68
Students name : Scoots Bar
Course number and Name : IEE 454 - Risk Management
Instructors Name : Brittany Holloman
KEY PERFORMANCE INDICATOR (KPI)-BASED RISK
MANAGEMENT IN CREDIT UNIONS
1.0 Introduction:
1.1 Background Of The Problem:
Key Performance Indicators can be interpreted as indicators that will provide
information on the extent to which we have succeeded in realizing the strategic goals we have
set. In many companies that have implemented key perfomance indicators as a benchmark
guide to achieving an assessment of the company's performance results.
Proper selection of KPI's will make it easier for companies to provide an overview of
production results that require improvement, improvement opportunities, and determine the
effectiveness of improvement efforts that have been made (Soemohadiwidjojo, 2015). The
production results of achieving KPI's are the basis for providing rewards and consequences so
that KPI's are useful for encouraging motivation to work and good behavior from employees.
Credit Unions are cooperative institutions that have a single business in terms of savings and
loans for its main business, so it is also often referred to as a Credit Cooperative (Kopdit).
However, some people are still confused whether Credit Unions are the same as Savings and
Loan Cooperatives (KSP) and banks. This will be the main topic for this discussion.
Credit unions initially emerged because of a group of people or members who had
similar needs, so a financial institution was established that aimed to run joint capital. For
more information, let's discuss it further through the reading below to know the difference
between the two. CU Sohagaini is one of the Credit Union Cooperative Institutions
established since 2011 until now and is located in South Nias Regency, North Sumatra. There
are several company goals, namely improving the quality of human resources (HR),
implementing an online escete system to improve business processes, improving the quality
of office targets and infrastructure, being the main goal of the company's Balance Scorecard.
1.2 Problem Formulation:
Based on the background of the problem above, the problem formulation in this risk analysis
is what risks hinder the achievement of Key Performance Indicators in the Credit Union
process.
1.3 Purpose Of Risk Analysis:
The purpose of this analysis is to find out what risks hinder the process of achieving the Key
Performance Indicator targets in the Credit Union. And to manage the Company's risk.
1.4 Scope Of Risk Analysis:
The scope in this risk analysis is from the risk analysis process as follows:
a. Determination of Scope, Context and Criteria.
b. Risk assessment
c. Risk identification
d. Risk analysis
e. Risk evaluation
f. Risk treatment
g. Risk monitoring and review
2.0 Theoretical Basis:
2.1 Balanced Score Card:
Balanced Scorecard (BSC) is a method of measuring the results of a performance used by
companies or commonly referred to as management strategies. The Balanced Scorecard was
developed by Drs. Robert Kaplan of Harvard Business School and David Norton in early
1990. Kaplan and Norton stated the importance of creating a scorecard that communicates a
business unit strategy into 3 points as follows:
1. The scorecard portrays the organization's future vision to the entire organization. This
creates a shared understanding.
70
2. Scorecards create a holistic strategy model that allows all employees to see how they
contribute to the organization's success. Without such a connection, individuals and
departments may optimize their local performance but not contribute to achieving
strategic goals.
3. The scorecard focuses the change effort. If the right goals and measures are identified,
successful implementation is likely to occur. Otherwise, investments and initiatives will
be wasted.
With the existence of BSC, it is very helpful for the company to provide a
comprehensive view of the company's performance, so that its performance is more effective
and efficient, it needs accurate information that represents the work system carried out.
The Balanced Scorecard aligns the company's strategy into four main perspectives,
The four perspectives of the Balanced Scorecard (BSC) are as follows:
Financial Perspective.
Customer Perspective.
Internal Business Process Perspective.
Learning and Growth Perspective.
The company's strategy through the balance scorecard is derived into KPIs (Key Performance
Indicators) in each perspective, business unit and even individuals to achieve joint targets in
accordance with the company's vision and mission.
Balanced scorecard provides more comprehensive, accurate and precise information for the
implementation of the vision and mission of the business entity through the strategy it
chooses based on the situation and condition of the company. In the balanced scorecard
concept, the achievement of the company's vision can be derived
thoroughly/comprehensively into four perspectives which include financial perspective,
customer perspective, internal business process perspective, learning and growth perspective.
2.2 Key Performance Indicator (KPI):
KPI (Key Performance Indicator) is a measurement tool that describes the
effectiveness of a company in achieving its business goals. To be able to build and improve
performance in the process, according to Anupindi (2006) it is important to measure
something that is possible to measure. Alfred Sloan, CEO of General Motors (1923 and
1946), defined a professional leader as one who controls with facts rather than intuition and
emotion. By gathering facts for a purpose, it is possible to get a clear view of the process.
Measuring performance is an important part when implementing a method to improve
products and processes as well as measuring performance when making the outcome of a
change. (Anupindi 2006; cited in Rensfelt, Winblad, Lindman, 2008). Companies use KPIs to
measure their success in achieving their targets.
There are several characteristics of KPIs, namely:
Non-financial measures
Frequently used measurements (regular measurements)
Measures known to management
Everyone in an organization has understood and comprehends KPIs
Responsibility to individuals and teams
Has a very significant effect
Has a positive effect
Key performance indicators can be measured in daily, weekly and monthly periods,
which in turn will describe the performance of a unit in an annual period so that it becomes a
reference for review for future determination.
The elements contained in the KPI consist of strategic goals, indicators that are
relevant to the strategic goals. The target that becomes the benchmark and the time frame or
period of validity of the KPI (Soemohadiwidjojo, 2015). Determination of KPIs and targets to
be achieved cannot be done carelessly, but must be selected and determined using appropriate
and systematic methods. Choosing KPIs and setting KPI targets appropriately will lead the
organization to identify potential improvements or performance improvements, so KPIs are
often associated with initiatives related to performance improvement (Soemohadiwidjojo,
2015).
As one of the main tools of organizational management, the main purpose of
determining KPIs is:
1. To link between the vision - mission - values, organizational strategy and organizational
performance goals with organizational activities to achieve the desired performance
goals.
2. To measure the performance trend of the organization and/or division whether there is an
72
increase or a significant decrease.
3. For compare performance organization current with historical organization, or compare
with the performance of other organizations so that the organization gets An overview of
the advantages or weaknesses compared to competitors' conditions and knowing the
opportunities to create added value.
4. KPIs can also be used as the basis for determining the level of performance or
performance of divisions and individuals.
5. KPI achievement results can be used as a basis for rewards and consequences so that
KPIs are also useful for encouraging work motivation and good behavior from
employees.
Parmenter (2007) states that there are 4 basic criteria that must be met before an organization
can state that they have implemented KPIs into operational activities. These criteria are:
1. Collaboration between employees, teams, suppliers and customers
2. Decentralization from management level to operational level
3. Integration or linkage between measures, reports and actions
4. KPI relationship <- -> strategy
When implementing KPIs, it is important to define the results/objectives of each KPI.
Shahin and Mahbod (2007, referenced in Rensfelt, Winblad, Lindman, 2008) state, that
SMART is a method that uses several criteria for how to define the results/objectives of each
KPI planning a goal. One way to create relevant KPIs is with SMART criteria which stands
for specific, measurable, attainable, relevant, time-bound.
For an explanation of these matters, as follows:
Are the company objectives specific?
Can you measure the achievement of these goals?
Is the goal achievable?
Is the goal related to the company?
How long it will take to achieve the goal
To implement KPIs, requires an interrelated system process, both from the
organization's own environment such as employees, managers, shareholders and from
external parties such as customers and suppliers. Parmenter emphasizes reports that must be
timely, efficient, and focused on improving decision making.
2.3 Credit Theory:
According to Rivai (2013: 198) “credit is the delivery of goods, services or money
from one party (creditor or lender) on the basis of trust to another party (debtor or debtor)
with a promise to pay from the credit recipient to the credit provider on the date agreed by
both parties”.
2.4 Risk:
According to Arthur J. Keown (2000), risk is the prospect of an unfavorable outcome
(operationalized as standard deviation).
The definition of risk according to Hanafi (2006) risk is the amount of deviation
between the expected return (ER) and the actual return.
According to Emmaett J. Vaughan and Curtis M. Elliott (1978), risk is defined as;
a. Chance of loss - the chance of loss
b. Possibility of loss - the possibility of loss
c. Uncertainty - uncertainty
d. The dispersion of actual from expected results.
e. The probability that an outcome is different from the one expected - the probability of
any outcome different from the one expected.
Or it can be concluded that the definition of risk is a condition that arises due to
uncertainty with all the unfavorable consequences that may occur.
2.3 Type Of Risk:
Based on its nature, risk is divided into four, namely
Pure risk:
It is a type of risk that if it occurs will cause a loss, while if this risk does not occur it will
result in profit to the people. This risk comes from things that may not be predicted in
advance. Examples of pure risks include robbery, fire, flooding, accidents, and so on.
74
Speculative risk:
It is a type of risk that if it occurs, it will not only cause losses but also profits for the person.
An example of speculative risk is the returns from stock exchange activities.
Particular risk:
It is a type of risk that is based on individual activities and has a local impact, in the sense
that it only affects a part of a population or only a small area. An example of a particularized
risk is an accident experienced by a person, then only the driver bears the risk and may affect
several parties in the area.
Fundamental risk:
The type of risk that is not caused by humans but rather comes from nature and has a greater
impact because it covers a wider area compared to other types of risk. Particular risks.
Concrete examples of fundamental risks include tsunamis, hurricanes, landslides, volcanic
eruptions and so on.
RISK SOURCE:
Based on its source, risk is divided into two, namely:
1. Internal risk, is a risk that comes from within a business entity or company. Examples in the
company such as damage to the machine.
2. External risks are risks that come from outside the business entity or company. Concrete
examples of external risks such as power outages that are beyond the company's control.
RISK MANAGEMENT:
Risk management has many definitions. One of them, risk management is defined as
the process of planning, managing, and supervising resources and other activities in an
organization with the aim of minimizing the consequences of losses at a cost that is still
within the feasibility level of the project (S.J. Lowder, 1982: 48-51). The main objectives of
risk management implementation in property projects are:
a. Project success,
b. Lower risk management costs and increase profits,
c. Maintaining income stability,
d. Reduce and protect against possible setbacks due to changes that affect project financing,
e. Upscaling of the company's business.
The risk management process consists of six steps, namely determining objectives,
identifying risks, determining risk measures, selecting analysis techniques, implementation,
and evaluation. Determining objectives is the first step in risk management. The goal is to
accurately determine the benefits of the risk management program for the company.
Achieving this requires a comprehensive planning process, including determining the purpose
of each step in risk management and the person responsible. The next step is to identify
potential risks involved in the property project. Potential risks can be identified through risk
analysis.
Risk measures should be associated with the presence of potential risks. Risk
measures include: 1) probability of loss occurring, 2) consequences of loss, 3) predictability
of loss.
3.0 Research Methodology
Analysis Method:
The analysis method used is descriptive analysis. According to Jogiyanto (2007)
descriptive analysis aims to describe or define what is involved in an activity, what is done,
and how to do it.
Data Analyst:
The data collected is primary data, according to Sugiyono, primary data is data that is
directly obtained from the source and given to data collectors or researchers. There is also an
opinion according to Sugiyono, the primary data source is an interview with the research
subject either by observation or direct observation.
Data Collection Technique:
Based on the type of analysis, this analysis is qualitative, the qualitative approach
76
emphasizes the quality aspects of the entity under study. Quoting information on the Ministry
of Education website, the qualitative approach has an emic perspective. The meaning of emic
perspective is a form of qualitative research approach that uses data in the form of narratives,
story details, expressions, and construction results from respondents or informants. Data can
be obtained from data collection techniques in the form of in-depth interviews and
observations.
Risk Management Analysis:
To analyze risk, a risk matrix table is used. A risk matrix is a matrix used during risk
assessment to determine the level of risk by considering the probability or likelihood category
against the severity category of the consequences. It is a simple mechanism to increase risk
visibility and aid management decision-making.
Risk Response:
Once the risks have been identified and measured, a response to each apparent risk
will then emerge. Risk mitigation reduces the impact of a risk event by reducing the
likelihood of the event.
4.0 Discussion:
Business Processes:
The Credit Union's business processes are member services to build financial strength,
through the establishment of adequate reserves and internal controls that ensure continuous
service to its members. All Credit Union services are aimed at improving the social and
economic well-being of all members. The Credit Union actively continues to educate its
members, officers, staff and the community at large on the principles of mutual, democratic,
social and economic self help. The aim is to encourage members to use their money wisely,
to save and to educate members to understand their rights and responsibilities.
Risk Identification:
In conducting risk identification, we can identify potential undesirable events that can
affect the strategy and achievement of the Company's objectives both internally and
externally. Risk identification is conducted to find, recognize and describe risks that can
support or hinder the achievement of organizational goals. Relevant, adequate and up-to-date
information is important in identifying risks. In identifying the ratio, the causes of risks,
threats and opportunities, emerging risk indicators, consequences and impact of risks on goals
and changes in the external and internal context and so on.
The step that must be taken before identifying risks is to determine what processes will
be identified such as recruitment of prospective members, training of members or fostering
membership, etc.
Risk Analysis:
In this stage, the purpose of risk analysis is to understand the nature and characteristics
of the risk including the risk rating. An event can have multiple causes and consequences and
can affect multiple Company objectives. The analysis techniques used may be qualitative,
quantitative or a combination of the two, depending on the circumstances and objectives of
use.
Risk analysis can be influenced by different opinions, biases, risk perception and
judgment. Other influences include the quality of information used, assumptions and
exclusions, any limitations of the technique and how the technique is implemented. These
influences should be considered, documented and communicated to decision-makers. Risk
analysis provides input for risk evaluation, deciding whether a risk needs treatment and how
it should be treated, as well as the most appropriate risk treatment strategy and method. The
results of risk analysis provide insights for decision-making, when there are multiple options,
and options that involve different types and ratings of risk.
Risk Evaluation:
The purpose of risk evaluation is to assist the decision-making process. Risk
evaluation involves comparing the results of the risk analysis against predetermined risk
criteria, to establish whether further action on the risk is required. This will lead to decisions
to: do nothing further; consider risk treatment options; conduct further analysis to better
understand the risk; maintain existing risk controls; reconsider objectives. Decisions should
consider the broader context and the actual consequences as perceived by external and
78
internal stakeholders. Risk evaluation results should be documented, communicated and then
validated at the appropriate level within the organization. The company evaluates using the
risk appetite standard, which is an acceptable level of risk appetite when the risk level is at a
medium-low level or yellow risk.
Risk Treatment:
The purpose of risk treatment is to select and implement risk treatment options. Risk
treatment includes the iterative process of: formulation and selection of risk treatment
options; planning and implementation of risk treatment; assessment of the effectiveness of
risk treatment; decision-making on whether the remaining risks are acceptable;
implementation of follow-up treatment, if options are not accepted.
The selection of the most appropriate risk treatment option involves balancing the
potential benefits derived in relation to achieving the objectives against the implementation
costs, efforts or losses.
Risk treatment options are not necessarily mutually exclusive or appropriate in all
circumstances. Risk treatment options may include one or more of the following options:
avoid risk by deciding not to start or continue the activity that creates the risk; take or
increase risk to pursue opportunities; eliminate the source of risk; change the likelihood;
change the consequences; share the risk; retain risk with informed decisions.
Credit unions initially emerged because of a group of people or members who had similar
needs, so a financial institution was established that aimed to run joint capital. For more
information, let's discuss it further through the reading below to know the difference between
the two. CU Sohagaini is one of the Credit Union Cooperative Institutions established since
2011 until now and is located in South Nias Regency, North Sumatra. There are several
company goals, namely improving the quality of human resources (HR), implementing an
online escete system to improve business processes, improving the quality of office targets
and infrastructure, being the main goal of the company's Balance Scorecard.
1.2 Problem Formulation:
Based on the background of the problem above, the problem formulation in this risk analysis
is what risks hinder the achievement of Key Performance Indicators in the Credit Union
process.
1.3 Purpose Of Risk Analysis:
The purpose of this analysis is to find out what risks hinder the process of achieving the Key
Performance Indicator targets in the Credit Union. And to manage the Company's risk.
1.4 Scope Of Risk Analysis:
The scope in this risk analysis is from the risk analysis process as follows:
h. Determination of Scope, Context and Criteria.
i. Risk assessment
j. Risk identification
k. Risk analysis
l. Risk evaluation
m. Risk treatment
n. Risk monitoring and review
2.0 Theoretical Basis:
2.4 Balanced Score Card:
Balanced Scorecard (BSC) is a method of measuring the results of a performance used by
companies or commonly referred to as management strategies. The Balanced Scorecard was
developed by Drs. Robert Kaplan of Harvard Business School and David Norton in early
1990. Kaplan and Norton stated the importance of creating a scorecard that communicates a
business unit strategy into 3 points as follows:
4. The scorecard portrays the organization's future vision to the entire organization. This
creates a shared understanding.
5. Scorecards create a holistic strategy model that allows all employees to see how they
contribute to the organization's success. Without such a connection, individuals and
departments may optimize their local performance but not contribute to achieving
strategic goals.
6. The scorecard focuses the change effort. If the right goals and measures are identified,
80
successful implementation is likely to occur. Otherwise, investments and initiatives will
be wasted.
With the existence of BSC, it is very helpful for the company to provide a
comprehensive view of the company's performance, so that its performance is more effective
and efficient, it needs accurate information that represents the work system carried out.
The Balanced Scorecard aligns the company's strategy into four main perspectives,
The four perspectives of the Balanced Scorecard (BSC) are as follows:
Financial Perspective.
Customer Perspective.
Internal Business Process Perspective.
Learning and Growth Perspective.
The company's strategy through the balance scorecard is derived into KPIs (Key Performance
Indicators) in each perspective, business unit and even individuals to achieve joint targets in
accordance with the company's vision and mission.
Balanced scorecard provides more comprehensive, accurate and precise information for the
implementation of the vision and mission of the business entity through the strategy it
chooses based on the situation and condition of the company. In the balanced scorecard
concept, the achievement of the company's vision can be derived
thoroughly/comprehensively into four perspectives which include financial perspective,
customer perspective, internal business process perspective, learning and growth perspective.
2.5 Key Performance Indicator (KPI):
KPI (Key Performance Indicator) is a measurement tool that describes the
effectiveness of a company in achieving its business goals. To be able to build and improve
performance in the process, according to Anupindi (2006) it is important to measure
something that is possible to measure. Alfred Sloan, CEO of General Motors (1923 and
1946), defined a professional leader as one who controls with facts rather than intuition and
emotion. By gathering facts for a purpose, it is possible to get a clear view of the process.
Measuring performance is an important part when implementing a method to improve
products and processes as well as measuring performance when making the outcome of a
change. (Anupindi 2006; cited in Rensfelt, Winblad, Lindman, 2008). Companies use KPIs to
measure their success in achieving their targets.
There are several characteristics of KPIs, namely:
Non-financial measures
Frequently used measurements (regular measurements)
Measures known to management
Everyone in an organization has understood and comprehends KPIs
Responsibility to individuals and teams
Has a very significant effect
Has a positive effect
Key performance indicators can be measured in daily, weekly and monthly periods,
which in turn will describe the performance of a unit in an annual period so that it becomes a
reference for review for future determination.
The elements contained in the KPI consist of strategic goals, indicators that are
relevant to the strategic goals. The target that becomes the benchmark and the time frame or
period of validity of the KPI (Soemohadiwidjojo, 2015). Determination of KPIs and targets to
be achieved cannot be done carelessly, but must be selected and determined using appropriate
and systematic methods. Choosing KPIs and setting KPI targets appropriately will lead the
organization to identify potential improvements or performance improvements, so KPIs are
often associated with initiatives related to performance improvement (Soemohadiwidjojo,
2015).
As one of the main tools of organizational management, the main purpose of
determining KPIs is:
6. To link between the vision - mission - values, organizational strategy and organizational
performance goals with organizational activities to achieve the desired performance
goals.
7. To measure the performance trend of the organization and/or division whether there is an
increase or a significant decrease.
8. For compare performance organization current with historical organization, or compare
with the performance of other organizations so that the organization gets An overview of
the advantages or weaknesses compared to competitors' conditions and knowing the
opportunities to create added value.
82
9. KPIs can also be used as the basis for determining the level of performance or
performance of divisions and individuals.
10. KPI achievement results can be used as a basis for rewards and consequences so that
KPIs are also useful for encouraging work motivation and good behavior from
employees.
Parmenter (2007) states that there are 4 basic criteria that must be met before an organization
can state that they have implemented KPIs into operational activities. These criteria are:
1. Collaboration between employees, teams, suppliers and customers
2. Decentralization from management level to operational level
3. Integration or linkage between measures, reports and actions
4. KPI relationship <- -> strategy
When implementing KPIs, it is important to define the results/objectives of each KPI.
Shahin and Mahbod (2007, referenced in Rensfelt, Winblad, Lindman, 2008) state, that
SMART is a method that uses several criteria for how to define the results/objectives of each
KPI planning a goal. One way to create relevant KPIs is with SMART criteria which stands
for specific, measurable, attainable, relevant, time-bound.
For an explanation of these matters, as follows:
Are the company objectives specific?
Can you measure the achievement of these goals?
Is the goal achievable?
Is the goal related to the company?
How long it will take to achieve the goal
To implement KPIs, requires an interrelated system process, both from the
organization's own environment such as employees, managers, shareholders and from
external parties such as customers and suppliers. Parmenter emphasizes reports that must be
timely, efficient, and focused on improving decision making.
2.3 Credit Theory:
According to Rivai (2013: 198) “credit is the delivery of goods, services or money
from one party (creditor or lender) on the basis of trust to another party (debtor or debtor)
with a promise to pay from the credit recipient to the credit provider on the date agreed by
both parties”.
2.4 Risk:
According to Arthur J. Keown (2000), risk is the prospect of an unfavorable outcome
(operationalized as standard deviation).
The definition of risk according to Hanafi (2006) risk is the amount of deviation
between the expected return (ER) and the actual return.
According to Emmaett J. Vaughan and Curtis M. Elliott (1978), risk is defined as;
f. Chance of loss - the chance of loss
g. Possibility of loss - the possibility of loss
h. Uncertainty - uncertainty
i. The dispersion of actual from expected results.
j. The probability that an outcome is different from the one expected - the probability of
any outcome different from the one expected.
Or it can be concluded that the definition of risk is a condition that arises due to
uncertainty with all the unfavorable consequences that may occur.
2.6 Type Of Risk:
Based on its nature, risk is divided into four, namely
Pure risk:
It is a type of risk that if it occurs will cause a loss, while if this risk does not occur it will
result in profit to the people. This risk comes from things that may not be predicted in
advance. Examples of pure risks include robbery, fire, flooding, accidents, and so on.
Speculative risk:
It is a type of risk that if it occurs, it will not only cause losses but also profits for the person.
An example of speculative risk is the returns from stock exchange activities.
84
Particular risk:
It is a type of risk that is based on individual activities and has a local impact, in the sense
that it only affects a part of a population or only a small area. An example of a particularized
risk is an accident experienced by a person, then only the driver bears the risk and may affect
several parties in the area.
Fundamental risk:
The type of risk that is not caused by humans but rather comes from nature and has a greater
impact because it covers a wider area compared to other types of risk. Particular risks.
Concrete examples of fundamental risks include tsunamis, hurricanes, landslides, volcanic
eruptions and so on.
RISK SOURCE:
Based on its source, risk is divided into two, namely:
3. Internal risk, is a risk that comes from within a business entity or company. Examples in the
company such as damage to the machine.
4. External risks are risks that come from outside the business entity or company. Concrete
examples of external risks such as power outages that are beyond the company's control.
RISK MANAGEMENT:
Risk management has many definitions. One of them, risk management is defined as
the process of planning, managing, and supervising resources and other activities in an
organization with the aim of minimizing the consequences of losses at a cost that is still
within the feasibility level of the project (S.J. Lowder, 1982: 48-51). The main objectives of
risk management implementation in property projects are:
f. Project success,
g. Lower risk management costs and increase profits,
h. Maintaining income stability,
i. Reduce and protect against possible setbacks due to changes that affect project financing,
j. Upscaling of the company's business.
The risk management process consists of six steps, namely determining objectives,
identifying risks, determining risk measures, selecting analysis techniques, implementation,
and evaluation. Determining objectives is the first step in risk management. The goal is to
accurately determine the benefits of the risk management program for the company.
Achieving this requires a comprehensive planning process, including determining the purpose
of each step in risk management and the person responsible. The next step is to identify
potential risks involved in the property project. Potential risks can be identified through risk
analysis.
Risk measures should be associated with the presence of potential risks. Risk
measures include: 1) probability of loss occurring, 2) consequences of loss, 3) predictability
of loss.
3.0 Research Methodology
Analysis Method:
The analysis method used is descriptive analysis. According to Jogiyanto (2007)
descriptive analysis aims to describe or define what is involved in an activity, what is done,
and how to do it.
Data Analyst:
The data collected is primary data, according to Sugiyono, primary data is data that is
directly obtained from the source and given to data collectors or researchers. There is also an
opinion according to Sugiyono, the primary data source is an interview with the research
subject either by observation or direct observation.
Data Collection Technique:
Based on the type of analysis, this analysis is qualitative, the qualitative approach
emphasizes the quality aspects of the entity under study. Quoting information on the Ministry
of Education website, the qualitative approach has an emic perspective. The meaning of emic
perspective is a form of qualitative research approach that uses data in the form of narratives,
story details, expressions, and construction results from respondents or informants. Data can
be obtained from data collection techniques in the form of in-depth interviews and
86
observations.
Risk Management Analysis:
To analyze risk, a risk matrix table is used. A risk matrix is a matrix used during risk
assessment to determine the level of risk by considering the probability or likelihood category
against the severity category of the consequences. It is a simple mechanism to increase risk
visibility and aid management decision-making.
Risk Response:
Once the risks have been identified and measured, a response to each apparent risk
will then emerge. Risk mitigation reduces the impact of a risk event by reducing the
likelihood of the event.
4.0 Discussion:
Business Processes:
The Credit Union's business processes are member services to build financial strength,
through the establishment of adequate reserves and internal controls that ensure continuous
service to its members. All Credit Union services are aimed at improving the social and
economic well-being of all members. The Credit Union actively continues to educate its
members, officers, staff and the community at large on the principles of mutual, democratic,
social and economic self help. The aim is to encourage members to use their money wisely,
to save and to educate members to understand their rights and responsibilities.
Risk Identification:
In conducting risk identification, we can identify potential undesirable events that can
affect the strategy and achievement of the Company's objectives both internally and
externally. Risk identification is conducted to find, recognize and describe risks that can
support or hinder the achievement of organizational goals. Relevant, adequate and up-to-date
information is important in identifying risks. In identifying the ratio, the causes of risks,
threats and opportunities, emerging risk indicators, consequences and impact of risks on goals
and changes in the external and internal context and so on.
The step that must be taken before identifying risks is to determine what processes will
be identified such as recruitment of prospective members, training of members or fostering
membership, etc.
Risk Analysis:
In this stage, the purpose of risk analysis is to understand the nature and characteristics
of the risk including the risk rating. An event can have multiple causes and consequences and
can affect multiple Company objectives. The analysis techniques used may be qualitative,
quantitative or a combination of the two, depending on the circumstances and objectives of
use.
Risk analysis can be influenced by different opinions, biases, risk perception and
judgment. Other influences include the quality of information used, assumptions and
exclusions, any limitations of the technique and how the technique is implemented. These
influences should be considered, documented and communicated to decision-makers. Risk
analysis provides input for risk evaluation, deciding whether a risk needs treatment and how
it should be treated, as well as the most appropriate risk treatment strategy and method. The
results of risk analysis provide insights for decision-making, when there are multiple options,
and options that involve different types and ratings of risk.
Risk Evaluation:
The purpose of risk evaluation is to assist the decision-making process. Risk
evaluation involves comparing the results of the risk analysis against predetermined risk
criteria, to establish whether further action on the risk is required. This will lead to decisions
to: do nothing further; consider risk treatment options; conduct further analysis to better
understand the risk; maintain existing risk controls; reconsider objectives. Decisions should
consider the broader context and the actual consequences as perceived by external and
internal stakeholders. Risk evaluation results should be documented, communicated and then
validated at the appropriate level within the organization. The company evaluates using the
risk appetite standard, which is an acceptable level of risk appetite when the risk level is at a
medium-low level or yellow risk.
88
Risk Treatment:
The purpose of risk treatment is to select and implement risk treatment options. Risk
treatment includes the iterative process of: formulation and selection of risk treatment
options; planning and implementation of risk treatment; assessment of the effectiveness of
risk treatment; decision-making on whether the remaining risks are acceptable;
implementation of follow-up treatment, if options are not accepted.
The selection of the most appropriate risk treatment option involves balancing the
potential benefits derived in relation to achieving the objectives against the implementation
costs, efforts or losses.
Risk treatment options are not necessarily mutually exclusive or appropriate in all
circumstances. Risk treatment options may include one or more of the following options:
avoid risk by deciding not to start or continue the activity that creates the risk; take or
increase risk to pursue opportunities; eliminate the source of risk; change the likelihood;
change the consequences; share the risk; retain risk with informed decisions.
Credit unions initially emerged because of a group of people or members who had similar
needs, so a financial institution was established that aimed to run joint capital. For more
information, let's discuss it further through the reading below to know the difference between
the two. CU Sohagaini is one of the Credit Union Cooperative Institutions established since
2011 until now and is located in South Nias Regency, North Sumatra. There are several
company goals, namely improving the quality of human resources (HR), implementing an
online escete system to improve business processes, improving the quality of office targets
and infrastructure, being the main goal of the company's Balance Scorecard.
1.2 Problem Formulation:
Based on the background of the problem above, the problem formulation in this risk analysis
is what risks hinder the achievement of Key Performance Indicators in the Credit Union
process.
1.3 Purpose Of Risk Analysis:
The purpose of this analysis is to find out what risks hinder the process of achieving the Key
Performance Indicator targets in the Credit Union. And to manage the Company's risk.
1.4 Scope Of Risk Analysis:
The scope in this risk analysis is from the risk analysis process as follows:
o. Determination of Scope, Context and Criteria.
p. Risk assessment
q. Risk identification
r. Risk analysis
s. Risk evaluation
t. Risk treatment
u. Risk monitoring and review
2.0 Theoretical Basis:
2.7 Balanced Score Card:
Balanced Scorecard (BSC) is a method of measuring the results of a performance used by
companies or commonly referred to as management strategies. The Balanced Scorecard was
developed by Drs. Robert Kaplan of Harvard Business School and David Norton in early
1990. Kaplan and Norton stated the importance of creating a scorecard that communicates a
business unit strategy into 3 points as follows:
7. The scorecard portrays the organization's future vision to the entire organization. This
creates a shared understanding.
8. Scorecards create a holistic strategy model that allows all employees to see how they
contribute to the organization's success. Without such a connection, individuals and
departments may optimize their local performance but not contribute to achieving
strategic goals.
9. The scorecard focuses the change effort. If the right goals and measures are identified,
successful implementation is likely to occur. Otherwise, investments and initiatives will
be wasted.
With the existence of BSC, it is very helpful for the company to provide a
comprehensive view of the company's performance, so that its performance is more effective
and efficient, it needs accurate information that represents the work system carried out.
The Balanced Scorecard aligns the company's strategy into four main perspectives,
90
The four perspectives of the Balanced Scorecard (BSC) are as follows:
Financial Perspective.
Customer Perspective.
Internal Business Process Perspective.
Learning and Growth Perspective.
The company's strategy through the balance scorecard is derived into KPIs (Key Performance
Indicators) in each perspective, business unit and even individuals to achieve joint targets in
accordance with the company's vision and mission.
Balanced scorecard provides more comprehensive, accurate and precise information for the
implementation of the vision and mission of the business entity through the strategy it
chooses based on the situation and condition of the company. In the balanced scorecard
concept, the achievement of the company's vision can be derived
thoroughly/comprehensively into four perspectives which include financial perspective,
customer perspective, internal business process perspective, learning and growth perspective.
2.8 Key Performance Indicator (KPI):
KPI (Key Performance Indicator) is a measurement tool that describes the
effectiveness of a company in achieving its business goals. To be able to build and improve
performance in the process, according to Anupindi (2006) it is important to measure
something that is possible to measure. Alfred Sloan, CEO of General Motors (1923 and
1946), defined a professional leader as one who controls with facts rather than intuition and
emotion. By gathering facts for a purpose, it is possible to get a clear view of the process.
Measuring performance is an important part when implementing a method to improve
products and processes as well as measuring performance when making the outcome of a
change. (Anupindi 2006; cited in Rensfelt, Winblad, Lindman, 2008). Companies use KPIs to
measure their success in achieving their targets.
There are several characteristics of KPIs, namely:
Non-financial measures
Frequently used measurements (regular measurements)
Measures known to management
Everyone in an organization has understood and comprehends KPIs
Responsibility to individuals and teams
Has a very significant effect
Has a positive effect
Key performance indicators can be measured in daily, weekly and monthly periods,
which in turn will describe the performance of a unit in an annual period so that it becomes a
reference for review for future determination.
The elements contained in the KPI consist of strategic goals, indicators that are
relevant to the strategic goals. The target that becomes the benchmark and the time frame or
period of validity of the KPI (Soemohadiwidjojo, 2015). Determination of KPIs and targets to
be achieved cannot be done carelessly, but must be selected and determined using appropriate
and systematic methods. Choosing KPIs and setting KPI targets appropriately will lead the
organization to identify potential improvements or performance improvements, so KPIs are
often associated with initiatives related to performance improvement (Soemohadiwidjojo,
2015).
As one of the main tools of organizational management, the main purpose of
determining KPIs is:
11. To link between the vision - mission - values, organizational strategy and organizational
performance goals with organizational activities to achieve the desired performance
goals.
12. To measure the performance trend of the organization and/or division whether there is an
increase or a significant decrease.
13. For compare performance organization current with historical organization, or compare
with the performance of other organizations so that the organization gets An overview of
the advantages or weaknesses compared to competitors' conditions and knowing the
opportunities to create added value.
14. KPIs can also be used as the basis for determining the level of performance or
performance of divisions and individuals.
15. KPI achievement results can be used as a basis for rewards and consequences so that
KPIs are also useful for encouraging work motivation and good behavior from
employees.
Parmenter (2007) states that there are 4 basic criteria that must be met before an organization
can state that they have implemented KPIs into operational activities. These criteria are:
92
1. Collaboration between employees, teams, suppliers and customers
2. Decentralization from management level to operational level
3. Integration or linkage between measures, reports and actions
4. KPI relationship <- -> strategy
When implementing KPIs, it is important to define the results/objectives of each KPI.
Shahin and Mahbod (2007, referenced in Rensfelt, Winblad, Lindman, 2008) state, that
SMART is a method that uses several criteria for how to define the results/objectives of each
KPI planning a goal. One way to create relevant KPIs is with SMART criteria which stands
for specific, measurable, attainable, relevant, time-bound.
For an explanation of these matters, as follows:
Are the company objectives specific?
Can you measure the achievement of these goals?
Is the goal achievable?
Is the goal related to the company?
How long it will take to achieve the goal
To implement KPIs, requires an interrelated system process, both from the
organization's own environment such as employees, managers, shareholders and from
external parties such as customers and suppliers. Parmenter emphasizes reports that must be
timely, efficient, and focused on improving decision making.
2.3 Credit Theory:
According to Rivai (2013: 198) “credit is the delivery of goods, services or money
from one party (creditor or lender) on the basis of trust to another party (debtor or debtor)
with a promise to pay from the credit recipient to the credit provider on the date agreed by
both parties”.
2.4 Risk:
According to Arthur J. Keown (2000), risk is the prospect of an unfavorable outcome
(operationalized as standard deviation).
The definition of risk according to Hanafi (2006) risk is the amount of deviation
between the expected return (ER) and the actual return.
According to Emmaett J. Vaughan and Curtis M. Elliott (1978), risk is defined as;
k. Chance of loss - the chance of loss
l. Possibility of loss - the possibility of loss
m. Uncertainty - uncertainty
n. The dispersion of actual from expected results.
o. The probability that an outcome is different from the one expected - the probability of
any outcome different from the one expected.
Or it can be concluded that the definition of risk is a condition that arises due to
uncertainty with all the unfavorable consequences that may occur.
2.9 Type Of Risk:
Based on its nature, risk is divided into four, namely
Pure risk:
It is a type of risk that if it occurs will cause a loss, while if this risk does not occur it will
result in profit to the people. This risk comes from things that may not be predicted in
advance. Examples of pure risks include robbery, fire, flooding, accidents, and so on.
Speculative risk:
It is a type of risk that if it occurs, it will not only cause losses but also profits for the person.
An example of speculative risk is the returns from stock exchange activities.
Particular risk:
It is a type of risk that is based on individual activities and has a local impact, in the sense
that it only affects a part of a population or only a small area. An example of a particularized
risk is an accident experienced by a person, then only the driver bears the risk and may affect
several parties in the area.
94
Fundamental risk:
The type of risk that is not caused by humans but rather comes from nature and has a greater
impact because it covers a wider area compared to other types of risk. Particular risks.
Concrete examples of fundamental risks include tsunamis, hurricanes, landslides, volcanic
eruptions and so on.
RISK SOURCE:
Based on its source, risk is divided into two, namely:
5. Internal risk, is a risk that comes from within a business entity or company. Examples in the
company such as damage to the machine.
6. External risks are risks that come from outside the business entity or company. Concrete
examples of external risks such as power outages that are beyond the company's control.
RISK MANAGEMENT:
Risk management has many definitions. One of them, risk management is defined as
the process of planning, managing, and supervising resources and other activities in an
organization with the aim of minimizing the consequences of losses at a cost that is still
within the feasibility level of the project (S.J. Lowder, 1982: 48-51). The main objectives of
risk management implementation in property projects are:
k. Project success,
l. Lower risk management costs and increase profits,
m. Maintaining income stability,
n. Reduce and protect against possible setbacks due to changes that affect project financing,
o. Upscaling of the company's business.
The risk management process consists of six steps, namely determining objectives,
identifying risks, determining risk measures, selecting analysis techniques, implementation,
and evaluation. Determining objectives is the first step in risk management. The goal is to
accurately determine the benefits of the risk management program for the company.
Achieving this requires a comprehensive planning process, including determining the purpose
of each step in risk management and the person responsible. The next step is to identify
potential risks involved in the property project. Potential risks can be identified through risk
analysis.
Risk measures should be associated with the presence of potential risks. Risk
measures include: 1) probability of loss occurring, 2) consequences of loss, 3) predictability
of loss.
3.0 Research Methodology
Analysis Method:
The analysis method used is descriptive analysis. According to Jogiyanto (2007)
descriptive analysis aims to describe or define what is involved in an activity, what is done,
and how to do it.
Data Analyst:
The data collected is primary data, according to Sugiyono, primary data is data that is
directly obtained from the source and given to data collectors or researchers. There is also an
opinion according to Sugiyono, the primary data source is an interview with the research
subject either by observation or direct observation.
Data Collection Technique:
Based on the type of analysis, this analysis is qualitative, the qualitative approach
emphasizes the quality aspects of the entity under study. Quoting information on the Ministry
of Education website, the qualitative approach has an emic perspective. The meaning of emic
perspective is a form of qualitative research approach that uses data in the form of narratives,
story details, expressions, and construction results from respondents or informants. Data can
be obtained from data collection techniques in the form of in-depth interviews and
observations.
Risk Management Analysis:
To analyze risk, a risk matrix table is used. A risk matrix is a matrix used during risk
assessment to determine the level of risk by considering the probability or likelihood category
against the severity category of the consequences. It is a simple mechanism to increase risk
visibility and aid management decision-making.
96
Risk Response:
Once the risks have been identified and measured, a response to each apparent risk
will then emerge. Risk mitigation reduces the impact of a risk event by reducing the
likelihood of the event.
4.0 Discussion:
Business Processes:
The Credit Union's business processes are member services to build financial strength,
through the establishment of adequate reserves and internal controls that ensure continuous
service to its members. All Credit Union services are aimed at improving the social and
economic well-being of all members. The Credit Union actively continues to educate its
members, officers, staff and the community at large on the principles of mutual, democratic,
social and economic self help. The aim is to encourage members to use their money wisely,
to save and to educate members to understand their rights and responsibilities.
Risk Identification:
In conducting risk identification, we can identify potential undesirable events that can
affect the strategy and achievement of the Company's objectives both internally and
externally. Risk identification is conducted to find, recognize and describe risks that can
support or hinder the achievement of organizational goals. Relevant, adequate and up-to-date
information is important in identifying risks. In identifying the ratio, the causes of risks,
threats and opportunities, emerging risk indicators, consequences and impact of risks on goals
and changes in the external and internal context and so on.
The step that must be taken before identifying risks is to determine what processes will
be identified such as recruitment of prospective members, training of members or fostering
membership, etc.
Risk Analysis:
In this stage, the purpose of risk analysis is to understand the nature and characteristics
of the risk including the risk rating. An event can have multiple causes and consequences and
can affect multiple Company objectives. The analysis techniques used may be qualitative,
quantitative or a combination of the two, depending on the circumstances and objectives of
use.
Risk analysis can be influenced by different opinions, biases, risk perception and
judgment. Other influences include the quality of information used, assumptions and
exclusions, any limitations of the technique and how the technique is implemented. These
influences should be considered, documented and communicated to decision-makers. Risk
analysis provides input for risk evaluation, deciding whether a risk needs treatment and how
it should be treated, as well as the most appropriate risk treatment strategy and method. The
results of risk analysis provide insights for decision-making, when there are multiple options,
and options that involve different types and ratings of risk.
Risk Evaluation:
The purpose of risk evaluation is to assist the decision-making process. Risk
evaluation involves comparing the results of the risk analysis against predetermined risk
criteria, to establish whether further action on the risk is required. This will lead to decisions
to: do nothing further; consider risk treatment options; conduct further analysis to better
understand the risk; maintain existing risk controls; reconsider objectives. Decisions should
consider the broader context and the actual consequences as perceived by external and
internal stakeholders. Risk evaluation results should be documented, communicated and then
validated at the appropriate level within the organization. The company evaluates using the
risk appetite standard, which is an acceptable level of risk appetite when the risk level is at a
medium-low level or yellow risk.
Risk Treatment:
The purpose of risk treatment is to select and implement risk treatment options. Risk
treatment includes the iterative process of: formulation and selection of risk treatment
options; planning and implementation of risk treatment; assessment of the effectiveness of
risk treatment; decision-making on whether the remaining risks are acceptable;
implementation of follow-up treatment, if options are not accepted.
The selection of the most appropriate risk treatment option involves balancing the
potential benefits derived in relation to achieving the objectives against the implementation
costs, efforts or losses.
98
Risk treatment options are not necessarily mutually exclusive or appropriate in all
circumstances. Risk treatment options may include one or more of the following options:
avoid risk by deciding not to start or continue the activity that creates the risk; take or
increase risk to pursue opportunities; eliminate the source of risk; change the likelihood;
change the consequences; share the risk; retain risk with informed decisions.
Credit unions initially emerged because of a group of people or members who had similar
needs, so a financial institution was established that aimed to run joint capital. For more
information, let's discuss it further through the reading below to know the difference between
the two. CU Sohagaini is one of the Credit Union Cooperative Institutions established since
2011 until now and is located in South Nias Regency, North Sumatra. There are several
company goals, namely improving the quality of human resources (HR), implementing an
online escete system to improve business processes, improving the quality of office targets
and infrastructure, being the main goal of the company's Balance Scorecard.
1.2 Problem Formulation:
Based on the background of the problem above, the problem formulation in this risk analysis
is what risks hinder the achievement of Key Performance Indicators in the Credit Union
process.
1.3 Purpose Of Risk Analysis:
The purpose of this analysis is to find out what risks hinder the process of achieving the Key
Performance Indicator targets in the Credit Union. And to manage the Company's risk.
1.4 Scope Of Risk Analysis:
The scope in this risk analysis is from the risk analysis process as follows:
v. Determination of Scope, Context and Criteria.
w. Risk assessment
x. Risk identification
y. Risk analysis
z. Risk evaluation
aa. Risk treatment
bb. Risk monitoring and review
2.0 Theoretical Basis:
2.10 Balanced Score Card:
Balanced Scorecard (BSC) is a method of measuring the results of a performance used by
companies or commonly referred to as management strategies. The Balanced Scorecard was
developed by Drs. Robert Kaplan of Harvard Business School and David Norton in early
1990. Kaplan and Norton stated the importance of creating a scorecard that communicates a
business unit strategy into 3 points as follows:
10. The scorecard portrays the organization's future vision to the entire organization. This
creates a shared understanding.
11. Scorecards create a holistic strategy model that allows all employees to see how they
contribute to the organization's success. Without such a connection, individuals and
departments may optimize their local performance but not contribute to achieving
strategic goals.
12. The scorecard focuses the change effort. If the right goals and measures are identified,
successful implementation is likely to occur. Otherwise, investments and initiatives will
be wasted.
With the existence of BSC, it is very helpful for the company to provide a
comprehensive view of the company's performance, so that its performance is more effective
and efficient, it needs accurate information that represents the work system carried out.
The Balanced Scorecard aligns the company's strategy into four main perspectives,
The four perspectives of the Balanced Scorecard (BSC) are as follows:
Financial Perspective.
Customer Perspective.
Internal Business Process Perspective.
Learning and Growth Perspective.
The company's strategy through the balance scorecard is derived into KPIs (Key Performance
Indicators) in each perspective, business unit and even individuals to achieve joint targets in
accordance with the company's vision and mission.
10
0
Balanced scorecard provides more comprehensive, accurate and precise information for the
implementation of the vision and mission of the business entity through the strategy it
chooses based on the situation and condition of the company. In the balanced scorecard
concept, the achievement of the company's vision can be derived
thoroughly/comprehensively into four perspectives which include financial perspective,
customer perspective, internal business process perspective, learning and growth perspective.
2.11 Key Performance Indicator (KPI):
KPI (Key Performance Indicator) is a measurement tool that describes the
effectiveness of a company in achieving its business goals. To be able to build and improve
performance in the process, according to Anupindi (2006) it is important to measure
something that is possible to measure. Alfred Sloan, CEO of General Motors (1923 and
1946), defined a professional leader as one who controls with facts rather than intuition and
emotion. By gathering facts for a purpose, it is possible to get a clear view of the process.
Measuring performance is an important part when implementing a method to improve
products and processes as well as measuring performance when making the outcome of a
change. (Anupindi 2006; cited in Rensfelt, Winblad, Lindman, 2008). Companies use KPIs to
measure their success in achieving their targets.
There are several characteristics of KPIs, namely:
Non-financial measures
Frequently used measurements (regular measurements)
Measures known to management
Everyone in an organization has understood and comprehends KPIs
Responsibility to individuals and teams
Has a very significant effect
Has a positive effect
Key performance indicators can be measured in daily, weekly and monthly periods,
which in turn will describe the performance of a unit in an annual period so that it becomes a
reference for review for future determination.
The elements contained in the KPI consist of strategic goals, indicators that are
relevant to the strategic goals. The target that becomes the benchmark and the time frame or
period of validity of the KPI (Soemohadiwidjojo, 2015). Determination of KPIs and targets to
be achieved cannot be done carelessly, but must be selected and determined using appropriate
and systematic methods. Choosing KPIs and setting KPI targets appropriately will lead the
organization to identify potential improvements or performance improvements, so KPIs are
often associated with initiatives related to performance improvement (Soemohadiwidjojo,
2015).
As one of the main tools of organizational management, the main purpose of
determining KPIs is:
16. To link between the vision - mission - values, organizational strategy and organizational
performance goals with organizational activities to achieve the desired performance
goals.
17. To measure the performance trend of the organization and/or division whether there is an
increase or a significant decrease.
18. For compare performance organization current with historical organization, or compare
with the performance of other organizations so that the organization gets An overview of
the advantages or weaknesses compared to competitors' conditions and knowing the
opportunities to create added value.
19. KPIs can also be used as the basis for determining the level of performance or
performance of divisions and individuals.
20. KPI achievement results can be used as a basis for rewards and consequences so that
KPIs are also useful for encouraging work motivation and good behavior from
employees.
Parmenter (2007) states that there are 4 basic criteria that must be met before an organization
can state that they have implemented KPIs into operational activities. These criteria are:
1. Collaboration between employees, teams, suppliers and customers
2. Decentralization from management level to operational level
3. Integration or linkage between measures, reports and actions
4. KPI relationship <- -> strategy
When implementing KPIs, it is important to define the results/objectives of each KPI.
Shahin and Mahbod (2007, referenced in Rensfelt, Winblad, Lindman, 2008) state, that
SMART is a method that uses several criteria for how to define the results/objectives of each
10
2
KPI planning a goal. One way to create relevant KPIs is with SMART criteria which stands
for specific, measurable, attainable, relevant, time-bound.
For an explanation of these matters, as follows:
Are the company objectives specific?
Can you measure the achievement of these goals?
Is the goal achievable?
Is the goal related to the company?
How long it will take to achieve the goal
To implement KPIs, requires an interrelated system process, both from the
organization's own environment such as employees, managers, shareholders and from
external parties such as customers and suppliers. Parmenter emphasizes reports that must be
timely, efficient, and focused on improving decision making.
2.3 Credit Theory:
According to Rivai (2013: 198) “credit is the delivery of goods, services or money
from one party (creditor or lender) on the basis of trust to another party (debtor or debtor)
with a promise to pay from the credit recipient to the credit provider on the date agreed by
both parties”.
2.4 Risk:
According to Arthur J. Keown (2000), risk is the prospect of an unfavorable outcome
(operationalized as standard deviation).
The definition of risk according to Hanafi (2006) risk is the amount of deviation
between the expected return (ER) and the actual return.
According to Emmaett J. Vaughan and Curtis M. Elliott (1978), risk is defined as;
p. Chance of loss - the chance of loss
q. Possibility of loss - the possibility of loss
r. Uncertainty - uncertainty
s. The dispersion of actual from expected results.
t. The probability that an outcome is different from the one expected - the probability of
any outcome different from the one expected.
Or it can be concluded that the definition of risk is a condition that arises due to
uncertainty with all the unfavorable consequences that may occur.
2.12 Type Of Risk:
Based on its nature, risk is divided into four, namely
Pure risk:
It is a type of risk that if it occurs will cause a loss, while if this risk does not occur it will
result in profit to the people. This risk comes from things that may not be predicted in
advance. Examples of pure risks include robbery, fire, flooding, accidents, and so on.
Speculative risk:
It is a type of risk that if it occurs, it will not only cause losses but also profits for the person.
An example of speculative risk is the returns from stock exchange activities.
Particular risk:
It is a type of risk that is based on individual activities and has a local impact, in the sense
that it only affects a part of a population or only a small area. An example of a particularized
risk is an accident experienced by a person, then only the driver bears the risk and may affect
several parties in the area.
Fundamental risk:
The type of risk that is not caused by humans but rather comes from nature and has a greater
impact because it covers a wider area compared to other types of risk. Particular risks.
Concrete examples of fundamental risks include tsunamis, hurricanes, landslides, volcanic
eruptions and so on.
RISK SOURCE:
10
4
Based on its source, risk is divided into two, namely:
7. Internal risk, is a risk that comes from within a business entity or company. Examples in the
company such as damage to the machine.
8. External risks are risks that come from outside the business entity or company. Concrete
examples of external risks such as power outages that are beyond the company's control.
RISK MANAGEMENT:
Risk management has many definitions. One of them, risk management is defined as
the process of planning, managing, and supervising resources and other activities in an
organization with the aim of minimizing the consequences of losses at a cost that is still
within the feasibility level of the project (S.J. Lowder, 1982: 48-51). The main objectives of
risk management implementation in property projects are:
p. Project success,
q. Lower risk management costs and increase profits,
r. Maintaining income stability,
s. Reduce and protect against possible setbacks due to changes that affect project financing,
t. Upscaling of the company's business.
The risk management process consists of six steps, namely determining objectives,
identifying risks, determining risk measures, selecting analysis techniques, implementation,
and evaluation. Determining objectives is the first step in risk management. The goal is to
accurately determine the benefits of the risk management program for the company.
Achieving this requires a comprehensive planning process, including determining the purpose
of each step in risk management and the person responsible. The next step is to identify
potential risks involved in the property project. Potential risks can be identified through risk
analysis.
Risk measures should be associated with the presence of potential risks. Risk
measures include: 1) probability of loss occurring, 2) consequences of loss, 3) predictability
of loss.
3.0 Research Methodology
Analysis Method:
The analysis method used is descriptive analysis. According to Jogiyanto (2007)
descriptive analysis aims to describe or define what is involved in an activity, what is done,
and how to do it.
Data Analyst:
The data collected is primary data, according to Sugiyono, primary data is data that is
directly obtained from the source and given to data collectors or researchers. There is also an
opinion according to Sugiyono, the primary data source is an interview with the research
subject either by observation or direct observation.
Data Collection Technique:
Based on the type of analysis, this analysis is qualitative, the qualitative approach
emphasizes the quality aspects of the entity under study. Quoting information on the Ministry
of Education website, the qualitative approach has an emic perspective. The meaning of emic
perspective is a form of qualitative research approach that uses data in the form of narratives,
story details, expressions, and construction results from respondents or informants. Data can
be obtained from data collection techniques in the form of in-depth interviews and
observations.
Risk Management Analysis:
To analyze risk, a risk matrix table is used. A risk matrix is a matrix used during risk
assessment to determine the level of risk by considering the probability or likelihood category
against the severity category of the consequences. It is a simple mechanism to increase risk
visibility and aid management decision-making.
Risk Response:
Once the risks have been identified and measured, a response to each apparent risk
will then emerge. Risk mitigation reduces the impact of a risk event by reducing the
likelihood of the event.
4.0 Discussion:
10
6
Business Processes:
The Credit Union's business processes are member services to build financial strength,
through the establishment of adequate reserves and internal controls that ensure continuous
service to its members. All Credit Union services are aimed at improving the social and
economic well-being of all members. The Credit Union actively continues to educate its
members, officers, staff and the community at large on the principles of mutual, democratic,
social and economic self help. The aim is to encourage members to use their money wisely,
to save and to educate members to understand their rights and responsibilities.
Risk Identification:
In conducting risk identification, we can identify potential undesirable events that can
affect the strategy and achievement of the Company's objectives both internally and
externally. Risk identification is conducted to find, recognize and describe risks that can
support or hinder the achievement of organizational goals. Relevant, adequate and up-to-date
information is important in identifying risks. In identifying the ratio, the causes of risks,
threats and opportunities, emerging risk indicators, consequences and impact of risks on goals
and changes in the external and internal context and so on.
The step that must be taken before identifying risks is to determine what processes will
be identified such as recruitment of prospective members, training of members or fostering
membership, etc.
Risk Analysis:
In this stage, the purpose of risk analysis is to understand the nature and characteristics
of the risk including the risk rating. An event can have multiple causes and consequences and
can affect multiple Company objectives. The analysis techniques used may be qualitative,
quantitative or a combination of the two, depending on the circumstances and objectives of
use.
Risk analysis can be influenced by different opinions, biases, risk perception and
judgment. Other influences include the quality of information used, assumptions and
exclusions, any limitations of the technique and how the technique is implemented. These
influences should be considered, documented and communicated to decision-makers. Risk
analysis provides input for risk evaluation, deciding whether a risk needs treatment and how
it should be treated, as well as the most appropriate risk treatment strategy and method. The
results of risk analysis provide insights for decision-making, when there are multiple options,
and options that involve different types and ratings of risk.
Risk Evaluation:
The purpose of risk evaluation is to assist the decision-making process. Risk
evaluation involves comparing the results of the risk analysis against predetermined risk
criteria, to establish whether further action on the risk is required. This will lead to decisions
to: do nothing further; consider risk treatment options; conduct further analysis to better
understand the risk; maintain existing risk controls; reconsider objectives. Decisions should
consider the broader context and the actual consequences as perceived by external and
internal stakeholders. Risk evaluation results should be documented, communicated and then
validated at the appropriate level within the organization. The company evaluates using the
risk appetite standard, which is an acceptable level of risk appetite when the risk level is at a
medium-low level or yellow risk.
Risk Treatment:
The purpose of risk treatment is to select and implement risk treatment options. Risk
treatment includes the iterative process of: formulation and selection of risk treatment
options; planning and implementation of risk treatment; assessment of the effectiveness of
risk treatment; decision-making on whether the remaining risks are acceptable;
implementation of follow-up treatment, if options are not accepted.
The selection of the most appropriate risk treatment option involves balancing the
potential benefits derived in relation to achieving the objectives against the implementation
costs, efforts or losses.
Risk treatment options are not necessarily mutually exclusive or appropriate in all
circumstances. Risk treatment options may include one or more of the following options:
avoid risk by deciding not to start or continue the activity that creates the risk; take or
increase risk to pursue opportunities; eliminate the source of risk; change the likelihood;
change the consequences; share the risk; retain risk with informed decisions.
