The Benefits and Challenges of Enterprise Risk Management (ERM) Implementation in Financial Institutions in Botswana

Abstract

The aim of this study was to investigate the benefits and challenges of the implementation of Enterprise Risk Management (ERM) in the financial sector in Botswana given the financial and economic contagions and developments across the globe, and the risks experienced by the financial institutions. The study followed the quantitative method of research. Data was collected through questionnaires administered to 18 randomly selected financial institutions in Gaborone. Statistical software, Statistical Package for Social Sciences (SPSS) was used to facilitate analysis and discussion of the findings. The study revealed that more commercial banks exist than investment, development financial institutions and building societies combined. Furthermore, the majority of financial concerns surveyed have implemented an ERM process and/or function. All financial institutions surveyed have made significant progress in managing enterprise risk. The study also revealed that the benefits of ERM implementation were found to be greater than the cost of implementation. In terms of ERM challenges, the major findings were that ERM is an interesting exercise to implement as most of the very significant challenges are related more to the attitudes, behaviours and systems within the implementation process than to the organisation itself, save for human resource policies and practices which are the only organisational factors affecting ERM implementation. The following recommendations were made pertaining to the study: Bank of Botswana and such regulatory authorities as the Non-Bank Financial Institutions Regulatory Authority (NBFIRA) need to formulate an authoritative local ERM regulatory framework to govern the conduct of financial institutions in this regard. During post implementation review, policy makers should at least align the strategic objectives of their financial institutions with the objectives of the ERM functions. Appropriate evaluations must be made to adequately prescribe a cost-effective and value-adding ERM programme installation for financial institutions; and all organisational systems must be positioned to impact favourably on successful ERM implementation.