Understanding the impact of risks on performance in internal and outsourced information technology projects: The role of strategic importance

Successfully managing the risks of information technology projects continues to be a central problem for organizations regardless of whether the project is outsourced or not. While a plethora of studies has examined the effects of risks on performance, majority fail to distinguish the sourcing characteristics of the projects investigated. Furthermore, little is known about the joint effects of strategic importance and the risk on system performance across internal and outsourced projects. Based on data collected from 77 internal projects and 51 outsourced projects, we find that social subsystem and project management risks are negatively associated with system performance in both internal and outsourced projects. However, technical subsystem risk negatively affects performance only in internal projects. While social subsystem risk exerts greater influence on system performance in outsourced projects than in internal projects, the technical subsystem risk has greater effect on performance in internal than that in outsourced projects. Moreover, the effect of project management risk is not different in both types of projects. In addition, strategic importance moderates the relationship between risks and performance. The negative impact of risks on performance is greater in projects that are more strategic. Strategies are proposed to reduce the complexity and potential conflicts inherent to strategic projects because these characteristics may amplify a risk's impact.