Factors affecting South African small and medium enterprises risk identification and management

Abstract

It is indicated that 75% of small businesses fail within the first five (5) years of business operations. Small businesses can be blindsided by risks that management has failed to account for. However, risk management has the capacity to reduce business failure rates by relating good management practices across a business to risk events and aiding in the production of a consolidated response from the entire business. Still, small businesses are often hesitant in voluntarily complying with risk standards. Small businesses often fail to employ risk management because of the opportunity cost thereof in business or operational terms. Considering this, the aim of this article was to identify the factors affecting South African Small and Medium Enterprises (SME's) risk identification and management practices. In order to determine what relationship small businesses have with risk management the small businesses were surveyed in the Sedibeng District Municipal Area (SDMA). The survey determined which risks they could identify and how closely their actions to address those risks matched theoretical best practice. A quantitative approach was used and a structured questionnaire was employed to extract the required information. Exploratory factor analysis (EFA), reliability and descriptive analysis were the quantitative methods used to extract the knowledge presented. What was found is that small business owners were risk adverse and had limited awareness of the risks their businesses were exposed to. Experience drove both risk awareness and risk response in their businesses. Small businesses focus on business risk and operational risk but are not cognisant of many of the other risk types. Risk management was consequently lacking, and amounted to limited crisis management, and the processes that embody small business risk management factored into the three (3) steps of risk identification, risk treatment, and the revision of feedback from employees. The implication of the findings is that small businesses are especially vulnerable to risk events and require a means through which to address risk exposures in a way that is tailored to their limitations.