Risk management and profitability of manufacturing firms in Uganda

Abstract

This study was carried out to establish whether the risk in manufacturing firms could have a significant impact on the level of profitability that these firms expect to get in their operations. The study investigated the main components of risk management in manufacturing firms operating in Uganda and how the risk management process could be influential in the profitability levels of these firms. The unit of analysis was composed of a set of manufacturing firms in Uganda engaging in production of goods for sale within and outside the country. Two respondents were selected from each of the 80 (sample size) manufacturing firms. Data collection was carried out by means of a questionnaire which was self administered by the respondents. Correlation, regression and factor analyses were carried out to address the main aim of the study. Findings indicated that risk management process is carried out by first identifying the risk (or probably estimating its occurrence), evaluating its existence and probable effect to a business and finally put in place mitigation measures (control). In relation to the effect that this process has on level of profitability, it has been found that risk management process influences up to 35% of the changes in profitability levels of manufacturing firms in Uganda. This is further supplemented by the positive and significant correlation (R = 0.598; p?0.01) between risk management and profitability of manufacturing firms in Uganda. Basing on this finding and hence the conclusion, it is recommended that manufacturing firms in Uganda need to adhere to risk management procedures and where possible adopt new ways to manage risk to ensure that their profitability levels are not negatively affected.

Key words: Risk Management, profitability