Financial risk management in information technology projects of software companies in Kerala

Abstract

Financial risk management in Kerala's IT sector plays a crucial role in ensuring the long-term growth and stability of the industry, which in turn benefits the local communities and the broader society. By minimising financial risks, software companies can maintain sustainable operations, which leads to job creation, skill development, and economic growth. When IT companies manage their finances effectively, they are more likely to offer stable employment opportunities, contribute to the local economy, and improve the standard of living in the region. One of the most significant problems confronting the information technology sector is financial risk, which is very hard to control. The current study aims to evaluate financial risk management in information technology projects of software companies in Kerala. The research is descriptive and empirical in nature. The study includes both primary and secondary data. Primary data was collected from project managers of different software companies in Kerala with the help of a structured questionnaire. Secondary data was gathered during two years (2022 and 2023) regarding 680 project reports from 256 software companies. The primary data analysis was conducted using statistical packages such as IBM SPSS 26.0, AMOS 23.0, and the Stats Tools Package. The statistical tools like Percentage, Mean, Standard Deviation, Independent sample t test, One Way Anova, CFA and CB SEM were used for analysis. The study found that large software companies and software companies situated in urban areas are highly affected by financial risk factors. Thus, the usage of financial risk management techniques is potentially high in these companies. Among the factors, scope-related factors affect the software companies to complete the project within the budgeted amount and time. Financial risk planning, financial risk monitoring and controlling techniques and risk acceptance strategies assist software companies in completing projects on time. So, these techniques and strategy are very essential for software companies to manage their financial risk. Moreover, the adoption of financial risk mitigation strategies brings effectiveness to the software companies and the effectiveness is very high in medium-sized software companies. Additionally, software companies have a high level of financial effectiveness. Medium-sized software companies and software companies located in urban areas face many challenges. Further, the market-related challenges highly affect the software companies for the successful completion of projects. Based on an evaluation of financial risk mitigation strategies, small-sized software companies and those in urban areas employ a greater number of these strategies. Furthermore, software companies can adopt the risk-sharing strategy for completing the projects within the budgeted amount. Thus, the project's success depends extensively on the usage of financial risk management techniques and financial risk mitigation strategies. The usage of financial risk management techniques and financial risk mitigation strategies depends upon the nature of the software company and the size of the projects. The study provides valuable insights to project managers regarding the successful completion of the projects within the budgeted amount and time. It also assists them in monitoring and controlling financial risk factors by adopting effective financial risk management techniques and financial risk mitigation strategies