Assessing the effectiveness of risk management strategies on financial sustainability among Small and Medium Enterprises in Nairobi County: an owner’s perspective

Abstract

Despite the importance of SMEs towards the economic development of the nations, they have continued to face many unforeseen risks. The general purpose of this study is to assess the effectiveness of risk management strategies on financial sustainability among SMEs in Nairobi, Kenya. The specific objectives aim to investigate the influence of risk identification practices, risk assessment practices, risk mitigation practices, and risk monitoring practices on financial sustainability of SMEs in Nairobi County, Kenya. The study was anchored by four theories: decision making theory, prospect theory, contingency planning theory, and institutional theory. The empirical gap that this study aimed to fill was that past studies has failed to conduct explicit research to evaluate the extent to which risk management practices influence the sustainability of SMEs. The study was carried out over a 3-month period. Descriptive survey research design approach was employed in the study. The study’s target population included all 30252 registered SMEs in Nairobi County, Kenya. The researcher used purposive sampling to randomly selecting respondents from the population with every individual having an equal chance of being chosen. The instrument used for this research was a questionnaire. The collected data was fed into SPSS version 27 and analysed using descriptive statistics and inferential statistics. The results were presented using tables, graphs, and charts. The first objective revealed that SME owners report and identify risks through formal processes to ensure that they can communicate their observations and concerns, thus improving the organization’s risk awareness and responsiveness. The second objective revealed the critical importance of systematically assessing risks using both quantitative and qualitative methods that provide SMEs with measurable data to understand potential risks better. The third objective revealed that SMEs collaborate with external stakeholders to mitigate certain risks thus enhancing their overall sustainability. The fourth objective revealed that SMEs conduct periodic audits or evaluations of risk management processes and controls to improve their financial sustainability. The study concluded that risk identification practices enable SMEs to proactively address risks before they spiral into significant problems, thus safeguarding their financial resources and ensuring steady growth; risk assessment practices; risk assessment practices enable SMEs to make informed decisions and implement effective risk management strategies; risk mitigation practices enhances SMEs’ financial sustainability and position them for long-term success in a competitive and unpredictable business environment; and risk monitoring practices improve SMEs’ ability to anticipate and respond to risks in due course supporting their financial sustainability and long-term success. The study recommended that SMEs should prioritize the implementation of comprehensive risk management practices to enhance their financial sustainability, the Nairobi County Government should support SMEs by creating an enabling environment for effective risk management; and policymakers should develop and implement regulations that promote and support risk management practices among SMEs. Keywords: Risk management, risk identification, risk assessment, risk mitigation, and risk monitoring, financial sustainability, small and medium enterprises.