Prediction of risk perception by owners’ psychological traits in small building contractors

Abstract

Risk decisions in small companies are not only based on the rational evaluations of the likelihood and magnitude of risks, but also rely on the personal traits of the owners, who are the dominant or single decision makers in their organizations. The major hypothesis of this paper is that risk management decisions in a small organization cannot be separated from the personality of its owner. Studying the risk perception of owners may be important to understand the ways they handle risky and ambiguous situations across different domains and to devise project risk management strategies that fit in with the particular needs of small companies. Owners’ risk perception related to building projects was statistically predicted by their psychological and demographic traits along with a set of organizational variables. Statistical analyses of data from 32 small general contractors specializing in residential and commercial building construction portray the risk-taking profile of owners and suggest that individuals with low risk propensity in health and financial domains have a higher risk perception, which is also positively associated with organizational size. These findings confirm the domain-specific nature of risk taking and provide a basis to examine thoroughly the project management strategies and actions at individual level in the case of smaller companies.

Keywords:

• Risk management
• small business
• risk propensity
• ambiguity tolerance