Quality Management and Operational Risk Management in Commercial Banks in Kenya

Abstract

The purpose of the study was to find out relationship between quality management principles and operational risk management in commercial banks in Kenya. Operational risk is one of the many risks faced by banks and if not well managed can cause huge losses in banking industry. Quality management principles are considered to be the overarching means to achieve success of an organization performance by driving effectiveness and efficiency. The study targeted 43 commercial banks in Kenya. However, at the time of undertaking the study, two banks were under receivership thus ending up with a population of 41 commercial banks. Primary data was collected using a questionnaire and analyzed using descriptive statistics and linear regression analysis. The study established that banks had not implemented quality management principles in equal measure. Leadership commitment principle implementation was strong across banks. However, implementation of quality management principles such as employee involvement, customer focus and continuous improvement was weak across all banks. Further analysis revealed that there were a number of operational risks management limitations across banks, which span from lack of encouraging employees to report operational failures, failure to pick learning’s from operational risk failures and not keen on making improvement where failures occurred. Thorough analysis of operational failures, learning, sharing lessons as well as seeking input from employees on how to make improvements including senior leadership commitment to quality management were considered best practices in operational risk management. Results affirmed that there was significant relationship between quality management principles and operational risk management implying that implementation of quality management principles leads to effectiveness and efficiency in operations management. Based on this, the study recommends that commercial banks should implement quality management principles in order to achieve high performance by reducing operational risks and increase both efficiency and effectiveness.