Risk Management Strategies for Sustainable Rental Real Estate Profitability.

Section 1: Foundation of the Study

In this study, I used enterprise risk management (ERM) to explore the risk

management strategies some rental property owners use to budget for sustainable

profitability. In Section 1, I introduce my research method as qualitative and research

design as a mini ethnographic case study. I also list my research question. In addition to

a discussion of the assumptions, limitations, and delimitations of this study, I provide an

exhaustive and comprehensive analysis of the literature pertaining to my conceptual

framework and study phenomenon.

Background of the Problem

Strategies for budgeting can contribute to real estate business practice. Budgeting

strategies for sustainable profit can provide the rental owner with (a) the ability to

mitigate market risks and seize opportunities, (b) well-maintained assets, and (c)

sustainable revenue (Easthope, 2014; Fields & Uffer, 2014; Seemann, Renner, Drevs, &

Dietrich, 2014). Scholars in America, Australia, and Europe have struggled to find a

solution for rental owners to achieve sustainable profit without rapidly raising rents

(Easthope, 2014; Fields & Uffer, 2014; Seemann et al., 2014). Raising rents has seemed

the solution to offsetting costs, but it hinders sustainable profit through tenant turnover,

gentrification, and legislation (Easthope, 2014; Fields & Uffer, 2014; Seemann et al.,

2014). Rental owners need strategies for risk management budgeting to achieve

sustainable profit.

In the greater Seattle area, rental owners have raised rents by 29% from 2011 to

2016 (City of Seattle, 2016). However, the City of Seattle Office of Housing (2018)

reported 42% of the 13,643 rental units they surveyed were not creating enough revenue

to cover costs. In this study, I used ERM as a conceptual framework to identify potential

risks and solutions to operational challenges (see Bromiley, McShane, Nair, &

Rustambekov, 2015) in the real estate industry. Enterprise risk management is a

conceptual framework for managing uncertainty and the associated risks and

opportunities to enhance firm value (Callahan & Soileau, 2017). Scholars have attempted

to use ERM to produce strategies for business success (Bromiley et al., 2015; Callahan &

Soileau, 2017; Gatzert & Martin, 2015). However, researchers on enterprise risk

management have failed to address the specific business problem that some rental

property owners lack strategies to budget for sustainable profit.

Problem Statement

Rental property owners are exploring ways to create a rental budget that leads to

sustainable profit (Easthope, 2014; Fields & Uffer, 2014). The City of Seattle Office of

Housing (2018) conducted a study of 13,643 rental units in their affordable housing

program and found approximately 42% of the properties were not generating enough

revenue to offset debt and operating costs while 25% did not have reserve funds to afford

projected capital needs. However, average Seattle rents have increased by 29% from

2011 to 2016 (City of Seattle Office of Housing, 2018). The increase in rents and costs

underscores the cost conflict over affordable housing among government, businesses, and

tenants (Arias, Anderson, & Block, 2016; Palmer & Childs, 2014). The general business

problem is rental property owners are failing to budget for sustainable profit. The

specific business problem is some rental property owners lack risk management strategies

that enable them to budget for achieving sustainable profitability.

Purpose Statement

The purpose of this qualitative, mini ethnographic case study was to explore the

risk management strategies that enable rental property owners to budget for sustainable

profitability. The targeted population consisted of 22 rental property owners in the

greater Seattle area who have successfully used risk management strategies to budget for

sustainable profitability. The implication for positive social change includes the potential

for rental property owners to identify profitable opportunities that consider tenant and

community well-being, such as capital improvements and housing maintenance.

Moreover, property owners with risk management strategies and sustainable profit can

maintain business stability during market fluctuations and provide tenants and the local

community with stable, well-maintained housing (Easthope, 2014; Lind, 2015).

Nature of the Study

I derived the qualitative methodology of this study from the interpretivist and

critical realist worldviews. Researchers use qualitative studies to define and interpret

ambiguous situations nonnumerically (Yin, 2018). Mixed method and quantitative

studies were not appropriate because quantitative and mixed method researchers study

correlation or causation among variables (Evans & Porter, 2015). I was interested in

exploring the perceptions and experiences that influence property owners’ decisions to

use risk management processes to create sustainable budgeting strategies in their cultural

context. I focused on the what, how, and why of risk management and strategic decisions

for budgeting. Researchers use the qualitative method to explore meaning, insight, and

discovery of new business opportunities or management decisions (Yin, 2018).

Therefore, quantitative or mixed methods were not appropriate for this study.

The research design for this study was a mini ethnographic case study. Fusch,

Fusch, and Ness (2017) argued a mini ethnographic case study is a beneficial design

when the researcher is exploring human behavior and activity in a narrow area of inquiry.

Phenomenology was not appropriate because it does not involve the deep immersion of

the researcher into the lived experiences and subtle nuances reflected in social settings

(Fusch, 2013; Fusch & Ness, 2017; McCurdy & Uldam, 2014). Thematic analysis was

also not appropriate because thematic researchers record codes from spoken or written

data and cannot capture meaning from experiences and nuances reflected in the social

context (Ingold, 2014; Jarzabkowski, Bednarek, & Lê, 2014; McCurdy & Uldam, 2014).

Scholars have successfully designed their business research with mini ethnographic case

studies (Moore, 2011; Storesund & McMurray, 2009; Thompson, 2016). A mini

ethnographic case study of rental property owners was an appropriate research design to

explore risk management strategies that enable rental property owners to budget for

achieving sustainable profitability.

Research Question

What risk management strategies do rental property owners use to budget for

sustainable profitability?

Interview Questions

1. What strategies and processes have you used to budget for sustainable

profitability?

2. How do you align your risk appetite with your business strategy?

3. How do you incorporate risks and opportunities into your budget?

4. What strategies contributed to unprofitable properties or time periods?

5. How does your budget reflect your business goals for sustainable profitability?

6. What other information could you add that might be applicable to the risk

management processes and strategies rental property owners use to budget for

sustainable profitability?

Conceptual Framework

The Committee of Sponsoring Organizations (COSO, 2017) coined ERM as a

framework for business leaders to identify and leverage potential risks to achieving their

business objectives. Business leaders apply ERM to aid in achieving their goals while

managing uncertainty (COSO, 2017). Moreover, ERM is a conceptual and strategic

process for management to use to identify potential positive or negative events that could

affect the firm objectives and determine appropriate action based on management’s risk

appetite (Bogodistov & Wohlgemuth, 2017; Bromiley et al., 2015; Brustbauer, 2016;

Callahan & Soileau, 2017; Cohen, Krishnamoorthy, & Wright, 2017; COSO, 2017;

Eckles, Hoyt, & Miller, 2014; Fraser & Simkins, 2016). The key features of ERM

include (a) align risk appetite and strategy, (b) enhance risk response decisions to

operational surprises and losses, (c) identify and manage multiple and cross-enterprise

risks, (d) seize opportunities, and (e) improve deployment of capital (Bogodistov &

Wohlgemuth, 2017; Bromiley et al., 2015; Brustbauer, 2016; Callahan & Soileau, 2017;

COSO, 2017; Fraser & Simkins, 2016; Gatzert & Martin, 2015). I used the ERM

framework as an effective guiding lens for this study to understand the strategies and

processes rental property owners use to budget for sustainable profitability in the rental

real estate industry.

Operational Definitions

Enterprise risk management (ERM): ERM is a conceptual and strategic process

for management to use to identify potential positive or negative events that could impact

the firm objectives and determine appropriate action based on management’s risk appetite

(Callahan & Soileau, 2017; COSO, 2017; Fraser & Simkins, 2016; Hayne & Free, 2014).

Landlord and rental property owner: Throughout the fieldwork for my study,

rental property owners often referred to themselves as landlords. In the rental real estate

industry, academics and practitioners often refer to landlords to indicate (a) rental

property owners who actively manage their own properties, (b) rental property owners

who hire a property manager, and (c) property managers who do not own the property but

are working for the property owner (Easthope, 2014; Fields & Uffer, 2014; Seemann et

al., 2014). In this study, I use the term rental property owners to specifically focus on the

population who own rental property. For the purposes of this study, the term landlord is

interchangeable with rental property owners when study participants refer to the term in

my field notes. The terms landlord or rental property owners are not synonymous with

the short term stay industry, such as AirBnB and Vrbo. While the information in this

study may be relevant to a short term stay host, the business structure, regulations, and

operational models are different from rental property owners.

Participant observation: Participant observation is a fieldwork technique

requiring researchers to participate in the lived experiences of the study population

(Ingold, 2014; Jarzabkowski et al., 2014; McCurdy, & Uldam, 2014). Participant

observation is fluid, continuous, and evolving (Ingold, 2014). Moreover, participant

observation requires participating in the social context (Ingold, 2014; Jarzabkowski et al.,

2014; McCurdy, & Uldam, 2014).

Sustainable profitability: I defined the term sustainable in this study as a long

term, stable situation of at least 10 years. I did not use this term to refer to an

environmental or social change position. However, I integrated several sources (Olson &

Wu, 2017b; Olson & Wu, 2017c; Soomro & Lai, 2017; Wu & Olson, 2015) into this

study that use the term sustainability with an environmental and social focus. I specified

this focus when highlighting these sources. I defined profitability as positive business

income after revenue minus expenses. Moreover, the income was an amount that can

sustain the rental property business operations through the next financial cycle.

Assumptions, Limitations, and Delimitations

Ethnographic research involves significant assumptions, limitations, and

delimitations where researchers risk excluding evidence that may lead to different results

(Field-Springer & Stephens, 2017; Grant, 2014; Newsome, 2014; Wolgemuth, Hicks, &

Agosto, 2017). Scholars have agreed that identifying and minimizing research

assumptions, limitations, and delimitations are a critical component to rigorous research

(Connelly, 2013; Fusch et al., 2017; Grant, 2014; Newsome, 2014).

Assumptions

Researchers rely on assumptions to conduct research, but assumptions are facts

without verification that can hinder effective research (Grant, 2014). Scholars have

agreed that observing lived experiences is an effective tool for understanding a

phenomenon (Field-Springer & Stephens, 2017; Grant, 2014; Owton & Allen-Collinson,

2014). However, Grant (2014) addressed the meta-assumption of trusting in lived

experiences as reality. An additional problem is the empathetic voice of the observer-

participant researcher who is adding narrative and meaning based on observations (Grant,

2014). However, Grant (2014) argued the benefits of exploring the phenomena mitigate

the risk. Additionally, ethnographic researchers assume the rapport and trust they build

with study participants can result in deeper insight and exploration of the phenomena

(Field-Springer & Stephens, 2017; Grant, 2014; Owton & Allen-Collinson, 2014). In this

study, I assumed the target population for data collection, including rental property

owners, were providing their honest perspective as they viewed their situation at the time.

The benefit of a mini ethnography is to gain the insider’s perspective (Fusch et al., 2017).

However, the feelings or misgivings of the insider may not reflect reality (Grant, 2014).

To ensure triangulation and research quality, I achieved data saturation through

participant observation of multiple rental property owners. Moreover, holistic results

from participant narratives and lived experiences can mitigate assumption risk (Grant,

2014).

Limitations

Connelly (2013) defined research limitations as weaknesses specific to the study

problem and methodology. Limitations effect the internal validity of the study, including

the rigor and reliability (Connelly, 2013). The limitations of the study also impact the

external validity, including the generalizability of the results (Connelly, 2013).

According to Connelly, authors should (a) acknowledge the limitations of their study, (b)

identify the importance of the limitations and how the researcher minimized them, and (c)

offer suggestions for overcoming the limitations for future research. It is important to

note that the researcher can control or minimize some limitations, but only acknowledge

others (Connelly, 2013). For example, Connelly listed several research limitations,

including lack of available data lowering the significance of the results and researcher

biases influencing study results. In my research, the limitations I encountered were time

constraints, availability of data, and researcher biases. While acknowledgment of

limitations is critical (Connelly, 2013), other scholars advocated the inclusion of

additional data collection techniques to reduce study limitations (Fusch et al., 2017).

Delimitations

Research designs must have a scope because of limited time and resources to

conduct the research (Fusch et al., 2017; Newsome, 2014). Scholars have argued that

identifying and explaining research delimitations are critical components of rigorous

research (Fusch et al., 2017; Newsome, 2014). Defining scope is essential when blending

research designs and techniques (Fusch et al., 2017) and developing strategies to achieve

substantive data within time thresholds (Newsome, 2014). The scope of my research was

the lived experiences and perceptions of 20 rental property owners in the greater Seattle

area who have successfully used risk management strategies to budget for sustainable

profitability. I selected this geographic area because of the cost conflict over budgeting

and rent prices between rental owners, tenants, and local legislation (Arias et al., 2016).

Therefore, property owners outside the greater Seattle area were not within the scope.

Additionally, property owners without a 10-year track record of successfully using risk

management strategies to budget for sustainable profitability were also outside my scope.

Significance of the Study

The significance of this study is the findings could provide strategies for

budgeting that can contribute to both real estate business practice and positive social

change. Budgeting strategies for sustainable profit can provide (a) rental property owners

with the ability to mitigate market risks and seize opportunities, (b) well-maintained

homes for tenants, and (c) sustainable communities (Arnott & Shevyakhova, 2014; Autor,

Palmer, & Pathak, 2014; Easthope, 2014; Fields & Uffer, 2014; Palmer & Childs, 2014;

Seemann et al., 2014).

Contribution to Business Practice

Scholars in America, Australia, Germany, Sweden, and the United Kingdom have

struggled with defining a solution for rental property owners to achieve sustainable

profitability without rapidly raising rents (Canas, Ferreira, & Meidutè-Kavaliauskienè,

2015; Easthope, 2014; Fields & Uffer, 2014; Newell, Lee, & Kupke, 2015; Seemann et

al., 2014). Rental property owners have raised rents as a solution to offset costs, but

these owners have hindered sustainable profit through tenant turnover, gentrification, and

local legislation (Easthope, 2014; Fields & Uffer, 2014; Newell et al., 2015; Seemann et

al., 2014). Rental property owners must have risk management strategies for budgeting

to achieve a sustainable profit (Arias et al., 2016; Lind, 2015).

Implications for Social Change

The topic of strategies for rental real estate budgeting goes beyond the workplace

and into the very homes of the American people. Real estate investing addresses

government regulations, capitalism, financial responsibility, social welfare, and human

compassion (Arias et al., 2016; Easthope, 2014; Lind, 2015). Strategies for budgeting for

sustainable profitability are critical for rental property owners to achieve positive social

change. Rental property owners raise rents quickly and dramatically when encountering

increased costs (Arias et al., 2016; Lind, 2015). However, rapidly rising rents draw the

attention of local legislators over affordable housing (Arias et al., 2016; Lind, 2015).

Communities can become torn by gentrification through either rent control legislation or

unpredictable rent increases (Arias et al., 2016; Lind, 2015). The well-being of poor

communities also declines when rental property owners finance rental repairs through

rent raises or leave units in disrepair when the rental property owner cannot afford to

maintain them (Arias et al., 2016; Lind, 2015). Rental property owners with strategies

for sustainable profit can create sustainable community housing (Easthope, 2014; Lind,

2015).

Review of the Professional and Academic Literature

The purpose of this qualitative, mini ethnographic case study was to explore the

risk management strategies that enable rental property owners to budget for sustainable

profitability. Business leaders often lack risk management strategies to create sustainable

profitability (Olson & Wu, 2015; Olson & Wu, 2017a). In this review of the literature, I

outline the research on ERM and define how rental property owners may use the

framework effectively in the rental real estate industry.

Enterprise risk management is a customizable framework for business owners to

manage market uncertainty (Callahan & Soileau, 2017; Chappell, 2014; COSO, 2017;

Fraser & Simkins, 2016; Hayne & Free, 2014). Enterprise risk management emerged in

the mid-1990s (Musyoki & Komo, 2017) and became a framework business leaders

could leverage to redefine and combine risk into the firm strategy for capturing value

(Callahan & Soileau, 2017; Chappell, 2014; COSO, 2017; Fraser & Simkins, 2016;

Hayne & Free, 2014). Moreover, business leaders can also customize ERM to make a

positive social impact (Olson & Wu, 2017b; 2017c). Scholars have noted the benefits of

ERM as a dynamic process for managing uncertainty (Bogodistov & Wohlgemuth, 2017;

Dickinson, 2001). In a volatile market, a firm can have limited influence over the

external political, economic, cultural, technological, environmental, and legal factors that

could affect the business (Dickinson, 2001). A firm effectively using ERM is more

resilient and adaptable to significant market changes (Bogodistov & Wohlgemuth, 2017;

Dickinson, 2001). Another advantage of ERM is that it is highly customizable to the

operational market and objectives of the firm (Choi, Ye, Zhao, & Luo, 2016). The key to

ERM success is for firm leadership to align the risk policy with their risk appetite and

integrate this alignment into its overall strategy (Dickinson, 2001).

Scholars have found ERM present and effective in small businesses and multiple

industries (Brustbauer, 2016; Angeline & Teng, 2016; Lai & Shad, 2017). My specific

business problem is some rental property owners lack risk management strategies that

enable owners to budget for sustainable profitability. Researchers have argued the issue

of rent control in Seattle has highlighted the uncertain regulatory environment rental

property owners must navigate (Arias et al., 2016). Business models that consider

stakeholder involvement and risk management are beneficial for small business owners

seeking sustainable profitability (Angeline & Teng, 2016; Lai & Shad, 2017). In an

uncertain regulatory environment, rental property owners can use the ERM framework to

budget for sustainable profitability.

Review Organization Rationale

I have organized this review to employ a funnel approach with ERM. After

discussing my research collection strategy, I start with an introduction to ERM with the

main argument for why this conceptual framework aligns with my specific business

problem. I give a background of the literature on ERM as it pertained to my research and

differentiate the framework from similar approaches. In the second part of this review I

consider the literature on integrating the ERM framework into firm strategy for (a) firm

leadership to seize profit opportunities and mitigate risk, (b) moral responsibility and the

triple bottom line, and (c) small businesses to adapt to changing regulatory landscapes.

In my third subsection, I address how researchers have observed the application of ERM

to small businesses. Finally, I narrow the discussion to the rental real estate industry and

small business rental property owners. In my final subsection, I align ERM to my

research objective and address the emerging issue of applying ERM to greater Seattle

area rental property owners.

Figure 1. Literature review organization for risk management and sustainable

profitability in the Seattle rental real estate industry.

Strategy for Searching the Literature

I applied a multilayered process over 3 years to find and evaluate the literature for

my study. The first layer consisted of accessible peer-reviewed articles on ERM, the

rental real estate industry, rental property, and Seattle rent through online databases.

These databases included Business Source Complete, EBSCOhost, Google Scholar,

ProQuest, and SAGE Journals. My search included articles and studies from national and

international journals. In my second layer, I scanned and pursued additional sources

through the literature reviews and bibliographies in the articles. I was also able to collect

additional articles through mandatory reading and peer bibliographies during the

coursework for my DBA program. In my third layer, I collected information and sources

particularly on the greater Seattle area rental real estate industry from local newspapers

and rental property owner organizations. I did not complete the multiple layers of this

process consecutively but as a part of a continuous loop of my investigation.

Moreover, I determined my saturation point to be when (a) I had already explored

the articles listed in the literary reviews and bibliographies of my sources, (b) I had great

difficulty finding sources within my 5 year target range (2014-2019) relating directly to

my topic, and (c) new articles echoed the insight and results I had already found. I used a

total of 144 sources for this literature review. Approximately 85% of the total sources

were peer-reviewed articles, and 92% of the sources were published within the 5-year

range of 2014 to 2019 (see Table 1).

Table 1

Literature Review Source Content

Literature Review Content

Number of

sources

Percent of

total sources

Peer-Reviewed Articles

130

85%

Seminal Works

Newspaper & Online Articles

Total

153

100%

Number of sources older than 2014

Number of sources in the 5 year range (2014-2019)

142

93%

Background on Enterprise Risk Management in the Literature

Scholars have argued that risk exists, is a critical component of the business

world, and business leaders need to adopt risk management strategies (Wu, 2016).

Scholars observed that the combination of (a) stakeholders’ aversion to uncertainty, (b)

increased globalization and competition, (c) marketplace volatility, and (d) compliance

mandates like the Sarbanes-Oxley Act of 2002 have encouraged firms to seek out a new

strategic management approach (Arnold, Benford, Canada, & Sutton, 2015; Musyoki &

Komo, 2017). Rating agencies such as Standard & Poor have announced their increased

focus on ERM in the rating process (Hoyt & Liebenberg, 2015). Zeghal and El Aoun

(2016) explained the rapid development of sophisticated financial instruments also

created a rise of a new spectrum of risks for companies and a need for risk management

frameworks.

The leadership of COSO (2017) observed business leaders needed a codified

framework that assisted them in managing uncertainty while achieving firm goals.

COSO (2017) published a manual that outlined ERM for company leadership to

customize risk identification and mediation according to the firm’s business objectives.

The ERM framework is a strategic process for leadership to use to ascertain possible

positive or negative situations that could impact the business objectives and identify

appropriate action based on the leadership’s risk appetite (Callahan & Soileau, 2017;

Chappell, 2014; COSO, 2017; Fraser & Simkins, 2016; Hayne & Free, 2014; Viscelli,

Beasley, & Hermanson, 2016). The goal of COSO was for business leaders to use ERM

to improve the likelihood that the business will complete its objectives (COSO, 2017;

Viscelli et al., 2016). The major components of ERM enable management to (a) align

risk appetite and strategy, (b) improve risk responses to operational surprises and losses,

and (e) enhance deployment of capital (Callahan & Soileau, 2017; Chappell, 2014;

COSO, 2017; Fraser & Simkins, 2016; Hayne & Free, 2014; Viscelli et al., 2016).

However, COSO (2017) provided guiding principles for ERM rather than firm specifics.

There is some debate in academic scholarship on whether business leaders are

finding measurable results using ERM. Scholars have criticized COSO’s ERM

framework for mixed results and vague direction in implementation (Gatzert & Martin,

2015; Marc, Sprčić, & Žagar, 2018; Musyoki & Komo, 2017; Schiller & Prpich, 2014;

Zhao, Hwang, & Low, 2014). However, according to Callahan and Soileau (2017),

individual firms need to incorporate ERM into company strategy based on the unique

risks of their market. Mikes and Kaplan (2015) argued for the importance of specifically

identifying the different types of risk which firm leadership may encounter. Scholars

seem to agree ERM has been highly customizable based on the market and needs of the

firm (Choi et al., 2016; Sprčić, Kožul, & Pecina, 2017).

Initial observations of enterprise risk management: Firm structure and risk

analysis. Scholars observed how business leaders have added value, market resilience,

and sustainable profitability to the firm through ERM integration (Callahan & Soileau,

2017; Dickinson, 2001; Hoyt & Liebenberg, 2015; Kline & Hutchins, 2017; Mensah &

Gottwald, 2016; Nocco & Stulz, 2006). In addition to risk reduction (Al-Amri, &

Davydov, 2016), researchers have observed the use of ERM in firms to produce strategies

for generating value and business success (Ben-Amar, Boujenoui, & Zéghal, 2014;

Bromiley et al., 2015; Callahan & Soileau, 2017; Cohen et al., 2017; Eckles et al., 2014;

Gatzert & Martin, 2015; Grace, Leverty, Phillips, & Shimpi, 2015; Hoyt & Liebenberg,

2015). For example, Nocco and Stulz (2006) contributed to COSO’s (2017) framework

by advocating ERM adds value to a business through a decision-making system for

optimizing risk. Nocco and Stulz (2006) argued a company should not pursue a profit

opportunity without examining the associated risks, thus making risk optimization

strategies a critical part of creating firm value.

The scholars (Nocco & Stulz, 2006) observed and examined the use of ERM in

the real estate insurance industry and suggested two key practices to optimizing risk.

Primarily, a firm must monitor risk (Bryant et al., 2014; Nocco & Stulz, 2006; Olson &

Wu, 2015). Risk monitoring includes the identification, classification, and ongoing

supervising of risk events. The type of risk can fluctuate, including market, credit,

operational, strategic, and reputational risks (Bryant et al., 2014; Nocco & Stulz, 2006).

For instance, risk may accompany major strategic or operational expansions (Mensah &

Gottwald, 2016; Nocco & Stulz, 2006). Therefore, organizational leadership should

monitor and analyze risk to ensure its value is still within their risk appetite (Nocco &

Stulz, 2006).

The second major practice Nocco and Stulz (2006) recommended was not to rely

on rating reporting agencies but for a firm to develop an economics-based analysis to

identify risks that maximize value. Firms should manage risk from an economic value

perspective rather than accounting-based decisions (Nocco & Stulz, 2006). Enterprise

risk management does not remove risk, but organizational leaders who learn to

understand and manage risk gain firm value and sustainable profitability (Dickinson,

2001; Mensah & Gottwald, 2016; Nocco & Stulz, 2006).

Researchers have also observed the use of ERM in firms to generate market

resilience, adaptability, and sustainable profitability. Bogodistov and Wohlgemuth

(2017) and Dickinson (2001) observed a firm was more resilient and able to adapt to

major environmental changes by using ERM to target appropriate risks. In a volatile

environment, a firm can have limited control over the external political, economic,

cultural, technological, environmental, and legal factors that could impact the business

(Dickinson, 2001; Lukianchuk, 2015; Mensah & Gottwald, 2016). Moreover, researchers

highlight the importance of retaining competitive advantage and protecting the attributes

of the firm that ensure its survival and market success (Anju & Uma, 2017; Bogodistov &

Wohlgemuth, 2017).

For example, Bogodistov and Wohlgemuth (2017) contributed to ERM research

by providing strategic and operational tactics for managing risk uncertainty, specifically

which risks businesses should focus on and how to mitigate them. Bogodistov and

Wohlgemuth (2017) introduced a resource-based view and dynamic capability

perspective to ERM utilization. The resource-based view is a framework to help set

priorities in risk management, for businesses must choose from an unlimited number of

risks on which to focus (Bogodistov & Wohlgemuth, 2017). Fraser and Simkins (2016)

identified several challenges that lead to ineffective results using ERM including

selecting too many risks and not using timeframes. According to Bogodistov and

Wohlgemuth, the resources in a business that are valuable, rare, inimitable, and

nonsubstitutable help the firm achieve competitive advantage. Therefore, the business

should prioritize and focus on risks that impact these resources and thereby further the

survival of the business (Bogodistov & Wohlgemuth, 2017; Shad & Lai, 2015).

For effective risk management, firms need to develop capabilities to avoid,

mitigate, transfer, or accept risks that impact the firm’s survival (Bogodistov &

Wohlgemuth, 2017; Nair, Rustambekov, McShane, & Fainshmidt, 2014). Business

leaders using dynamic capability with ERM can focus on the tools businesses need to

prepare or recover from unforeseen events that are a low probability but high impact

(Bogodistov & Wohlgemuth, 2017; Nair et al., 2014). Therefore, ERM is one technique

to managing uncertainty while completing the firm’s objectives (Chappell, 2014; Mohd-

Sanusi, Motjaba-Nia, Roosle, Sari, & Harjitok, 2017). However, business leaders must

redefine, reorganize, and reintegrate risk into the firm’s market strategy to obtain the

benefits of ERM (Simona-Iulia, 2014).

Alternative Frameworks and Approaches to Risk Management

Scholars have found the use of mature risk management systems prepare a

company for ethical behavior and increase firm value (Callahan & Soileau, 2017; Kline

& Hutchins, 2017). Hayne and Free (2014) identified ERM as one of the largest

organizational shifts of the post-2000 era. Choi et al. (2016) analyzed the plethora of

scholarship on ERM and observed a significant boost in scholarly publications on ERM

post-2010, which coincides with increased oversight and regulations on risk management.

In addition to market risk and volatility, firm leadership must navigate the increasingly

complex regulatory environment from government legislation, globalization,

technological innovation, and economic shifts (Jiang, Aldewereld, Dignum, Wang, &

Baida, 2015).

As pressure from regulators increases in the post-2000 era, businesses must not

only adopt but cultivate mature compliance measures (Anju & Uma, 2017; Jiang et al.,

2015; Kline & Hutchins, 2017; Viscelli et al., 2016). In their research, Hayne & Free

(2014) and Mohd-Sanusi et al. (2017) identified the COSO ERM framework as the

version managers and researchers predominantly recognized and applied. Hayne and

Free (2014) labeled COSO as a disruptor, creator, and builder. The ERM framework

filled the gap left by internal control systems failures and became integral to firm creation

and preservation of value (Hayne & Free, 2014).

However, several scholars have proposed alternative compliance and risk

management frameworks. Usnick, Usnick, Usnick, and Usnick (2014) suggested

compliance scoping with an explanation of the various components, but they limited their

application to government agencies. Hedley and Girgenti (2016) presented a

comprehensive risk and compliance management framework. The scholars emphasized

the importance of top management leadership, an effective compliance department and

committee, due diligence, risk assessment, and dissemination of expectations throughout

organizational employees (Hedley & Girgenti, 2016). Hedley and Girgenti coined their

system as the governance, risk, and compliance (GRC) framework as well as identified

three major lines of defense. The first line of defense involved key personnel from

management to compliance officers (a) identifying risk, (b) implementing systems, and

line of defense is the design, implementation, and control of compliance risks (Hedley &

Girgenti, 2016). The third line of defense is the internal audit function to test and assess

the effectiveness of systems to manage risk (Hedley & Girgenti, 2016). While a separate

framework, Hedley and Girgenti built GRC from the components and gaps in other risk

management frameworks.

Post-2000 regulation era businesses need a compliance and risk framework that

scholars have empirically tested to be adjustable to a wide variety of industries and firm

sizes (Choi et al., 2016). While detailed and comprehensive, Hedley and Girgenti’s GRC

framework is not thoroughly tested or observed in the scholarly literature. Scholars have

addressed the GRC framework in the information technology industry but not as

extensively in other industries (Nicho, Khan, & Rahman, 2017; Papazafeiropoulou &

Spanaki, 2016; Spanaki & Papazafeiropoulou, 2016; Vunk, Mayer, & Matulevičius,

2017). Moreover, scholars have not applied the GRC framework to entrepreneurships

and small businesses which also need compliance and risk frameworks.

While coined after ERM, the International Organization for Standardization (ISO)

developed the ISO 31000:2009 framework to accompany existing risk management

systems in firms (Olechowski, Oehmen, Seering, & Ben-Daya, 2016). Similar to ERM,

the ISO 31000:2009 involves the integration of risk throughout the organization (de

Oliveira, Marins, Rocha, & Salomon, 2017; Ibáñez, Bernal, de Diego, & Sánchez, 2016;

Olechowski et al., 2016). Fraser and Simkins (2016) recommended integrating the ISO

31000:2009 framework with ERM because of the focus of both approaches on holistic

management of uncertainty and redefining risk to include positive as well as negative

outcomes. Several scholars have observed the successful combination of the ISO

31000:2009 philosophy with industry and business-specific techniques to manage risk (de

Oliveira et al., 2017; Ibáñez et al., 2016). However, scholars have critiqued the ISO

31000:2009 framework for the vague application, absence of a mathematical base, and

lack of measurable effectiveness (Olechowski et al., 2016). According to Olechowski et

al. (2016), the ISO 31000:2009 framework is preferable to a single rigid standard for risk

management. In contrast to ERM, the ISO 31000:2009 framework does not emphasize

alignment of risk into firm strategy and is limited on how to manage complex risks

(Haywood, Forsyth, de Lange, & Trotter, 2017).

Simona-Iulia argued ERM is a holistic approach to risk management, requiring a

redefinition, reorganization, and reintegration of risk into firm strategy. Simona-Iulia

(2014) contrasted traditional and ERM, identifying key differences in risk category,

organization of risk, and risk strategy. Business leaders must manage complex, volatile,

and uncertain risks in a global marketplace (Dickinson, 2001; Lukianchuk, 2015; Mensah

& Gottwald, 2016; Simona-Iulia, 2014). However, Zungu, Sibanda, & Rajaram (2018)

conducted a quantitative study finding business leaders using ERM are more effective

and efficient at managing risks than when using traditional risk management. Simona-

Iulia (2014) also offered a persuasive case for ERM as an integrative, thorough, and

strategic framework for turning risks into opportunities.

Traditional versus enterprise: Redefining risk as an opportunity for profit.

Ogutu, Bennett, and Olawoyin (2018) argued traditional risk management is about

maximizing resources to eliminate risk whereas ERM involves accepting and monitoring

risk to achieve profitability. In contrast to traditional definitions of risk, not all risk is

negative but can be redefined as uncertainty (Ogutu et al., 2018; Wu, Olson, & Luo,

2014). Uncertainty can create opportunities to make a profit (Annamalah, Raman,

Marthandan, & Logeswaran, 2018; Wu et al., 2014). In traditional risk management,

business leaders viewed risk as the potential negative influences on the firm whether

market, credit, or accidental (Annamalah et al., 2018; Simona-Iulia, 2014). In ERM,

business leaders view risk as an opportunity to capture value and can include strategic,

operational, financial, and accidental influences (Annamalah et al., 2018; Simona-Iulia,

2014; Sprčić et al., 2017). In traditional risk management, the procedural processes focus

on the downside of risk, compliance, and prevention (Arnold et al., 2015). As a firm

adopts ERM, the risk management process focuses on upside risks, and there is a

strategic concentration on the opportunity side of risk identification and response (Arnold

et al., 2015; Ogutu et al., 2018).

Traditional versus enterprise: Reorganizing and centralizing risk in the firm.

Traditional risk management and ERM also differ in the centralization of risk within the

organization (Gatzert & Martin, 2015; Ogutu et al., 2018; Simona-Iulia, 2014; Viscelli et

al., 2016). Traditional risk management maintains decentralization of risk where

business units operate in silos and lack coordination with other units (Gatzert & Martin,

2015; Simona-Iulia, 2014). The silo approach is an ineffective way to manage business

level risks because of lack of coordination between departments and duplication of risk

management expenditures (Hoyt & Liebenberg, 2015; Mensah & Gottwald, 2016; Shad

& Lai, 2015). Arnold et al. (2015) found firms that quantify risks in autonomous units

may inhibit the company from acting strategically and create greater risk. Rather than a

decentralized risk culture, Arnold et al. encouraged a risk management approach that

combines and centralizes information across an organization, thus boosting risk

identification and holistic risk response.

Enterprise risk management is centralized and organized from the top down

starting with the vision of the firm’s leadership (Beasley, Branson, & Pagach, 2015;

Gatzert & Martin, 2015; Krause & Tse, 2016; Mensah & Gottwald, 2016; Ogutu et al.,

2018; Simona-Iulia, 2014). Farrell and Gallagher (2015) observed a top-down method

which distributed a culture of ERM throughout the company contributed to an advanced

implementation of ERM and rise in firm value. Moreover, Hoyt and Liebenberg (2011)

discovered in an examination of 275 insurance companies that there was a positive and

statistically significant association between firm value and implementation of ERM. The

benefit of ERM and a centralized risk management strategy is reducing earnings

volatility, which involves aggregating risk across the firm (Hoyt & Liebenberg, 2011;

Ogutu et al., 2018). Also, ERM may decrease the costs of regulatory inspections and

external capital by simplifying the firm’s risk profile (Hoyt & Liebenberg, 2011).

A firm’s risk strategy must be a top-down process that is determined and spread

by the organization’s leadership (Dickinson, 2001; Meidell & Kaarbøe, 2017; Viscelli,

Hermanson, & Beasley, 2017). However, corporate leadership has a limited

understanding of the theory or application of ERM to value chain activities even when

leaders have adopted the ERM movement (Arnold et al., 2015; Fraser & Simkins, 2016).

Dickinson (2001) observed a corporation’s risk policy must be aligned with the

leaderships’ risk appetite and integrated into its overall strategy. Lundqvist (2014)

identified four components for ERM implementation. According to Lundqvist, these

components included (a) general internal environment and objective setting, (b) general

control activities and information and communication, (c) holistic organization of risk

management, and (d) specific risk identification and risk assessment activities. Lundqvist

argued all four components and their subcategories must be present for the firm to have

well-implemented ERM.

Traditional versus enterprise: Reintegrating risk into firm strategy. Lastly,

traditional risk management is limited by approaching risk from a reactive, retrospective

perspective (Simona-Iulia, 2014). Enterprise risk management requires holistic

integration into firm objectives and strategy (Ben-Amar et al., 2014; Dickinson, 2001;

Ogutu et al., 2018; Simona-Iulia, 2014; Teoh, Lee, & Muthuveloo, 2017; Viscelli et al.,

2016). Arnold et al. (2015) found the spread of risk management approaches has resulted

in a false sense of control in firms. Firms cannot delegate risk management to one

position and expect the benefits of ERM (Arnold et al., 2015). Meidell and Kaarbøe

(2017) examined how to integrate ERM into a business and uncovered a multiphase

process for ERM adoption, development, and integration. Meidell and Kaarbøe

described the multiphase process to include management creating a place in the

organizational strategy for ERM, employees and decision makers adopting ERM skills,

and the spread of ERM practices to all business areas. Firm leadership can improve their

firm’s risk identification and responsiveness to threats and opportunities to firm strategy

through an integrative risk management system that monitors internal and external

environmental changes (Arnold et al., 2015; Ogutu et al., 2018; Rogers & Ethridge, 2016;

Viscelli et al., 2016).

Measuring Risk Success

At this point, I have defined ERM, outlined initial approaches and additions to

ERM strategy, and contrasted ERM with other risk management approaches. In this

section, I will address the measurable gains scholars have found in companies that have

successfully implemented ERM. Some scholars have focused on successful

implementation of ERM through risk officers, boards, and departments (Beasley et al.,

2015; Cohen et al., 2017; Mohd-Sanusi et al., 2017; Rogers & Ethridge, 2016; Viscelli et

al., 2017). However, ERM does not require the establishment of a risk management team

(COSO, 2017). Other scholars have focused on how ERM affects the stock market value

of a firm (Agustina & Baroroh, 2016; Hoyt & Liebenberg, 2011; McShane, Nair, &

Rustambekov, 2011; Sprčić, Žagar, Šević, & Marc, 2016). Yet these studies on firm

market value do not apply to ERM in nonpublic companies. Dickinson (2001) argued

business leaders could only effectively measure ERM through the firm’s objectives.

Specifically, the degree of risk is the extent to which the actual outcomes from the firm’s

activities differ from or fail to meet, the corporate objectives (Dickinson, 2001; Mandru,

2016). In addition to firm value, scholars have identified multiple benefits from the

holistic use of ERM, including improved decision-making, increased strategic flexibility,

and higher performance (Arnold et al., 2015; Callahan & Soileau, 2017; Florio & Leoni,

2017).

Improved decision-making. Scholars have argued ERM has received the most

concern for improving business owner decision-making (Bryant et al., 2014; Hoyt &

Liebenberg, 2015; Mensah & Gottwald, 2016). In their study of Italian firms, Florio and

Leoni (2017) observed ERM might improve management decision-making processes to

select the best investment opportunities. In a literature review, Shad and Lai (2015)

found business leaders that implemented ERM could improve managerial decision-

making. Farrell and Gallagher (2015) found in a survey of companies that mature levels

of ERM indicated higher firm value. The scholars attributed top-down leadership

engagement and resulting ERM culture as a contributing factor (Farrell & Gallagher,

2015). Lastly, Olson and Wu (2017d) have examined the use of ERM in multinational

and national companies. In multiple publications (Olson & Wu, 2017d; Wu, Chen, &

Olson, 2014; Wu et al., 2014), Olson and Wu suggested the need for ERM in strategic

decision analysis.

Increased strategic flexibility and higher performance. Scholars have found a

significant positive link between the mature use of ERM, strategic flexibility, and

operational performance (Ahmed & Manab, 2016; Callahan & Soileau, 2017; Farrell &

Gallagher, 2015; Haywood et al., 2017; Krause & Tse, 2016; Li, 2018; Mensah &

Gottwald, 2016; Soltanizadeh, Abdul Rasid, Mottaghi Golshan, & Wan Ismail, 2016;

Teoh et al., 2017; Viscelli et al., 2016). Ahmed and Manab (2016) defined firm

performance as the ability of the firm to achieve objectives using available resources in

an efficient and effective way. Teoh et al. (2017) found ERM enhanced the strategic

agility and flexibility of firms to changing external environments. Arnold et al. (2015)

surveyed 155 chief audit executives and conducted a cross-sectional field study of six

companies using ERM. The scholars found higher levels of ERM activity were

associated with increased strategic flexibility and supply chain performance (Arnold et

al., 2015). Moreover, Arnold et al. (2015) observed ERM increases the strength of the

relationship between firm flexibility and performance. Florio and Leoni (2017) also

linked advanced levels of ERM implementation to higher performance, including

financial performance and market evaluation.

One caveat: Full integration of enterprise risk management. Multiple

scholars have emphasized that a firm cannot use a superficial version of ERM but must

integrate the approach thoroughly to achieve the benefits (Anju & Uma, 2017; Callahan

& Soileau, 2017; Farrell & Gallagher, 2015; Florio & Leoni, 2017). Business leaders can

use an integrated approach of ERM as a guide to diagnose risk and evaluate risk

management strategies to affect firm exposure to risk (Anju & Uma, 2017). However,

Florio and Leoni (2017) argued firms must have a more sophisticated implementation of

ERM. The researchers discovered firms with no or rudimentary adoption of ERM were

less profitable and less appreciated by investors (Florio & Leoni, 2017). Improved firm

performance relates to the adoption of the ERM model in its entirety, including (a)

matching the risk strategy with the stakeholders’ risk appetite, (b) redefining risk as

opportunity, (c) reorganizing risk procedures throughout the firm, and (d) integrating the

risk approach into firm strategy (Arnold et al., 2015; O’Har, Senesi, & Molenaar, 2017;

Simona-Iulia, 2014). The ERM framework can also aid firm leadership in compliance

and positive social change initiatives beyond adding to firm value, decision-making,

strategic flexibility, and performance.

Research on Enterprise Risk Management and Positive Social Change

Company leaders may use risk management frameworks for firm leadership to

comply with national and local level compliance regulations as well as grow the triple

bottom line. Archambeault and Webber (2015) described the separation of business and

ethics as one of the worst problems in society. Ruggie (2014) observed the lack of a

global government and the growing trend of weak corporate governance intensified by

problem diversity, opposing interests, and market uncertainty. Other researchers have

reaffirmed the concern for declining corporate governance as profits and globalization

rise (Beramendi & Wibbels, 2015; Hansen, 2014; Harris, 2015; Liu, Lu, & Ma, 2015;

Oliva, 2016; Sklair, 2016).

Other scholars (Florio & Leoni, 2017; Zeghal & El Aoun, 2016) determined

regulators have emphasized risk management strategies after the financial scandals and

global financial crisis. The development of Sarbanes-Oxley and Dodd-Frank Wall Street

Reform were regulator efforts to compel corporations to improve their risk management

systems (Arnold et al., 2015; Florio & Leoni, 2017; Meidell & Kaarbøe, 2017; Zeghal &

El Aoun, 2016). Other governments are also regulating risk management systems on a

global scale, including Italy and Singapore (Florio & Leoni, 2017; Zhao et al., 2014).

Better risk management systems are becoming a global mandate to force corporate

governance on companies (Florio & Leoni, 2017; Zhao et al., 2014).

While expansion can create opportunities for firms (Belderbos, Tong, & Wu,

2014), companies take risks that impact stakeholders (Bruno & Shin, 2014; O’Har et al.,

2017; Wu et al., 2014). Schneider and Scherer (2015) suggested company leadership

should incorporate local communities in risk assessment to (a) prevent the effect of

ethical violations on stakeholders, (b) boost the company’s support for social welfare, and

quantitative link between corporate governance, ownership structure, and risk-taking.

Claessens and Yurtoglu (2013) advocated firm leadership should include corporate

governance into the firm’s strategy to reduce financial crises. Additionally, Claessens

and Yurtoglu suggested corporate governance relates to higher returns on equity and

enhanced efficiency. Schneider and Scherer (2015) argued company leadership must

stop relying on regulatory compliance and instead evaluate the ethics of their operations.

Ethical violations can threaten the legitimacy of the firm and potentially influence the

firm’s survival (Kline & Hutchins, 2017; Schneider & Scherer, 2015).

The triple bottom line. Business leaders can leverage ERM to enhance the

triple bottom line (Olson & Wu, 2017c; 2017d). Research is minimal on the association

of ERM with positive social change. However, Choi et al. (2016) found the scholars Wu

and Olson provided the most extensive publications on the topic. Olson and Wu (2017c)

emphasized environmental sustainability as a major responsibility for managers to

operate profitably. The scholars criticized traditional cost-benefit analyses as short-term

and ineffective, applying ERM to the production of food, energy, and global supply

chains to create long-term benefits (Olson & Wu, 2017c; 2017d). While regulators are

increasing oversight to organizational operations, firms have a moral obligation and value

opportunity to prevent events that lead to environmental degradation and bankruptcy

(Olson & Wu, 2017c; 2017d). Olson and Wu effectively linked moral responsibility with

the implementation of ERM practices for firms to seize market opportunities that create

value long-term.

Wu, Chen, and Olson (2014) suggested the use of ERM to identify and respond to

risks that affect the triple bottom line. The researchers (Wu et al., 2014) analyzed the

influence of ERM in business intelligence to evaluate risks that influence stakeholders.

Several product lines have the parallel objectives of social good and firm profit, including

the development of antiviral agents by pharmaceutical companies, antiterrorist measures

by transportation firms, and safety policies in manufacturing companies (Wu et al.,

2014). The researchers also observed ERM as beneficial for data mining tools to enhance

fraud detection in corporate finance as well as power outages in the energy industry (Wu

et al., 2014). Additionally, ERM can be integrated into emergency management to assist

corporations in managing natural disasters that threaten both operations and society (Wu

& Olson, 2015). While Wu et al. (2014) evaluated business intelligence as an effective

field to use ERM for risk response to combining social impact with firm value, they

pointed out the flexibility of ERM for different industries.

Enterprise Risk Management in Small Businesses

The ERM framework is an effective way for big and small businesses to meet

compliance regulations and enhance performance (Angeline & Teng, 2016; Callahan &

Soileau, 2017; Viscelli et al., 2016). Researchers have observed the use of ERM to

increase firm value in big businesses which can afford separate risk officer or committees

(Callahan & Soileau, 2017; Li, 2018; Mensah & Gottwald, 2016; Viscelli et al., 2016).

However, entrepreneurs and small businesses may not have the resources or capacity for

advanced quantitative techniques, hiring a chief risk officer, or acquiring risk assessment

task force (Bhattacharya, 2018; Mafrolla & Matozza, 2014; Mafrolla, Matozza, &

D'Amico, 2016). Yet small businesses can still benefit from integrating ERM into their

firm strategy (Mafrolla et al., 2016). Scholars have identified the flexibility and

adaptability of ERM can add value to entrepreneurships and small business firms (Abd

Razak, Ab Rahman, & Borhan, 2016; Bhattacharya, 2018; Brustbauer, 2016; Angeline &

Teng, 2016; Gorzeń-Mitka, 2015; Lai & Shad, 2017; Soomro & Lai, 2017).

The needs of the small business. There is an array of scholarly research

regarding how entrepreneurs and small businesses manage uncertainty. Bryant et al.

(2014) pointed out business leaders must focus on preparation for uncertainties rather

than trying to remove uncertainty from the business. Atsan (2016) argued entrepreneurs

and small businesses fail or succeed based on internal and external risks. However,

Altman, Sabato, and Wilson (2010) attributed small business failure to a lack of planning.

Albort-Morant and Oghazi (2016) observed entrepreneurs encounter uncertainty and

make mistakes because they lack the critical information they need to manage their

companies. The key risks for small businesses include fluctuations and uncertainty in

interest rates, raw material prices, e-business and technology, supply chains, employees,

and growth (Falkner & Hiebl, 2015). Small business owners need frameworks to plan for

risk and uncertainty to achieve sustainable profitability (Angeline & Teng, 2016; Gorzeń-

Mitka, 2015; Lai & Shad, 2017; Soomro & Lai, 2017).

The regulatory field for small business. Kitching, Hart, & Wilson (2015)

argued compliance is not always a negative force but can provide dynamic opportunities

for small businesses. Scholars have observed that business owners often see compliance

as a burden and constraint on a company, especially small firms that lack resources

(Falkner & Hiebl, 2015; Kitching et al., 2015; Legg, Olsen, Laird, & Hasle, 2015).

While small businesses have a simpler internal structure than large companies, they are

more flexible and adaptable to market changes (Falkner & Hiebl, 2015). Small

businesses are the core of economic growth and competitiveness nationally and

internationally (Bhattacharya, 2018; Falkner & Hiebl, 2015; Mills & McCarthy, 2014).

Small business owners employ half of America’s private sector workforce but have been

slow to recover from the Great Recession, credit crises, and new regulations (Mills &

McCarthy, 2014). Kitching et al. (2015) theorized that regulations could create market

opportunities for small firms by influencing the implementation of business activities that

enhance efficiency or competitive advantage. Kitching et al. argued for changes in

business owners’ perception of compliance from burden to opportunity and frameworks

or programs that enable a business to meet regulatory policy objectives and open up new

market opportunities for small businesses.

Application of enterprise risk management to small businesses. The research

on ERM in small businesses is minimal (Mafrolla & Matozza, 2014; Mafrolla et al.,

2016). Viscelli et al. (2016) argued scholars lag the business world in embracing ERM.

According to Mafrolla et al. (2016), the lack of research reflects that regulatory agencies

do not compel small businesses to adopt ERM and the financial confidentiality of private

firms requires researchers to conduct primary data collection to access financials. While

some scholars have studied the role of ERM in small businesses, there are a limited

amount of these studies and they are focused on nonwestern markets, such as Austria and

Malaysia (Angeline & Teng, 2016; Bhattacharya, 2018; Brustbauer, 2016; Lai & Shad,

2017; Soomro & Lai, 2017). Nonetheless, scholars have identified a need for compliance

frameworks in small businesses (Kitching et al., 2015). Several researchers have found

benefits of ERM in small businesses including performance and profit (Angeline & Teng,

2016; Lai & Shad, 2017).

Brustbauer (2016) addressed the different approach small to medium-sized

businesses must take to ERM as the management style is different from large companies.

Brustbauer observed that small businesses are often owned and operated by one person or

small management team assuming the risks of the enterprise. Moreover, small businesses

often operate with few resources and risks are based on the entrepreneur’s perceptions

and ability to manage them (Bhattacharya, 2018; Brustbauer, 2016; Falkner & Hiebl,

2015; Gorzeń-Mitka, 2015). The researcher (Brustbauer, 2016) presented a unique

approach to ERM by exploring and developing a structural model for risk management in

small to middle sized companies. Brustbauer focused on the business owner’s risk

identification, assessment, and monitoring in 311 entrepreneurships (Brustbauer, 2016).

The small businesses used either an active or passive ERM approach to risk (Brustbauer,

2016; Falkner & Hiebl, 2015). While a small firm’s approach to ERM is less

sophisticated than larger firms, small firm leadership can implement ERM (Beasley et al.,

2015; Bhattacharya, 2018; Brustbauer, 2016; Mafrolla et al., 2016).

Fraser and Simkins (2016) argued ERM is a simple, focused approach that the

small business owner can use to get back to the basics of firm risk and good management.

According to Fraser and Simkins, the key questions of ERM include: (a) What is the

business owner trying to accomplish in a certain amount of time? (b) What types of risk

might affect these firm goals and objectives? (c) How much of an effect will these risks

have and how likely are they to happen? (d) What can the business owner do to optimize

opportunities and manage potential downsides? (e) What resources can the business

owner apply to manage risk? (f) How well do employees understand and apply the firm

objectives and risk strategy? Sax and Torp (2015) argued employee responsiveness and

involvement is a critical element to successful ERM integration. Additionally,

Lukianchuk (2015) observed managers in small businesses using ERM should focus on

risks that affect the safeguarding of resources, operational objectives, and strategic

objectives. Therefore, small business owners can address the key questions of ERM

without the complex frameworks and statistical analyses of larger businesses (Fraser &

Simkins, 2016).

Some small business leaders are clear about the significance of ERM in obtaining

sustainable profitability in their business (Angeline & Teng, 2016; Zhao, Hwang, & Low,

2015). For example, Angeline and Teng (2016) conducted empirical research to

determine the extent of ERM usage in 214 small to medium businesses in Malaysia and

the resulting impact on sales performance. The scholars found risk management is

critical to small and medium businesses as a way to reduce exposure to business loss

(Angeline & Teng, 2016). The researchers focused on several key elements of ERM,

including (a) risk appetite, (b) control environment, (c) evaluating the risk management

framework, and (d) control activities (Angeline & Teng, 2016). The researchers

suggested that the control environment has a positive, substantial impact on sales

performance (Angeline & Teng, 2016). In the surveys, 80% of the business leaders

responded favorably to creating a culture and policy of ERM in their business (Angeline

& Teng, 2016). Zhao et al. (2015) also found improved decision-making was the top

influential driver for small business owners adopting ERM.

Lai and Shad (2017) also found a positive connection between firm

implementation of ERM and sustainable profitability. The researchers conducted several

regression models to examine the impact of ERM on company performance through (a)

net operating profit after tax, (b) weighted average cost of capital, and (c) return on

invested capital (Lai & Shad, 2017; Shad & Lai, 2015). Firms that implemented ERM

showed a reduced weighted average cost of capital and an increase in net operating profit

after tax and return on invested capital (Lai & Shad, 2017). Shad and Lai (2015) also

utilized a simplified ERM model to identify, integrate, and track risk that small business

owners could implement.

Positive social change and enterprise risk management in small businesses.

Rather than view sustainability as necessary for compliance to legislative requirements,

scholars have argued for integration of sustainability into firm objectives and activities to

add value (Saardchom, 2013; Shad, Lai, Fatt, Klemeš, & Bokhari, 2019; Soomro & Lai,

2017). Small businesses that do not learn to recognize and manage risk can cause

environmental damage and other social problems (Falkner & Hiebl, 2015; Gorzeń-Mitka,

2015; Saardchom, 2013). An element of my research is to determine how positive social

change can interplay with risk management strategies for sustainable profit. However,

research on positive social change and ERM implementation in small businesses is an

emerging area (Saardchom, 2013; Soomro & Lai, 2017). It is important to note that

throughout my study I use the term sustainability as a synonym for long term profit (see

Operational Definitions section) while Soomro and Lai (2017) and Saardchom (2013) use

the term to refer to environmental and social concerns. Saardchom argued firm

leadership should consider sustainability risk as a category of risk alongside financial,

operational, and strategic risks in company strategy. Soomro and Lai (2017)

conceptualized a new framework by blending ERM with sustainability management.

Soomro and Lai (2017) titled their blended framework as enterprise sustainability risk

management (ESRM) and argued this new framework would lead to corporate

sustainability performance. Soomro and Lai developed the ESRM framework to fulfill

the need for firms to view sustainability as an opportunity for the strategic management

agenda rather than an area of risk.

Soomro and Lai posited the combined ESRM would enable firms to achieve

economic goals while managing sustainability and business risks. The scholars combined

the key principles of ERM and sustainability management to create ESRM (Soomro &

Lai, 2017). Enterprise risk management involves structure, governance, and process

while sustainability management includes employee relations, customer relations,

environmental relations, and community relations (Soomro & Lai, 2017). The scholars

argued ESRM creates value for a firm by factoring in environmental and stakeholder

concerns into a risk management framework (Soomro & Lai, 2017). However, while I

find this environmental and stakeholder focus beneficial, the original framework of ERM

already encapsulates these concerns in monitoring risk.

The Potential of Enterprise Risk Management for Rental Property Owners

One industry that has experienced a significant impact on shifting regulations in

the post-2000 era is the rental real estate industry. While there are federal laws to guide

the industry, there is significant variance at the state, county, and city level for rental real

estate regulations (Amodu, 2018; Hatch, 2017). Researchers have observed the

tumultuous relationship between property owners, tenants, and legislators (Arnott &

Shevyakhova, 2014; Autor et al., 2014; Lind, 2015; Palmer & Childs, 2014). Legislators

have argued that without their oversight, rental property owners will become slumlords,

hiking up impossible to pay rents and leaving buildings to degrade (Arnott &

Shevyakhova, 2014; Autor et al., 2014; Lind, 2015; Palmer & Childs, 2014; Vols &

Belloir, 2019). Property owners argue that they will go out of business without raising

rents to cover operating costs (Arnott & Shevyakhova, 2014; Autor et al., 2014; Lind,

2015; Palmer & Childs, 2014). Rental property owners with mortgages are highly

incentivized to ensure rent flow and establish long term tenants (Fereidouni & Tajaddini,

2017). However, tenants have argued for long term residence, well-maintained housing,

and affordable rents (Easthope, 2014; Lind, 2015). The fragile relationship among rental

property owners, tenants, and legislators has led to legislative interference in favor of

both sides, from rent control initiatives in New York to rent control bans in Washington

State (Arias et al., 2016; Arnott & Shevyakhova, 2014; Autor et al., 2014; Lind, 2015;

Palmer & Childs, 2014).

Researchers on the rental real estate industry have argued for a framework

property owners can use to manage risk, market uncertainty, and stakeholder concerns

(Arias et al., 2016; Arnott & Shevyakhova, 2014; Autor et al., 2014; Easthope, 2014;

Lind, 2015; Palmer & Childs, 2014). However, researchers have yet to apply ERM to

small business rental property owners. Moreover, a shifting and uncertain regulatory

environment can complicate compliance (Mills & McCarthy, 2014). Based on post-Great

Recession events in the rental real estate industry, I argue there is a need for rental

property owners to implement ERM into their risk strategy. Particularly in the greater

Seattle area where the regulatory environment is rapidly changing, and the market is

volatile.

Affordable housing and rent control. The issue of rent control and affordable

housing is both a historical and global phenomenon (Arias et al., 2016; Lind, 2015). In

the rental real estate industry, when property owners encounter increased costs, they may

raise rents quickly and dramatically (Arias et al., 2016; Asquith, 2019; Lind, 2015).

Moreover, low rental unit inventory and high tenant demand drives market prices up

(Diamond, McQuade, & Qian, 2019). Rapidly rising rents create concerns in local

governments over affordable housing and inventory (Arias et al., 2016; Asquith, 2019;

Lind, 2015). However, an ongoing example of the debate of rent control is in Seattle,

Washington (Arias et al., 2016). Rent control has become a recent issue in Seattle

because average rents have increased by 29% from 2011 to 2016 (City of Seattle, 2016).

As a result, the Seattle City Council has attempted to invoke rent control legislation to

achieve affordable housing (Arias et al., 2016). While there are varying degrees of rent

control, the legislation would control the rent prices which rental owners can charge

tenants (Arias et al., 2016; Asquith, 2019; Lind, 2015). Additionally, rent prices become

based on government oversight and not what the market will allow (Arias et al., 2016;

Asquith, 2019; Lind, 2015).

There are several issues with this regulatory approach to affordable housing from

a business and social well-being perspective. Asquith (2019) argued rent control

incentivizes rental property owners to withdraw from the rental market and thus reduce

housing inventory, which is the opposite of what legislators want. Moreover, Roth

(2019) argued vacant units from rental property owners who do not sell or rent their units

increase crime rates and are associated with negative outcomes for communities.

Diamond et al. (2019) conducted the Stanford Study where the researchers studied San

Francisco rent control and found rental property owners reduced housing supply by 15%

after selling their rentals to buyers repurposing the buildings. The loss in rental housing

increased market rents by 5.1% because of low inventory and high demand for units

(Diamond et al., 2019). Rent control and related regulations undermine the goal

legislators intended (Diamond et al., 2019). Thus, legislatively set rent prices create an

uncertain regulatory market for which rental property owners need risk management

strategies to budget for sustainable profitability.

Rent control in academic literature. Scholarly research has demonstrated the

harmful effects of rent control to housing, tenants, and communities (Arias et al., 2016;

Arnott & Shevyakhova, 2014; Asquith, 2019; Autor et al., 2014; Lind, 2015; Palmer &

Childs, 2014). Scholars have conducted extensive historical and post-2000 era analyses

of rent control in western countries and cities (Arias et al., 2016; Arnott & Shevyakhova,

2014; Autor et al., 2014; Lind, 2015; Palmer & Childs, 2014). Rent control legislation is

increasing in western nations as legislators grapple with affordable housing while the cost

of living continues to rise (Lind, 2015). For example, Lind (2015) observed rent control

made housing affordable for low-income tenants but reduced the rental owners’ incentive

to maintain or upgrade the property. Lind determined that, without the ability to raise

rents, property owners do not have the incentive to budget for maintenance or upgrade

housing.

Arias et al. (2016) argued rent control destroys businesses and communities. The

scholars considered a historical look at rent control in New York City and San Francisco

(Arias et al., 2016). Because rental owners are primarily concerned with profit, they will

not want to build or invest in assets for which they cannot control pricing (Arias et al.,

2016). The researchers argued this leads to abandonment, low construction rates,

gentrification, and declining communities (Arias et al., 2016). Fields and Uffer (2014)

also found that rent control in New York and Berlin encouraged deteriorating properties,

which contributed to declining neighborhoods. Therefore, rather than creating affordable

housing, the long-term effects of rent control make it difficult for prospective tenants to

find housing with decent living conditions (Arias et al., 2016). Asquith (2019) argued

rental property owners are more likely to leave the market than operate with the rise in

regulations, thus lowering inventory and affordable housing. Rent control and related

regulations hinder rental property owners from budgeting for sustainable profitability

(Arias et al., 2016; Asquith, 2019).

Rent control and regulations in Seattle, Washington. Rental property owners

are significantly hindered from budgeting for sustainable profitability in a tumultuous

regulatory environment. The Seattle City Council has been unable to implement rent

control legislation because it remains unconstitutional in the Revised Code of

Washington (Rosenberg, 2017; Norimine, 2018). However, the conflict between the

interests of the city and the laws of the state have created an intense regulatory

environment for Seattle rental property owners (Rosenberg, 2017; Norimine, 2018).

While the Seattle City Council cannot legalize rent control, the city leaders have

implemented constant additions of new regulations that are varying degrees of rent

control.

For example, in 2016, the Seattle City Council voted in a new law to reduce

discrimination (Beekman, 2016). The new First in Time ordinance required Seattle rental

property owners to accept qualified rental applicants on a first-come, first served basis

(Beekman, 2016). Seattle is the only US city with this legislation, and the council

designed it to prevent rental owner discrimination against non-white races (Beekman,

2016). In this case, the council’s concerns may be warranted based on empirical results

in the scholarly literature supporting rental property owner discrimination (Feldman &

Weseley, 2013; Galster, MacDonald, & Nelson, 2018; Hanson & Santas, 2014; Murchie

& Pang, 2018). Scholars have demonstrated that landlord preference can still occur

through applicant names although there are laws prohibiting racial discrimination for

applicant tenants (Feldman & Weseley, 2013; Galster et al., 2018). Moreover, African-

Americans psychologically are still a disadvantaged and least favored group for housing

(Feldman & Weseley, 2013). However, rental owners have argued the new legislation

has (a) required them to spend additional resources to be in compliance (b) prevented the

selection of the best tenant for the property, and (c) denied them the ability to make

judgment calls that protect persons and property (Beekman, 2016). In 2018, rental

property owners succeeded in their lawsuit against Seattle to strike down First in Time

ordinance (Beekman, 2016). The judge defined the law as violating the rights of property

ownership, due-process, and free-speech rights of rental owners (Beekman, 2016). To

complicate matters, the Seattle City Council intends to appeal the decision (Beekman,

2016), creating a confusing regulatory environment for rental property owners.

The constant shift in regulations creates time and resource burdens on the small

business rental property owner. Greif (2018) cautioned legislators from undermining

tenant access to stable and decent housing through an excessive regulatory environment.

In 2017, the Seattle City Council voted on new requirements to the city’s Rental

Agreement Regulation Ordinance, including requiring landlords to give payment plans

and setting limits on security deposits, pet deposits, and move-in fees (Seattle Department

of Construction & Inspections, 2017). While large corporations often establish a

compliance department (Moyers, 2016; Scallon et al., 2016), the small business rental

property owner must absorb the changes without adding additional costs. Rental property

owners need risk management strategies for ensuring sustainable profitability in a

tumultuous, uncertain regulatory environment.

Enterprise risk management for Seattle market uncertainty. The integration

of the ERM framework into firm strategy is critical for (a) firm leadership to seize profit

opportunities and mitigate risk (Callahan & Soileau, 2017), (b) moral responsibility and

the triple bottom line (Wu, Chen, & Olson, 2014), and (c) small businesses to adapt to

changing regulatory landscapes (Angeline & Teng, 2016). Rental real estate owners can

use ERM to identify and mitigate market risks associated with rapid raises in rent. To

use the ERM framework, business leaders must consider (a) the stakeholders’ risk

appetite, (b) risk as a market opportunity, (b) organization of risk throughout the

company, and (d) integration of risk into firm strategy (Abd Razak et al., 2016; Callahan

& Soileau, 2017; Simona-Iulia, 2014). Moreover, using ERM strategies, rental owners

can seize compliance regulations as opportunities for budgeting for sustainable

profitability. Compliance with regulations not only lowers violation fees but rental

owners can also market compliance with potential tenants as a positive place to live

(Easthope, 2014; Wrigley & Crawford, 2017).

Positive social change and rental property owners. Rental property owners

without risk management strategies to budget for sustainable profitability are negatively

impacting positive social change. In the post-2000 era, positive social change is a critical

concern (Ambrose, 2015; Bebchuk & Hamdani, 2006; Girgenti, 2016; Jiang et al., 2015;

Moyers, 2016; Scallon et al., 2016). As business leaders expand their markets and seek

out competitive advantage, rental property owners can overlook ethics and social well-

being (Easthope, 2014; Polletta et al., 2017). Positive social change must be a

collaboration at the individual change agent level, the organizational level, the

community level, and the legislator level (Aguilera, Rupp, Williams, & Ganapathi, 2007;

Ambrose, 2015; Polletta et al., 2017; Wrigley & Crawford, 2017). Moreover, a business

must collaborate with stakeholders to create mutually beneficial relationships that aid in

sustainable profitability (Alberti & Garrido, 2017; Ambrose, 2015; Polletta et al., 2017).

Scholars have investigated what tenants and rental property owners look for in

each other (Greif, 2018; Seemann et al., 2014). For example, Seemann et al. (2014)

found prospective tenants valued symbolic traits in the landlord, such as honesty,

integrity, and unselfishness, as well as rental price and housing comfort (Seemann et al.,

2014). Other scholars have observed rental property owners prefer tenants that are not

disruptive to the community and keep units in good condition (Greif, 2018). Both Greif

(2018) and Aubry et al. (2015) argued legislators need to consider not just the tenant

perspective but also consider and be responsive to the property owner need for quality

tenants. This research underscores the relationship between the property manager and

tenant as a major indicator of rental housing desirability as well as tenant and property

owner characteristics (Seemann et al., 2014).

While the rental property owner-tenant relationship is critical for a successful

business, rental property owners must still manage financial constraints with positive

social change. Polletta et al. (2017) found in a qualitative study that rental property

owners in Boston find value and perceive themselves to be responsible for healthy and

safe tenant housing. However, rental property owners are struggling to maintain and

improve housing while managing destructive tenant behavior, financial constraints, and

compliance enforcement (Ambrose, 2015; Polletta et al., 2017). The City of Seattle

Office of Housing (2018) echoed Polletta et al.’s (2017) results with a survey revealing

42% of 13,643 rental units could not cover operational or repair costs. Rental property

owners lack risk management strategies that enable owners to budget for achieving

sustainable profitability.

Researchers have also found racial, age, and incarceration discrimination in rental

property owner screening practices (Cole, Powell, & Sanderson, 2016; Feldman &

Weseley, 2013; Galster et al., 2018). However, Galster et al. (2018) found these

discriminatory practices represented the rental property owners’ profit-driven

preferences. Rental property owners preferred tenant ethnicities that are socially

perceived to have a higher income and dependability than other applicant ethnicities

(Galster et al., 2018). Cole et al. (2016) also found a rental property owner preference for

tenants over age 25, for the rental property owners perceived this demographic might

cause less damage and cost to a property than younger renters. Furst and Evans (2017) as

well as Evans, Blount-Hill, and Cubellis (2018) found convicted felons often received

rejections or acceptance to rent from a property owner based on their stigmatized status.

However, Evans (2016) suggested the main concern of rental property owners was the

convicted felons’ ability to pay rent rather than their criminal history. In the rental real

estate industry, positive social change is not a consumer problem, business problem, or

even a legislative problem. It should be a collaborative goal for businesses and

stakeholders to achieve mutually beneficial solutions (Easthope, 2014; Mackenzie,

Mwamba, & Mphande, 2017; Polletta et al., 2017).

Rental property owners rapidly raising rents to offset operating costs can injure

long-term profit as well as tenant security (Ástmarsson, Jensen, & Maslesa, 2013;

Easthope, 2014). Rental real estate involves the homes of people, where tenants rest

from the world, the resources individuals can access, and neighborhood identity

(Easthope, 2014; Mackenzie et al., 2017). However, Morris, Hulse, and Pawson (2017)

found some long-term tenants experience anxiety and fear in insecure rental housing.

Williams and Needham (2016) argued rising rent prices could force tenants out of their

homes and create vacancy costs for rental property owners. Risk management strategies

can aid business leaders in budgeting for sustainable profitability (Bromiley et al., 2015;

Callahan & Soileau, 2017; Dyer et al., 2016).

Summary of the Literature Review

Enterprise risk management is a strategic system to facilitate risk understanding

and exploitation (Arnold et al., 2015). Risk management is an effective system to protect

shareholder value and comply with legislator regulations, but ERM is a holistic

framework for seizing opportunities that create firm value (Callahan & Soileau, 2017;

Meidell & Kaarbøe, 2017). The mature adoption and integration of ERM can lead to

improved performance through better decision-making and increased strategic flexibility

(Callahan & Soileau, 2017; Meidell & Kaarbøe, 2017). However, firm leadership must

effectively integrate ERM and avoid a superficial application of the framework to meet

regulatory policies or satisfy stakeholders (Callahan & Soileau, 2017; Dickinson, 2001;

Meidell & Kaarbøe, 2017). Successful implementation of ERM involves the firm

leadership (a) measuring the risk strategy against the stakeholders’ risk appetite, (b)

redefining risk as opportunity, (c) reorganizing risk throughout the organization, and (c)

reintegrate risk into firm strategy (Abd Razak et al., 2016; Callahan & Soileau, 2017;

Simona-Iulia, 2014). Additionally, entrepreneurs can align profit-making activities with

positive social change initiatives to fill market niches and obtain social support (Haugh &

Talwar, 2016; Rey-Martí, Ribeiro-Soriano, & Sánchez-García, 2016).

Researchers have also found the successful implementation of ERM in small

businesses can increase the value and performance of the firm (Abd Razak et al., 2016;

Brustbauer, 2016; Angeline & Teng, 2016; Lai & Shad, 2017; Soomro & Lai, 2017). In

the rental real estate industry, ERM may present an effective framework for managing the

increasing regulatory and market uncertainties. In the greater Seattle area, rental property

owners are navigating a volatile market of rent control compliance initiatives and rising

operating costs (Arias et al., 2016; City of Seattle, 2016; Rosenberg, 2017; Norimine,

2018). The ERM framework may be beneficial for greater Seattle area property owners

to mitigate market risk and turn operational challenges into opportunities.

Transition

In Section 1, I introduced my research objectives based on the specific business

problem in the rental real estate industry: Some rental property owners lack strategies to

budget for sustainable profit. I presented a literature review encapsulating the

background of the problem, my conceptual framework for addressing the problem, and

linked the subject matter to positive social change.

In Section 2, I elaborated on my research strategy, including explanations of my

research method and design, data collection method, study population, ethical

considerations, and data analysis plan. I also included the key elements of a rigorous

study, such as validity and reliability, and aligned them with my research strategy. I

discussed the results of my data collection and evaluation in Section 3. Additionally, I

included an evaluation of the study results to offer recommendations for professional

business practice, positive social change, and future academic research.

Section 2: The Project

In this section, I explain my research strategy for analyzing the specific business

problem I specified in Section 1. My research question was: What risk management

strategies do rental property owners use to budget for sustainable profitability? My

research method was a qualitative study and my research design was a mini ethnographic

case study. I address the approach for both the method and design as well as explain my

data collection methods of participant observation and semistructured interviews. I

outline the requirements for the participant population for my study and how I used the

purposeful sampling method. Additionally, I consider the ethical factors for my study

involving human subjects, including issues of informed consent, researcher bias, and

securing sensitive data. After describing my data collection strategy, I introduce the data

analysis method I use in Section 3 to organize and examine research data.

Purpose Statement

The purpose of this qualitative, mini ethnographic case study was to examine the

risk management strategies that enable rental property owners to budget for sustainable

profit. The targeted population consisted of 20 rental owners in the greater Seattle area

who have successfully maintained a sustainable profit for over 10 years. Hennink,

Kaiser, and Marconi (2017) argued 16 to 25 in-depth interviews are necessary to reach

data saturation. The implication for positive social change included the potential for

rental property owners to identify profitable opportunities that consider tenant and

community well-being, such as capital improvements and housing maintenance.

Moreover, property owners with risk management strategies and sustainable profit can

maintain business stability during market fluctuations and provide tenants and the local

community with stable, well-maintained housing (Easthope, 2014; Lind, 2015).

Role of the Researcher

The researcher plays a significant role in the data collection process (Fusch &

Ness, 2015). The researcher is the instrument of data collection in qualitative research

because humans can interact with environmental stimuli, integrate information at

multiple levels holistically, and interpret unusual data (Sanjari, Bahramnezhad, Fomani,

Shoghi, & Cheraghi, 2014). However, the cultural and personal lens of the researcher

contains biases, values, and beliefs that can affect the interpretation and saturation of the

data (Fusch & Ness, 2015; Sanjari et al., 2014). The interpretation of the data must

reflect the participants and environment, not the personal lens of the researcher (Fusch &

Ness, 2015).

Researchers who use participant observation as a data collection technique are

recording their perceptions of the environmental setting and activities (Jarzabkowski et

al., 2014; McCurdy & Uldam, 2014). As a participant observer, the researcher gains a

unique understanding of the phenomenon of study because the researcher is living the

characteristics and activities of the study participants (Jarzabkowski et al., 2014;

McCurdy & Uldam, 2014). In my fieldwork, I interacted with rental property owners as

a member of this participant group. I did not know the participants personally before data

collection; however, I have operated my rental real estate business in the same

geographic area as my study participants. I implemented internal procedures, including

reflexivity and emotional intelligence, as well as external procedures, such as informed

consent forms and interview protocols. By implementing procedures, I intended to

mitigate my biases and avoid my personal lens impacting the interpretation and saturation

of data.

Internal Procedures: Reflexivity and Emotional Intelligence

Researchers can manage feelings in qualitative research through reflexivity

(Berger, 2015; Collins & Cooper, 2014; Gilmore & Kenny, 2015; Sanjari et al., 2014).

According to Collins and Cooper (2014), self-aware and forthright researchers can give

the study readership perspective on the research. Berger (2015) advocated reflexivity is a

major tool for achieving credibility, trustworthiness, and nonexploitive methods in

qualitative research. Novice researchers who use ethnographic data collection techniques

must adopt a reflexive and emotional intelligence framework (Berger, 2015; Collins &

Cooper, 2014; Gilmore & Kenny, 2015). Researchers using emotional intelligence

engage in (a) thorough self-awareness of identity and impact on participants, (b) self-

regulation to listen and learn, (c) empathy for participants’ vulnerability, and (d)

awareness of power dynamics of the study and ensuring a safe environment for

participants to share information (Collins & Cooper, 2014). Moreover, researchers using

ethnographic methods have the unique benefit of being an insider and understanding the

perspective of the study population (Berger, 2015). However, the insider perspective can

be a drawback if the researcher is not self-aware (Berger, 2015). Therefore, Berger

(2015) recommended a three-part log of each encounter, including (a) what happened, (b)

what the researcher interprets it to mean, and (c) what the researcher felt and thought

about the experience.

External Procedures: Informed Consent and Interview Protocol

Other scholars (Sanjari et al., 2014) have also expressed the need for researchers

to develop interpersonal skills. Sanjari et al., (2014) argued ethnographers must immerse

themselves in the culture as an expert insider, live among the study population, but

remember their ethical role as research instruments. Researchers must clarify in their

research the ethical issues of participant anonymity, confidentiality, and informed consent

(Sanjari et al., 2014). Researchers use informed consent to specify how they collect, use,

and protect the data (Sanjari et al., 2014). Ethnographic researchers engaged in

prolonged interaction with study participants may require ongoing negotiation on what

information is permitted as data (Sanjari et al., 2014).

The Belmont Report (U.S. Department of Health and Human Services [HHS],

1979) specified that researchers must take into consideration (a) respect for a person’s

autonomy, (b) beneficence that maximizes the benefits and minimizes the harm to

participants, and (c) justice so that the study participants benefit from the research. The

report also stressed informed consent and evaluation of risks and benefits (HHS, 1979).

Therefore, an informed consent form and protocol were critical components to my

research. I reviewed a comprehensive informed consent form before starting my

fieldwork with each participant, explaining my research goals, confidentiality, and the

role of study participants.

Regarding interviews, a protocol is necessary to maximize data collection and

avoid the gathering of confidential information unnecessary for the study (Sanjari et al.,

2014). Scholars (Castillo-Montoya, 2016; Kallio, Pietilä, Johnson, & Kangasniemi,

2016) have argued for multiple phases of the interview process. First, scholars (Castillo-

Montoya, 2016; Kallio et al., 2016) emphasized alignment of interview questions with

the research questions. Researchers also need to develop interview questions with

follow-up scripts that are different from the research questions and that encourage

conversation and follow any social rules (Castillo-Montoya, 2016; Kallio et al., 2016).

Finally, researchers must pursue feedback from colleagues on the viability of the

questions and practice the interview questions through a pilot interview (Castillo-

Montoya, 2016; Kallio et al., 2016). Researchers applying a well-developed interview

protocol can keep the research in line with objectives, increase the quality and reliability

of the data, and support flexibility in the field (Castillo-Montoya, 2016; Kallio et al.,

2016).

Participants

The research question of my study was: What risk management strategies do

rental property owners use to budget for sustainable profitability? Scholars have argued

the study population must reflect the research question (Gentles, Charles, Ploeg, &

McKibbon, 2015; Morse, 2015a; Morse, 2015b; Palinkas et al., 2015). Therefore, the

rental property owners I studied must have had risk management strategies they used to

budget for sustainable profit. Moreover, the study population must have been

knowledgeable, have had expert information, and represented the larger population of

interest (Gentles et al., 2015). The eligibility criteria for my study participants included

rental property owners who (a) operate in the greater Seattle area, (b) are employed at

least half-time in the strategy and operations of their rental business, (c) apply risk

management strategies to their operations and strategy, and (d) have 10 years of business

profit.

Gaining Access to Participants

Access in qualitative research involves researchers obtaining permission from an

organization or individuals to collect information and interview people on the

phenomenon under study (Cunliffe & Alcadipani, 2016). Researchers gaining access is

not a linear process but a dynamic, multilevel process of reaching out continuously to

make connections, recruit study participants, and maintain access (Cunliffe & Alcadipani,

2016; Kondowe & Booyens, 2014; Peticca-Harris, deGama, & Elias, 2016). Peticca-

Harris et al. (2016) observed the use of the funnel approach where researchers narrow

down potential participants from a broad group. Scholars (Le Dantec & Fox, 2015;

Peticca-Harris et al., 2016) have highlighted the important role of gatekeepers and

informants in gaining access to study participants, particularly in ethnographic studies.

Cunliffe and Alcadipani (2016) emphasized the importance of gatekeepers as the ones

who know who you want to know. Le Dantec and Fox (2015) used organizations as

gatekeepers and gained access to study participants by attending meetings and gatherings.

Through their attendance and participation, Le Dantec and Fox (2015) built trust among

potential study participants. However, Kondowe and Booyens (2014) initiated contact

with their study participants who met their criteria through cold calling business listings

and used their time on the business sites to build trust and involvement. Finally, Cunliffe

and Alcadipani (2016) observed the researcher could leverage personal and professional

relationships to gain access to study participants.

I leveraged organization gatekeepers and professional relationships to access

study participants. As a rental property owner in the greater Seattle area, I have

membership in and access to rental property organizations that strongly encourage the

interaction, collaboration, and reciprocity of rental property owners. I used authority

figures in these networking organizations to connect me to study participants who met

my criteria and attended organizational meetings to build relationships with potential

participants. Finally, I leveraged the professional relationships I have built through my

business to gain access to study participants who met my research criteria.

Developing a Working Relationship

Cunliffe and Alcadipani (2016) emphasized the importance of researchers

developing trust with study participants. Researchers establishing trust were able to have

open conversations with participants about the expectations of the study and informed

consent (Cunliffe & Alcadipani, 2016). Moreover, Le Dantec and Fox (2015) argued

researchers must establish presence first to build the trust necessary for discussing study

procedures and informed consent. The frequent choice of researchers using ethnographic

methods is to discuss informed consent in person with study participants (Le Dantec &

Fox, 2015; Peticca-Harris et al., 2016). Therefore, after I determined which property

owners met my criteria, I developed a working relationship and trust with my study

participants through in-person interactions, discussions of study procedures, and gaining

informed consent. I used rental property organizational meetings and gathering platforms

to maintain in-person interaction and familiarity while in the early stages of gaining

access.

Research Method and Design

My research method and design were my strategy and lens for how I collected

information and attempted to understand the phenomenon. My research questions was:

What risk management strategies do rental property owners use to budget for sustainable

profitability? In this subsection, I explained the applicability of a qualitative research

method and a mini ethnographic design to answering my research question.

Research Method

The underlying research method guides a researcher’s study focus, data collection

methods, and communication of findings (Yin, 2018). The research methods most

appropriate for scholarly research include quantitative, qualitative, and mixed methods.

Quantitative research tests the efficacy of an approach through correlation or causation of

the study variables (Evans & Porter, 2015; Manganelli, Morano, & Tajani, 2014; Newell

et al., 2015). Quantitative designs can include a quasi-experimental audit study where the

researcher collects data in a real-world context and thereby increases the generalizability

of the results (Evans & Porter, 2015). Researchers can also employ correlation models to

determine the interdependence of multiple variables and infer a cause-effect relationship

(Manganelli et al., 2014).

Qualitative research explores meaning, insight, and discovery of new business

opportunities or management decisions, rather than quantitatively testing the efficacy of a

particular approach (Storesund, & McMurray, 2009; Thompson, 2016; Yin, 2018).

Qualitative research is also effective when a researcher is asking a how question and is

studying human phenomena in its cultural context (Yin, 2018).

In mixed methods research, the researcher uses both quantitative and qualitative methods

in a single research study (Cortimiglia, Ghezzi, & Frank, 2016; Shannon-Baker, 2016).

Mixed methods research provides a more complex understanding of the phenomena than

one research method alone (Shannon-Baker, 2016). Cortimiglia et al. (2016) used

qualitative methods to expand and explain quantitative methods. Other scholars have

argued a mixed methods approach increases triangulation and therefore the accuracy of

the study (Hussein, 2015).

A mixed method approach was not appropriate for this study because a researcher

should select a research method that aligns the study purpose with the data collection and

analysis techniques (Fusch et al., 2017). In my study, I sought to understand how rental

property owners’ budget for sustainable profit. I explored the perceptions and

experiences of property owners’ sustainable budgeting strategies in the cultural context.

Fusch, Fusch, Booker, and Fusch (2016) argued for the consideration of cultural forces in

modern business research as a critical component for understanding organizational

success. Therefore, the qualitative method was the most appropriate approach to my

study.

Research Design

Fusch et al. (2017) argued that researchers should choose the research design and

data collection method that best matches the research questions and time allotted for the

study. My doctoral research question was how do rental real estate business owners in

the greater Seattle area budget for sustainable profit? I was particularly interested in the

rental owner use of risk management strategies for sustainable profit budgeting.

Jarzabkowski et al. (2014) discussed practical guidance for researchers on how to

present ethnographic data in a meaningful way for scholarly research and how to

effectively write ethnographic textual results. The scholars differentiate ethnographic

data from other qualitative methods in two ways (Jarzabkowski et al., 2014). First,

ethnographic data is not limited to researcher-participant dialogues, but also contains the

observations and experiences of the researcher in specific social settings (Guang, Trotter,

& Yu, 2015; Jarzabkowski et al., 2014; Vesa & Vaara, 2014). Second, ethnographies are

an art as well as science for depicting those observations and experiences into codified

results (Ingold, 2014; Jarzabkowski et al., 2014; Vesa & Vaara, 2014). The dilemma for

the ethnographer is extracting meaning and evidence from field notes to create the

experience of deep immersion for readers who were not there (Jarzabkowski et al., 2014;

Vesa & Vaara, 2014). The purpose of ethnography is to tell a powerful, insider story that

immerses the readers in the field so they can witness the phenomena themselves and

understand the study results (Ingold, 2014; Jarzabkowski et al., 2014; McCurdy &

Uldam, 2014).

Other research designs, such as grounded theory, may involve a well-rounded

perspective of the phenomenon, but lack the deep immersion of ethnography (Fusch et

al., 2017; Ingold, 2014; Jarzabkowski et al., 2014). Moreover, the theory is the outcome

of grounded theory research and therefore not appropriate for a study that begins with a

theoretical application to the phenomenon (Cho & Lee, 2014; Corley, 2015; Glaser &

Strauss, 2014). Thematic analysis was also not appropriate for this study, for researchers

applying the approach are coding spoken and written ideas (Hennink et al., 2017; Liñán

& Fayolle, 2015; Vaismoradi, Jones, Turunen, & Snelgrove, 2016). Coding alone cannot

capture meaning from experiences and subtle nuances reflected in individual or

environmental settings (Ingold, 2014; Jarzabkowski et al., 2014; La Rocca, Hoholm, &

Mørk, 2017; McCurdy & Uldam, 2014).

Researchers who apply phenomenology as a research design are concerned with a

holistic understanding of lived experiences to achieve a deeper understanding of the

phenomenon (Gill, 2014; Gill, 2015; Hamilton, Cruz, & Jack, 2017). Similar to

ethnography, researchers may use narratives in a phenomenological design to make sense

of life experiences (Gill, 2014; Gill, 2015; Hamilton et al., 2017). However,

phenomenology does not involve the (a) relation of lived experiences to a cultural group,

(b) deep immersion of the researcher, and (c) the researcher-participant component of

ethnography (Ingold, 2014; Jarzabkowski et al., 2014; La Rocca et al., 2017; McCurdy &

Uldam, 2014). Ethnography is a more appropriate research design than phenomenology

for this study because it facilitates immersion into the unique setting of the phenomenon

and enables the researcher to achieve the insider perspective (Gill, 2014; Ingold, 2014;

Jarzabkowski et al., 2014; McCurdy & Uldam, 2014).

A case study design is effective for how and why research questions as well as

exploratory research problems (Yin, 2018). Fusch et al. (2017) recommended a blended

mini-ethnographic case study design for students with limited funds or time because of

the flexibility in data collection. Student-researchers can choose a variety of direct

observation, interviews, focus groups, ethnography, and journaling methods depending

on the funds and timeframe of the study (Fusch et al., 2017; Guang et al., 2015; La Rocca

et al., 2017). The exploration of human behavior and activity, holistic analysis, and

participant observation enabled me to explore the unique risks of rental businesses and

how rental owners’ budget for sustainable profit.

Saturation

Morse (2015b) described the purpose of saturation is to understand the main

characteristics of the components of the phenomena a researcher is studying.

Researchers reach data saturation and gain a stronger understanding of a phenomenon

when data in the components build and overlap (Hancock, Amankwaa, Revell, &

Mueller, 2016; Morse, 2015b). Researchers must ensure comprehensive coverage of the

scope of the data, the area of the component under study, and the depth of the component

(Morse, 2015b). Additionally, a researcher must find replication in the data (Morse,

2015b). Therefore, I ensured data saturation in my study through (a) data that

represented the population and scope of the study, (b) rich samples with information that

covered the depth of the research question, and (c) theme replication.

Population and Sampling

A key factor in exploring and understanding complex phenomena is sampling the

appropriate data (Morse, 2015a; Morse, 2015b). Gentles et al. (2015) explained sampling

as selecting a representative portion of a population of interest to the researcher to

understand the general characteristics of that population. Gentles et al. (2015) isolated

purposeful sampling as the most suitable and commonly used sampling method for case

studies and ethnographies. Researchers who conduct purposeful sampling explicitly

select individuals for data that provide knowledge and information about the larger

culture or population of interest (Gentles et al., 2015). Through purposeful sampling, I

selected the data criteria and size that best represented my research objectives and the

phenomenon under study (Gentles et al., 2015; Palinkas et al., 2015; Robinson, 2014).

Sampling Method

Palinkas et al. (2015) differentiated several types of purposeful sampling,

including the researcher selecting data that is (a) extreme, deviant, or outlier from the

norm to understand unusual manifestations of the population, (b) variated to understand

unique or diverse conditions in the population, or (c) homogeneous and mixed to reduce

variation and simplify the analysis. The scholars explained purposefully sampling a

homogeneous group enables the researcher to target a narrow area of interest (Palinkas et

al., 2015). Researchers must carefully select each data set according to the research

objectives and clarify the reason a participant is qualified to address the research

questions (Palinkas et al., 2015). Additionally, researchers can differentiate purposeful

sampling from convenience sampling by linking data collection to the research objectives

(Palinkas et al., 2015). Therefore, my selection criteria for study participants was a

homogeneous group of rental owners who (a) have a record of sustainable profit in the

industry, (b) operate in the greater Seattle area, and (c) use specific risk management

strategies to seize opportunities and mitigate market risks. The selection criteria match

my research objectives and purposefully target the individuals who are uniquely able to

answer my research question.

Sampling Size

Boddy (2016) argued sample size must be small enough to achieve meaningful,

information-rich data. Researchers should also explain the reasoning behind the sample

size and how the chosen size will achieve data saturation (Boddy, 2016). In a literature

review and study of 25 in-depth interviews, Hennink et al. (2017) determined the two

different parts to saturation are code saturation and meaning saturation. The scholars

determined that researchers need only nine interviews to reach code saturation, but 16 to

24 interviews were critical to reaching meaning saturation (Hennink et al., 2017).

Researchers need meaning saturation to fully understand the richness of the data and

issues in the codebook (Hennink et al., 2017). However, meaning saturation requires

more data than code saturation to grasp the complexities of the phenomenon (Hennink et

al., 2017). The scholars argued sample adequacy that enabled the researcher to achieve

deep, meaningful data was more important than sample size (Hennink et al., 2017;

Malterud, Siersma, & Guassora, 2016).

I purposefully sampled 22 rental real estate owners in the greater Seattle area, so I

could select the individuals who had experience with my research topic on successful

strategies for sustainable profit. I conducted interviews and participant observation over

a two month period. Several participants were actively partnered with their spouse in the

operations of their rental property business. Since each spouse would serve a different

role in the business, I frequently conducted my fieldwork with both spouses to get a

holistic picture of their success strategies. However, while the spouses may have had

different roles in the business, their overall strategy and perspective had to be the same to

operate their business efficiently. I sampled 22 participants, but in reality I sampled 16

perspectives because 12 participants were married business partners (see Table 2). I was

able to achieve data saturation with these numbers and, whether 16 perspectives or 22

participants, both amounts matched Hennink et al.’s (2017) paradigm.

Table 2

Sample Size of Study Participants

Participant Status

Number of

Participants

Number of

Perspectives

Single or participated in the study without spouse

Married business partners

Total

Sampling Criteria and Interview Setting

Researchers can survey the population that best represents the research objective

(Hancock et al., 2016; Malterud et al., 2016; Morse, 2015b; Robinson, 2014). The more

information on the overall population each sample holds, the fewer samples the

researcher needs to reach data saturation (Malterud et al., 2016). Researchers can save

time and resources to study fewer, richer samples of data (Malterud et al., 2016).

Therefore, I used inclusion criteria to select participants and the interview setting for this

study.

Inclusion criteria. Inclusion criteria are the attributes a participant must have to

qualify for the study (Robinson, 2014). The research objectives for this study concerned

the risk management strategies Seattle area rental property owners use to budget for

sustainable profit. Study participants must have (a) owned greater Seattle area rental

properties, (b) been employed at least half-time in the strategy and operations of their

rental business, and (c) have a record of sustainable profit over ten years. These

inclusion criteria reflected my research objectives and purposefully included participants

who were uniquely able to answer my research question.

Interview setting. Researchers are uniquely able to use ethnographic research to

immerse into the culture and setting of the study participants (Field-Springer & Stephens,

2017; Fusch et al., 2017; Ingold, 2014; Jarzabkowski et al., 2014; McCurdy & Uldam,

2014). Researcher-participant data provides rich and thick descriptions of the

phenomenon through environmental and contextual exposure (Field-Springer &

Stephens, 2017; Ingold, 2014; Jarzabkowski et al., 2014; McCurdy & Uldam, 2014).

Additionally, by sharing the experiences of research participants, researchers can

transform an objective study into lived experiences that help the researchers gain the

insider’s perspective (Field-Springer & Stephens, 2017; Ingold, 2014; Jarzabkowski et

al., 2014). In this research study, I engaged and interacted with the study participants at

their place of business, including office settings, rental properties, and social

organizations with other rental property owners. I measured nuances, perceptions, and

practices by participating in and observing the participants in their customary

environment. Moreover, education through exposure was a key component of

ethnographic research that enabled me to gain a thorough and unique understanding of

the budgeting strategies Seattle area rental property owners use for sustainable profit.

Ethical Research

The target population I observed was rental real estate property owners in the

greater Seattle area. My target population did not contain any of the Walden IRB’s listed

vulnerable populations. Moreover, the potential benefits to the participants and the larger

body of rental property owners seemed to outweigh the potential risk of harm to the study

participants. All participants who met the inclusion criteria were treated equally with

respect and dignity regardless of age, gender, religious beliefs, political affiliation, or

other factors (Bender, Cyr, Arbuckle, & Ferris, 2017; Greenwood, 2016; Petrova,

Dewing, & Camilleri, 2016). The HHS (1979) developed the Belmont Report to specify

the ethical principles and boundaries for biomedical and behavioral research involving

human subjects. The HHS specified the researcher must ensure the voluntary and

informed consent of human subjects in the design, collection, and reporting of data.

Additionally, the HHS identified the critical components for informed consent are (a)

information disclosure, (b) participant comprehension, and (c) participant voluntariness.

Information Disclosure

The information component includes the necessary items for disclosure to study

participants to ensure they have sufficient information (HHS, 1979). The informational

items include the reasonable data a volunteer should know, the range of risk, and

voluntary nature of participation (HHS, 1979; Petrova, et al., 2016). Wallace and

Sheldon (2015) argued researchers are often conducting their study out of self-interest

and need to declare the interests and any conflicts. In my informed consent form, I

identified my self-interested goals of the study are to complete my degree and add to the

body of knowledge on the rental real estate industry. Wallace and Sheldon (2015) also

suggested explaining relevant employment to the study. For example, it was important to

inform my study participants that I also own a rental real estate business and may be a

possible competitor.

There are several ethical challenges in studies with voluntary participants,

including confidentiality, privacy, and management of personal information (Bender et

al., 2017; Petrova et al., 2016). Researchers can reveal personal identity either directly

through the inclusion of biographical information and direct quotes or indirectly through

detailed descriptions of the environment (Petrova et al., 2016). However, the protection

of personal identity is a key component to building trust with study participants and

avoiding negative consequences for their participation (Bender et al., 2017; Petrova et al.,

2016; Wolf et al., 2015). Researchers can be open and transparent about confidentiality

during the recruitment of study participants and throughout the study (Bender et al.,

2017; Petrova et al., 2016). The use of codes in place of names and gender pronouns is

an effective strategy to disguise participants that are otherwise recognizable in a close-

knit industry (Petrova et al., 2016; Wolf et al., 2015). In my informal consent form, I

explained that I will not share the identities of individual participants or any details that

might identify them in this study. Moreover, I did not use the personal information of

study participants outside this research study. I took several steps to ensure information

privacy and security for study participants. I (a) kept the collection of personal

information to a minimum, (b) used codes in place of names and gender pronouns, and

verified with a third-party reader that the descriptions and codes in the study do not

reveal confidential information to ensure the adequacy of my protection measures.

Participant Comprehension

The HHS (1979) also required participants comprehend the informed consent.

Researchers must provide organized information in a way subjects can understand and

have time to make an informed decision about participation in the study (Bender et al.,

2017; HHS, 1979; Petrova et al., 2016). Researchers have an obligation to determine if

the subjects have comprehended the information (Bender et al., 2017; HHS, 1979;

Petrova et al., 2016). One way researchers can verify comprehension and informed

consent is written approval letters (Petrova et al., 2016; Wallace & Sheldon, 2015).

Researchers can also use ongoing disclosure and revisit the consent information

throughout the study (Bender et al., 2017; Grady, 2015; Greenwood, 2016; Petrova et al.,

2016). In my study, I used ongoing email and phone calls to disclose information and

obtain a signed consent form.

Participant Voluntariness

Researchers can increase the quality of the study by developing the interview

setting as a safe ethical space where the participants and researcher can interact (Bender

et al., 2017; Greenwood, 2016; Petrova et al., 2016). The HHS identified the component

of voluntariness requires the subjects to enter into the study of their own volition and not

by coercion or influence (HHS, 1979). Rental property owners own and lead their

businesses, so I did not have the authority and could not coerce or influence their

participation. The informed consent form should explain how the researcher will ensure

confidentiality and that the participants can withdraw from the study at any time (Bender

et al., 2017; Petrova et al., 2016; Sil & Das, 2017; Thorpe, 2014). In this research study,

participants could terminate their involvement in the study at any time through verbal or

written request. I would cease data collection and delete any coded records or

information on that participant by request.

Additionally, researchers should define financial incentive or compensation for

participant time and resources (Abshire et al., 2017; Robinson et al., 2015; Sil & Das,

2017). In this research study, I did not offer financial incentives for participation. I

obtained permission to collect data through receiving approval from Walden University’s

IRB. The Walden University IRB approval number for this research study was 01-16-19-

0639848.

Data Collection Instruments

In my research, I was the primary data collection instrument. In qualitative

research, researchers are the instrument of data collection because humans can interact

with the study environment, integrate data on multiple levels, and decipher unusual

information (Fusch & Ness, 2015; Hoover & Morrow, 2015; Sanjari et al., 2014).

Bourke (2014) described researchers as primary instruments critical for qualitative

research and gaining an understanding of the problem through lived experiences.

Researchers as primary data collection instruments prevent the particulars of lived

experiences from being lost in abstraction (Bourke, 2014).

Secondary Data Collection Techniques

I used the mini ethnographic case study techniques of participant observation and

semistructured interviews as my secondary data collection instruments. Ethnographic

techniques can reveal critical insight into business interactions and relationships through

multi-site observations, analytical interviews, and immersion into the social context

(Guang et al., 2015; La Rocca et al., 2017). Participant observation in business research

is an inquiry into socially shared, local knowledge that impacts business processes and

practices (Vesa & Vaara, 2014). Scholars have highlighted participant observation and

interviews as an effective way to capture the lived experiences of the phenomenon (Fusch

et al., 2017; Jarzabkowski et al., 2014; McCurdy & Uldam, 2014). Participant

observation is a data collection technique of ethnography that requires simultaneous

involvement in activities while observing the activities objectively (Ingold, 2014). When

interacting with the subjects, the researcher is attentionally and intentionally living with

others (Ingold, 2014). Ethnographers (Ingold, 2014) described participant observation as

observing from the inside with the goal of learning. Participant observation is also

undergoing an education of self-development while at the same time objectively

observing and recording one’s surroundings. According to Ingold, the final product of

participant observation is not a self-reflection, but an objective truth a researcher achieves

through exposure to the culture. Participant observers extract meaning and evidence

from field notes to create the experience of deep immersion for readers who were not

there (Jarzabkowski et al., 2014). Field notes are the raw data that detail the

ethnographer’s lived experience, such as the atmosphere in a room, which interview

transcripts or video recordings cannot capture (Jarzabkowski et al., 2014). The

participant observation protocol for this study is in Appendix A.

Researchers can pair semistructured interviews with participant observation

(McIntosh & Morse, 2015). Semistructured interviews are also a critical technique for

comparing study participant responses and gaining reliable information (McIntosh &

Morse, 2015). Participant answers are comparable data when researchers ask all

participants the same questions (McIntosh & Morse, 2015). Additionally, semistructured

interviews are ideal for research flexibility and reciprocity between researchers and study

participants (Barrett & Twycross, 2018; Castillo-Montoya, 2016; Kallio et al., 2016).

Semistructured interviews are scheduled sessions where study participants are asked the

same list of questions in the same order (McIntosh & Morse, 2015). However,

researchers formulate open-ended questions to generate discussion (Barrett & Twycross,

2018; McIntosh & Morse, 2015). Researchers who use semistructured interviews adapt

follow-up questions and probes to the participant responses to glean unique information

about the phenomenon of study (Barrett & Twycross, 2018; Kallio et al., 2016; McIntosh

& Morse, 2015). Scholars have argued researchers should develop an interview protocol

for semistructured interviews (Barrett & Twycross, 2018; Castillo-Montoya, 2016; Kallio

et al., 2016; McIntosh & Morse, 2015). The interview protocol for this study is in

Appendix A.

Data Collection Instrument Validity and Reliability

Validity is present in a data collection instrument when researchers achieve the

results that represent what they intended to measure (Bastos, Duquia, González-Chica,

Mesa, & Bonamigo, 2014). Additionally, a data collection instrument is reliable when

researchers are consistently able to achieve the same results on repeated applications to

the same study population (Bastos et al., 2014). I increased the reliability and validity of

my data collection through data triangulation and saturation. Researchers have used

triangulation to test the validity and reliability of a study through the convergence of data

from different sources (Carter, Bryant-Lukosius, DiCenso, Blythe, & Neville, 2014).

Triangulation is the use of multiple methods or data in qualitative research to achieve a

more reliable and comprehensive understanding of the subject of study (Carter et al.,

2014). Moreover, Morse (2015a) discussed triangulation increases the reliability of the

study by determining if the researcher gets the same results after using multiple methods

or data sources. Fusch and Ness (2015) also highlighted the importance of data

triangulation, such as multiple methods and data collection techniques to achieve data

saturation. Therefore, I used the data collection techniques of participant observation and

semistructured interviews to enhance the validity and reliability of my study. Moreover,

I used participant observation and semistructured interview protocols (see Appendix A)

to improve the reliability and validity of the data collection instruments.

Data Collection Technique

My research question was: What risk management strategies do rental property

owners use to budget for sustainable profitability? I used participant observation and

semistructured interviews as my data collection techniques. Scholars have argued site

visits and semistructured interviews are effective ways to explore the lived experiences of

study participants and unique information on the phenomenon (Fusch et al., 2017;

Jarzabkowski et al., 2014; McCurdy & Uldam, 2014).

Data Collection Protocols

I recorded data on field notes as I observed the phenomenon. Scholars have

recommended researchers use data collection protocols to guide interactions (Barrett &

Twycross, 2018; Castillo-Montoya, 2016; Kallio et al., 2016; McIntosh & Morse, 2015).

My data collection protocols for participant observation and semistructured interviews

are in Appendix A. Both protocols categorize questions and observations into categories

that relate to my research question, including data related to budgeting, risk management,

and strategy. Scholars have argued the fieldwork questions should reflect the research

question (Barrett & Twycross, 2018; Castillo-Montoya, 2016; Kallio et al., 2016;

McIntosh & Morse, 2015). In both protocols, I included separate spaces to record

observations and observer reflections. Scholars have emphasized researchers should

strive for reflexive and emotionally intelligent fieldwork by distinguishing observations

from researcher reflections (Berger, 2015; Collins & Cooper, 2014; Gilmore & Kenny,

2015).

Advantages and Disadvantages of Data Collection Techniques

I used two mini ethnographic case study data collection techniques in my

research: participant observation and semistructured interviews. Both techniques have

advantages, but I also chose each technique to offset the disadvantages of the other. See

Table 3 for a compare and contrast layout.

Table 3

Advantages and Disadvantages of Data Collection Techniques

Collection Technique

Advantages

Disadvantages

Participant

Observation

1. Deep, rich understanding of

the phenomenon in context over

long term observations

2. Multiple sites of interaction

with participants increases data

saturation

3. Researcher-participant role

gleans lived experiences

1. Time consuming for the

researcher to conduct

fieldwork

2. Significant cost and

involvement of the

researcher to reach sites

3. Possible researcher bias in

interpretation of data

Semistructured

Interviews

1. Fast to conduct

2. Control of interview

environment

3. Yields comparable data

1. Only a snapshot in time

2. Information linked to only

one environment

3. Limited access to

spontaneous data

Through fieldwork, Guang et al. (2015) determined participant observation

provided a deeper, richer understanding of subject attitudes compared with the

environmental context. The researcher can use participant observation to determine the

legitimacy and context of human perceptions through immersion in the environment,

while interviews and questionnaires can have limited context (Guang et al., 2015).

Moreover, La Rocca et al. (2017) highlighted three major benefits to participant

observation research. First, researchers who use participant observation can carry out

observation at multiple sites of interaction (La Rocca et al., 2017). While an interview or

questionnaire is a snapshot at one particular point, researchers who visit the study

subjects at various points and locations in the study setting can provide a more holistic

view of business interaction (La Rocca et al., 2017). Second, participant observation

researchers acknowledge that organizational roles are not fixed but examine a fluid and

variable mix of individuals interacting in formal and informal settings (La Rocca et al.,

2017). Third, researchers who apply participant observation investigate the routines,

patterns, and mundane activities of business phenomena (La Rocca et al., 2017). La

Rocca et al. argued the determination of continuity in everyday practices in interaction

could create a better understanding of how to replicate effective business practices. The

scholars (La Rocca et al., 2017) advocated the participant observation techniques of

multi-site observations, shadowing, and analytical interviewing will glean a richer

understanding of interaction processes and business phenomena.

There is also a critical reflexive element to participant observation. Vesa and

Vaara (2014) argued participant observation is critical for researchers to play the role of a

member of the organization to gain a better understanding of lived experiences and a

holistic picture of the phenomenon. Participant observers extract conclusions and

meaning from field notes to create the experience of deep immersion for readers who

were not there (Jarzabkowski et al., 2014). Field notes are the raw data that describe the

ethnographer’s lived experience, such as the ambiance in a room, which interview

transcripts cannot capture (Jarzabkowski et al., 2014). However, participant observation

can also allow of researcher bias to obstruct study results (Fusch & Ness, 2015; Sanjari et

al., 2014). The interpretation of the fieldwork notes must reflect the participants and

context, not the personal lens of researchers (Fusch & Ness, 2015). Moreover,

participant observation is a time consuming and expensive process requiring long term

immersion and engagement in the field to gain saturated data (Fusch & Ness, 2015;

Jarzabkowski et al., 2014; Marion, Eddleston, Friar, & Deeds, 2015).

To offset the disadvantages of participant observation and glean comparable data,

I used semistructured interviews in my data collection. Semistructured interviews are

ideal for flexibility in research and developing reciprocity between interviewers and

study participants (Barrett & Twycross, 2018; Castillo-Montoya, 2016; Kallio et al.,

2016). When research participants are asked the same list of questions in the same order,

semistructured interviews are critical for gaining consistent, comparable, and reliable

information (McIntosh & Morse, 2015). Moreover, researchers can adapt questions and

create follow-up questions to generate discussion and glean unique information about the

phenomenon of study (Barrett & Twycross, 2018; Kallio et al., 2016; McIntosh & Morse,

2015). Researchers can control the environment of semistructured interviews to match

the research objectives (Barrett & Twycross, 2018; Kallio et al., 2016; McIntosh &

Morse, 2015). However, researchers using semistructured interviews lack the benefit of

participant observers to glean data from the spontaneous events in the everyday lives of

study participants (Marion et al., 2015). Therefore, I used participant observation and

semistructured interviews to balance some of the disadvantages while gleaning the

advantages of each technique.

A Note on Member Checking and Ethical Research

I did not use member checking in my research. Researchers using member

checking return either the interview transcript or completed analysis to study participants

as a way to check the data for accuracy (Birt, Scott, Cavers, Campbell, & Walter, 2016;

Morse, 2015a; Varpio, Ajjawi, Monrouxe, O'Brien, & Rees, 2017). However, Morse

(2015a) provided an effective and strong argument against member checking. According

to Morse, member checking unnecessarily complicates a novice researcher’s ethics and

data analysis. Morse criticized scholarship for not determining how this strategy ensures

quality inquiry. Moreover, Morse discounts member checking completely, arguing it has

little value for determining validity or reliability. A study analysis can be a synthesis of

interviews representing the larger picture and may not reflect individual opinions (Birt et

al., 2016; Morse, 2015a; Varpio et al., 2017). Therefore, the researcher is in a difficult

position to make revisions based on contrasting opinions and discard analyses that

represent a larger picture of the phenomenon (Birt et al., 2016; Morse, 2015a; Varpio et

al., 2017). Birt et al. (2016) and Varpio et al. (2017) added the ethical concern of sharing

data with multiple participants that may violate the confidentiality of other participants.

Moreover, researchers attempting to avoid personal biases from influencing the data may

incur an ethical violation in allowing a few participant voices to control the narrative

(Birt et al., 2016; Varpio et al., 2017). Additionally, scholars have argued researchers

with expertise in theory and research methods should be the reviewer and evaluator of the

analysis, not the study participants (Birt et al., 2016; Morse, 2015a; Varpio et al., 2017).

Data Organization Technique

I used data collection protocols to record data from participant observation and

semistructured interviews. The participant observation and semistructured interview

protocols for this study are in Appendix A. Scholars have argued research protocols are

an effective technique to increase the validity of the study (Castillo-Montoya, 2016;

Kallio et al., 2016; McIntosh & Morse, 2015). Research protocols contain participant

information, observations, and researcher reflections (Castillo-Montoya, 2016; Kallio et

al., 2016; McIntosh & Morse, 2015). I recorded data on hard copy as I conducted

fieldwork and then transfered the data to an electronic password-encrypted folder on my

computer. I shredded the hard copies after the transfer and will delete all electronic data

after five years.

Additionally, I used the qualitative data analysis software ATLAS.ti 8 as a visual

tool to organize and code my data. Researchers have used ATLAS.ti as a tool to create

codes from the data and visually organize similarities, differences, and themes in the data

(Paulus & Lester, 2016; Paulus, Woods, Atkins, & Macklin, 2017; Stuckey, 2015).

Moreover, scholars have argued qualitative data analysis software increases the

transparency of the researcher’s thought process and enables the readers to evaluate the

quality, trustworthiness, and robustness of the research methods (Ang, Embi, & Md

Yunus, 2016; Paulus & Lester, 2016; Paulus et al., 2017). Researchers using

ethnographic and case study methods have also analyzed their data using ATLAS.ti to

increase the trustworthiness, transparency, and replication of the results (Abramson &

Dohan, 2015; Ang et al., 2016; Paulus et al., 2014). Therefore, the ATLAS.ti software

has been be a critical tool to organize and analyze my data.

Data Analysis

I used methodological triangulation for my data analysis process. The two data

collection methods for my study are participant observation and semistructured

interviews. Lodhi (2016) argued methodological triangulation could validate data

through cross verification of two or more methods, such as interviews and observations.

Methodological triangulation is appropriate for mini ethnographic case studies where

researchers use multiple data collection techniques to aid triangulation and gain a rich

understanding of the phenomenon (Fusch & Ness, 2015; Fusch & Ness, 2017; Lodhi,

2016). Moreover, Graue (2015) argued multiple methods might increase confidence in

the results and expand the opportunity of researchers to learn more perspectives on the

phenomenon.

Data Analysis Process

Graue (2015) explained the data analysis process as the description,

categorization, and interconnection of the phenomenon. In the field, I recorded interview

and participant observation data on paper as each interaction with the study population

occurred. I used participant observation and semistructured interview protocols (see

Appendix A) to record the data. Scholars have argued for researchers to use protocols for

recording data in the field (Castillo-Montoya, 2016; Kallio et al., 2016; McIntosh &

Morse, 2015). After I returned from the field, I typed and uploaded the data into the

qualitative data analysis software program ATLAS.ti 8 for coding. Researchers can

organize, code, and analyze all the data to gain a representative picture of the

phenomenon with ATLAS.ti 8 (Abramson & Dohan, 2015; Ang et al., 2016; Pauluskins

et al., 2014). Additionally, researchers must use selective data reduction to identify data

commonalities that relate to the research objective for data analysis (Graue, 2015;

Göttfert, 2015; Mayer, 2015). I combined data from both methods of participant

observation and semistructured interviews to identify commonalities for the coding

categories of strategy, risk management, and budgeting.

Coding Alignment

Researchers must compare and align the data with other studies and a conceptual

framework (Graue, 2015). The coding categories of strategy, risk management, and

budgeting align with my research objective of determining the risk management

strategies Seattle area rental property owners use to budget for sustainable profitability.

Scholars have voiced concerns about rental property owner strategies and budgeting for

sustainable profitability (Easthope, 2014; Fields & Uffer, 2014; Seemann et al., 2014). I

continued to research the literature and incorporate research findings as I conducted

fieldwork and data analysis. I incorporated research from new studies that provided

additional insight into the phenomenon and the data I have collected. Moreover, the

coding categories of strategy and risk management align with my conceptual framework

of ERM. Business owners who use ERM could align their risk appetite and business

operations with their business strategy (Bogodistov & Wohlgemuth, 2017; Bromiley et

al., 2015; Brustbauer, 2016; Callahan & Soileau, 2017; COSO, 2017; Fraser & Simkins,

2016; Gatzert & Martin, 2015). Scholars (Graue, 2015; Göttfert, 2015; Mayer, 2015;

Tumele, 2015) have argued the data analysis process begins with the researcher

describing the phenomenon but ends with the researcher explaining the results with

reliability and validity.

Reliability and Validity

Reliability

Research reliability is a key component to study rigor and trustworthiness for

business research (De Massis & Kotlar, 2014; Welch & Piekkari, 2017; Yin, 2018).

Researchers use dependability to demonstrate the accuracy of the research findings if

other researchers duplicate the study (De Massis & Kotlar, 2014; Morse, 2015a; Welch &

Piekkari, 2017; Yin, 2018). Researchers must minimize errors and biases while

providing enough information for the reader to agree or disagree with the study

conclusions (De Massis & Kotlar, 2014; Yin, 2018). Tumele (2015) described data

collection protocols as critical to ensuring dependability in the data collection and

analysis process. De Massis and Kotlar (2014) also advocated for researchers to establish

and communicate data collection protocols, techniques for data analysis, and a database

for case study research. Therefore, I maintained data collection protocols, including a

semistructured interview protocol and a participant observation protocol (see Appendix

A). I used ATLAS.ti 8 for data organization, analysis, and storage. Scholars have argued

ATLAS.ti 8 is beneficial for ethnographic and case study research to increase the

transparency, trustworthiness, and replication of results (Abramson & Dohan, 2015; Ang

et al., 2016; Paulus et al., 2014).

Validity

Researchers who conduct a valid study must demonstrate their research is

credible, confirmable, saturated, and transferable (De Massis & Kotlar, 2014; Noble &

Smith, 2015; Yin, 2018). De Massis and Kotlar (2014) and Tumele (2015) argued

researchers must use methodological triangulation to demonstrate a valid study.

Credibility and confirmability. Researchers (De Massis & Kotlar, 2014; Yin,

2018) using methodological triangulation analyze the phenomenon from several

perspectives and can confirm results with multiple methods. Yin (2018) described case

study design as involving multiple data collection sources and thus strengthening the

research study by creating converging lines of inquiry. Yin argued the conclusions of a

case study are likely to be more convincing, credible, and accurate if the researcher draws

from multiple sources of evidence that converge and have similar findings. If a

researcher uses one method, it may be expedient, but the researcher risks distorted data

and unconfirmed results (Heesen, Bright, & Zucker, 2016). In my research, I collected

data through two methods, including participant observation and semistructured

interviews.

Data saturation. In addition to study credibility and confirmability, scholars

have highlighted the use of methodological triangulation to achieve data saturation study

through the convergence of data from different sources (Carter et al., 2014; Fusch &

Ness, 2015; Fusch & Ness, 2017; Graue, 2015; Hennink et al., 2017; Lodhi, 2016).

Researchers achieve data saturation and a detailed picture of the phenomenon when data

overlap (Hancock et al., 2016; Morse, 2015b). Scholars have argued researchers must

conduct comprehensive coverage of the data scope, gain rich and thick data, and find data

replication (Bastos et al., 2014; Boddy, 2016; Hennink et al., 2017; Malterud et al., 2016;

Morse, 2015b). Therefore, I ensured data saturation in my study through (a)

methodological triangulation, (b) rich samples with information that covered the scope

and depth of the data, and (c) data replication.

Transferability. For research transferability, researchers must provide enough

information-rich data and explanation of study techniques to replicate the study (De

Massis & Kotlar, 2014; Noble & Smith, 2015; Yin, 2018). Scholars have argued

researchers must keep meticulous records, account for researcher biases, and include rich

descriptions of fieldwork in the study (Noble & Smith, 2015; Yin, 2018). Researchers

can minimize biases in research through reflexivity and emotional intelligence (Berger,

2015; Collins & Cooper, 2014; Gilmore & Kenny, 2015). Berger (2015) argued

researchers separate objective observations from subjective interpretations when

documenting data in research protocols. Therefore, I increased the transferability of my

research findings through meticulous documentation of information-rich data, reflexivity,

and data collection protocols (see Appendix A).

Transition and Summary

In Section 2, I described my study strategy, including my research method and

design, data collection method, ethical approach to living persons, and data analysis

method. I conducted a qualitative, mini ethnographic case study to explore what risk

management strategies rental property owners use to budget for sustainable profitability.

I used purposeful sampling to collect data on rental property owners in the greater Seattle

area that have a track record of sustainable profitability. I used data collection protocols

for participant observation and semistructured interviews. In this section, I also

addressed how I collected, secured, and stored data to comply with ethical standards.

Finally, I used ATLAS.ti 8 to organize and evaluate my data to ensure rigorous research.

In Section 3, I evaluated the data collected through participant observation and

semistructured interviews. I applied ERM to conceptualize some of the strategies rental

property owners use to budget for sustainable profitability. I leveraged my study results

to discuss recommendations for professional practice, positive social change, and future

research.

Section 3: Application to Professional Practice and Implications for Change

Introduction

The purpose of this qualitative, mini ethnographic case study was to explore the

risk management strategies that enable rental property owners to budget for sustainable

profitability. I collected the data from rental property owners operating in the greater

Seattle area who work at least part time operating their business and have a record of at

least 10 years of sustainable profitability. My findings showed risk management

strategies that rental property owners could use to budget for sustainable profitability.

The study participants addressed four major risk management budgeting strategies that

have contributed to their sustainable profitability: (a) integrating risk identification,

response, and monitoring into their firm strategy; (b) cultivating a risk management

network that effectively enabled them to mitigate risk; (c) developing a risk response to

industry regulations; and (d) creating a positive social change impact. I transferred the

study participants’ risk management techniques and budgeting strategies into four

practical application models to achieve sustainable profitability and offered several

recommendations for future research.

Code Names and Geographical Areas of Operation

My study population represented rental property owners throughout the greater

Seattle area. I used their code names to identify at least one of their operational areas

(see Figure 2). For example, Mr. and Mrs. Everett have operated in the city of Everett

while Mr. and Mrs. Olympia have operated in the city of Olympia. Several participants

have operated in Seattle, so I codified them as one of the neighborhoods in which they

have operated (see Figure 2).

It is critical to note that each code name represents a large region where many

rental property owners operate. Moreover, most of my participants operated in more than

one city or Seattle neighborhood. If it seemed remotely possible to identify a participant,

I coded them as a geographical location where they have operated between 2009 and

2019 but have sold the property. Therefore, the use of geographic code names did not

violate the confidentiality of study participants. Additionally, these code names are a

useful tool to identify the geographic coverage of the participants as well as the specific

city regulations they have encountered that have shaped their budgeting strategies and

risk management techniques.

Figure 2. Geographical locations of study participants. The images represent (a) the

coverage of participants in the greater Seattle area, (b) the cluster of participants on a

national scale, and (c) a snapshot of the neighborhood locations where the seven

participants located within the City of Seattle have operated. I created these images using

ATLAS.ti 8 software.

Presentation of the Findings

My research question was: What risk management strategies do rental property

owners use to budget for sustainable profitability? I applied the ERM framework to

investigate the strategies the study participants leveraged to mitigate risk and achieve

sustainable profitability. The study participants were not deliberately using the ERM

framework to manage their risk. However, much of their strategies reflected the ERM

framework and benefits. After I returned from the field and reviewed my notes, I noticed

several key trends in how rental property owners mitigated risk in their business

operations and budgeted for sustainable profit. I have compiled three data sources,

including interviews, participant observations, and document reviews in the following

results. The study participants addressed four major risk management budgeting

strategies that have contributed to their sustainable profitability: (a) integrating risk

identification, response, and monitoring into their business strategy; (b) cultivating a risk

management network that effectively enabled them to mitigate risk; (c) developing a risk

response to industry regulations; and (d) creating a positive social change impact.

Budget Strategy 1: Include Risk in Business Strategy

The study participants showed strong tendencies to plan in their businesses to

mediate risk, whether that planning included saving funds, pursuing training, or

leveraging assets. Altman et al. (2010) attributed small business failure to a lack of

planning. Florio and Leoni (2017) observed business leaders could leverage the ERM to

improve management decision-making processes to select the best investment

opportunities. The rental property owners had clear goals for where they wanted to go

and how they would use their businesses to get there. The study participants knew risk

was the critical component that would either help them achieve their goal or prevent that

goal. The study participants emphasized the uncertainty in their businesses and how the

techniques they used has either leveraged or mitigated risk. Bryant et al. (2014) pointed

out business leaders must focus on preparation for uncertainties rather than trying to

remove uncertainty from the business. Risk opportunity and risk concerns were always a

preferred topic at rental property owner networking and training events. The rental

property owners were highly astute and adept at identifying and analyzing both their

business and market risk.

Simona-Iulia (2014) argued business leaders could leverage the ERM framework

to integrate risk planning and response within the business objectives and strategy.

Successful implementation of ERM involves the firm leadership (a) measure the risk

strategy against the stakeholders’ risk appetite; (b) redefine risk as opportunity; (c)

reorganize risk throughout the organization; and (c) reintegrate risk into firm strategy

(Abd Razak et al., 2016; Callahan & Soileau, 2017; Mishra, Rolland, Satpathy, & Moore,

2019; Simona-Iulia, 2014). The mature adoption and integration of ERM can lead to

improved business performance through better decision-making and increased strategic

flexibility (Callahan & Soileau, 2017; Meidell & Kaarbøe, 2017). The study participants

were not intentionally using ERM, but they effectively integrated risk throughout their

decision-making. The study participants’ risk assessments, decision making, and

strategic flexibility contributed to their sustainable profitability.

The spectrum of business objectives and risk appetite. In my fieldwork, I

found two ends of a spectrum on business strategy regarding business goal and risk

tolerance (see Figure 3). Most of the study participants focused their business goal and

budgeting strategies toward one end of the spectrum. The spectrum consisted of their

risk appetite, including risk reduction on one side, and leveraging risk to seize market

opportunities on the other side (see Figure 3).

Figure 3. The spectrum of rental property owner goals, risk appetite, and techniques to

achieve business goals.

The participants’ risk appetite reflected their business goals of either maintaining

their assets into retirement or acquiring assets to scale their business. The rental property

owners who were no longer considering growth through acquisitions were focusing their

operations on risk reduction. These fiscally conservative-minded rental property owners

were often older, intending to retire, and concerned with paying down the mortgages on

their properties. For example, Mrs. Madison has operated her rental property business for

45 years in Seattle. She has paid the mortgages of all her units before the maturation

dates. Mrs. Madison emphasized, “I planned this so that everything is paid off and done. .

. . This is my retirement plan. I’ve put 45 years of sweat and being a landlord” (personal

communication, January 29, 2019). The primary goal of the rental property owners

favoring risk reduction was to have cash flowing properties with no debt and an

emergency fund to afford any crisis. In this way, the rental property owners could retire

on consistent and stable income with low risk.

On the other end of the spectrum, I observed rental property owners focused on

acquiring more properties and willing to manage more business uncertainty. “When I

young, I took so much risk” (Mrs. Sandpoint, personal communication, March 15, 2019).

In an ERM approach, not all risk is negative but can be redefined as uncertainty (Ogutu et

al., 2018; Wu et al., 2014). Market and business uncertainty can create opportunities to

make a profit (Annamalah et al., 2018; Wu et al., 2014). As business leaders implement

ERM, they focus their risk management process on upside risks (Arnold et al., 2015;

Ogutu et al., 2018). Business leaders focus their strategic concentration on the

opportunity side of risk identification and response (Arnold et al., 2015; Ogutu et al.,

2018). The study participants focused on business growth through acquisition viewed

risk and uncertainty as opportunity to increase revenue.

These market opportunity-minded rental property owners were often not planning

to retire for several decades. Therefore, the study participants planned their cash

utilization, lifestyle, and property management around their goals of business expansion

and higher revenue streams. For example, Mr. and Mrs. Everett have been investing in

rental real estate since 2004 and actively searching for opportunities to grow their

business. “Paying off loans is not the most efficient use of [our] money, it will stop [our]

growth” (Mr. Everett, personal communication, January 21, 2019). The rental property

owners toward this end of the spectrum were willing to pursue risk and uncertainty to

achieve the financial benefits.

The study participants on both sides of the spectrum aligned their business

techniques with their risk appetite and business objectives. Brustbauer (2016) argued

small business owners applying ERM would (a) identify which risks to protect the

business from and which risks to view as an opportunity, (b) integrate their risk response

into the actions of the business, and (c) monitor the progress of their risk response.

Additionally, Brustbauer emphasized the COSO ERM framework is critical for small

business owners to recognize and be able to pursue opportunities but also anticipate and

be able to protect against harmful risks.

However, small businesses often operate with few resources and risks are based

on the owner’s perceptions and ability to manage them (Bhattacharya, 2018; Brustbauer,

2016; Falkner & Hiebl, 2015; Gorzeń-Mitka, 2015). In COSO’s (2018) ERM

framework, a business owner should identify risks, assess and prioritize the risks, and

implement risk responses. Among the study participants, I identified three key areas of

opportunity pursuit and risk response. The study participants were clear on the

connection between their business objectives and risk appetite. Moreover, they adapted

their business and personal operations to meet their business objectives at the level of

their risk appetite. These three key areas of business and personal operations included (a)

cash utilization, (b) lifestyle, and (c) property management techniques.

Cash utilization: Investing for retirement versus business growth. Rental

property owners utilized cash capital as a vital component to operational strategy. “It’s a

capital intensive business . . . you have to have capital” (Mr. and Mrs. Everett, personal

communication, January 21, 2019). Cash sources mostly included income from a

conventional job that at least one spouse would work and cash flow revenue from rental

properties. The study participants used their cash based on whether their business goal

was upcoming retirement or growth (see Figure 4).

Figure 4. Cash utilization techniques by business goal and objective.

Cash utilization for rental property owners focused on risk reduction. The

rental property owners with the goal of upcoming retirement had the objective to reduce

their risk through (a) keeping cash on hand for an emergency fund, (b) reduce any debt,

and (c) improve their properties to increase rent (see Figure 4). The study participants

planning for their upcoming retirement were more often setting aside funds to use in the

event of an emergency so as not to disrupt their retirement income. Although extensive

insurance can cover large expenses, there are out of pocket expenses at the time of an

emergency and before the insurance claim reimburses the property owner (Mr. Bellevue,

personal communication, January 20, 2019). “[I]t’s never a bad idea to have cash.

You’re never losing money by saving money…for me, [liquid] cash makes sense, but I

am not in an acquisition phase” (Mr. Mill Creek, personal communication, February 12,

2019). The study participants that did not save a cash emergency fund had substantial

monthly cash flow from their properties to offset emergency expenses. Mr. and Mrs.

Tacoma (personal communication, January 21, 2019) operated on a basic concept for

their budget. With an Excel spreadsheet, Mr. Tacoma has kept meticulous financial

records of his personal and business accounts. He has budgeted a year ahead leaving

space in the budget to cover repairs, capital costs, and vacancies. When cash flow came

in from their rental properties, Mr. and Mrs. Tacoma would use it to pay any expenses for

the month before using the rest to pay down mortgage debt.

Mortgage debt is a monthly expense and liability that reduces the revenue a rental

property owner can generate from a property. Mr. and Mrs. Kent’s financial goal has

been to retire. “I want my husband to be able to retire” (Mr. and Mrs. Kent, personal

communication, February 9, 2019). They actively focus on debt reduction to increase the

monthly cash flow from their properties. After acquiring a property, Mr. and Mrs. Kent

would have the mortgage paid off in 5 years. Mr. and Mrs. Kent own three of their

properties without mortgages and are targeting their last debt before they retire. In

contrast, Mr. Eastlake’s debt strategy has been to reduce slowly the mortgages on his

properties over time. “You’re working for the bank for 25 years, and until you get that

mortgage paid off you won’t see much…You have to be willing to put in the time” (Mr.

Eastlake, personal communication, February, 14 2019). Debt reduction was a critical

technique for reducing risk among rental property owners focused on retirement.

The third cash utilization technique rental property owners use to reduce their risk

is to reinvest in their properties through repairs, capital improvements, and upgrades.

“These properties are an asset. When you own an asset, you take care of it. Think of it as

a business; you want people to get in and out of it” (Mr. Mill Creek, personal

communication, February 12, 2019). Mrs. Sandpoint (personal communication, March

15, 2019) has invested in improving her rental properties and could raise rent to generate

more monthly revenue as the neighborhoods improved over time. Study participants on

both ends of the goals and risk appetite spectrum placed a strong emphasis on

maintaining and improving their properties, but for different reasons. The rental property

owners focused on retirement reinvested cash to improve their properties to generate

more monthly cash flow reflected in higher rents for higher quality units. The rental

property owners focused on growth reinvested cash to improve their properties to

generate higher rents, but also to increase the asset equity for a refinance.

Cash utilization for rental property owners focused on leveraging risk. Rental

property owners focused on growing their wealth and business leveraged debt as a key

technique for sustainable profitability. The study participants’ most common pattern was

to acquire property using a conventional mortgage, repair and upgrade the property over

time, and wait for investment opportunities. When the study participants had achieved an

increase in equity on their property and found market opportunities, they would pull cash

out of the property through a refinance and reinvest the cash in the purchase of a new

rental property on a conventional mortgage. However, debt limits the cash flow revenue

of a rental property and increases the risk that the rental property owner may not be able

to afford the payments in the event of a job loss, unexpected expenses, vacancy,

unprofitable property, and more. Therefore, the rental property owner has to consider

carefully the amount of debt to leverage. “We’re very conservative; we don’t bite off

more [debt] than we can chew” (Mrs. Sandpoint, personal communication, March 15,

2019). Mr. and Mrs. Everett (personal communication, January 21, 2019) emphasized:

“It’s balancing [being] fiscal conservative and [using] risk leverage.”

In the problem statement of this study, I reported City of Seattle Office of

Housing (2018) statistics found approximately 42% of 13,643 rental units in their

affordable housing program were not generating enough revenue to offset debt and

operating costs. The participants of this study have been profitable for at least 10 years

and utilized debt cautiously within their financial model of what they could afford. They

did not purchase rental properties that could not generate enough revenue to offset debt

and operating costs. For example, Mr. and Mrs. Kitsap (personal communication,

January 27, 2019) focused on minimizing negative risk by mindfully purchasing rental

properties. They utilized specific numbers and formulas to evaluate potential rental

properties. Their process was to (a) evaluate the property, (b) research purchase options,

and (c) drive the purchase to completion.

The Kitsaps consistently use formulas for profit, which they call “a box of what

makes money and everything has to fit in that box. Always have an out. [For example,] if

a flip is not selling, rent it until you can sell, so it is self-sustaining.” The Kitsap’s

formulas streamline their purchasing decisions and keep their business acquisitions

manageable. “When I do my numbers it’s the worst-case scenario.” The Kitsaps have

planned potential losses into their formulas so they can seize market opportunities while

minimizing negative risk. “Stay in your damn box. Don’t deviate, no exceptions or [you]

lose money” (Mr. and Mrs. Kitsap, personal communication, January 27, 2019). Mr.

Bellevue (personal communication, January 26, 2019) argued: “I want to know how

much money this month and next month and so on.” Rental property owners that know

their numbers, budget, and financial formula have greater control to make decisions that

lead to sustainable profitability.

The City of Seattle Office of Housing (2018) survey also found that 25% of rental

property owners did not have reserve funds to afford projected capital needs. In my

fieldwork, I found the reason why may be because some rental property owners focused

on growth do not want their cash in a bank account. Mr. and Mrs. Tacoma (personal

communication, January 21, 2019) argued every dollar could be put to work to make

more either through investing in property or paying down debt on their properties.

“Money in the bank is worthless; money put to work is wise” (Mr. and Mrs. Tacoma,

personal communication, January 21, 2019). These property owners maintained a large

home equity line of credit at a low variable interest rate if they could not pay their

expenses in a given month with their cash flow. Several other study participants focused

on the growth side of the spectrum also utilized lines of credit, including home equity,

credit cards, and retirement accounts. Mr. Bellevue (personal communication, January

26, 2010) “hate[s] to have money just sitting” because it could be earning profit through

purchasing or rehabbing properties. While the study participants have utilized this

technique to achieve sustainable profitability by investing every dollar they earn into an

opportunity, they are increasing the risk that they will not have enough funds to cover

their expenses. These rental property owners offset this risk through careful budgeting of

their cash flow and do not deviate from the financial models that have worked for them in

achieving sustainable profitability.

Lifestyle: Hard work mindset, mindful spending, and planning. The study

participants’ lifestyles were critical components to achieving sustainable profitability.

Arnold et al. (2015) found firms that quantify risks in autonomous units may inhibit the

company from acting strategically and create greater risk. Rather than decentralizing

risk, Arnold et al. encouraged an ERM approach that combines and centralizes

information across a business, thereby boosting risk identification and holistic risk

response. The study participants decentralized risk in their businesses, but also combined

their businesses with their lifestyles to mitigate risk and seize opportunities for

sustainable profitability.

In the rental real estate industry, there is a minimal divide between personal and

business risk for small scale rental property owners. The study participants operated their

properties as sole proprietorships or limited liability companies. In these business

structures, the study participants were effectively able to transfer cash and debt between

their personal and business budgets. For example, study participants would use the

income from their conventional jobs for down payments to acquire new properties or to

pay down mortgages on properties. “I worked three jobs to pay the mortgage…my mind

was always turning, and I was always keeping my eyes open for opportunity…I don’t

have a cushy, comfy lifestyle. I work every day. I jump on opportunities. I am always on

it…planning, doing. This is a 24/7 job” (Mrs. Sandpoint, personal communication, March

15, 2019). The study participants also set their business goals based on their life goals. If

they wanted to retire, they focused their business on that goal. If they wanted to grow

wealth, they focused their business on that goal. The study participants’ lifestyles

included hard work mindsets and mindful spending as key techniques to leverage their

time and money to achieve their goals (see Figure 5). Additionally, the study participants

had a plan for how they were going to apply their time and money, mitigate risk, and

achieve sustainable profitability (see Figure 5).

Figure 5. Lifestyle techniques by business goal and objective.

Hard work mindset. The study participants had independent, business owner

mindsets. Mr. Mill Creek (personal communication, February 12, 2019) started his rental

property business after decades of working conventional jobs. In his conventional job, he

got tired of working hard for someone else. “Someone else’s name was on the building”

(Mr. Mill Creek, personal communication, February 12, 2019). Mrs. Madison (personal

communication, February 19, 2019) argued she was not temperamentally suited to work

for others. Mrs. Sandpoint (personal communication, March 15, 2019) came to America

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with a mindset that wealth was not negative and that you can make money through

property. All of the study participants argued hard work was key to their sustainable

profitability.

Mr. Montlake (personal communication, March 5, 2019) cited his family’s

lifestyle as an element of their business success. “Discipline and the right approach to

people and work ethic is probably what sets us apart from other people in the business.

We do everything ourselves from the most menial to the most complex…I take it

seriously. This is how I feed my family”. The study participants also engaged in hard

work and active management of their properties as a way to reduce the risk of a problem

occurring and growing without their knowledge. Ms. Seattle (personal communication,

February 8, 2019) aligned her hard work mentality with her goals: “1500 units was never

my goal…[I] have to hustle at the small level to keep units occupied because it hurts

more than the large [corporations in the rental industry].” The study participants listed

multiple ways they spent their day, including working a conventional job, conducting

repairs or updates to a property, screening and managing tenants, budgeting, market

analysis, networking, attending industry training sessions, and other administrative

elements of the business. According to Mr. Tacoma (personal communication, January

21, 2019), “it had to be us who made it happen.” Patience was also an important element

of the hard working mindset. “When we started we didn’t have anything…We searched

until we go the best price…[it was] a lot of nights and weekends” (Mr. and Mrs.

Olympia, personal communication, January 23, 2019). According to Mr. and Mrs.

Everett (personal communication, January 21, 2019), “Patience is rewarded in this

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industry…know your market.” The study participants were cautious and deliberate on

every acquisition, avoiding the temptation to grow faster than they could afford in their

budgets.

Mindful spending. In addition to a hard working mindset, all the study

participants emphasized mindful spending as a critical component in achieving their

business goal and sustainable profitability. According to Ms. Seattle (personal

communication, February 8, 2019), “Every $100 or $200 spent is another day I have to

work at the end toward retirement...Every time I spent money, I haven’t done without;

spending is always weighed and measured.” However, “…you can’t be frugal and own

rentals because you have to spend money. You can be cost-conscious” (Ms. Seattle,

personal communication, February 8, 2019). The study participants were highly

conscious of the balance between spending on property improvements and saving for

their goals regardless of their risk appetite.

The rental property owners combined this cost-conscious mindset between their

business and personal lifestyle. For example, Ms. Seattle had an eviction in 2016. A

charity had paid most of the tenants’ rent. However, when Ms. Seattle walked into her

rental after the eviction, she was shocked. “I walked into the living room, and there were

smartphones and a 60-inch flat screen. And I had a small tube. Why did they have this

and I didn’t? And I thought…because I own the building. I spend my money on

improving the property” (Ms. Seattle, personal communication, February 8, 2019). Mr.

and Mrs. Tacoma (personal communication, January 21, 2019) lived a minimal lifestyle

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to be able to invest in rental properties in neighborhoods where resident incomes were

multiple times more than the Tacoma’s earned.

Ms. Sandpoint (personal communication, March 15, 2019) argued: “I didn’t have

anyone to impress…if I could save 50 cents I would walk to work…I’ve never been to a

Starbucks in all the years I have been here…total deprivation…all I did was work, work,

work to pay the mortgage…I even stayed in a friend’s basement room for a couple

hundred dollars [a month]. I was also going to night school to get a job that would make

me more money…I brought in roommates to afford mortgage…We’re very conservative;

we don’t bite off more [debt] than we can chew, we work hard and delay gratification,

we’re frugal.” Several of the study participants adopted a deprivation budgeting strategy

and funneled most of their income into their investments, while other study participants

made selective lifestyle sacrifices to funnel their income into their properties. However,

the cost-conscious, mindful spending mindset was present in every study participant.

Planning: Exit strategy vs. market acquisition analysis. The study participants

shifted in their lifestyle focus on the third technique for utilizing lifestyle to achieve their

goal and objective. The study participants focused on retirement were concerned with

developing their exit strategy while the study participants focused on growing wealth

were concerned with developing analytical skills to analyze the market. While the

Tacoma’s (personal communication, January 21, 2019) operated with a higher risk

appetite when they were younger, they have been working toward an exit strategy. “We

set long-term goals but short-term tasks that work toward those long term goals”

(personal communication, January 21, 2019). Mr. Mill Creek (personal communication,

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February 12, 2019) has stopped acquiring properties and has been implementing his exit

strategy. His 2019 strategy has been to sell the least profitable properties and obtaining

cash for his retirement. “You have to have an exit strategy” (Mr. Mill Creek, personal

communication, January 21, 2019). Whether holding or selling properties, an exit plan

and strategy was a critical component for the study participants focused on retirement.

These participants were consistently weighing and analyzing their options based on the

financials, market conditions, and developing regulatory environment. Their intention to

live a retired lifestyle has influenced their business planning and risk appetite.

In contrast, the study participants focused on growing their wealth were utilizing

their skills to analyze the market for acquisitions. For example, Mr. Bellevue (personal

communication, January 26, 2019) has had a planning and preparation mindset. He

recognized the signs and markers of the Great Recession and created a business plan two

years prior, thus utilizing the economic event to expand his business and profit. Mr.

Bellevue purchased at discount properties dropping in value as the market declined

during the Great Recession. Whatever the market event, Mr. Bellevue has a tactic to

make a profit. If the market is up, he will refinance his properties and pull cash out to

rehab and increase the value of his properties. If the market is down, he will buy and add

more properties to his portfolio. Additionally, Mr. and Mrs. Everett (personal

communication, January 21, 2019) plan their acquisitions carefully with the type of

tenant they want in mind. When the Everett’s have bought properties in distress with

deferred maintenance, they improve and upgrade the units. “We know who the tenants

are [that we want] and the market we are after” (Mr. and Mrs. Everett, personal

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communication, January 21, 2019). The Everett’s have only had one eviction in the 15

years of their rental property business. The market analysis and acquisition skills have

enabled the growth-minded study participants to seize opportunities and mitigate risk to

achieve sustainable profitability.

In summary, rental property owners can leverage their lifestyle for sustainable

profitability. Business leaders can leverage the ERM framework to decentralize risk in

the business and boost risk identification and holistic risk response (Arnold et al., 2015;

Ogutu et al., 2018; Simona-Iulia, 2014). The study participants used risk management to

combine their capital and skills between their businesses and lifestyles. The study

participants integrated risk throughout their business in alignment with their business

goals and operational techniques. However, they also used a risk management approach

that combined their capital and skills between their businesses and lifestyles. A hard

working mindset to put the time in, control of their financial numbers to put the money

in, and developing the plan to put their skills in the business are critical components to

develop sustainable profitability.

Property management: Active management, tenant relationships, and asset

protection. The study participants engaged in property management to budget for

sustainable profitability. The budgeting techniques were the same whether the study

participant focused on risk reduction or leveraging risk. The study participants used

active management, tenant relationships, and asset protection to mitigate risk and seize

opportunity (see Figure 6).

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Figure 6. The property management budgeting techniques for mitigating risk, seizing

opportunity, and achieving sustainable profitability.

Active management. The 22 study participants actively managed their properties.

Several had onsite managers or repairmen to direct the daily operations of the property

and meet tenant needs. However, Mrs. Madison (personal communication, February 19,

2019) emphasized “I supervise property managers because they often don’t have

training…[and] it’s a thin margin business.” Therefore, the study participants were not

only active in the planning and direction of their business, but they also chose to be

actively involved in the daily operations of their properties. Mr. Eastlake (personal

communication, February 14, 2019) showed me his tenant sheets that detailed the tenant,

rent price, unit details, the length of time the tenant had been in the unit, and other

information he felt was relevant to operating his property. Mr. Eastlake knew his tenants

and his units very well, being able to describe both in detail. Looking at his tenant sheets,

Mr. Eastlake has rented to the same tenants for decades, several that have lived in his

properties since the 1980s. While building maintenance and neighbor relations are

critical parts of the business, the study participants focused on tenants as the key area to

achieve sustainable profitability while actively managing their businesses.

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Tenant relationships. Tenants are one of the highest risks in the rental real estate

business (Mr. and Mrs. Everett, personal communication, January 28, 2019). Sanderson

(2019) argued her research of almost 5,000 tenant interviews that tenants were more

likely to renew their lease and refer the rental property owner based on (a) clear and

simple business, (b) relationship management, (c) perceived value for money, and (d)

property management service. The participants of my study strongly emphasized there

was a link between their sustainable profitability, long term tenants, and building tenant

relationships.

Evictions and turnover are expensive for the rental property owner (Mr.

Montlake, personal communication, January 31, 2019). The study participants were very

specific that they wanted tenants to stay for as long as possible, even decades as long as

they followed the lease. “This is a people business, and we are in a business partnership

with our tenants. [The] first thing I do when a tenant calls is say thank you for

calling…[We] jump on what the tenant needs not wants” (Mr. and Mrs. Ballard, personal

communication, February 12, 2019). Mrs. Madison (personal communication, February

19, 2019) has had long term tenants that have stayed in her properties for 30 to 40 years.

“I tell my tenants don’t hide problems from me; I want to know so I can fix

it…Someone’s home is the outward picture of who they are. I want my tenants to be

happy and stay. Turnover is expensive” (Mrs. Madison, personal communication,

February 19, 2019). Turnover is a major concern for rental property owners because of

the negative impact on profit, including the costs of preparing a unit, searching for a new

tenant, and no rental income while the unit is vacant (Gibler, Tyvimaa, & Kananen,

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2014). The study participants aimed to build strong relationships with tenants to

encourage them to stay for as long as possible to prevent costs associated with turnover.

Mr. Montlake (personal communication, March 15, 2019) described customer

service as his family’s unique value proposition. “We want to be person to person. Our

phones are on [and] we’re ready to solve all sorts of problems. . . . Taking care of people

is a part of doing business. . . . We’ve done two evictions in 30 years – both were

inherited tenants when we bought the property. We [put in] a lot of money on both those

situations just to get them out” (Mr. Montlake, personal communication, March 15,

2019). All the study participants had experienced positive relationships with long term

tenants and very few evictions. No study participant had more than two evictions in over

10 years of sustainable profitability. Garboden and Rosen (2019) found in a survey of

127 rental property owners that these rental property owners avoided evictions because of

the high cost to remove the tenant. Therefore, there was a connection between long term,

stable tenants and sustainable profitability. However, I was inclined to investigate how a

rental property owner can achieve long term, stable tenants to reduce operating risk.

The study participants repeatedly emphasized their secret to long term, stable

tenants were (a) effective tenant selection and (b) clear expectations. Negative tenant

behavior is a significant challenge for rental property owners trying to create a healthy

housing environment (Polletta et al., 2017). According to Mrs. Madision (personal

communication, February 19, 2010), “You pick them right in the first place…We are not

in the eviction business; we are in the housing business. We want them to stay forever

and be nice.” Mrs. Madison has been selective even when renewing a lease. Before

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renewing a lease, she takes tenants to lunch and asks how the tenants have been doing.

Mrs. Madison has focused on building positive relationships with her tenants. She has

provided value to her tenants through “the little things,” including chocolate for

Christmas and salt for snow in the winter. Mrs. Madison also leverages these

relationships to build a referral business. Rather than advertise a vacant unit for rent, she

has already reduced her vacancy risk by vetting a new tenant she found from the previous

tenant’s referral.

Mr. and Mrs. Auburn (personal communication, February 16, 2019) emphasized

the need for thorough screening in the tenant application process. For example, the

Auburns have required potential tenants to permit them to contact their former landlord.

The Auburns would contact the former landlord, but instead of pursuing specific details,

Mrs. Auburn only asks: “would you rent to this person again?” Additionally, the Auburns

have instructed potential tenants to fill out the application form completely, and they

place incomplete forms at the bottom of the pile of applications. “We will not rent to

family or friends, this is a business, and we want to keep that separate. That said, we’ve

developed friendships with our tenants” (Mr. and Mrs. Auburn, personal communication,

February 16, 2019). Mr. Mill Creek (personal communication, February 12, 2019)

attributed his success with risk to being objective. “Take the emotion out of it because it

is a business… I’m in the business to find housing for people who need housing. I’m in

business to make a profit. This business is to find affordable housing and exceptional

value” (Mr. Mill Creek, personal communication, February 12, 2019). These study

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participants have mitigated their risk by encouraging long term tenancy and positive

relationships with their tenants as well as an objective approach to their business.

The tenants’ treatment of the property and general housekeeping skills are also an

area of risk (Zuberi & Dehm, 2019). Ms. Seattle (personal communication, February 8,

2019) described a lot of instruction is needed sometimes for tenants. For example, Ms.

Seattle had a tenant family that would relocate the washer and dryer units out of the

house to the backyard for use and then return them to the house after use. “I get

interesting tenants, but if they pay their rent and follow the rules, it’s okay…I have

mutually respectful relationships with my tenants…[sometimes] life happens. I get that,

so we try to work it out” (Ms. Seattle, personal communication, February 8, 2019). Most

the study participants operated single family houses. Immergluck (2018) argued single

family rentals offer the opportunity for tenants with children to experience the benefits of

living in a house. However, at times cultural differences can complicate the relationship

when some cultures do not view a contract as legally binding, and Ms. Seattle has to

educate her tenants on how to follow the lease to reduce her risk of costly repairs. All the

study participants had concerns about the risk of expensive damage caused by tenants.

To reduce the risk of major expenses that would prevent sustainable profitability, all the

study participants had some form of asset protection.

Asset protection. Rental property owners can reduce the risk of major and

unexpected expenses to their properties through asset protection. Asset protection is a

business expense that depends on the rental property owner’s risk tolerance and budget.

In the rental real estate industry, there are several forms of asset protection, including (a)

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business structure, (b) insurance policies, (c) lawyers, and (d) a legal defense fund. I

found no pattern among the study participants as to whether their chosen asset protection

technique matched their goal. The study participants determined their asset protection

technique by their risk tolerance, the amount they were willing to afford, advice and

experiences, and personal preference. However, all the study participants had some form

of asset protection. Some study participants held their properties in at least one limited

liability company while others kept them in the less costly sole proprietorship. All the

study participants had insurance on their properties, but several carried additional

insurance, such as earthquake insurance or an umbrella policy. A small amount of the

study participants, particularly those operating within the City of Seattle, had lawyers for

advice and put aside cash for a legal defense fund. The rental property owners operating

in areas with more regulations tended to have more concern for asset protection, but all

the study participants considered some form of asset protection vital for sustainable

profitability.

Conclusions on the spectrum of business objectives and risk appetite. In

summary, small business owners can address the key questions of ERM without the

complex frameworks and statistical analyses of larger businesses (Fraser & Simkins,

2016). Fraser and Simkins identified the key questions of ERM that small business

owners should ask include: (a) what is the business owner trying to accomplish in a

certain amount of time? (b) What types of risk might affect these firm goals and

objectives? (c) How much of an effect will these risks have and how likely are they to

happen? (d) What can the business owner do to optimize opportunities and manage

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potential downsides? (e) What resources can the business owner apply to manage risk?

(f) How well do employees understand and apply the firm objectives and risk strategy?

The participants of this study asked these questions and aligned their operational

techniques with their risk appetite. However, the study participants also aligned their risk

appetite and risk response with their business goal and strategy.

Regarding which end of the spectrum a rental property owner could pursue, one

could argue property owners who are starting could aim to grow wealth and leverage risk

only to focus on retirement and reducing risk as they age. Mrs. Sandpoint (personal

communication, March 15, 2019) had never kept cash on hand in the past and

deliberately operated for years without an emergency fund. However, she has become

very risk-averse close to retirement and has been keeping cash on hand for emergencies.

“We are getting close to retirement, why would we take huge risks? When you are young

and strong enough, that’s when you take risks” (Mrs. Sandpoint, personal

communication, March 15, 2019). This approach seems the logical trajectory, but it

depends on the specific goals and risk appetite of the rental property owner. Scholars

have identified the ERM framework as an effective tool to enhance the deployment of

capital according to the business goal, risk appetite, and risk strategy (Callahan &

Soileau, 2017; Chappell, 2014; COSO, 2017; Fraser & Simkins, 2016; Hayne & Free,

2014; Viscelli et al., 2016). Therefore, some study participants focusing on retirement

had assumed more risk in their youth to grow wealth, but other study participants were

risk-averse and grew slowly over time with the overarching goal of retirement and risk

reduction.

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Moreover, I emphasize the goals and risk appetite are a spectrum. For example,

while most of the study participants focused on growing wealth reinvested all their cash

into their investments, some kept a small cash reserve to mitigate risk. “Luck is the

meeting of opportunity and ability…everyone’s assessment of their risk tolerance is a lot

higher than their actual risk tolerance…know the risks you are taking, does it fit the

plan?” (Mr. and Mrs. Everett, personal communication, February 28, 2019). The rental

property owners who budget for sustainable profitability identified their goal for their

business: what did they want rental property investing to do for them? The rental

property owners also identified their risk appetite: were they risk-averse or wanted to

leverage risk for market opportunities? Once they align their goal and risk appetite,

rental property owners can utilize the most appropriate techniques to manage risk and

budget for sustainable profitability.

Budget Strategy 2: Cultivate a Risk Management Network

Albort-Morant and Oghazi (2016) observed entrepreneurs encounter uncertainty

and make mistakes because they lack the critical information they need to manage their

companies. Scholars have argued for business leaders to apply the ERM framework by

disseminating risk assessment throughout the people in the organization (Dickinson,

2001; Meidell & Kaarbøe, 2017; Viscelli, Hermanson, & Beasley, 2017). However,

small businesses often do not have the resources to obtain the critical information they

need to manage risk, including advanced quantitative techniques, hiring a chief risk

officer, or acquiring a risk assessment task force (Bhattacharya, 2018; Mafrolla &

Matozza, 2014; Mafrolla et al., 2016). Therefore, small scale rental property owners

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must leverage networks to obtain critical information for risk identification and response.

All the study participants cultivated a risk management network to either reduce risk or

seize opportunities in their business. Their networks have played a critical role in every

area of their business. The study participants were highly adept at making and utilizing

their connections to budget for sustainable profitability.

As Mr. and Mrs. Ballard (personal communication, February 12, 2019) argued,

rental real estate is a people business. Regarding tenants, my fieldwork data shows rental

real estate is also a people business in leveraging the power of networks. The study

participants’ networks included mentors, peers, contractors, legal and tax professionals,

an acquisition team, bankers, legislatures, rental real estate organizations, and more. For

example, I was able to leverage rental property organizations to find my study

participants. All the study participants were members of at least one rental property

organization and leveraged that network to learn from their peer group and support legal

defense on legislative issues.

I attended a Legislative Day on January 31, 2019 that was organized by a rental

property organization in Olympia, Washington. Several hundred small-scale rental

property owners in the greater Seattle area arrived on the steps of the state capitol to

voice their concerns to legislatures on increased regulations that would dramatically

multiply their business risk and harm tenants. I observed the power of idea sharing as the

community of rental property owners united on one purpose to share information together

and with legislatures. My study participants discussed how they complied with

regulations and sought advice from others. “I kept learning along the way that doors get

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shut in your face . . . so what do you do instead? You find different ways to operate”

(Mrs. Sandpoint, personal communication, March 15, 2019). Mrs. Sandpoint expanded

her network widely to find resources that could help her improve her business. “In

regards to the law, I kept educating myself and getting a window into other landlords and

how they are handling it. That is the way to survive, to talk to and find out how others are

doing it” (Mrs. Sandpoint, personal communication, March 15, 2019). The study

participants leveraged their risk management network to find ways to identify, assess, and

respond to risk in their businesses.

Figure 7. The networks rental property owners pursue to budget for sustainable

profitability.

Networking is a time consuming and focused process. The study participants

were selective with their time. They knew what networks they wanted to make and the

expertise they sought (see Figure 7). The study participants aligned their business goal

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and objectives with their networking focus. If the study participants were focusing on

acquisitions, they spent their networking time developing a strong acquisition team. For

example, Ms. Edmonds (personal communication, February 7, 2019) emphasized the

importance of having a strong mentor. “You don’t know what you’re getting into” (Ms.

Edmonds, personal communication, February 7, 2019). A strong mentor has guided her

through acquisitions, upgrades, market fluctuations, and legislative volatility. Study

participants focusing on improving their properties spent their networking time finding

effective contractors. Mr. and Mrs. Auburn (personal communication, February 16,

2019) advocated for a skilled contracting team. They contracted out most of their repairs

and updates, but have encountered many unskilled contractors. The Auburns explained

that they would arrive at a property to oversee the contractors’ work and find them

looking up how to conduct a repair or update on YouTube. Additionally, these

contractors would charge the Auburns for the time they spent watching YouTube videos

on how to do the work. The Auburns emphasized that they have found several great

contractors that have reduced the risk of incomplete repairs and improved the operations

of their rental property business.

Mr. Bellevue (personal communication, February 26) was a frequent attendee at

the same networking events I attended, several multiple times a day. Mr. Bellevue

highlighted strong negotiation skills and not being afraid to set a goal, make decisions,

and implement them. He advised rental property owners to target what they are good at

and not try to do everything. “To me, that means you are not good at anything. Put

yourself out there, so everyone knows who you are. Talk to everybody and let the world

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know what it is you specifically want so deals can come to you” (Mr. Bellevue, personal

communication, February 26). Additionally, the study participants also pursued training

to meet their business goals. Training included formal education in business, training

seminars in how to operate, books and websites on the business, and more. Mr. Bellevue

had an expansive reading list on topics he felt would help him achieve sustainable

profitability.

The final important network the study participants highlighted was family and

business partners. Most of the study participants were married and cited their spouse as a

critical component to sustainable profitability. If the spouse was an active partner in the

business, both rental property owners relied on the strengths of the other to build

sustainable profitability. “I trust [my husband’s] judgment. He has the ability to notice

other things [and] qualities about [a] house that I wouldn’t care about” (Mrs. Sandpoint,

personal communication, March 15, 2019). Mr. and Mrs. Everett (personal

communication, February 28, 2019) divided the tasks of investing from acquisitions to

management. “We view a property and hash it out…we bring up different points and

counterbalance…if we’re not both on board, it doesn’t happen...if [we’re] not able to do

this together it can’t happen cause there is too much sacrifice and interruption to [our]

daily life…both have to be committed” (Mr. and Mrs. Everett, personal communication,

February 28, 2019). Rental real estate is a business that requires significant time and

mindful spending. Therefore, the study participants had to have their families on board

passively supporting if not actively engaged in the business to achieve budget for

sustainable profitability.

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In summary, researchers have observed the use of ERM to increase firm value in

big businesses which can afford separate risk officer or committees (Callahan & Soileau,

2017; Li, 2018; Mensah & Gottwald, 2016; Viscelli et al., 2016). However, small

business owners lack the resources and capacity to leverage the same resources as larger

businesses (Bhattacharya, 2018; Mafrolla & Matozza, 2014; Mafrolla et al., 2016).

Therefore, rental property owners have leveraged a vast array of networks to manage risk

in their businesses and create sustainable profitability.

Budget Strategy 3: Comply With Industry Regulations and Educate Regulators

Business owners often see compliance as a burden and constraint on a company,

especially small businesses that lack resources (Falkner & Hiebl, 2015; Kitching et al.,

2015; Legg et al., 2015). However, compliance is not always a negative force but can

provide dynamic opportunities for small businesses (Kitching et al., 2015). Small

business owners could seize market opportunities through compliance modification of

business activities that enhance efficiency or competitive advantage (Kitching et al.,

2015). All the study participants strongly emphasized compliance with industry and

government regulations to achieve sustainable profitability. The key technique common

among the study participants was (a) learn the regulations, (b) follow the regulations

consistently and from the book, (c) adapt operations to maintain sustainable profitability,

and (d) educate the legislators on the business.

It is important to reiterate here the social sentiment in the greater Seattle area was

that rental property owners were slumlords and only profit driven (Mrs. Sandpoint,

personal communication, March 15, 2019). Slumlords are a social term and refer to the

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most hated figures of society for exploiting and endangering the vulnerable in poorly

maintained units with high rent prices (Vols & Belloir, 2019). I felt this sentiment

strongly from legislators and tenants while conducting my fieldwork. The study

participants and scholars (Vols & Belloir, 2019) have attributed the volatility of

regulations to the increasingly negative sentiment of society, low rental inventory, and

the immoral acts of a view rental property owners.

Learn the regulations. The study participants that operated in cities with rapidly

evolving regulations, such as Seattle and Tacoma, were active in thoroughly educating

themselves on proposed and existent regulations. While observing Mr. and Mrs.

Ballard’s (personal communication, February 12, 2019) rentals, I noticed a tall stack of

papers on their living room table. Mr. Ballard explained this stack was the recent

regulations and laws he was studying. Their legal acumen was very evident. The

Ballards did not have formal training in law, but they were very proficient on Seattle

initiatives, codes, and laws. They could quote the subsections and specific wording far

beyond many of the property owners I had spoken with that operated outside of Seattle.

The study participants outside of Seattle and Tacoma were wary of the regulations

reaching their operating areas and leveraged rental property organizations, peer networks,

and news outlets to monitor the situation.

Other forms of learning about the law include attending training. Mr. Tacoma

(personal communication, January 24, 2019) has attended seminars to learn new

ordinances and laws, complies with every single rule, and has been consistent in

enforcing his lease. This enforcement includes following his own rules. For example, if

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he waives a late penalty on late rent for a Caucasian tenant but not a minority tenant, he

will likely have a fair housing violation. Therefore, Mr. Tacoma has written leases and

forms according to laws and his conflict experiences and has enforced them consistently

to avoid the risk of violations and achieve sustainable profitability.

Follow the regulations consistently and from the book. All the study

participants advocated following the law as critical for achieving sustainable profitability.

“Just do things right” (Mr. and Mrs. Auburn, personal communication, February 16,

2019). The study participants included regulations and fees into their budgets. Mr.

Bellevue (personal communication, January 26, 2019) has operated his properties in

different legislative districts with varying levels of regulations. To offset the risk of

violations, Mr. Bellevue sets compliance to each ordinance as a standard consistent

throughout his businesses, regardless of the property location. For example, Mr. Bellevue

set the First in Time regulation in Seattle as a standard across all his properties, including

those located outside of Seattle. Mr. Bellevue argued his consistent application of local

ordinances and regulations across his business facilitates memory and compliance with

the most strict of requirements and avoids the risk of regulatory violations.

While conducting my fieldwork, the Washington State legislators passed Senate

Bill 5600 and were considering other regulations that significantly increase the

administrative and financial burdens while limiting rights for rental property owners.

Before these bills, most of the study participants focused on their local city regulations.

However, legislators have been forthright on their intentions to pass rent control

legislation in the next legislative session despite objections from economists and

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academics (Kunkler & Metzger, 2019). Housing analyst advisors, such as Montojo,

Barton, and Moore (2018), advocate the benefits of rent control without citing the

plethora of academic and economic research to the contrary. Moreover, as the state

legislators work on rent control, they have also been passing bills that restrict rental

property owners’ ability to evict tenants (Kunkler & Metzger, 2019). Therefore, all

greater Seattle area rental property owners must mitigate regulation uncertainty at the

state level and adapt to achieve sustainable profitability.

Adapt operations to maintain sustainable profitability. The study participants

emphasized in multiple ways the legislative volatility and anti-property owner public

sentiment impacted their operations and profitability. If regulations increase the costs of

doing business, the property owners had to pass the expense onto the tenants to stay

profitable. Mrs. Madison (personal communication, February 19, 2019) argued

“Everything that I hear [legislators] say they will do, the tenant loses. [They’re] going to

limit my income but not my expenses.” Desmond & Wilmers (2019) criticized rental

property owners, especially in poor areas, for hedging their risk by raising rents to afford

any loss, but capitalizing on the surplus profit when losses are rare. However, the

participants of this study argued rental property owners have to find a way to pass risk

and legislative expenses onto the tenants, or they will not be able to stay in business when

a loss happens.

Rental property owners in the greater Seattle area have experienced rising

expenses through taxes, contractors, repair materials, legal fees, and regulations (Ms.

Madison, personal communication, February 19, 2019). Ms. Madison emphasized her

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repairman charged $200 to come out to the property before diagnostics, parts, and labor.

Mr. Mill Creek (personal communication, February 12, 2019) posed the question, “I just

ask the legislature: do you work for free? Why do you ask me to do something you don’t

do?” According to Mr. Ballard (personal communication, February 12, 2019),

“[A]nything that is a cost to us that is outside our control gets passed onto the tenant . . .

have a legal defense fund ready to go, and tenants are paying for that.” In terms of recent

legislative volatility, Ms. Seattle (personal communication, February 8, 2019) responded,

“I’m going to see how it goes . . . I’ll make money if I sell [my properties] . . . [but] I’ll

mitigate the legislation by charging more.” Ms. Seattle advised others to follow their

business model if it is working for them and have a mentality to work hard and weigh or

measure the money they spend to mitigate risk.

There are several important data points I argue are critical to include in this

section. Many of the study participants expressed concerns over new regulations

preventing them from protecting their tenants. The rental property owners’ concerns

were less for their property and more for the moral implications of the new regulations.

For example, Mr. Eastlake (personal communication, February 14, 2019) expressed

concerns over his young female tenants and the new regulations that prevented rental

property owners from screening out tenants with previous convictions, such as sexual

harassment, stalking and rape.

Ms. Northgate (personal communication, March 22, 2019) also expressed strong

concern for the recent regulation preventing her from checking criminal convictions in

prospective tenants. Seattle’s Fair Chance Housing ordinance forbids rental property

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owners from screening prospective tenants based on criminal history (Ms. Northgate,

personal communication, March 22, 2019. When Ms. Northgate was an onsite manager

for her parents’ apartment complex as a teenager, her parents placed a serial killer in the

unit next to her. She did not feel safe. When she rented an apartment in college, the

rental property owner placed a rapist in the unit next to her unit. This rapist tried several

times to rape her and eventually got convicted for killing eight people. “I don’t like the

idea that I have to rent to somebody that I don’t know what their background is. Based

on my history” (Ms. Northgate, personal communication, March 22, 2019). Ms.

Northgate had the same argument against the First in Time ordinance in Seattle; the

property owner has to rent to tenants despite getting the “heebeegeebees.” “I welcome

diversity, but I do want to discriminate against people with bad attitudes [or make me

very uncomfortable]” (Ms. Northgate, personal communication, March 22, 2019). Ms.

Northgate argued this was a moral issue that impacted the operations of her business and

the ability to protect the well-being of her tenants.

The study participants emphasized other concerns for tenant well-being and

regulations that forced the rental property owners to increase costs for tenants.

According to Mr. Montlake (personal communication, March 15, 2019), much of the new

legislation “leaves us with: raise our rents dramatically or sell to someone who raises the

rents dramatically. And [the legislators are] not really doing anything for affordable

housing and not doing anything to maintain affordable housing that is already out there.”

Therefore, the study participants disagreed with new regulations not only because of the

negative impact on business operations but especially over concern for tenant well-being.

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While I was conducting my fieldwork, the frequent topic of conversation among

rental property owners was leaving the state and investing out of state where the

regulatory environment is in the rental property owner’s favor. Asquith (2019) argued

rent control and related regulations would encourage rental property owners to withdraw

from the regulated market, thus reducing housing supply. Similarly, Diamond et al.

(2019) conducted the Stanford Study where the researchers studied San Francisco rent

control and found rental property owners reduced housing supply by 15% after selling

their rentals to buyers repurposing the buildings. The loss in rental housing increased

market rents 5.1% because of low inventory and high demand for units (Diamond et al.,

2019). Rent control and related regulations undermine the goal legislators intended

(Diamond et al., 2019).

However, most of the study participants were not interested in this approach

because it did not align with their goal or risk appetite. According to Mrs. Sandpoint

(personal communication, March 15, 2019), “I am not happy with the laws. I think that

they are discriminatory against small mom and pops and are making us [rental property

owners] pay for the government's failings and incompetence. The evil landlord is a myth,

a boogie man. Politicians are opportunistic, and I am very, very concerned about the way

the pendulum is swinging. But, there is no other safe asset right now. So, here we sit.”

Mrs. Northgate (personal communication, February 15, 2019) echoed, “I invest in

property because it is what I understand. I don’t invest in stocks and bonds. Traditionally,

it has been widows that run houses through history. It is a respectable way to make a

living. If my talents and skills align with that, I think it is okay for me to make money off

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that. If we didn’t have landlords, tenants would have nowhere to live. You have to make

money off that in order to make the investment worthwhile for landlords.” The

consensus of the study participants was to pass on costs associated with regulations onto

the tenants to achieve sustainable profitability as legislation increases and becomes more

volatile.

Educate the legislators on the business. Several study participants advocated

for a proactive approach to legislators and regulations. Policy makers may not be aware

of the various operational costs of the business and how regulations impact rental

property owners at different levels of the rental real estate industry (Reid, Sanchez-

Moyano, & Galante, 2018). In a report by the Seattle Women’s Commission and the

Housing Justice Project of the King County Bar Association. Cookson, Diddams,

Maykovich, and Witter (2018) described a month of unpaid rent to be an inconvenience

to rental property owners. Cookson et al. (2018) failed to consider the thin margins in

which rental property owners operate or the fiscal amount of tenant damage to a property.

Scholars have argued tenants’ main responsibility to rental property owners is the

payment of rent (Zapotoczna & Poczbutt, 2016). In an analysis of rental property owners

with mortgages, Fereidouni and Tajaddini (2017) stated missed rental payments and

temporary vacancies could greatly affect the rental property owners’ ability to pay the

mortgage on the rental property. As a result, rental property owners with mortgages are

highly incentivized to ensure rent flow and establishing long term tenants (Fereidouni &

Tajaddini, 2017).

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Legislators increasing regulations create a burden on the majority of the industry,

which is small scale rental property owners (Amodu, 2018; Polletta et al., 2017). Small

scale rental property owners are significantly less likely than corporations to evict tenants

(Raymond, Duckworth, Miller, Lucas, & Pokharel, 2018). Moreover, scholars (Aubry et

al., 2015; Varady, Jaroscak, & Kleinhans, 2017) have argued legislators and housing

programs must recognize rental property owners as key partners and support rental

property owner needs and concerns for the well-being of tenants. Similarly, policy

makers could use incentives to encourage rental property owners to invest in legislative

initiatives (Sloto, 2016; Varady et al., 2017). However, Cookson et al. (2018)

recommended to legislators for industry improvement in an effort to restrict Seattle rental

property owner legal rights and increase regulations.

Mr. Montlake’s (personal communication, March 15, 2019) family has operated

rental properties in Seattle for three generations. He is concerned that legislators have

been “paint[ing] the industry with a broad brush…[We] gotta stay up to date and keep an

eye on the pipeline as far as legislation goes…we try to do education informing to our

neighborhood of the unintended consequences of the legislation…We’re going to follow

the rules, but we also want to advocate that the rules are detrimental to those the laws are

for… [The legislators] don’t understand unintended consequences and don’t welcome

opinions from the industry that they want to regulate and they need to work more

together with people that are trying to make it affordable for everybody…we live here,

we want to be good neighbors and stewards to the community and making everything

inflated isn’t helping anybody to keep things as cheap as possible.” Several of the study

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participants argued compliance with regulations was not enough for sustainable

profitability, but rental property owners need to be actively involved in shaping rules that

impact their businesses and communities.

Budget Strategy 4: Make a Positive Social Impact

Business owners can align profit-making activities with positive social change

initiatives to seize market opportunities and obtain social support (Haugh & Talwar,

2016; Rey-Martí et al., 2016; Shad et al., 2019). Lai and Shad (2017) found a positive

link between firm implementation of ERM and sustainable profitability. Olson and Wu

(2017c; 2017d) effectively linked moral responsibility with the implementation of ERM

practices, encouraging business leaders to identify and respond to upside risks that create

long term value for the business and society.

It is important to reiterate that the social sentiment in the greater Seattle area is

that rental property owners are slumlords (Mrs. Sandpoint, personal communication,

March 15, 2019). Vols and Belloir (2019) defined a slumlord as a rental property owner

that (a) allows substandard housing, (b) exploits vulnerable classes with high rents, (c)

tax evasion, (d) noncompliance with regulations, and (e) harasses and threatens tenants.

However, none of the study participants matched this description. The study participants

actively did the opposite to achieve sustainable profitability, including (a) improving their

properties so they could attract (b) tenants that wanted value for their money. Moreover,

the study participants actively (c) paid their bills, (d) followed regulations consistently,

and (e) fostered positive, long term relationships with their tenants.

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COSO (2018) published a guide for businesses to use in identifying and analyzing

social and government-related risks as well as determining risk response. COSO

recognized that social and government forces could increase the risk for a business and

recommended business leaders prioritize risks into five categories for action. These

categories included (a) accept the risk as unlikely to occur or cause severe damage and

take no action, (b) avoid the risk to reduce the likelihood it will occur, (c) pursue and

convert risk into opportunity, (d) reduce the risk by taking action to limit a harmful

impact, or (e) share the risk by collaborating with other organizations to reduce the

impact. The study participants pursued and converted their risks into opportunities,

contributing in several ways to make a positive social impact with individuals and their

communities.

Additionally, the study participants strongly believed in positively impacting

society because their social actions contributed to sustainable profitability. They viewed

sharing generously and giving to others as part of their hard work mindset, but other

business benefits included increased cash flow, tax deductions, and enhancing their

stakeholder network. The study participants contributed to positive social change

through (a) their conventional jobs, (b) upgrading and improving properties, (c) donating

to causes, and (d) non-public great acts of kindness (see Figure 8).

Figure 8. The techniques study participants used to create positive social change.

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Conventional job helping others. Most of the study participants either worked

or had a spouse who worked a conventional job while operating their rental real estate

business. The conventional job was a key strategy for mitigating risk as the consistent

income would support the family and could provide additional capital for investments.

However, the participants’ conventional occupations came from a wide range of

industries, most in socially laudable and moderate to low paying careers. Their

conventional occupations included first responders, military soldiers, nurses, engineers,

tradesmen, scientists, religious leaders, and teachers. It is relevant to note these rental

property owners are influencers of positive social change in their 40 hour work week as

well as in their roles as property owners improving their properties and communities.

Upgrade and improve properties. In addition to their laudable conventional

careers, the study participants consistently reinvested their cash into improving their

properties. For example, when Ms. Edmonds (personal communication, February 7,

2019) bought her multi-family property, it required cosmetic upgrades, new windows, a

new roof, a paved parking lot, and more. “It needed to look like a home with shutters

around the windows…we put a lot of money into it, a lot of financial sacrifices so the

investment would pay off” (personal communication, February 7, 2019). As I explained

in the section on cash utilization, rental property owners can achieve substantial benefits

from buying a property with deferred maintenance and improving its value. Rental

property owners can upgrade a property to charge higher rents and target higher-paying

tenants. The improvements are a critical part of budgeting for sustainable profitability

and mitigating the risk of property with deferred maintenance.

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However, there is also a benefit to the community. Ms. Northgate (personal

communication, February 15) explained, “I have actually had people thank me when I

took over a rental building [because I clean the building up]. I had to evict a jigalow that

would have women picking fights in the parking lot over him.” Mr. Mill Creek (personal

communication, February 12, 2019) has aimed to deliver the highest quality and value in

his market segment. “If they walk into our properties, they would see no reason to look at

another property” (Mr. Mill Creek, personal communication, February 12, 2019). The

study participant argued he goes out of his way to provide additional value to his tenants.

For example, Mr. Mill Creek puts fresh flowers out on patios in the spring and shovels in

the winter. Therefore, attractive and maintained rental units create community

improvement, content tenants, and increased cash flow for the rental property owner.

Non-public great acts of kindness. Finally, most study participants chose to

give frequently to charitable causes whether on an individual or formal level. This

charitable approach was a critical part of the study participants’ hard work mindset.

“Giving is such a rewarding thing” (Mr. Mill Creek, personal communication, February

12, 2019). Ms. Madison (personal communication, February 19, 2019) exclaimed, “I am

very much of the philosophy to those whom much is given, much is expected…I’ve

always had something. How do people get up in the morning and just think about

themselves. I don’t get that.” Between volunteering for decades and donating thousands

to hundreds of thousands to charitable causes, the study participants are a generous

population.

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I am detailing several examples of the study participants’ stories in this section

because the value of a mini-ethnographic case study is to tell the lived experiences of the

participants to present a holistic image of the phenomenon (Ingold, 2014; Jarzabkowski

et al., 2014; McCurdy, & Uldam, 2014). Additionally, great acts of charity are not

isolated incidents in this group of rental property owners; they are the norm for this

population. Ms. Seattle (personal communication, February 8, 2019) is very involved in

local charities and nonprofit memberships. She has been contributing to the Red Cross

and a sports organization. Additionally, Ms. Seattle has served on the board of several

condos, emphasizing up-to-date maintenance and safety. Ms. Madison (personal

communication, February 19, 2019) has spent over 30 years tutoring students from

immigrant populations. The largest single donation Mr. and Mrs. Kent (personal

communication, February 9, 2019) have done is to a struggling local school. The Kents

subdivided one of their properties and donated the land to the school. At the time, the

Kents did not have the cash to help out the school, but they did have the land. The school

was able to sell the land for $100,000 and keep their doors open to children. Mr. and

Mrs. Kitsap (personal communication, February 27, 2019) charitable extensive goals for

their rental property business. Among those goals are supporting military veterans and

families. They recently sold a property at a $70,000 loss to a military family. The Kitsaps

also donate 10% of their business profit annually to charities and organizations benefiting

military veterans and families. As their business grows, the Kitsaps have a specific plan

to donate a house a year to a military family.

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Shad et al. (2019) emphasized the importance of business leaders applying ERM

to social good initiatives could report their actions to improve perceptions of the business.

Moreover, business owners can leverage the ERM framework to improve the reputation

of their business (Pérez-Cornejo, de Quevedo-Puente, & Delgado-García, 2019).

However, it is important to note that none of the participants discussed their positive

social change efforts beyond my inquiries. Additionally, none of the study participants

mentioned charitable donations to 501c3 non-profits are tax deductible. So positive

social change can also aid budgeting for sustainable profitability while improving social

perceptions.

However, several study participants had stories that were examples of positive

social change at the individual level and created no tax deductions. The charitable acts

were a part of the rental property owner’s mindset. I have identified a strong link

between a mindset for positive social change and budgeting for sustainable profitability.

Whether volunteering or donating funds, these rental property owners consistently make

room for positive social change.

For example, Mr. and Mrs. Ballard (personal communication, February 12, 2019)

have been a positive support system for their tenants in difficult times. The Ballards had a

tenant with dementia that needed money to enter a memory care facility. This tenant had

no family interested in taking responsibility for her, so the Ballards went through every

piece of paper in the tenant’s rental property and found a pension note. The Ballards

spent six months trying to activate the pension for her. Once the tenant was able to afford

and move into the care facility, she did not understand this was her new home. In the

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winter, she would take the bus back to the rental property that had been her home for

years. Mr. Ballard would receive a phone call from the care facility that she was missing

and then go to the vacant rental property to start the furnace, put a kettle on the stove for

a welcoming tea, and wait for his former tenant to arrive. This event was repeated three

separate times until the care facility enacted a more watchful position on her. Mr. Ballard

argued, “What are you going to do? You gotta look at yourself in the mirror in the

morning…This is the stuff that isn’t in the landlord handbook.” Bengtsson-Tops and

Hansson (2014) also found in a study of tenants suffering from severe mental illness that

the rental property owners served as an unofficial, influential support system offering

security to the vulnerable.

Mr. and Mrs. Auburn have been a positive influence on positive social change.

Mr. Auburn has led a group for recovering addicts for 12 years, serving 20-30 hours a

week. The Auburns felt this experience prepared them for the role they would play in one

squatter’s life. The Auburn’s were flipping a house filled with squatters and, after

removing a group of squatters, Mr. Auburn found a young, teenage squatter who had

moved into the house. Rather than remove the youth, Mr. Auburn boarded up the house

and paid the youth money to maintain the place and live in a camper. Mr. Auburn assisted

the youth until he was able to get a full time job and a more permanent place to reside.

Sometimes positive social change can happen at the individual level and changing the life

trajectory of one person. “We take adversity and turn it into opportunity” (Mr. and Mrs.

Auburn, personal communication, February 16, 2019).

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In summary, the study participants are not profit-driven slumlords. On the

contrary, they have effectively blended profit-making activities, a charitable mindset, and

helping others to contribute to sustainable profitability in their businesses and positive

social change. Despite the social sentiment in the greater Seattle area that rental property

owners are slumlords, the study participants have found an effective balance between

improving their properties and helping others while staying in business. By working

conventional jobs that help others, upgrading their properties, donating to causes, and

non-public great acts of kindness these rental property owners have created positive

impacts on their tenants and communities while achieving sustainable profitability.

Summary of Study Participant Application of Enterprise Risk Management

Rental property owners have achieved sustainable profitability through the use of

ERM although they did not actively utilize this model. The ERM model includes (a)

matching the risk strategy with the stakeholders’ risk appetite (Arnold et al., 2015;

O’Har, Senesi, & Molenaar, 2017; Simona-Iulia, 2014). The study participants have

accomplished (a) by applying budgeting strategies for risk reduction or leveraging risk.

(b) ERM requires redefining risk as an opportunity (Arnold et al., 2015; O’Har, Senesi, &

Molenaar, 2017; Simona-Iulia, 2014). The study participants have achieved (b) by

seizing market opportunities through debt management, lifestyle, risk management

networks, positive social change, and more. (c) COSO (2018) specified ERM involves

reorganizing risk procedures throughout the firm. However, the study participants

completed and went beyond (c) to transfer risk between their businesses and personal

lives to mitigate and reduce risk. (d) ERM integrates the risk approach into firm strategy

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which the study participants (Arnold et al., 2015; O’Har, Senesi, & Molenaar, 2017;

Simona-Iulia, 2014). The study participants effectively accomplished (d) by organizing

their business objectives and budgeting strategies around risk reduction or leverage. I

have compiled the participant observation stories of the study participants (see Appendix

B) to provide additional context, practical application, and examples of how they used

risk management strategies to budget for sustainable profitability.

Applications to Professional Practice

My specific business problem for this study was what risk management strategies

to rental property owners use to budget for sustainable profitability? I identified four

major budgeting strategies that 22 rental property owners operating in the greater Seattle

area have used to achieve sustainable profitability for 10 years or more. The four

budgeting strategies include (a) integrating risk identification, response, and monitoring

into their firm strategy, (b) cultivating a risk management network that effectively

enabled them to mitigate risk, (c) developing a risk response to industry regulations, and

(e) creating positive social change impact. I have translated the strategies and techniques

of my study participants into application models for business practice through participant

observation, interviews, and document review.

The integration of components of the ERM framework into business strategy is

critical for (a) firm leadership to seize profit opportunities and mitigate risk (Callahan &

Soileau, 2017), (b) moral responsibility and the triple bottom line (Wu, Chen, & Olson,

2014), and (c) small businesses to adapt to changing regulatory landscapes (Angeline &

Teng, 2016). Additionally, business leaders can highly customize ERM to seize

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opportunities in the market and meet the needs of the business (Choi et al., 2016; Sprčić

et al., 2017). Rental property owners, whether beginning or struggling, may find benefit

in utilizing these models to work toward sustainable profitability.

Model 1: Integrate Risk in Business Strategy

I have translated the decision making processes the study participants conducted

to achieve sustainable profitability into an action model to integrate risk appetite into

business strategy (see Figure 9). Enterprise risk management adds value to a business

through a decision-making system for optimizing risk (Nocco & Stulz, 2006). A business

leader should not pursue a profit opportunity without examining the associated risks, thus

making risk optimization strategies a critical part of creating business value (Nocco &

Stulz, 2006).

Rental property owners could start with asking what their goal is in rental real

estate, to retire soon or grow wealth. While a rental property owner can make retiring

soon and growing wealth their goals, focusing primarily on one goal allows rental

property owners to focus their strategy. Rental property owners could simultaneously

consider their risk appetite on the spectrum of risk reduction to leveraging risk. While

rental property owners can make several goals, they must set a priority and align it with

the overall goal. Business leaders could set priorities in risk management, for businesses

must choose from an unlimited number of risks on which to focus (Bogodistov &

Wohlgemuth, 2017). For example, if a rental property has cash capital, whether to spend

it on paying down debt or acquiring new debt depends on risk tolerance and priority.

Rental property owners should not be risk averse and continuously leveraging more debt

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to grow wealth. Similarly, rental property owners wanting to leverage risk to grow

wealth should not be acquiring properties in full cash without mortgages. Rental property

owners must set a priority on risk appetite that aligns with the goal for the business to

guide the operational decision making (see Figure 9).

Figure 9. Application model for integrating risk appetite into business strategy.

Once rental property owners have determined the business goal and preference on

risk tolerance, the operational decision making in the model (see Figure 9) reflects the

techniques the study participants used to achieve sustainable profitability. Significant

similarities exist between lifestyle and property management techniques, but there are

also important differences in cash utilization and planning. A final important note is the

fluid nature of operational techniques to meet the business goal and risk tolerance.

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Regardless of the operational technique, rental property owners could verify the

technique aligns with the business goal and risk tolerance. As business goals and risk

tolerance change, rental property owners may consider continuing to use an ERM

framework for business decision making.

Model 2: Cultivate a Risk Management Network

Networks can significantly aid sustainable profitability; rental real estate is not a

siloed industry. However, going out and meeting people is time consuming. The study

participants were specific and analytical about the networks they needed to fulfill their

business goal and objectives. Rental property owners could align their networking

strategy with their business goal and techniques (see Figure 10) and can repeat this model

as business needs arise. Rental property owners could identify risk in their business and

question what networks can fulfill those gaps (see Figure 10).

Figure 10. Application model for cultivating a risk management network.

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The idea is to target specific networks that can help rental property owners

mitigate risks or seize opportunities, build those relationships, and evaluate if they meet

the business goal. Additionally, rental property owners could consider the most

important network of family. The study participants all emphasized the important role

family, particularly spouses, play in the business. Moreover, the role may change over

time. Rental property owners could identify, assess, and evaluate the role of their family

in the business according to the business goal.

Model 3: Learn, Follow, Adapt, and Educate on Industry Regulations

Moral rental property owners may not have created the regulatory problem, but

they could be part of the solution. I have transferred the risk response of the study

participants to industry regulations into a model containing action steps to mitigate

regulation risk (see Figure 11). Rental property owners could learn the regulations in

their market by reading the law, talking to their peers, and enrolling in training sessions

offered by local rental real estate organizations. Rental property owners could read the

law so that they can design a risk response that is specific to the law, not what someone

said about the law. However, networks are useful for generating risk response techniques

that work for other rental property owners.

Rental property owners could follow the regulations consistently by budgeting for

regulation expenses and implementing the laws consistently across all properties and

units. Through consistent implementation, even in different districts and jurisdictions,

rental property owners reduce the risk of error from varying policies and systems.

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Moreover, rental property owners can streamline their systems through the consistent

compliance to regulations.

Figure 11. Application model for responding to industry regulations.

Rental property owners could adapt their operations to be sustainably profitable as

regulations increase or diminish. Techniques for sustainable profitability may change as

the regulatory market shifts, and rental property owners need to be vigilant of risk and

opportunity. The study participants have adapted to regulation increases by passing

expenses onto tenants and increasing their requirements of tenants. However, rental

property owners passing expenses onto tenants could ensure the expense is appropriate

for the regulatory environment to stay competitive and moral. Similarly, rental property

owners increasing requirements and expectations of tenants could comply with the

regulatory environment and monitor what the market will bear.

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Finally, rental property owners could do more than react to regulations. Rental

property owners need to take a proactive approach and educate both tenants and

legislators on how their business operates and responds to risk. Do not allow hostilities

to continue between legislators, tenants, and rental property owners. Rental property

owners could attend legislative sessions and voice their concerns in an objective, rational

argument for why regulations endanger the business and harm tenants. Moreover, rental

property owners could network with their peers and rental property organizations for

solutions to regulations and to address the legislature as a united body of concerned

business owners. Most of the study participants supported rental property organizations

that leveraged membership resources to effectively educate legislators and fight for fair

and equal protection under the law. Lastly, rental property owners could work with

tenants to help them understand there are costs to doing business; rent price and value

reflect that cost. By taking a proactive approach to learning, implementing, and

educating on regulations, rental property owners can build a risk resilient strategy and

achieve sustainable profitability.

Model 4: Create Positive Social Change

In an ideal world, all rental property owners would be leaders in positive social

change. However, many individuals require business incentives to make a positive

impact, especially when they are not profitable and are struggling with rising expenses

(see Figure 12). There are multiple business advantages to creating positive social

change (see Figure 12).

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Figure 12. Application model for balancing business advantages and social change.

First, rental property owners working a conventional job helping others creates an

additional income as well as improves interpersonal skills. Second, rental property

owners who upgrade and improve their properties achieve the business advantages of

higher property values, higher rental income, and attracting their target tenant base.

Third, rental property owners who donate to 501c3 causes can receive a tax deduction for

their charitable works. Fourth, business owners who positively contribute to their

communities can create favorable perceptions of the business from the public (COSO,

2018; Shad et al., 2019). Non-public great acts of kindness may not garner direct

business advantages, but can intangibly improve a rental property owner’s relationships

with networks of tenants, community, peers, and legislators. Several study participants

also argued great acts of kindness is part of their mindset and who they are as a person.

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Since these rental property owners achieved sustainable profitability, other aspiring rental

property owners could consider the mindset that made them profitable for decades.

Prioritizing Risks

The ERM framework encompasses prioritizing risks (COSO, 2018). In their

business, rental property owners could identify, assess, and respond to risks according to

their business goals and risk appetite. Therefore, rental property owners could consider

the costs and benefits of each risk and determine whether to (a) accept, (b) avoid, (c)

pursue, (d) reduce, or (e) share the risk. Additionally, through analysis and decisive

planning, rental property owners can build their business with risk resilience, positive

social change, and sustainable profitability.

A Note on Member Checking

As I addressed in the second section of this study, I did not use member checking.

According to Morse (2015a), member checking unnecessarily complicates a researcher’s

ethics and data analysis. Morse criticized the scholarship for not determining how this

strategy ensures quality inquiry and prevent ethical violations. Therefore, I utilized

methodological triangulation, fieldwork protocols, data saturation, and data analysis

software to ensure the rigor of this study.

Implications for Social Change

This study has tangible implications for positive social change. The study

participants demonstrated how creating positive social change has advantages for rental

property owners seeking sustainable profitability as well as for tenant and community

well-being. I transferred the risk management budgeting techniques the study

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participants applied to create positive social change into an application model (see Figure

12). Rental property owners can use this application model to leveraging positive social

change as one strategy to achieve sustainable profitability.

Recommendations for Action

I designed this study to solve a business problem. My intention was to assist

rental property owners in managing risk in their businesses through budgeting strategies

for sustainable profitability. I recommend rental property owners consider the

application models in this section regardless of whether they are sustainably profitable or

struggling with risk. Rental property owner organizations may also benefit from using

the models as guidelines for finding the gaps and meeting the business needs of rental

property owners. Additionally, legislators would benefit from the results of this study to

(a) learn the interests of the rental property owner, (b) design regulations that incentivize

rental property owners, and (c) learn how to collaborate with rental property owners in a

productive way that encourages positive social change. Finally, I will disseminate this

study through (a) publication in academic journals, (b) distribution to rental property

owner organizations, and (c) circulation to the study participants and other rental property

owners in my network.

Recommendations for Further Research

After an extensive review of the literature from 2013 to 2019 on this topic, I have

not found scholarly research presenting practical business solutions for sustainable

profitability represented through data on rental property owners. Moreover, few scholars

have sought the perspective of rental property owners (Zuberi & Dehm, 2019). The

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plethora of scholarly research on rental property owners has presented the problem of

rising rent costs as either concerns for tenant well-fare or recommendations for legislators

(Amodu, 2018; Aubry et al., 2015; Chisholm, Howden-Chapman & Fougere, 2018; Cole

et al., 2016; Cradduck, 2018; Desmond & Wilmers, 2019; Diamond et al., 2019;

Easthope, 2014; Feldman & Weseley, 2013; Furst & Evans, 2017; Galster et al., 2018;

Garboden, Rosen, DeLuca, & Edin, 2018; Graham, Milaney, Adams, & Rock, 2018;

Greif, 2018; Hatch, 2017; Jones, Heuer, Penrod, & Udell, 2019; Lind, 2015; Mackenzie

et al., 2017; Manganelli et al., 2014; Morris et al., 2017; Newell et al., 2015; Polletta et

al., 2017; Reid et al., 2018, Rosen, 2014; Seemann et al., 2014; Vols & Belloir, 2019). A

few researchers have addressed the legislative problems for rental property owners (Arias

et al., 2016; Arnott & Shevyakhova, 2014; Ástmarsson et al., 2013; Aubry et al., 2015;

Autor et al., 2014; Evans et al., 2015; Fields & Uffer, 2014; Palmer & Childs, 2014).

However, scholars have proposed solutions that are too statistically complex or

unrealistic for small rental property owners to reasonably put into practice (Canas et al.,

2015; Zapotoczna & Poczbutt, 2016).

I caution academic scholarship from focusing on the problem from the tenant and

legislative perspectives, but not offering practical business solutions for rental property

owners. Academic scholarship must conduct primary research and offer tangible

solutions to the business problem to help rental property owners maintain sustainable

profitability while positively impacting tenant and community well-being. Instead of

restating the problem and calling for more legislative regulations, scholars must find

solutions for legislators and rental property owners to collaborate beyond the rental price

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issue. A sustainably profitable business has the resources to make a positive social

impact. This study should not be unique in providing practical models for rental real

estate business practice based on primary research.

I recommend additional research focusing on how a rental property owner can

leverage risk management budgeting strategies to achieve sustainable profitability.

Moreover, scholars could explore positive social impact and tenant issues from the

perspective of the rental property business and risk management budgeting. In the

limitations section of this study, I addressed the limitations I encountered were time

constraints, availability of data, and researcher biases. Scholars can expand this study

topic to other geographical areas and rental property owner populations as well as explore

the phenomenon through additional data collection techniques. I was able to leverage my

researcher bias as a rental property owner to make contact and collect data on my study

population, but other scholars that are not working in the rental real estate industry could

eliminate this research bias.

Reflections

It is critical to note that my position as a rental property owner enabled me to

enter the social network of rental property owners and recruit volunteers for this study.

Based on the events of my fieldwork, I found the social environment and morale of rental

property owners in the greater Seattle area to be extremely tense and cautious. Rental

property owners have been experiencing increasing regulations and fees that are reducing

their ability to operate profitably. Therefore, I daily frequented social and organizational

146

events for two months to introduce myself, share my story, and build rapport before I

could start my fieldwork.

I initially encountered significant difficulty in finding study participants. Many

rental property owners did not speak to me after I explained my research intentions,

perhaps out of concern I might write a biased exposé rather than an academic inquiry.

Most of my study participants openly expressed to me that if I were not their peer, they

would not speak to me. Additionally, most of my study participants were specific that

they wanted their identities to be confidential. As a peer, I could assure them I was in

pursuit of their success strategies, risk management techniques, and stories of positive

social change. Moreover, as their peer, I was able to effectively express to rental

property owners the practical applications of this study to our businesses and legislative

adversity.

Before starting my study, I was aware of tensions over regulations in the greater

Seattle area. However, my husband is in the Army, and we have been stationed outside

the greater Seattle area. So I was not aware of how extremely tense the regulatory

environment had become until I arrived in Seattle to conduct my research. After

experiencing the tension and daily frustration between rental property owners, tenants,

and legislators over rent prices and budgeting for sustainable profitability, I argue this

study is timely and highly appropriate for business practice.

Conclusion

In this study, I have determined a specific, practical answer to how rental property

owners can use risk management strategies to budget for sustainable profitability. Rental

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property owners can achieve sustainable profitability in an uncertain regulatory

environment through four key application models. The key models involve (a)

incorporating risk identification, response, and monitoring into firm strategy, (b)

cultivating a risk management network that effectively enables risk mitigation, (c) risk

response to industry regulations, and (d) creating a positive social change impact.

Through the application of these models, rental property owners can identify, assess, and

monitor their risk according to their business goal and risk tolerance. Moreover, rental

property owners utilizing these models can shape the industry through collaboration with

stakeholders and positive social change.

Risk Management Strategies for Sustainable Rental Real Estate Profitability.

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