The document discusses enterprise risk management (ERM). It provides an example ERM universe that includes strategic risks, physical assets risks, human factors risks, and financial risks. It also discusses some key aspects of effective ERM implementation, including establishing a risk governance framework, developing a risk management infrastructure, and following a risk management process of identifying, assessing, managing, and monitoring risks. The document is intended to share practices on ERM.

1. Sharing Practices on ERM
By Diane Christina
@ Magister Manajemen UNPAR, 2009
. Diane Christina .
© DC, 2009

2. ERM Universe
- the example
ò Mergers & acquisition
ò Innovation program
PLANS ò Business transformation
ò Go Public / IPO
PHYSICAL Strategic Risks
ASSETS
FINANCES
ò equipment failure
ò infrastructure Technical Operational Commercial Financial
ò natural perils Risks Risks Risks Controls ò treasury
Risks ò accounting
ò systems
ò fraud
ò suppliers
HUMAN Error ò customers
ò
government RELATIONSHIPS
FACTORS ò safety ò
ò health ò stakeholder
ò selection ò third parties
ò skills ò competitors
diane.christina1@gmail.com © DC, 2009

3. Lesson Learned
- Published Information
Source: Kompas Online Semen Gresik Source: CSIS Online
22 May 2006 Vs 31 March 2005
Cemex
PLN’s electricity Strategic Risks
failure
Jamsostek bad
Investment on
Commercial Paper
Technical Operational Commercial Financial
Risk Risks Risks Controls
Risks Source: Harian Bisnis
Indonesia, 06 July 2006
PT Kereta Api
Garuda Airlines
Train Crash high Debts restructuring
frequency
Source: Kompas Online Source: Tempo Interaktif
14 November 2003 07 Dec 2005
diane.christina1@gmail.com © DC, 2009

5. Pre-requisite of Effective ERM
diane.christina1@gmail.com © DC, 2009

6. Risk Governance Framework
Laying down the foundation… Risk Management
Awareness & Culture
Risk Governance
Framework Risk Language
Definition of Risks
Risk Philosophy
Basic attitude towards risk, should be
aligned with Vision & Mission and
Business Strategy.
Risk Management Risk Tolerance/Appetite
Policies Risk Management
The level of risk the company is willing to
Organization & Functions accept in order to achieve its Business
Strategy.The desired Risk Profile of the
Enterprise
diane.christina1@gmail.com © DC, 2009

7. Risk Tolerance vs Risk Appetite
 A company that says that it is does not accept risks that could
result in a significant loss of its revenue base is expressing
appetite
 A company says that it does not wish to accept risks that would
cause revenue from its top-10 customers to decline by more than
10% it is expressing tolerance
They seem to view Risk Appetite as being primarily
qualitative and Risk Tolerance as quantitative
diane.christina1@gmail.com © DC, 2009

8. Risk Appetite & Tolerance
– illustration
Besar
Sagat
T T E E E
5
Besar 5 10 15 20 25
4
M T T E E
Probabilitas
4 8 12 16 20
Sedang
R M T E E
3
3 6 9 12 15
Kecil
R R M T E
2
2 4 6 8 10 Risk tolerance
Sangat
R R M T T
Kecil
1
1 2 3 4 5
1 2 3 4 5
Tidak Agak Berat Sangat Malapetaka
Berat Berat Berat
diane.christina1@gmail.com Akibat © DC, 2009

9. Risk Management Infrastructure
Develop the laying Infrastructure
Methodology
Risk Governance
Infrastructure
Technology & Tools
Procedures
Reports
diane.christina1@gmail.com © DC, 2009

10. Sample of RM Report
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11. Sample of RM Report
Source: iRisQ – Enterprise Risk Management System
diane.christina1@gmail.com © DC, 2009

12. Source: iRisQ – Enterprise Risk Management System
Sample of RM Report
diane.christina1@gmail.com © DC, 2009

13. Risk Management Process
Monitor & Identify Identify
Monitor
Report Map
Risk Manage Measure &
Assess
Treatment Evaluate
diane.christina1@gmail.com © DC, 2009

14. THE IMPLEMENTATION OF ERM

15. ERM Implementation: Road Map
Corporate
Vision, Mission, Corporate Risk
Objectives, and Strategy & Appetite/ Validation /
Strategies Tolerance
Continuous Reassessment
Improvement
Boards’ Briefing Risk Control Assessment Framework Project Risk Management
Awareness Program Enterprise Risk Assessment Financial Risk Assessment
Risk Manual - Policy - Procedures Business Process Improvement Strategic Risk Management
Preliminary Risk Assessment Risk Manual - Policy - Procedures Risk Management Maturity
Assessment
Risk Management Governance & Infrastructure
GETTING RIGHT AT THE BEGINNING © DC, 2009

16. Risk Management in Practice
-Setting the context
External Events 1 2 3 = opportunity
= threats
Base Objective
Residual Risks 1 2 3
Control
Inherent Risks 1 2 3
Process P1 P2 P3 P4
diane.christina1@gmail.com © DC, 2009

17. Risk Management in Practice
- Determine the criteria
Likelihood 1 Year Consequence Earning
Almost Never 0 – 20 % Minor 0 – 37 Billion
Unlikely 21 – 40 % Moderate 38 – 74 Billion
Possible 41 – 60 % Severe 75 – 111 Billion
Likely 61 – 80 % Major 112 – 149 Billion
Almost Certain 81 – 100 % Catastrophic > 150 Billion
diane.christina1@gmail.com © DC, 2009

18. The Risk Unit Measurement
- The Consequence of Risk
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19. The Risk Unit Measurement
- The Likelihood of Risk
diane.christina1@gmail.com © DC, 2009

20. Table of Risk and Mitigation
- illustration of certain Investment
No Risk Description Inherent Risk Control Residual Risk Remark
C L C L
2.1. Delay of FC against 5 5 - lobby 5 4 - lobby
commercial operation - equity - equity
2.2. Concession is with- 5 5 - lobby 5 3 - lobby
drawn by government
2.3. Forex loss if US$ 5 3 Contract addendum, back-to-back 1 1 Contract
> Rp 9.200,-/US$ with supplier/contractor Addendum
2.4. Shortfall of assumption 5 3 Insurance - only for debt-cost-service 5 2 Update
Early warning system, & campaign regularly
2.5. Delay Start-Up (DSU) 5 5 Insurance - only for debt-cost-service 5 4 Update
Tight project management regularly
2.6. Interest expenses 5 3 Tight control over Cash-Flow whilst 3 2 Financial
fluctuation - no hedge at the same time seeking a Risk
possibility of hedging. Mgt
2.7. Cost Over - Run 5 3 Tight Financial Management and 4 2 Financial
Cash-Flow control throughout the Risk
commercial operation Mgt
2.8. Equity Participation 5 3 Confirmation of Equity participation 2 2 BoC and
is not as expected to be made as early as possible, BoD
in early 2008
diane.christina1@gmail.com © DC, 2009

21. The Risk Matrix
- Inherent - Residual – Treated -
certain Contoh Profil Risiko:
Almost
3 4
5
1 1 1. Analisa dan evaluasi kinerja
5 10 15 20 25 keuangan tidak akurat
(Akuntansi)
Likely
3 4 2 2 2. Terjadinya double
4
pembayaran pajak pada
4 8 12 5
16 20 saat melakukan pembelian
Likelihood
atau pengadaan barang dari
Unlikely Possible
importir
3
5 (Pengadaan)
3 6 9 12 15 3. Evaluasi Biaya Umum
Kantor Pusat tidak tepat
waktu
(Akuntansi)
2
1 5
2 4 6 8 10 4. Terjadinya biaya
penumpukan material impor
(demurage)
Almost
4 2 3
never
(Pengadaan)
1
1 5
5. Terjadi kegagalan tahapan
2 3 4
financial closed dari masing-
1 2 3 4 5 masing pihak yang berperan
dalam pendanaan proyek
investasi
Minor Moderate Severe Major Catastrophic (Pengembangan Bisnis)
diane.christina1@gmail.com Consequence © DC, 2009

22. Need more information about your risk
management, drop your email to:
diane.christina@apb-group.com