Volume 4 • Issue 1 • PP: 01–06 • 2024
An Improved Approach for Sustainable Risk Management Practices in Modern Businesses
Open Access & Copyright
© 2024 The Author(s). Published by ASPG. This article is licensed under the Creative Commons Attribution 4.0 International License (CC BY 4.0).
View PDF Abstract
The complexity of the business environment, which is shaped by dynamic economic, environmental, and social factors, makes it more important for companies to develop sustainable risk management practices. This research proposes a novel approach that combines traditional methods with modern machine learning techniques in response to the complex challenges faced by contemporary businesses in balancing risk and sustainability. Our study uses a public bank loan default dataset as a case study to address missing data systematically through robust imputation mechanisms and transform categorical variables using feature encoding. Spearman correlation analysis helps us understand complex variable relationships and guides subsequent feature selection. The decision tree classifier, a powerful machine learning algorithm known for its interpretability, is applied to identify key factors contributing to risk assessment. The hierarchical structure of the decision tree not only reveals important variables but also provides an explicit representation of the decision-making process. ROC curve analysis shows how well our predictive model can differentiate potential loan defaults.
Keywords
References
[1] L. S. Spedding and A. Rose, Business Risk Management Handbook: A Sustainable Approach. Elsevier, 2007.
[2] N. Manab and N. A. A. L. Aziz, “Integrating knowl-edge management in sustainability risk management practices for company survival,” Management Science Letters, vol. 9, no. 4, pp. 585–594, 2019.
[3] D. Settembre-Blundo, R. González-Sánchez, S. Medina-Salgado, and F. E. García-Muiña, “Flexibility and resilience in corporate decision making: A new sustainability-based risk management system in uncer-tain times,” Global Journal of Flexible Systems Man-agement, vol. 22, no. Suppl 2, pp. 107–132, 2021.
[4] M. K. Shad, F.-W. Lai, C. L. Fatt, J. J. Klemeš, and A. Bokhari, “Integrating sustainability reporting into enterprise risk management and its relationship with business performance: A conceptual framework,” Jour-nal of Cleaner Production, vol. 208, pp. 415–425, 2019.
[5] I. Županovi´c, “Sustainable risk management in the bank-ing sector,” Journal of Central Banking Theory and Practice, vol. 3, no. 1, pp. 81–100, 2014.
[6] D. Toh˘anean, A. I. Buzatu, C.-A. Baba, and B. Georgescu, “Business model innovation through the use of digital technologies: Managing risks and creating sustainability,” Amfiteatru Economic, vol. 22, no. 55, pp. 758–774, 2020.
[7] F. Bezzina, S. Grima, and J. Mamo, “Risk management practices adopted by financial firms in malta,” Manage-rial Finance, vol. 40, no. 6, pp. 587–612, 2014.
[8] N. I. Berzon, M. M. Novikov, E. L. Pozharskaya, and Y. I. Bakhturina, “Monitoring the modern experience of financial risk management in russia based on corpo-rate social responsibility for sustainable development,” Risks, vol. 10, no. 5, p. 92, 2022.
[9] T. G. Flouris and A. K. Yilmaz, Risk Management and Corporate Sustainability in Aviation. Routledge, 2016.
[10] M. Al Breiki and H. Nobanee, “The role of financial management in promoting sustainable business prac-tices and development,” SSRN 3472404, 2019.
[11] F. C. Krysiak, “Risk management as a tool for sustain-ability,” Journal of Business Ethics, vol. 85, pp. 483–492, 2009.
[12] C. Cucuzzella, “Creativity, sustainable design and risk management,” Journal of Cleaner Production, vol. 135, pp. 1548–1558, 2016.
[13] M. Muthuswamy and A. M. Ali, “Sustainable supply chain management in the age of machine intelligence: Addressing challenges, capitalizing on opportunities, and shaping the future landscape,” Sustainable Machine Intelligence Journal, vol. 3, 2023.
[14] E. Stan-Maduka, “The impact of risk management prac-tice on the development of african businesses,” World Journal of Entrepreneurship, Management and Sustain-able Development, vol. 6, no. 3, pp. 213–219, 2010.
[15] H. Singh and B. P. Singh, “Risk management: A step to-wards sustainable development,” International Journal of Computational Engineering & Management, vol. 13, pp. 133–141, 2011.
[16] A.-S. Brillinger, C. Els, B. Schäfer, and B. Bender, “Business model risk and uncertainty factors: Toward building and maintaining profitable and sustainable busi-ness models,” Business Horizons, vol. 63, no. 1, pp. 121–130, 2020.
[17] A. Alhadhrami and H. Nobanee, “Sustainability prac-tices and sustainable financial growth,” SSRN 3472413, 2019.
[18] S. Faedfar, M. Özye¸sil, M. Çıkrıkçı, and E. B. Aktürk, “Effective risk management and sustainable corporate performance integrating innovation and intellectual cap-ital: An application on istanbul exchange market,” Sus-tainability, vol. 14, no. 18, p. 11532, 2022.
[19] M. K. Langenhan, S. Leka, and A. Jain, “Psychosocial risks: Is risk management strategic enough in business and policy making?” Safety and Health at Work, vol. 4, no. 2, pp. 87–94, 2013.
Cite This Article
Choose your preferred format
Publisher's Note
The statements, opinions, and data presented in this article are solely those of the author(s) and do not necessarily represent those of ASPG, the journal, or its editors. ASPG and the editors disclaim responsibility for any harm arising from the use of any ideas, methods, instructions, or products described in this article, to the fullest extent permitted by applicable law.