Therefore, the opinions of project
managers broadly represent the views of the contractor firms,
even though the project managers are individuals.
A total of 46 (61%) respondents have greater than or equal
to 10 years of construction related experience and 63 (83%) are
high-ranking or top-post project managers. All of the project
managers are male; 5% have a high school diploma, 38% have
an associate's degree, 50% have a bachelor's degree, and the
others have a graduate degree. In addition, all respondents are
from first class Chinese firms. These contractors have more
than 1000 employees on average, and the accumulative

proportion of state-owned and collective owned companies is

92%. Thus, the results can be treated as representative of
experienced and highly-ranked contractors.

3.1.2. Results
The statistical means of the assessments of the 15 risk
elements using direct measurement, probability, impact, the
calculated expected utility-based measurement, and the corresponding rankings are shown in Table 3.
With the help of SPSS 18.0, the Spearman rank correlation
coefficient (rs) is used to measure the agreement between the
rankings in the risk importance indexes generated by the various
risk assessment measurements. The null hypothesis is that there
is no significant relationship between the two groups of data. As
the results in Table 4 show, the two major risk indicators of
direct measurement and expected utility-based measurement
have significantly different risk importance indexes (rs = 0.28,
p N 0.05). For example, Government bureaucracy is ranked
thirteenth in the direct measurement index, whereas it is ranked
third in the expected utility-based measurement index. In sum,
even when identical risks are evaluated by the same respondents, different measurement criteria may produce various
rankings of risk assessment. Moreover, it is also shown that the
direct measurement is significantly related to the impact
measurement (rs = 0.87, p b 0.001), whereas it is insignificantly
related to probability assessment (rs = 0.15, p N 0.05).

Table 2
Numerical scales used in Study 1.
Probability occurrence

Relative impact

Direct measurement

About 5% very low chance

About 20% low chance
About 50% medium chance
About 70% high chance
About 90% very high chance

1 Negligible consequence
2 Minor consequence
3 Moderate consequence
4 Significant consequence
5 Extreme consequence

1
2
3
4
5

Very low risk

Low risk
Medium risk
High risk
Very high risk

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S. Lu, H. Yan / International Journal of Project Management 31 (2013) 307312

Table 3
Means and rankings by various measurements.
Risk factors

Direct measurement

Probability

Mean

Rank

Mean

Rank

Mean

Rank

Mean

Rank

1. Lack of insurance
2. Lack of professionals
3. Defective materials
4. Poorly trained laborers
5. Inflation
6. Amphibolous contract
7. Design variations
8. Government bureaucracy
9. Inaccurate cost estimate
10. Poor communication
11. Unavailability of funds
12. Long term of investment
13. Deregulation of safety
14. Theft
15. Pollution

2.83
2.92
3.87
3.13
3.53
3.17
3.49
2.75
2.91
2.89
3.79
3.42
3.40
2.68
2.57

12
9
1
8
3
7
4
13
10
11
2
5
6
14
15

0.20
0.33
0.19
0.24
0.50
0.21
0.15
0.44
0.36
0.20
0.46
0.39
0.28
0.37
0.18

11
7
13
9
1
10
15
3
6
11
2
4
8
5
14

2.68
3.08
3.74
2.87
3.13
3.15
3.64
3.00
2.96
2.98
3.91
3.40
3.04
2.25
2.60

13
7
2
12
6
5
3
9
11
10
1
4
8
15
14

0.52
1.08
0.65
0.71
1.61
0.65
0.54
1.48
1.12
0.61
1.84
1.41
0.88
0.89
0.50

14
6
10
9
2
10
13
3
5
12
1
4
8
7
15

3.2. Study 2
3.2.1. Procedure
The following investigation examines which measurement
of perceived risk most accurately predicts the relative
managerial input of contractors. A simplified version of the
questionnaire from Study 1, with only eight risks, is used to
collect data. In this questionnaire participants are asked to
evaluate the real efforts they input into each risk factor, using a
5-point Likert scale (where 1 indicates nearly no input and
5 indicates input as much as possible). Of the 38 project
managers from various contractor firms in this study, 30 (79%)
respondents have greater than or equal to 10 years of
construction related experience and 22 (58%) are highranking or top-post project managers.

Impact

Expected utility-based
measurement

measurement models account for an average of 52% of the

variance in the managerial input across all 38 respondents, with
a range from 36% to 87%. The expected utility-based
measurement models, in contrast, account for an average of
15% of the variance in the managerial input across respondents,
with a range from 7% to 43%. Furthermore, the standardized
regression coefficients of the direct measurement models are
significantly higher than those of the expected utility-based
measurement models (t = 5.40, p b 0.001). It can therefore be
inferred that Chinese contractors primarily depend upon direct
measurement strategies to deal with risks rather than the
expected utility-based approach.
4. Discussion
4.1. Theoretical implications

3.2.2. Results
Following Weber and Hsee (1998), we fit the following
regressions from individual levels. As we focus on the
measurements used in the construction field, the model
regresses on the managerial input on the direct measurement
and expected utility-based measurements associated with a
particular respondent. Table 5 shows the means of the
coefficients of the regression models.
As the above regression models have the same number of
predictor variables, their adjusted R 2-values can be directly
compared as measures of model fit. It is clear that the direct
Table 4
Spearman rank correlation test for the risk importance indexes by various
measurements.
Measurement

1. Direct measurement
2. Probability
3. Impact
4. Expected utility-based measurement

1.00
0.15
0.87
0.29

1.00
0.14
0.91

1.00
0.31

1.00

Refers to no significant disagreement on the ranking at the 0.001 level.

Perceived risk is a widely used strategy for risk assessment

in the construction field as construction projects often lack the
data necessary for objective assessment. Thus, understanding
the way risk is perceived is vitally important as it forms the
basis for managers' risk management strategies. Variations in
the perception or understanding of risk may lead to serious
outcomes. Unfortunately, our present study shows that the risk
ranking orders obtained by the two main types of measurements
of perceived risk, direct measurement and expected utilitybased measurement, are significantly different. The results
obtained by the former are a better reflection than the latter of
the real managerial input of contractors.
It is should not be surprising that the behavior of contractors
does not reflect probability variations, whereas the expected
utility-based measurement does take probability into account.
Existing models of risk as emotional assessments (Loewenstein et
al., 2001; Slovic et al., 2004) point out that real actions in risky
situations are significantly affected by the mental imaginings of
decision makers, and that such imaginings are not significantly
affected by probabilities. For instance, Viscusi and Magat (1987)

S. Lu, H. Yan / International Journal of Project Management 31 (2013) 307312

311

Table 5
Mean regression coefficients for managerial input as a function of perceived risk.
Measurement

Direct measurement
Expected utility-based measurement

Managerial input
Model (mean)
Intercept term a

Regression weight b

Adjusted R2 (F-value)

2.25
1.57

0.61
0.25

0.52 (10.28)
0.15 (1.54)

find that people are willing to pay considerably more to reduce

the risk of skin poisoning from an insect spray from 5 in 10,000 to
0, than to reduce the risk from 15 in 10,000 to 5 in 10,000.
4.2. Managerial implications
These findings can be used to help contractors form more
effective managerial risk strategies. First, it seems that most
Chinese contractors depend on their gut feelings to deal with
risk. This should not be surprising as most Chinese project
managers lack training and skills in risk management, although
they have to deal with risks in practice. As a result, these
contractors may pay more attention to risks with potentially
serious effects, but ignore other risks that have a high probability
of occurrence. As the expected utility-based measurement can
provide a relatively objective benchmark for risk assessment, it is
suggested that Chinese contractors should be encouraged to
develop a more holistic review of risk and not to underestimate
the role of probabilities.
In addition, rating risk at an early stage is of critical
importance for contractors who are deciding whether to
undertake a particular project or participate in a partnership.
Effective managerial risk strategies are absolutely necessary to
attract more contractors to a project, or to get better cooperation
with them. Based on our findings and on other recent studies (Ke
et al., 2010), establishing a risk-sharing mechanism would be of
more value to Chinese contractors than reducing the likelihood of
particular occurrences associated with risks. As potential losses
play a vital role in ranking the perceived risk for Chinese
contractors, such a risk-sharing mechanism might help group
members feel safer in risky situations (Weber and Hsee, 1998).
Different approaches to risk assessment among contractors
may also provide opportunities for better collaboration between
various construction companies. According to our findings, the
ranking orders of risks are significantly different between the
direct measurement and the expected utility-based measurement strategies. Suppose there are two risk factors, one with a
higher than expected utility and a lower impact, and the other
with a lower than expected utility and a higher impact. It can be
inferred that a construction firm that uses the direct measurement to assess risk factors would be likely to take responsibility
for the first risk factor, whereas another firm using the excepted
utility strategy would be likely to prepare for the second. This is
consistent with findings that there are significant differences
between the way that Chinese and Canadian project managers
assess risks (Camprieu et al., 2007). Differences in risk
perception may therefore provide opportunities for tradeoffs
that satisfy all parties.

5. Conclusion
Most risk assessments of construction projects are based on
perceived risk. In this study, we focus on the risk perception
behavior of contractors in China. The findings show that the
risk ranking order obtained by the direct measurement strategy
is significantly different from that obtained by the expected
utility-based measurement strategy. Furthermore, the direct
measurement is a better predictive indicator of the relative
managerial input than the utility-based measurement. Understanding how risk perception affects risk assessment has the
potential to become a valuable component of courses on strategies of risk management and on risk allocation negotiations.
This study provides new insight into risk management in the
construction field. However, future research is needed to fully
understand the variation in risk perception across different
contexts. First, our research focuses on contractors in the
Chinese construction industry, and the findings should be taken
as preliminary results. More research needs to be conducted to
confirm the differences within and across industries and
countries. Second, more recent studies in psychology suggest
that the identification of risks in various domains may lead to
different cognitive processes and emotional responses (Qin and
Han, 2009). As risks in construction projects have different
impacts on multiple domains including the economic, social
and safety domains (Fung et al., 2010), it is necessary to
investigate whether there are some differences in the way risk
factors are perceived across domains. Third, more work is
necessary to improve the accuracy of risk assessment. Although
the expected utility-based measurement strategy may provide a
more objective view, the assessment of risk is still mainly
dependent on the subjective feelings of project managers. To
make these evaluations more valid, more analysis of data from
historical documents (Fung et al., 2012) is needed.
Acknowledgements
We thank the participants of the research at the Shenzhen
University of China. This research was supported by NSFC
(70902037 and 71090402), the Hong Kong Polytechnic
University research grant J-BB7D, and the Hong Kong GRF
grant PolyU 5515/10H.
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