The impact of risk management on profitability of the Kenya Power and Lighting Company staff retirement benefits scheme

Abstract

This study sought to establish whether risk management practices at the Kenya Power and Lighting Company Staff Retirement Benefits Scheme (KPLC SRBS) has had an impact on profitability of the scheme. The study employed an event analysis approach in evaluating changes in profitability of KPLC SRBS. The study evaluated the impact of a risk assessment exercise done by KPLC SRBS in year 2007 to determine whether the exercise and subsequent risk management practices had impacted on profitability of the scheme. Secondary data was collected from the audited financial statements of KPLC SRBS from financial year 2004 to 2010. The data was grouped into two with the first group being data for three years prior to the risk assessment exercise of year 2007and the second group being data for three years after the risk assessment exercise. To enhance objectivity in comparison of the two periods, data for year 2007, being the year that the risk assessment exercise was done, was not included in either group. Profitability as defined in the capital market theory was computed for each group. Descriptive statistics were used to analyses profitability of these two groups and the results presented in tables and charts. The results were compared to determine whether the risk assessment exercise and subsequent risk management practices at KPLC SRBS had impacted on profitability. The study also computed percentage trend analyses for profitability and parameters affecting profitability for financial year 2004 to 2010 to determine their trends. The study found out that the mean profitability for the period after the risk assessment exercise had increased as compared to the period prior to the risk assessment exercise. The study further found out that the standard deviation of profitability had decreased for the period after the risk assessment exercise as compared to the period prior to the risk assessment exercise. The study therefore concluded that the risk assessment exercise and subsequent risk management practices at the KPLC SRBS had a positive impact on profitability of the scheme by increasing profitability and reducing the volatility of profitability.