Enhancing enterprise risk management (ERM) practices through a risk-driven performance measurement system (PMS): insights from a SME case study

Abstract

Abstract The relationship between enterprise risk management (ERM) and performance measurement systems (PMS) has garnered increased attention in recent years, as the adoption of ERM frameworks has become more widespread among both large corporations and small to medium-sized enterprises (SMEs). Despite this, there remains a dearth of research on this topic. In this paper, we aim to explore the synergies between risk management and performance management. Through a literature review, it becomes apparent that these two areas have significant potential for alignment, yet this potential remains untapped due to a lack of appropriate management tools and organizational structures to connect them. Our theoretical analysis serves as the foundation for a comprehensive case study examination of the relationship between risk and performance in the context of building a risk-driven PMS in SMEs. Utilizing the grounded theory methodology, a suitable case study was selected among SMEs, and a risk-driven PMS framework was applied in order to address the research question. This inductive-empirical methodology aims to test the assumptions that ERM is often a challenging practice to implement within SMEs and that linking ERM to PMS can help to bolster risk management initiatives within SMEs. In conclusion, this paper contributes to the existing literature by presenting a case-study based conceptual model of the link between risk and performance, which can serve as a useful tool and managerial practice for enterprise risk managers in identifying risks and facilitating business growth.