Operational Risks and Organizational Performance of Sugar Manufacturing Companies
Abstract
While taking deliberate and informed risks is a significant component of a strategy of
any company, amplified operational risks has led to extremely high-risk exposures to
business firms. Insomuch as risk management is thought to be an important control and
tool of management, there is limited data from the previous empirical research that link
operational risks to the poor performance of sugar production companies in Kenya. The
general rational of the research was to find out the effects of operational risks on
financial performance of sugar production companies, a case of South Nyanza Sugar
Company (SONY). The specific objectives of the research were to ascertain the
operational risks faced by SONY sugar firm, determine connection between operational
risks and organization performance of SONY and determine the mitigation measures
for the operational risks in SONY. The theoretical models that guided the study include
the Extreme Value Theory (EVT), and top-down versus bottom-up models. This study
used descriptive case-study design and the study population was the entire SONY
employees. The target population of the study, therefore, consists of 33 employees in
risk management department, who were all involved in the study through judgmental
sampling technique. The study used both primary and secondary data sources, where
primary data was gathered by administration of questionnaires. Descriptive statistics
(mean, frequencies, standard deviation and percentages) as well as Pearson correlation
test were used to analyse quantitative data. From the results, rendement (yield) as an
operational performance had a moderate positive relationship with financial
performance (profitability) of SONY sugar firm. The study also found that operational
risks had a moderate but negative relationship with financial performance (profitability)
of SONY sugar firm and also had moderate but negative relationship with rendement
rate of the firm (yield or efficiency). Operational risk mitigation measures were also
found to be strongly and positively correlated with the profitability of the firm, as well
as with rendement. However, it had moderate but negative relationship with the
operational risks. According to the findings of the study, sugar processing companies
are exposed to a variety of operational risks. Therefore, they should develop practical
risk management programmes that can be implemented to reduce the level of risks in
sugar cane processing into sugar. Sugar mills will be revitalized by performing repairs
and replacements of equipment whose performance has declined, and by supervising
the implementation of Standard Operation Procedures (SOPs) at the mills in order to
reduce the level of sugar loss during processing. The entire sugar mill management
team must be committed to improving the performance of the sugar mills. In addition,
an overall mill audit, beginning with the steam generating station all through to the
grinding station and processing station, is required in order to identify the sources of
sugar loss and sugar mill inefficiency and to make recommendations for improvement.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Business [1411]
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