The outsourcing literature has a great deal of work describing how to practice risk management. Further, it details the benefits of specific risk management practices. It is surprising then that risk management in outsourcing arrangements is often avoided or treated as an administrative hurdle. Outsourcing arrangements face serious risk such as the possibility of opportunism by the supplier and the loss of valuable skills within the firm. Outsourcing complicates risk management for a firm as the company loses control over what may be vital processes. Given the risks outsourcing arrangements introduce, it is important to understand why risk management techniques may not be used in these sensitive situations.To examine the antecedents to the use of risk management, the theory of planned behavior is adapted to an outsourcing manager who is responsible for an outsourcing arrangement. The antecedents identified are the manager's perceived ability to react to problems, the process-focused risk management policies of the firm, and ambiguity surrounding the outsourcing arrangement. Each of these were found to be related to the use of risk management. Additionally, the study found that risk management effectiveness is related to ambiguity surrounding the outsourcing arrangement, the use of risk management, and resource slack available to the outsourcing arrangement. The final relationship found was between risk management effectiveness and supplier performance.These findings add to the literature on supply chain risk management, first by explaining why risk management practices may not be practiced in a variety of situations and second by demonstrating that when outsourcing managers apply risk management practices, they are effective and improve supplier performance. While prior research had documented the costs of mismanaged risk, this is the first large-scale study to find the benefits of proactive risk management in outsourcing to supplier performance.
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