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Sophistication of Risk Management
86
Theoretical
N
M i n Ma x M i n Ma x Me a n S t dDev L o w
M e d .
H i gh
R i s k Ma n a g eme n t Process
0
2.3 R i sk catcgories
301
0
8
0
0
2.5a R i sk assessment: Frequency
295
0
4
0
0
2.5b R i sk assessment: T ime hor izon
294
0
4
0
Q 2.6a R i sk reporting 10 boa r do f d i r ec t o r s
299
0
3
0
Q 2 . 7 L i nk o f r.m. to business planning
286
0
2
0
3.00
1.408 <2 . 67 < 5.33 < 8.00
2.15
1.235 < 1.33 < 2.67 <4 . 00
1.41 0.994 < 1.33 <2 . 67 <4 . 00
1.11 0.725 < 1.00 <2 . 00 <3 . 00
2
1.08 0.775 <0 . 67 < 1.33 < 2.00
R i s k Ma n a g eme n t Or gan i z a t i on
Q 2.1a Respons ible for r.m. Implementat ion 299
0
Q 2.1 b Respons ibl e for r.m. r ev i ewi ng
298
0
Q 2.2 R i sk management documentat ion
297
0
0
2.4 R i sk assessment: Respons . , mcthods 301
0
0
2.8 R i sk management sol fware
300
0
0
2.9 Ri sk management expcndi ture
282
0
Table 4: Scoring of Risk Management Practices: Descriptive Statisti(
10
6
7
2.01
1.53
1.22
1.78
1.33
0.61
1.138
0.730
1.332
0.874
0.731
0.837
<3 . 33
<2 . 00
<2 . 33
<2 . 67
<2 . 00
<
I
.OO
<6 . 67 < 10.00
<4.00 <6.00
<4 . 67
<5.33
<4 . 00
<2 . 00
<7 . 00
<8 . 00
<6 . 00
<3 . 00
nagement practices in German SMEs
by
an
explorative approach.
The questionnaire approach of the present paper
is part
of
a larger project which investigates the
current State of risk management practices in
German SMEs and which tries to reveal the
key
factors being important for a successfui risk
management.
Another aim of this project is to
examine whether one can classify the sophistica–
tion of establishing a risk management system.
Variables belonging to the same group behave
similarly, with the common intormation being
reduced to the corresponding Single factor va–
riable (see Table 5).
Being a Substitute for the original variables, the
(orthonormal) set of factors is then submitted to
a Cluster analysis. This procedure separates the
sample into subsets such that within each of
these "Clusters" the firms have similar risk ma-
First, the postal questi–
onnaire inquired for the
enterprise's basic data
such
as
size, industrial
sector or legal form. Then
questions on risk ma–
nagement practices follo-
wed, covering the as-
pects of risk manage–
ment process and
r isk
management
Organiza–
tion. They are displayed
verbatim in Table
3,
to-
gether with the options
selected.
To obtain the sample of firms to contact, the
Hoppenstedt database for SMEs (2002) has
been used. From this database all enterprises
from the cited five main Industries having an
annual turnover up to 50 million Euro have been
drawn.
This paper mainly deals with multivariate ana-
lyses of risk management practices. In a first
step, a factor analysis is carried out for the 11
risk management variables. The factor analy–
sis induces a grouping of the input variables.
Factor
define enterprise size, there is a clear shift to-
wards the dass of medium-sized firms. As re-
commended by the literature on SMEs, the
questionnaire results take account of both size
criteria.
About 38% of the questioned enterprises have
a parent Company which itself does not fulfil the
criteria of an SME. This percentage is in ac–
cordance with other empirical studies on Ger–
man SMEs (Ossadnik et al.,
2004, p. 623).
#1
#2
#4
02.1a Responsible for r.m. implementation
0.809
02.1b Responsible for r.m. reviewing
0.789
0 2.4 Risk assessment: Respons.. methods
0.704
0 2.5a Risk assessment: Frequency
0.751
0 2.7 Link of r.m. to business planning
0.643
02.8 Risk management soffw are
0.581
0 2.6a Risk reporting to board of directors
0.842
02.2 Risk management documentation
0.841
0 2.3 Risk catcgories
0 2.5b Risk assessment: Time horizon
02.9 Risk management expenditure
0.729
0.653
[ 0.323
Table 5: Factor Analysis: Matrix of Rotated Loadings of the 4 Factor Solution
nagement outcomes. The firms' risk manage–
ment sophistication is studied by examining
across the resulting
Clusters
the distribution of
the basic variables and the means of the risk
management variables (Tables 6 and 7).
Research Results
The basic data of the questionnaire results are
contained in Table 2. If enterprises are dassi-
fied according to the annual turnover, small
firms in the sample clearly dominate. If, on the
other hand, the number of employees is used to
As Table 2 reveals, most en–
terprises belong to the classes
of small and medium-sized
ones. Most empirical studies
concentrate on these classes.
Micro firms are excluded in
these studies since data of
these are difficult to obtain.
The present investigation deli-
berately includes micro firms,
In order to gain results about
at least tendencies for this
dass. The relatively small number of micro
firms within the sample makes it difficult to get
Statistical evidence. The effective response rate
of 17.4% can be considered as satisfactory.
Grouped into the aspects of risk management
process and risk management
Organization,
Ta;
ble 3 presents the part of the questionnaire
which inquires the firms' risk management
practices. The encoding of the respective 11
variables has been carried out as indicated by
the score column of Table 3. If the options reve–
al an inherent order, the scores will reflect it
with scores
from
"bad" to "good". In addition,
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