Operational Risk Management in Rice Business Unit Business Process: Case Study on PT Pertani (Persero)

Abstract

The paper presents risk management process in a rice commodity company. Operational risk, as one of the oldest risk that already occurred in a business process for centuries is the main topic that will be discussed in the paper. Operational risk played important factor in the company’s business processes. It is one of the biggest areas of risk that most companies face but it is an area, which has not traditionally been managed in an organized manner. If a company failed to identify and manage operational risks, it may result in huge financial losses that will lead the company to collapse. The writer chose PT Pertani (Persero) as research subject, because they are experiencing stable losses in their rice business unit for a long time. If the company keeps experiencing losses, they might declare bankruptcy in short period. In order to improve the company’s performance, implementing operational risk management is crucial. Operational risk management included several steps, which are business process analysis, risk identification, risk measurement, and risk mitigation. Monte Carlo simulations are employed to approximate the loss distribution and probability distribution of each risk. Monte Carlo simulations make it possible to incorporate the uncertainty of valuation parameters, in particular the severity and probability of the risk event.The result of the research suggest that PT. Pertani (Persero) should implement operational risk management, because by implementing good operational risk management, the company could increase their overall performance by considering risks that followed each action the company take regarding operational processes. Hopefully this research will provided useful information for PT Pertani (Persero) to manage their operational risk.