Annals of Management Studies | ISSN 2754-4176

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RESEARCH ARTICLE

The Influence of Risk Management on Organizational Efficiency

Egiyi, Modesta Amaka PhD1 and Eze, Regina Chekwubechi2

Department of Accountancy, Godfrey Okoye University, Enugu State
1

Enugu State University of Science and Technology

2

*Corresponding Author: Egiyi, Modesta Amaka | Department of Accountancy, Godfrey Okoye University, Enugu
State

Introduction

ABSTRACT The aftermath of the global financial crisis which

occurred in 2008, is the emphasis on risk
This work evaluates the importance of risk management as a holistic business management
management on organizational efficiency. An empirical practice due to the systemic nature of the failures
review was carried out. The data was gotten from staff which affected the organizations involved in the
responses from various organizations operating in
crises (European Commission, 2010). This holistic
Nigeria. The study adopted the organizational culture
approach to risk management in businesses
theory, the respondents to the questionnaire were 510
referred to as enterprise risk management has
people from the organizations we looked at. SPSS 28.0
was used to perform data analysis techniques such as
received a lot of attention in recent times as
correlation and regression analysis on the data. Each businesses seek to build resilience to future crises
organization responded to questionnaires using google (IRM, 2012).
forms. The questionnaire is designed with 5 Likert scale
points. The result of the study shows that risk analysis, Muthuveloo (2015) emphasized that the survival of
evaluation of risk, the threat of risk, and monitoring and a firm can be determined by performance which is
review of risk has a statistically significant positive an indicator of profit or loss. They added that a
effect on organizational efficiency at a 5% level of firm’s performance can be improved by a strong
significance. However, identification of risk was not risk management system such as Enterprise risk
statistically significant at a 5% level of significance, management systems (ERMs) which create and
hence it does not affect organizational efficiency. The add value to the success of the business through
study asserts that banks in Nigeria should monitor their the reduction of uncertainties and customer
loans and advances and avoid a mismatch between satisfaction. Monitoring and regulating are used to
their assets and liabilities to safeguard their banks from reduce risk, and standard policy setting is done to
failures. assure risk minimization. Kiragu (2014) asserted
that risk reduction practice positively affects the
Keywords: Risk Management; Organizational
financial performance of an organization through
Efficiency; Organizational Growth
loss control, risk mitigation, and risk transfer to
insurance firms. They explained that risk reduction
practices significantly improve the return on assets
of the firm.

Mohammad (2014) observed that a successful Risk Management adoption needs to be accompanied by a
compatible information system that enables organizational information. He emphasized that risk management
backed up by an information system improves the performance of an organization. Hashim et al., (2012) revealed
that the integration of a risk management system with information technology has a strong relationship in improving
the company's performance. Implementing risk management information system in organizations enhance risk
management processes (Altaany, 2013).

Several studies have shown that is a strong correlation between organizational performance and the
implementation and application of risk management. Therefore, if risk management practices are implemented

Citation: Egiyi, M. A. & Eze, R. C. (2022). The Influence of Risk Management on Organizational Efficiency. Annals of Management
Sciences, 9(2), 10-15.
Accepted: May 19th, 2022; Published: May 31st, 2022
Copyright©2022 Authors. This is an open-access article distributed under the terms of the Creative Commons Attribution
License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source
are credited.
 Annals of Management Studies
Vol. 9 No. 2 | https://ams.deqepub.org | Imp. Factor 5.3209

effectively, the overall performance of the organization will be improved. By propagating a risk management culture
within an organization, managers can improve their organization’s performance. The cornerstone of a successful
company is having competent staff, especially in light of the weak organizational culture among workers. Key players
in the corporate governance process are accountable for managing the different dimensions of financial and other
risks. Enterprise risk management itself enables the company to reduce costs through better integration of risk
assessment and management by balancing the threats and opportunities from external factors.

Risk Management is a management activity that becomes more important as companies become more global and
more competitive. The risk management process consists of a series of steps that define context, analyze assess,
process, control, communicate, and continuously improve decision making. By implementing risk, organizations can
reduce unexpected and costly emergencies and allocate resources more efficiently. It helps improve communication
and improve organizational performance by providing a summary of the threats it may face (Pojasek, 2017). The
effect of Risk management has been proven as significant and positive to organizational performance through a
reduction in fraud risks, customer satisfaction, and retention of customer loyalty.

Literature Review

Theoretical Review
The theory that undergirds this research work is the organizational cultural theory. Organizational culture is a set of
values, beliefs, and behavior patterns that differentiate one organization from another organization (Ortega, 2013).
Yirdaw (2014) indicated organizational culture as the glue that combines the nonhuman resources with the human
resources in an organization to build teamwork and good performance. It can also be viewed as organizational
procedures and actions that are appreciated, expected, and encouraged by the organization’s operations. Risk
management can be embedded as a culture in the organization, it can be integrated into the company’s operations.
These operations can be seen in the light of tone at the top or leadership example. Prevailing accountability
framework, effective challenge, and compensation or reward system.

Empirical Review
Mohammad (2020) researched the impact of risk management practices on organizational performance. The
population of the study was the Hashemite Kingdom of Jordan insurance companies. Data were collected from 120
managers who work in Jordanian insurance companies through the use of questionnaires. When confirming the
normal distribution of answers and the validity and reliability of the tool, a descriptive analysis was performed and
the correlation between the variables was investigated. Data were analyzed with regression analysis using SPSS 19.
The findings of this study show that most companies separate for a long time. The study demonstrated that risk
management practices have an impact on organizational performance.

Hanggraeni (2019) researched the impact of internal, external, and enterprise risk management on the performance
of micro, small and medium enterprises. The population of this study was 5 provinces which include 14 cities in
Indonesia-East Java, West Sumatra, North Sumatra, West Nusa Tenggara, and East Nusa Tenggara which are
underdeveloped regions. The resource-based view and market-based view methods were chosen to measure 1,401
data of MSMEs. Questionnaires were administered to collect data from primary sources, then processed using SPSS.
The findings of this study were that the activity of the enterprises in identifying and managing risk would bring up a
significant effect on operational business performance.

Erlane et al. (2016) researched the effect of risk management and operational information disclosure practices on
public listed firms’ financial performance. The population sample studied was 106 listed firms in Bursa Malaysia. 318
annual reports over three years of these firms and content analysis were used as the research instrument. The
findings of this study indicate that the amount of risk management and operational information disclosed in the
firms’ annual reports could influence the firms’ performance.

Kpodo (2015) conducted a study on the effect of risk culture on organizational performance. The population of the
study is selected from financial institutions in Ghana. It relied on the financial stability Board’s (FSB) risk culture
model. All factors of the two main variables of risk culture and organizational performance were analyzed using
descriptive statistical measures. The data was obtained from the 19 banks listed on the Ghana club 100 representing
about 70% of the total market share of the Ghanaian banking industry, with both local and foreign origins. Data was
gotten from respondents through questionnaires issued. There was a positive correlation between risk culture and
organizational performance in the banking industry in Ghana.

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Pagach (2010) studied the impact on corporate long-term performance by studying the financial characteristics of
assets, and the market evolution of adopting EPM (Enterprise risk management) principles. Using a sample of 106
companies that announced they were hiring CROs (Chief Risk Officers), they found that companies that adopted
ERM were facing a decline in stock price volatility. Similar companies using CRO increased asset capacity and reduced
market value, and profits compared to revenue volatility compared to similar companies that did not specify CRO in
the industry group. In addition, these researchers found a negative compact between changes in the company’s
market value and changes in profit.

Altanashat (2019) carried out a study on the impact of enterprise risk management on institutional performance in
the Jordanian public. Based on the ERM COSO (Committee of Sponsoring Organizations) Integration Practices (2004),
this study examines the impact of corporate risk management on the organizational performance of listed
companies in Jordan. In this study, 313 questionnaires were collected using a questionnaire as the survey method.
The resulting data is analyzed by a structural equation modeling tool (Smart-PLS), and based on the analysis, the
company’s risk management implementation has a significant impact on organizational performance. Analysis of
the results showed that the company’s risk management practices are important to improve the performance of
the Jordan mining company. The analysis also highlights the continued implementation of global risk management
practices to improve the performance of Jordanian mining companies. Furthermore, in addition to goal preparation,
all independent variables (internal environment, event identification, risk assessment, risk response, control
activities, information and communication, monitoring) are important predictions. These variables predict the
performance of Jordan mining companies in a statistically significant way. The results of this survey are going to help
organizations better understand the implementation of global risk management and identify areas for improvement
within the process of each component of overall management.

Research Methodology
The primary goal of this research is to examine the impact of risk management on organizational efficiency. In this
study, we used a convenient sampling technique that allowed us to quickly and efficiently obtain a large number of
desired questionnaires. Each organization responded to questionnaires using Google Forms. The questionnaire is
designed with 5 Likert scale points (SA=5; A=4; UD=3; SD=2; D=1).

Response Rate and Data Analysis Techniques

Data on risk management and organizational efficiency were gathered from staff responses from various
organizations operating in Nigeria. 510 people from the organizations we looked at filled out the questionnaire. SPSS
28.0 was used to perform data analysis techniques such as correlation and regression analysis on the data.

Research Model
Risk identification, risk analysis, risk evaluation, risk treatment, monitoring, and review were all included. As a result,
the model is shown below in equations 1 and 2.

Fig 1: Research Model

OF = α + β1 (𝑋𝑋1 ) + β2 (𝑋𝑋2 ) + β3 (𝑋𝑋3 ) + β4 (𝑋𝑋4 ) + β5 (𝑋𝑋5 ) + µ … … … … . . . (1)
OF = α + β1 (IR) + β2 (RA) + β3 (ER) + β4 (TR) + β5 (MR) + µ … … … … . (2)
Were
OF= Organizational efficiency
IR= Identify Risk
RA= Risk Analysis
ER= Evaluating Risk
TR=Treat risk

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MR= Monitor and Review Risk

Descriptive Statistics and Correlation Analysis

Table 1: Descriptive Statistics
Organizational Identify Risk Evaluating Treat Monitor and
Efficiency Risk Analysis Risk Risk Review
Mean 3.42 2.79 3.11 3.31 3.07 3.26
Std Dev 0.612 0.501 0.552 0.603 0.529 0.589

After calculating the means and standard deviations for each variable of the study, the highest mean value is risk
evaluation (3.31), indicating that the main factor of risk management affecting organizational efficiency is risk
identification while evaluating risk identification with the lowest mean value indicates that it has the least effect on
organizational efficiency.

Table 2: Spearman’s Correlation

Organizational Identify Risk Evaluating Treat Risk Monitor and
Efficiency Risk Analysis Risk Review
Organizational Efficiency 1
Identify Risk 0.138 1
Risk Analysis 0.542 0.231 1
Evaluating Risk 0.761 0.315 0.401 1
Treat Risk 0.491 0.102 0.112 0.477 1
Monitor and Review 0.550 0.221 0.247 0.098 0.192 1
The correlation table in table 2 above suggests that this risk management process has a relationship with
organizational efficiency. Evidently, evaluations of risk show a very high and positive relationship with organizational
efficiency, and this could support pour findings in table 1. Similarly, identification of risk shows a very low and
positive relationship with organizational efficiency.

Regression Analysis
Regression is a statistical technique used in accounting, making investments, financial reporting, and other
disciplines to determine the strength and character of a relationship between a single dependent variable and a set
of other variables known as independent variables. Table 3, 4, and 5 below summarizes the regression output for
the influence of risk management on organizational efficiency in Nigeria which includes the Model Summary, Anova
table, and Table of variable coefficient.
Table 3: Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate

1 .960a .923 .909 .04949

a. Predictors: (Constant), OF, IR, RA, ER, TR, MR
Table 4: ANOVA
Model Sum of Squares df Mean Square F Sig.
Regression .496 1 .496 1771.43 .000b
1 Residual .042 509 .000082
Total .537 510
a. Dependent Variable: Organizational Efficiency
b. Predictors: (Constant), OF, IR, RA, ER, TR, MR

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Table 5: Coefficients
Model Unstandardized Coefficients Standardized t Sig.
Coefficients
B Std. Error Beta
(Constant) 6.622 .274 24.130 .000
1
IR .114 .065 .216 1.737 .087
RA .391 .132 .441 2.962 .000
ER .114 .376 .207 .3032 .027
TR .061 .105 .073 0.583 .045
MR .228 .104 .177 2.204 .029
a. Dependent Variable: Organizational Efficiency

The result of the regression analysis is summarized above, table 5 specifically shows that the model for risk
management and organizational efficiency in Nigeria is
𝐎𝐎𝐎𝐎 = 𝟔𝟔. 𝟔𝟔𝟔𝟔𝟔𝟔 + 𝟎𝟎. 𝟏𝟏𝟏𝟏𝟏𝟏(𝐈𝐈𝐈𝐈) + 𝟎𝟎. 𝟑𝟑𝟑𝟑𝟑𝟑(𝐑𝐑𝐑𝐑) + 𝟎𝟎. 𝟏𝟏𝟏𝟏𝟏𝟏(𝐄𝐄𝐄𝐄) + 𝟎𝟎. 𝟔𝟔𝟔𝟔(𝐓𝐓𝐓𝐓) + 𝟎𝟎. 𝟐𝟐𝟐𝟐𝟐𝟐(𝐌𝐌𝐌𝐌) + µ … … … … . (𝟑𝟑)
This reveals that risk analysis, evaluation of risk, treatment of risk, monitoring, and review of risk has a statistically
significant positive effect on organizational efficiency at a 5% level of significance. However, identification of risk
was not statistically significant at a 5% level of significance, hence it does not affect organizational efficiency.

Discussion of Findings

Most organizations are still reluctant when it comes to risk management, however for this study we outlined various
risk management processes organizations should be able to effect in other to have organizational efficiency. The
response from the respondents suggests that most of these organizations believed that evaluation of risk is a more
important factor that affects organizational efficiency this is evident from its mean value (3.31) recorded in table 1.
Secondly, the result of the correlation coefficient shows that all the risk management process is correlated with
organizational efficiency and as such should be taken into consideration by organizations. The result of the
regression analysis indicates that risk analysis, evaluation of risk, treatment of risk, monitoring, and review of risk
has a statistically significant positive effect on organizational efficiency at a 5% level of significance. This implies that
an increase in risk management will cause a corresponding increase in organizational efficiency.

Conclusions
The core of this study is to identify the influence of risk management on organizational performance. Data was
acquired from questionnaires administered to the respondent, the response from the respondent suggests that
most of these organizations believed that evaluation of risk is a more important factor that affects organizational
efficiency this is evident from the mean value of 3.31. It is, therefore, recommended that adequate measures should
be taken to mitigate risk in the organizations as this has a significant influence on organizational efficiency.

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