Typology of risk management practices: an empirical investigation into German SMEs

Abstract

The business management literature has largely neglected the theme of risk management for Small- to Medium-sized Enterprises (SMEs). So the aim of this research was to explore the current state of risk management in German SMEs. Derived from a comprehensive analysis of a questionnaire survey which was supported by research interviews, a multidimensional scoring approach to assess a firm's risk management sophistication has been developed. The present approach does not evaluate one single scoring figure, as is usual. Instead, it allows a differentiated assessment by evaluating separate scoring figures for each aspect that a holistic risk management system should cover. Based on the scoring approach, this paper introduces a new typology of risk management practices. Making the Miles and Snow organisational typology applicable to assess risk management practices, three types – reactor, defender/prospector and analyser – reflecting the levels of sophistication, are extracted. Each of the three risk management types is described by its determinants with respect to the components of a holistic risk management. Then recommendations are formulated on which actions a firm of the respective type should take to improve its risk management.