The Urgency of Risk Management to Anticipate Legal Violations in the Business World

Posted by – In managing risk, organizations must identify core risks and their triggers (key drivers) originating from internal and external risk factors and group them into several categories.
The business world cannot be separated from risks from economic and legal aspects. Without adequate risk management, it can have implications for a company’s business performance. In fact, adequate risk management is the main key to the success of a business. However, on the other hand, risk management is still seen as burdensome for companies because it adds to their workload.

Senior Lecturer, Faculty of Economics and Business, University of Indonesia, Junino Jahja said risk management is a need that must be met in business activities. In fact, for State-Owned Enterprises (BUMN) it is an obligation. Like the obligation of BUMN to have a risk management officer. Likewise, the commissioners have a risk management committee.

“Risk management arises from uncertainty. There are risks that arise in business decisions. Well, this risk can actually be measured,” said Junino at the event “Risk Management: Maintaining Legal Compliance for Business Sustainability” in Jakarta, Tuesday (14/11/2023).

He appealed to companies not to consider risk management as a burden. Referring to his experience, Junino said that companies including BUMN have not prioritized  risk management. According to him, companies often consider risk management as additional work, especially in BUMN.

“So it becomes their third or even fourth job,” he said.

The man who once pursued a career as President Director of Perum Peruri Persero and PT Rajawali Nusantara Indonesia/RNI (Persero) explained that risk management is used to anticipate risks that are thought to occur in the future. The focus of risk management is the identification and handling of risks.

Junino Jahja  and Chief Operating Officer of Hukumonline, Jan Ramos Pandia

In addition, the aim of risk management is to provide maximum added value to all activities carried out by the organization. Then provides an understanding of the factors that influence risks that have an impact on achieving organizational goals. As well as, increasing the probability of success and reducing the probability of failure and uncertainty in achieving overall organizational goals. Risk factors come from internal and external.

In managing risk, organizations must identify core risks and their triggers (key drivers) originating from internal and external risk factors and group them into several categories.

“To manage risk, organizations must identify core risks (core risks) along with their triggers (key drivers) which originate from internal and external risk factors and group them into several categories, for example strategic, financial, operational risk categories, and so on,” added Junino.

In the evaluation phase, when the risk analysis process has been completed, the next step is to compare the risk assessment with the risk criteria that have been prepared by the organization. Risk criteria may include relevant costs and benefits, legal regulations, socio-economic factors, the environment, the focus of attention of stakeholders, and so on.

Thus, risk evaluation is used for decision making to determine the significance of risks for the organization and responses to risks. Responses to risks can be taken from several alternatives such as avoidance, transfer, mitigation and acceptance.

“Accepting risk means accepting the residual risk and developing the response needed to monitor the risk. “This is done if the risk probability is low and the severity is low,” he said.

Two aspects of risk management

On the same occasion, banking law expert and lecturer at the Jentera Indonesian College of Law (STHI), Yunus Husein, revealed that risk management is paying attention to legal aspects. He highlighted the importance of legal due diligence (LDD) in business activities, especially in large transactions such as the construction of factories, buildings and assets.

“A legal audit is needed if there are serious actions such as investment, expansion or building construction, the factory should use LDD, not just the financial aspects,” he said.

The former Head of the Center for Financial Transaction Reports and Analysis (PPATK) explained two aspects of risk management. First, compliance risk. Namely, the risk resulting from the company not complying with and/or not implementing the relevant laws and regulations. Second, legal risks. Namely, risks resulting from lawsuits and/or weaknesses in juridical aspects.

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