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Vendor vs. Client Risks in Outsourced IT Projects: An Agency Theory Perspective
Abstract
As outsourced and multinational IT projects become more common, managing risks for these projects is increasingly important. The research reported here examined key risks identified by Hong Kong vendor project managers working on both local and international package implementation projects. In addition to the typical risks that threaten project outcome success, respondents noted additional client- side and vendor-side risks, as well as location-specific risks on their multinational projects. They also distinguished threats to the satisfactory process of the project, and threats to their own firms from competitors and from potential damage to their reputation arising from customer dissatisfaction with either the outcomes or the process of the project. This broader risk focus of vendor project managers is contrasted with the client perspective through the lens of agency theory. Traditionally, agency theory has been used to predict risks to the client-principal related to vendors’ profit goals in the outsourcing relationship. However, the findings of this study suggest that vendors’ higher-level concerns for their future business and reputation mitigate the risk to the client of vendor opportunistic behavior.
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