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Risk Management System

General View on Risk Management System

Risk management is the identification, assessment and prioritization of risk which incur loss may happen to the management, who would take action with the coordination and the use of available resources to manage and minimize the risk which would make possible loss to happen. Risk is something that would happen which may incur not only potential loss but also provides opportunities. The main function of risk management is not to avoid or delete risk but to indentify which risk to be handle.

Risk management is a part of internal control system which gives adequate assurance that there is no significant risk in the Company’s operation which can influence the Company’s goal. Risk can come from uncertainty in financial markets, project failures, legal liabilities, credit risks, accidents and natural disaster. The risks related to the activities of the Company are to determine which of its existing investments, will make an impact to the present and future cash flow, thus will affect the present value of the Company. The risk and their management have to be looked into because:

  • Risks may occur anytime and whenever
  • All risks are considered threats to the Company
  • A certain measurement has to be taken on the potential impact of loss due to the occurence of a risk
  • There are various types of risks in the Company and they are co-related

Type of Risks and Risk Management

The potential risk related to some aspects in the Company are:

Company’s Assets Risk

To protect the assets, the Company maintenance and repair the assets on timely basis to sustain the value of assets, minimized risk of failure in the production process and to prolong the life-time of assets.

To anticipate the risks of assets, the Company has covered a complete insurance scheme against fire to the machines, factory and other office equipment.

Commodity Price Risk

Commodity price risk is related to the shortage of steel pipes that would lead to an increase in the price of steel pipes. It primilary relates to the purchases of raw materials such as steel pipes and steel plates, whichthe prices of these raw materials are directly affected by commodity price fluctuations and the level of demand and supply in the world market.

The Company’s policy is to minimize the risks arising from the fluctuations in the commodity prices by:

  • Maintaining the optimum inventory level of raw materials for a continuous production
  • Passing on the price increases to their customers
  • Established close working relationships with overseas the steel mills

Human Resources Risk

Astoimprovethehuman resources capabilities, theCompany provides training and career develompent continuously with the training of Captain Sace acquiring the better skills and higger competency of the empeloyees and inside and outside seminars to motivate the empeloyees. This is to ensure that the latest technologies are being implemented.

Business Competition Risk

in anticipation of the tighter global competition, the Company always keeps up good relationship with costumers and improve the quality of products. Provide the best pipes according to the specifications asked from the costumers.

Foreign Currency Risk

The Company does not the experience significant risk from the fluctuation of foreign exchange rate because most the financial business transactions of the Company are done in United States Dollars. Though some expenses are in Rupiah.

Interest Rate Risk

The Company and its Subsidiaries in facing the risk changes in interest rate related to long term and short item loan, such are creedit loan and down-payments from thrid party and related parties.

To anticipate the change in the rate of interest, the Company has taken the most competitive interest rate.

Liquidity Risk

Company does not suffer from the risk of Liquidity as the turnover of working capital is good.

And because the balance and continuous between collections of accounts receivable and flexibility in utilizing bank loan and other loan must always be monitored from time to time.

Credit Risk

The Company’s financial assets have potential risk of significant credit loan and basically include in the accounts payable. The Company has valid credit evaluation and active account monitoring. The credit risk may arise from default of other parties, with maximum exposure aqual to stated amount of these instruments.

The Company always monitoring tightlyon the accounts receivable of the Company in the financial position in 2014. As there have been our-break of war in Middle east a few costumers are being affected. Therefore the Company has made provision to the doubtful accounts.

Government and International Regulation

The Company always follows and compiles with the changes in Laws,Government regulations as well as the development in international market.

Slowdown Economic Risk

The obvious threatening risk, at present, is crisis in Europe and continuing wars in Middle East and the impact will affect export from indonesia to those regions. For that reason the Company will concentrate marketing strategies to East indonesia areas.

Review on the Effectiveness of Risk Management

The review on the system of risk management is described on each individual risk.

To review unfaourable strategic risk is as follows:

  • More comprehensive and timely information
  • Faster response to any problem may arise
  • Past experience with similar cases
  • Availability of financial resources and human resources
  • Flexibility from the element of finance and operator
  • To intensify the product innovation

To minimize the level of unpredictable risks, the Company implements Proactive treatment as follow:

  • Form a team to handle emergency and provide fire extinguisher equipment at the strategic places and assembly points as the place of evacuation
  • Comply with the Minimum Wages of the industry to avoid any workes’unrest
  • Pay close attention to the basic needs of the employees
  • Provide and protection to the employees in the work place by providing safety shoes, helmet, ear plug, and google as eyes protector