Application of enterprise risk management models during new business development

Abstract

Enterprise is often described as risk for reward, but it may be possible to reduce the risk while improving returns. According to SEDA, failure rates of SMMEs in South Africa range from 70 to 80 percent. The need for this study arose when it was found that most SMMEs did not have a formal system in place to mitigate their risks right from the outset in the feasibility study, the business plan design and the start-up of the business. This lack of mitigation controls could be a result of a lack of understanding of the enterprise risk management (ERM) methodology or an inappropriate ERM decision-making model to assist them in a way that would mitigate their risk and minimise financial losses. The ERM approach can anticipate unplanned occurrences and is a systematic way of foreseeing the future. Entrepreneurs and business owners take on risks to pursue new business objectives within their respective risk appetites. This study also evaluated several models of risk identification and the ERM methodology. In this study an ERM model, ISO 31000, was applied in a business case and a comparison was made between the risks identified in the business plan and the ERM approach.