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YP54 A
I TB School of Business and Management
MM6021
Corporate Risk Management
Mid-Term Exam
Risk Management System
PT. PP (Persero) Tbk
Lecturer:
Erman Sumirat, SE, M.Buss, Ak
Prepared by
Nadya Rizkita Putri A
29115630
2nd Semester 2016/2017
MASTER OF BUSINESS ADMINISTRATION
School of Business and Management
INSTITUTE TEKNOLOGI BANDUNG
Declaration of Originality and Compliance of Academic Ethics
I hereby state that, this paper contains literature and original research work by
the undesigned student, as a part of her Corporate Risk Management class mid-
term exam.
All information in this document has been obtained and presented in accordance
with academic rules and ethical conduct.
I also state that, as required by these rules and conduct, I have fully cited and
referenced all material and results that are not original to this work.
Bandung, March 25, 2017
Name: Nadya Rizkita Putri A
NIM: 29115630
Executive Summary
PT. PP (Persero) Tbk is Indonesian state-owned enterprise engaged in provision
of building and construction services. With 6 segment focus in its business line
consists of construction services, property and realty, EPC, precast, equipment,
and investment, the company strive as one of the big league players in
Indonesias construction business for decades. Throughout various big
construction and infrastructure projects across the nation, PT.PP (Persero) Tbk
commences several services within their business line such as construction of
bridge, road, building, and harbor, or property and real estate of residential and
commercial area, also they have others like power plant for EPC and Investment
services.
As one of the company effort on building good corporate governance, they are
committed on implementing risk management system as a part of their company
policy. The policy has clear objectives and direction as well as duty to every unit
in the company related to its risk management. It is also regulated that every
employee is being responsible and accountable in managing each risks in
consistent and continuous manner. Their commitment also shown by the BoD
decree No. 73/SK/PP/DIR/2016 dated September 5, 2016 where they appointed
the Risk Management and PMO Bureau under the BoD as the highest
accountability holder in risk management, set the risk parameter to make sure it
is all well mitigated.
With good understanding of how an effective risk management is fundamental
to the companys performance, this paper will analyze how the companys risk
management policy affects its business growth. In order to have deep
understanding of the company risk management policy and its system, this paper
will be construct from identifying its risks, defining the peril-hazard-loss,
calculating the severity and probability, until analyzing and creating the
mitigation matrix.
Company Background
PT. PP (Persero) Tbk is Indonesian state-owned enterprise engaged in provision
of building and construction services. With 6 segment focus in its business line
consists of construction services, property and realty, EPC, precast, equipment,
and investment, the company strive as one of the big league players in
Indonesias construction business for decades. With such prominent
performance in the Industry, the company is potential for growing better in
future.
A. Company Profile
Company Name: PT. PP (Persero) Tbk
Ownership: 51% - Government of the Republic of Indonesia
0.10% - Employees and Employees cooperatives
of PP Shareholders
48.9& Public
Company Status: State-owned Enterprise
Business Line: Construction,Property and Real Estate,
Engineering Procurement Construction (EPC),
Infrastructure, Energy, Precast, and Equipment.
Date of
Establishment: August 26, 1953
Total Employees: 1,896 employees
Ticker Code: PTPP
Stock Exchange: IDX
Authorized Capital: Rp 1,500,000,000,000
Portfolio Capital
December 31, 2016: Rp 1,015,756,350,000
Paid-up Capital
December 31, 2016: Rp 484,243,650,000
Additional
Paid-up Capital: Rp 431,845,369,858
Figure 1 Company Profile
(Source: Annual Report PT. PP (Persero) Tbk, 2016)
B. Company Structure
Board of
Commissioners
President
Director
Business
Development, Dir. of Finance Director Marketing
Research Operations EPC Director and HC Director
&Technology, Risk
Management, SCM
This condition brings opportunity for the companys higher growth in 2017. With
this growth optimism in construction sector, necessity to manage variety of
business opportunities is also higher. The company need to allocate their
strategic according to this growth directions and at the same time indicates the
risks came with it to optimize their growth.
Financial Performance
In 2016 PT. PP (Persero) Tbk booked Rp 32,6 trillion new contract. This number
shows 20,41% increase from the companys contract in 2015 of Rp27.07 trillion.
Figure 3 PT. PP (Persero) Tbk Contract Values for 5 Years
Source: Annual Report PT. PP (Persero) Tbk, 2016
In 2016, total operating income achieved Rp 1.97 trillion, was Rp371.18 billion or
equal to 23.24% higher than Rp1.60 trillion booked in 2015.
Figure 4 PT. PP (Persero) Tbk Total Operating Income for 5 years
Source: Annual Report PT. PP (Persero) Tbk, 2016
Aside from the performance above, the company also shows growth in
productivity to sales of 2016 with Rp8,681 millions/person/year which is 8.3%
over the 2015 performance with Rp8,014 millions/person/year. Below is the
illustration over the companys productivity in 5 years.
Figure 5 PT. PP (Persero) Tbk Productivity to Sales in 5 Years
Source: Annual Report PT.PP (Persero) Tbk, 2016
Figure 6 PT. PP (Persero) Tbk Productivity to Sales in 5 Years
Source: Annual Report PT.PP (Persero) Tbk, 2016
The companys financial performance shows growth from its performance the
years before. This illustrates the companys financial performance is in good
direction and healthy.
Enterprise Risk Management
Based on ISO 3100, Risk is the effect of uncertainty on objectives, its often
described by an event, a change in circumstances or a consequence. Since the
definition links risks to objectives, the objectives themselves need to be
challenged and the assumptions on which they are based should be tested, as
part of the risk management process. Meanwhile, risk management is the
process in which the risk holders methodically address the risk attached to their
activities. A successful risk management should be proportionate to the level of
risk in the firm, aligned with other corporate activities, comprehensive in its
scope, embedded into routine activities and dynamic by being responsive to
changing circumstances. The focus of risk management is on the assessment of
significant risks and the implementation of suitable response to it. The risk
management process based on the ISO 31000 is as illustrated below:
Probability Parameter
Criteria Score Description
Low 1 Almost never to happen
Unlikely 2 Unlikely to happen
Moderate 3 Possible to happen with low probability
Likely 4 Likely it will happen
The probability of the event occurred is really
High 5
high
Severity Parameter
Quantitative Qualitative Approach
Criteria Score
Approach
Insignificant 1 Up to 5% So little impact
Minor 2 >5% to 10% There are some trace of damage
Moderate 3 >10% to 15% The impact is visible
Major 4 >15% to 20% The impact is visible and huge
>20% The damage is huge and really
Catastrophic 5
affecting the company
Risk Measurement
NO Peril Probability Severity Probability Severity Total
Rating Rating Risk
1 Project Payment High Over 20%, 5 5 25
in Credits Catastrophic
2 Volatile Economy Likely Over 15%, 4 4 16
Condition Major
3 Projects in High Over 15%, 5 4 20
Remote Area Major
4 Lack of good Moderate Over 10%, 3 3 9
relationship with Major
employee
5 Bad Low 5%-10%, 1 2 2
Environmental, Moderate
social, weather
condition
6 New Material Likely 5%-10%, 4 2 8
technology Moderate
7 Buying High 5-10%, 5 2 10
land/Property Minor
8 New Regulation Moderate Up to 5%, 3 1 3
insignificant
9 Buying Material High Up to 5%, 5 1 5
Insignificant
10 Co-working with High 5%-10%, 5 2 10
sub-contractor Minor
11 Internet Unlikely Up to 5%, 2 1 2
Disruption insignificant
12 New Design Unlikely 5%-10%, 2 2 4
Minor
TOTAL RISK 114
Risk Matrix
5 Catastrophic 9 7,10 3 1
4 Significant 6 2
Severity
3 Moderate 8 4
Rating
2 Minor 11 12
1 Insignificant 5
1 2 3 4 5
Modera
Low Unlikely Likely High
te
Probability Rating
Keterangan :
: Very Low (range 1 3)
: Low (range 4 6)
: Medium (range 7 9)
: High (range 10 12)
: Very High (range 13+)
Risk Level
NO Peril Severity Probability Score Risk Level Risk
Rank
1 Project Payment in Credits 5 5 25 Very High 1
2 Volatile Economy Condition 4 4 16 Very High 3
3 Projects in Remote Area 4 5 20 Very High 2
4 Lack of good relationship 3 3 9 Medium 6
with employee
5 Bad Environmental, social, 2 1 2 Very Low 11
weather condition
6 New Material technology 2 4 8 Medium 7
7 Buying land/Property 2 5 10 High 4
8 New Regulation 1 3 3 Low 10
9 Buying Material 1 5 5 Medium 8
10 Co-working with sub- 2 5 10 High 5
contractor
11 Internet Disruption 1 2 2 Very Low 12
12 New Design 2 2 4 Low 9
TOTAL SCORE 114
Since there are 12 Risks in PT. PP (Persero) Tbk in the calculation for high risk
company is 5x5x12 = 300, from the Risk level table above we can conclude that
the company is considered as a moderate risk company with total score 114.
Risk Mitigation