Examining the roles of enterprise risk management (ERM), reputation and education in Indonesia’s risk landscape

Johan Candra, enterprise risk management specialist at PT XL Axiata
On a scale from one to five (lowest to highest maturity), I would rate two for ERM maturity in Indonesia. Except for the financial industries (banking, multi-finance, insurance, capital market), the maturity of ERM itself is still low.

Reputation is a critical issue that needs special attention. All large corporations in Indonesia try to increase their brand image through customer service excellence, product quality, operational excellence and good corporate governance. All those factors can be measured through internal monitoring, or outside surveys to customers. All large corporates in Indonesia have to look at their reputation risk. A bad reputation can wipe out a company. The discipline of risk management is quite new in Indonesia, especially for the non-financial markets. However, the risk management process is viewed as more important every day. Many large corporations are now seeking risk management professionals to help the management achieve robust processes and procedures, so the company can have good corporate governance and sustainable business growth. At the moment, there is not much training and education about risk management in Indonesia, but there will be more.

Rachmadi Gustrian (pictured), enterprise-wide risk management head at Bumi Resources Minerals
It’s quite tricky handling reputational risk in Indonesia. Based on my experience handling this risk in the financial industry, there are three steps to mitigating it. First, we have to prevent any operational failures. Secondly, be prepared with several contingency plans if something comes to the surface. Thirdly, disclose our action (react properly and accordingly).

In the mining industry, we also have to be aware of our surroundings (both community and environment). In terms of current regulations, we manage to fulfil the government’s requirements. In the near future, we will also have to cater for and manage international agency expectations. This will cost us our resources (both financial and non-financial), and in the end will increase our production costs.

Duma Irene Mitalevanie, risk consultant at Astra International
In general, the application of risk management in Indonesia is immature, except in the banking industry where there is an obligation to apply risk management based on Bank of Indonesia regulations. A basic understanding of risk management is still lacking. Not all non-banking industries apply risk management in their business. This is because of the general belief that risk management is not a requirement and it will add to production/operating costs.

Mostly the perception of risk management centres on negative things, bad impacts on companies; people haven’t seen that risk management also has a positive side. Nevertheless, the development of risk management in Indonesia has increased, albeit slowly.

Indonesians are the world’s most active users of free social media accounts, so all kinds of information can be spread quickly and easily. This can be of great benefit to an enterprise’s ongoing business. For example, if a company wants to hold a big event, it can advertise via social media without having to pay. But, on the other hand, if a company makes a mistake (misconduct) that is detrimental to the customer, then the news can also spread quickly. This can escalate the situation. Education and training in risk management in Indonesia are still lacking. It is hard to find an expert in non-bank related risk management and not all risk management training providers are qualified and certified. It is rare for a firm to measure sustainable risk, for example dealing with excessive electricity and fuel usage and efforts to address the impact of climate change, though it will be a big influence on business sustainability in the future.

Putri Perdana Sari, risk management manager at Aerofood Indonesia
ERM implementation for industry in Indonesia is still at a ‘moderate/defined’ level. Most big companies have developed strong ERM, but others implement risk management more like a contingency plan that is not documented properly. Nowadays, monitoring reputation risk plays an important role. The interconnected nature of business makes companies more aware of maintaining their reputation. If not managed properly, reputation risk can create a negative impact in the long term. Companies should be reliable on service or product delivery, maintain good relationships with media and stakeholders, and have effective complaint handling methods.

Basic risk management training is very easy to find, but advanced training is rarely available. Or, if available, it is not easy to implement. I prefer to join risk management forums so that we can share tips and tricks with other practitioners. It is not easy to find people with risk management experience and passion. While it is rarely found in older employees, the energy and enthusiasm for risk management will be embraced by this generation of young people.

Click here to download StrategicRISK’s full Indonesia risk management report