Operational risk management in SME's based in Kya Sands Industrial Area

Abstract

The purpose of this study is to investigate the role of Operational Risk Management (ORM) in the successes of Small Medium Enterprise (SME’s) and to establish whether ORM has a direct correlation to the survival rate of SME’s, which have been operational for a minimum period of five years. The study was limited geographically to Gauteng South Africa, in particular the Kya Sands Industrial area.

The South African Government is focusing on promoting small business to reduce the high unemployment rate and to increase the growth of the economy through developing SME’s. Statistics states that South Africa currently has an unemployment rate of 25.5 per cent, in the third quarter of 2015 (Statistic South Africa, 2015), which is the worst rate since the first Labor Forces Survey in 2008. It is well known that SME’s contribute significantly to the world’s economy.

After conducting a significant literature review, it was found that no applicable research has been done globally or locally regarding ORM in SME’s as per NG & Kee (2012). Most research in ORM is focused on large organisations, specifically the banking industry.

The need for this study arose as literature reviews reveals a high rate of SME failures, regardless of various financial assistance programs from Government for starting and assisting SME’s.

In determining the impact of ORM by addressing the high probability of failure of SME’s in emerging markets this research will be the first step in determining the value and trajectory of additional insights for SME sustainability . Thus ORM could indirectly provide assistance in undertaking and addressing the unemployment and economic freedom challenges in South Africa. This is unique and new knowledge generating ground breaking finding s as ORM was not regarded nor researched, as a critical contributing success factor for smaller companies.

This research had a positive approach and was of a quantitative and exploratory nature to investigate the research question and problem statements. The research instrument was a self-designed semi-structured enumerated questionnaire. Personal

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interviews were conducted with willing participants in order to obtain first hand data. This was an avant-garde study. The results based on the facts and perception of the owners and managers indicated the extent of implementation of ORM in the various business departments of the SME’s. It was found that ORM is a contributing factor regarding the success of SME’s. As a result, the main research problem and sub- problems were answered. Therefore ORM definitely plays a vital role in the survival rate of a SME and can be regarded as a critical success factor for SME’s if implemented and managed. Through identifying the facts and perceptions of the owners and managers of SME’s regarding ORM, further research can be conducted to identify the extent that ORM can have on the SME’s successes.