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Risk perception in performance based contracts and the influence of experience

Risk perception in performance based contracts and the influence of experience In performance-based contracting (PBC), the provider is paid according to outcomes for its customer, and therefore assumes responsibility for customer risks. Previous studies have revealed that risk exposure is a fundamental influencing factor. Thus, the purpose of this paper is to analyze how previous experience with PBC influences the perception of risks.Design/methodology/approachThis research is based on a cross-industry study. Factor analysis and discriminant analysis are used to reveal to what extent experience influences PBC risk factors.FindingsIt is confirmed that risk perception differs significantly according to previous PBC experience. Thus, significant learning effects are identified in the PBC context.Research limitations/implicationsExperiential learning in PBC can explain entry barriers to PBC faced by new buyers with low levels of experience. Although the internal validity of the sample is high, as all analyzed cases represent PBC buying companies, there are limitations related to external validity.Practical implicationsTo manage risks this study provides a structure (12 risks, 3 aggregated factors), which could be used for risk evaluation and strategic and operative risk management. Other implications recommend, e.g., to collaborate with a PBC “veteran” when entering into PBC, as this boosts the level of PBC-related experience.Originality/valueThe findings of this study contribute to identifying PBC risks through the explorative statistical assessment of these PBC risk factors. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Productivity and Performance Management Emerald Publishing

Risk perception in performance based contracts and the influence of experience

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1741-0401
DOI
10.1108/ijppm-03-2018-0123
Publisher site
See Article on Publisher Site

Abstract

In performance-based contracting (PBC), the provider is paid according to outcomes for its customer, and therefore assumes responsibility for customer risks. Previous studies have revealed that risk exposure is a fundamental influencing factor. Thus, the purpose of this paper is to analyze how previous experience with PBC influences the perception of risks.Design/methodology/approachThis research is based on a cross-industry study. Factor analysis and discriminant analysis are used to reveal to what extent experience influences PBC risk factors.FindingsIt is confirmed that risk perception differs significantly according to previous PBC experience. Thus, significant learning effects are identified in the PBC context.Research limitations/implicationsExperiential learning in PBC can explain entry barriers to PBC faced by new buyers with low levels of experience. Although the internal validity of the sample is high, as all analyzed cases represent PBC buying companies, there are limitations related to external validity.Practical implicationsTo manage risks this study provides a structure (12 risks, 3 aggregated factors), which could be used for risk evaluation and strategic and operative risk management. Other implications recommend, e.g., to collaborate with a PBC “veteran” when entering into PBC, as this boosts the level of PBC-related experience.Originality/valueThe findings of this study contribute to identifying PBC risks through the explorative statistical assessment of these PBC risk factors.

Journal

International Journal of Productivity and Performance ManagementEmerald Publishing

Published: Jul 17, 2019

Keywords: Performance; Risk; Experiential learning

References