A structured approach to risk management for South African SMEs

Abstract

Risk, prevalent in all organisational activities influences the achievement or non-achievement of organisational goals. This necessitates the need for a structured process for effective risk management. Traditionally, risk management strategies were centred on insurance solutions, however due to changes in the business landscape, organisations moved towards an integrated, holistic strategy-focused risk discipline. Small and Micro Enterprise (SME) owner-managers are however largely ignorant about the risks faced by their enterprises. They still respond reactively to risk by utilising risk avoidance and risk transfer techniques. These non-structured approaches to risk impede on SME growth and success, limiting their role to providing employment, contributing to investment, and contributing to the economy as a whole. In this research study a SME risk architecture framework that can be used concurrently with corporate governance frameworks as well as the organisation’s performance measurement system is proposed resulting in a structured approach to managing SME risks. The proposed SME architecture framework consists of three interrelated components, namely:  SME risk consciousness, focusing on risk sources most commonly identified as obstacles to SME success and survival.  The SME risk management process that constitutes the steps SME owner-managers should follow in addressing risk sources.  The SME risk management framework providing owner-managers with a mechanism to deal with risks at all organisational levels through effective risk planning, risk implementation and risk evaluation processes.