Operational Risk Management in SMEs, Modelling and Implementation

The thesis demonstrates how quantitative modelling of risk can be undertaken for a small enterprise based solely on opinions provided by experts within the organisation by means of a relatively simple questionnaire. These 'opinions' are then used as substitutes for historical loss data, which together with simulation techniques allow for relatively sophisticated risk modelling and risk measurement. The quantitative results show that the small sample size is the limiting factor for SMEs. The qualitative part of the thesis develops an appropriate operational risk management framework for the special situation in SMEs. The organisational structure must integrate the operational risk process, decision making must be improved through an action plan and risk communication. The impact of estimated risk figures on financial reporting is emphasised. Risk adjusted figures allocate the resources and may improve the value of the firm. The research off ers a framework for data collection with a questionnaire, operational risk modelling with sparse data and implementation in a risk management framework for SMEs. The thesis concludes that the risk management approach proposed is capable of being effectively employed and the case study company in which it was applied accepted the approach.