Professional Documents
Culture Documents
DEPARTMENT OF MANAGEMENT
FACTORS AFFECTING RISK MANAGEMENT PRACTICES ON
ETHIOPIAN MEDIUM AND SMALL SCALE ENTERPRISE (THE
CASE OF AMBO BRANCH)
2. Mulusew Endeshaw
3. Tesfalem
4. Sura
5. Kasaye
APRIL, 2021
AMBO, ETHIOPIA
Acknowledgement
First and for most, we would like to thanks almighty GOD with his mother; who helped us in
every direction where we are doing this paper.
Secondly, our gratitude goes to our dearest advisor Mr. Abebe A. for his sincere willingness,
frank approach in order to be with us during the preparation of this proposal and completion of
the forthcoming research paper.
I
Table of Contents
Contents Page
Acknowledgement........................................................................................................................I
LIST OF TABLES......................................................................................................................V
LIST OF FIGURES...................................................................................................................VI
ACRONYMS...........................................................................................................................VII
ABSTRACT..............................................................................................................................VIII
CHAPTER ONE..............................................................................................................................1
1. Introduction..................................................................................................................................1
1.4.1General Objective................................................................................................................4
CHAPTER TWO.............................................................................................................................6
2. Literature Review.......................................................................................................................6
II
2.2.3 Selecting the tools to be used in managing risk..............................................................8
CHAPTER THREE.......................................................................................................................14
3. Methodology..........................................................................................................................14
IV
LIST OF FIGURES
Figure 1 Risk Management Process................................................................................................7
V
ACRONYMS
MSSE Medium and small scale enterprise
VI
ABSTRACT
This study will use descriptive types of research approach to assess the level of risk management
by MSSE in Ambo town with particular emphasis on the knowledge possess by MSSE owner or
manager. It is further believed that risk management is less developed with in small business
sector and strong enterprise culture can only help in managing risk in a professional and
structured way. This study will focus on investigating factors affecting risk management practice
in MSSE in Ambo town. The attitude of owner manager and their knowledge towards risk play
an essential role in how systematically risks are handled. It should be clearly understood that
the objective of risk management is not to prevent or prohibit taking risk, but to ensure that risk
are concisely taking with complete knowledge and clear understanding so that it can be
measured to help in mitigation. This study will use questioners as dominant data collection tools.
The data is presented through table, graph, and percentage. The study will use sample technique
for sample frame through simple random sample and proportionate stratified sampling
technique. The researcher will use 66 owners from total of 192 target population in five sector
(manufacturing, trading, service, construction and urban agriculture). The data will be collected
from primary and secondary source of data. Based on finding of research recommendation will
be forwarded.
Key word: Risk Management, Medium and Small Scale Enterprises, Owner or Manager
VII
CHAPTER ONE
1. Introduction
The operators of MSSE face a certain degree of risk in their daily operation globally. Risk is the
probability that the outcome of an action or event could bring up diverse impact on the business.
It may include environmental risk, developmental risk, manufacturing risk, finical risk,
marketing risk and growth risk. Some of this risk can be control if appropriate action is taken to
do so, were as some are largely unpredictable and uncontrollable. The manager can only control
the risk within their control. However the business could still face risk of closer due to some
factor that are beyond its control such as, faire, flood, political crises, conflict among other. The
ability of management of Medium and small scale enterprise (MSSE) to carefully identify the
risk that their business face in take action according to counter the risk, will certainly successful,
profitable and contribute to economic growth nation. [ CITATION Aze12 \l 1033 ]
Risk management involves identifying, analyzing and taking steps to reduce or eliminate the
expose to loss faced by the organization or individual. Risk management is particularly a vital for
MSSE science the same common types of loss such as thefts, fire, disaster, flood, legal liability,
injury or disability-can destroy in a few minute what may have taken entrepreneur year to build
such loss and liability can affect day to day operation, reduce profit, cause finical hard ship
severe enough to cripple or bankrupt in MSSE [ CITATION Aze12 \l 1033 ] and prevent it from
contributing to economic development of nation.
The business world comprise widely divergent spectrum of establishment and important
economic role in many country, over the past 10 year economic planer have realized the
importance of small enterprise before in achieving economic development many governmental
and developmental organization have focused on promotion MSSE as a way of encouraging
brooder participation in private sector [ CITATION Hai03 \l 1033 ].
In the past years, Ethiopia small business institution have been hit by crises that has led to the
collapse of indigenous Medium and small scale institution and contributed crises of confidence
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that threaten to permanently damage the sector. These crises coming at the time of serious
economic hard ship was great impediment to economic expansion. [CITATION MSS00 \l 1033 ].
MSSE are the engine room for economic growth. According [ CITATION Aze12 \l 1033 ] MSSE
may look small or in consequential but are actually the foundation of any economic stable nation.
Medium and small scale enterprise are very important for Ethiopian in economic development
according to data by Ethiopian minister of MSSE, 95% of Ethiopian business are MSSE. These
businesses employ over 80% 0f Ethiopia and 60.30% Ethiopian GDP. These numbers are
increase with the emerging of creative industry development throughout the country. [ CITATION
Mer17 \l 1033 ]
The MSSE business owner is any person, group of people that starts and runs MSSE. MSSE in
Ambo town is an enterprise with the total capital employed of not less than 5000 not exceed
20,000 (including working capital excluding cost of land) with the staff strength not less than
100 and not more than 100 (MSSE in Ambo town sub city). More so the reversal of the high
unemployment rate, poverty which stood at 69% of Ambo town sub city. [ CITATION Mer17 \l
1033 ]
Management of risk can be considered from probability theory .the process of measuring lose
potential and evaluation there impact on small business lead to risk control and financing and
thorough risk analyses ,assessment and evaluation (bratanovic,1999) .
Risk management concerns, many study have been focused on large firm and lower priority has
been given to examine the risk management in MSSE where the risk are considered to loss
catastrophic and most study concentrated solely on the risk associated with safety and
occupational health. The major problem of MSSE is natural disaster malicious activity,
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systematic faller of human system and fair. The goal of risk management is to maximize business
institution risk adjusted return by maintained risk exposure within acceptable parameter .The
effective risk management is critical component of comprehensive approach to risk management
and essential to be long term success of (MSSE) institution. [CITATION Sin92 \l 1033 ]
Basically this study will attempt to find out factors affecting risk management that most of the
organization in Ambo town used to their business against the possible occurrence of risk and
uncertainty. In the process of analyzing and managing the potential loss of the owner and the
manager is very likely face with the different problem. Small business has their own problem and
the problem originated from outside and internal problem but the main problem is originated
from outside environment, the internal problem due to limited capacity and shortage of resource
to be surrendered for managing risk the external problem is at most due to insurance company
failed to accept the coverage request of MSSE. Generally the research will focus on MSSE that
will financing, major marketing technique factor that hinder the overall performance of MSSE in
Ambo town. In addition to this the research will try to investigate financial related risk and
introduce basic handling method to overcome such problem and the assessing risk management
technique used by MSSE.
The researcher will attempt to explore different facts regarding with risk management practice
and will address existing literature in order to reach sound conclusion to provide real finding for
the aim of providing good contribution.
The researcher aims that conducting this research will be beneficial to solve practical problem of
MSSE by studying the factors affecting Risk management practices on Ethiopian Medium and
medium scale enterprises. The researcher inspired to study this title because of initially, to know
or assess how much the population of Ambo town are anticipated to influences of risk
management when this enter in to MSSE. In addition to know the contribution of government in
advancement of budget in MSSE and to know risk of small business. In Medium and small scale
enterprise in Ambo town play significance in economic growth and developed by creating new
employment Ambo town development, entrepreneur and social development.
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What type Risk Management technique used against possible occurrence of risk?
What Risk faced by Medium and Small Scale Enterprises?
What factors contribute to Risk Management practice of MSSE?
What is risk faced by MSSE?
What is the attitude of MSSE owner for risk?
The topic of the study wills the factors Risk Management practice techniques of Medium and
small scale enterprise in Ambo town.
Conceptual scope: The study will focus only on factors affecting Risk Management practice on
Medium and Small Scale Enterprise.
Geographical scope: The scope of the study will be geographically limited to MSSE business in
Ambo town. It includes only five MSSE sector those are manufacturing, construction, trading,
services and urban agriculture sector in Ambo. These scope of the study is only limited to MSSE
in Ambo and scope of the only study five enterprise and the study focus on risk management
practices techniques our investigation is only owner of the business.
Methodological scope: The study was used descriptive research design and simple random
sample and proportionate stratified sampling techniques.
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5
1.6 Significance of the Study
The researchers will augment the following main significance:
1. It is importance for insurance company and give regard the insuring the MSSE.
2. It allows to give the basic feature and influence of risk in small scale business.
3. Medium and small scale enterprise in Ambo town will use the research findings and
knowledge gained to assist them as they commercialized and faced with need to adopt
sustainable method of delivering service which can be achieved offering sustainable product,
of which the default rate is crucial part.
4. Future researcher and scholars: The study will help in facilitating an increase in the general
knowledge on the factors affecting and will act as reference material to future researcher and
scholar who pay wise attention to embrace on related study. Research in the various
component of sector would help to unearth unknown information that will go along away in
facilitating further understanding of Medium and Small Scale Enterprise. It serves as the base
guideline for other researcher who wants to conduct study on similar area. From this study
the possessor can understand to identify the weak side and can decrease these problem and it
also helps how to run the business and the researcher give way for other researcher who
want to take further investigation on the problem.
5. The study will help to minimize factors of risk and help to identifying the problem besides
provide detail information about the risk.
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CHAPTER TWO
2. Literature Review
It is one of the area of dissection for many economists, statistician decision theory, insurance
theory and other for many years even if they are unable to gate in to an agreement on the
destination of risk. For the reason that all of them are dealing with different areas of subject
matter, they are supposed to define risk in different ways for those who are engage in the
insurance business risk, means peril insured against. [ CITATION Tek04 \l 1033 ]
For our purpose we define risk as condition in which there is possibility of an adverse deviation
from desire outcome that is expected or happen for and current situation. [ CITATION Aze12 \l
1033 ]
Identifying risk
exposures
EVALUATE
PERFORMANCE
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2.2.1 Identification of the Risk (Exposures)
The risk manager or owner of their business to be involved in identifying the exposures of the
risk to difficult the risk. This task of the risk manager is supposed to be highly difficult. In this
stage the ability to organize the potential loss will bring about this chance to deals with them.
B. “Financial risks”, comprising price (e.g., asset value, interest rate, foreign exchange,
commodity), liquidity (e.g., cash flew, call risk, opportunity cost), credit (e.g., default,
downgrade), inflation/purchasing power, and hedging/basis risk.
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management, and business cyclicality), empowerment (e.g., leadership and change readiness),
information technology (e.g., relevance and availability), information/business reporting (e.g.,
budgeting and planning, accounting information, pension fund, investment evaluation, and
taxation).
D. “Strategic risks”, comprising damage to reputation (e.g., trademark/brand erosion, fraud, and
unfavorable publicity), competition, customer wants, demographic and social/cultural trends,
technological innovation, capital availability, and regulatory and political trends.
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program aimed to spread this culture should be consolidated by all the managers and
employees of the company. For Economist Intelligence Unit EIU (2007) the key
determinant of success in risk management has become the need to ensure that a strong
culture and awareness of risk permeates every layer of the organization.
2. Risk permeates the whole company: The risk management function has evolved to become a
core area of business practice, these areas are: improving data quality and reporting.
3. Creation of a risk committee For Branson (2008) an emerging good practice is the creation
of a multidisciplinary risk committee which can be located at the top of the ERM function
and be leaded the weather risk should be centralized or decentralized depends on the
organizational structure of the company. Most organizations are implementing a structure
where there is a small number of people in the central risk function).
4. Collaboration it emerge good practice the owner or manager of small business collaborate
with government, family and competitors
Avoidance
Loss control
Retention
Non insurance transfer
Insurance
Reduction
Avoidance; is one method of handling risk loss control is other method for handling risk and
Loss control of a certain activities that reduce both frequency and saver by of loss. Those loss
controls has two measure of objective; lose prevention and reduction.
Retention; is a third method of handling risk. An individual of the business firm retain all or part
for given risk retention can be either active or passive.
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Non insurance transfer; are another technique for handling risk. The risk is transferred to a part
other than insurance company. Risk can be transferred by several methods among which are the
following.
Insurance:-For the most people, insurance is the most practical method for handling a measure
risk.
Numerous other study on risk management in Medium and small scale enterprise in various
different contexts using an array of different approach where identified in the extant literature.
These body of broadly explore the following themes.
i. The role of the owner manager in the management of risk in the firm
a. the centrality of leader ship .decision making and experience of owner manager in the
management of the firm (Simmons et al.,2008;Watson and rebinson,2003)
b. the subjective risk of owner manager where the inherent characteristics and ability
( Simmons et al.,2008) belief and attitudes (sparrow and Bentley, 2008), risk perception
of owner or manager and level of personal investment in the firm (Gilmore et al.2004)
play a role in how risk in the business is perceived and managed
ii. The different risk context and complex risk environment in which MSSE
operate, where MSSE may regularly or collectively face the following
risks.
a. External risk such as economic and environmental turbulence (Kraus et al, 2012); natural
disaster (wedawatta,2012); new technology Faisal et al 2006)
b. Supply chain risk in the form of information risk (Faisal et al.,2006) loss of continuity in
the business (Branicki,2006)
c. Internal risk such as access to and the cost of finance (nubs al., 2001) healthy and safety
in the form of work place accident (Georgenes et al 2004).
No research literature could be located of risk management in Ambo MSSE. There is, thus lack
of coherence and understanding in the literature of risk management in MSSE in general. This,
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then its present gap in the study of risk in Medium and small scale enterprise. This study propose
to contribute to closing this gap. To this end, conceptual framework will be developed from the
literature, to focuses the investigation on the formal practice on risk management in Medium and
small scale enterprises in Ambo town.
Risk
Management
Practices
Internal
Environments Scanning
(MICRO)
RM
Owner13 PRACTICE
-manager
Knowledge S
Experience Informal
Risk Policies
Processes
Supply Chain
(MESO)
Information
External
Environment
(MACRO)
Scanning
A capability is defined as the ability or power to do something (Soanes et al., 2001). For the
purpose of this research, Risk Management Capability is, according to [ CITATION Ala03 \l 1033 ],
the creation and enhancement of the ability to develop and implement related strategies,
techniques and systems in RM and to share and transfer RM practice.
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CHAPTER THREE
3. Methodology
3.1 Area of Study
Ambo; one of the cities of Western Shewa zone Oromia regional state of Ethiopian, located in
the western part of Ethiopia at distance of 117 km from the capital city Addis Ababa along Addis
Ababa to Nekemte road. This town has a latitude and longitude of 8°59′N37°51′E and an
elevation of 2101 meters. Ambo is the capital city of western shoe zone [ CITATION Oro06 \l 1033 ]
in this town majority of peoples speak Afaan Oromo language and majority of people are
followers of protestant religion and the others are followers of orthodox, Muslim, catholic, and
Adventist.
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owners by used questioners. Through questioner both open and close ended question will be
used. Because open ended question give chance of freedom for respondents and closed ended
used sample to analyze, to collect data from owner by questionnaire. So that the owner is the
most stepping stone of the study. Secondary data will be collected through reading different
research work previously made on different aspect on working environment and different
document of MSSE and other research paper related to the topic.
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response in the questionnaires. Then the data will be analyzed in the form of Table, graph and
percentages.
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3.10 Work plan and Budget Break down
3.10.1 Work Plan
May
June
April
April
May
June
July
1 Problem Identification
2 Research proposal writing
3 Proposal Submission
4 Proposal Defense
5 Incorporating the correction into
the proposal after defense
6 Questionnaire preparation
7 Data collection
8 Data Analysis
9 Research submission
10 Research defense
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3.10.2 Budget Break down
Material Unity/No Cost /unity Total cost
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