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Risk Management

Risk management is a discipline for dealing with the possibility that some future event will cause
harm. It provides strategies, techniques, and an approach to recognizing and confronting any
threat faced by an organization in fulfilling its mission.

Reference :
http://www.allianceonline.org/FAQ/risk_management/what_is_risk_management.faq

Risk management ensures that an organization identifies and understands the risks to which it
is exposed. Risk management also guarantees that the organization creates and implements an
effective plan to prevent losses or reduce the impact if a loss occurs.

A risk management plan includes strategies and techniques for recognizing and confronting
these threats. Good risk management doesn’t have to be expensive or time consuming; it may
be as uncomplicated as answering these three questions:

1. What can go wrong?


2. What will we do, both to prevent the harm from occurring and in response to the harm
or loss?
3. If something happens, how will we pay for it?

identifying risks. Having a clear understanding of all risks allows an organization to measure
and prioritize them and take the appropriate actions to reduce losses. Risk management has
other benefits for an organization, including:

• Saving resources: Time, assets, income, property and people are all valuable resources
that can be saved if fewer claims occur.
• Protecting the reputation and public image of the organization.
• Preventing or reducing legal liability and increasing the stability of operations.
• Protecting people from harm.
• Protecting the environment.
• Enhancing the ability to prepare for various circumstances.
• Reducing liabilities.
• Assisting in clearly defining insurance needs.

An effective risk management practice does not eliminate risks. However, having an effective
and operational risk management practice shows an insurer that your organization is
committed to loss reduction or prevention. It makes your organization a better risk to insure.

An organization should have a risk management strategy because:

• People are now more likely to sue. Taking the steps to reduce injuries could help in
defending against a claim.
• Courts are often sympathetic to injured claimants and give them the benefit of the
doubt.
• Organizations and individuals are held to very high standards of care.
• People are more aware of the level of service to expect, and the recourse they can take
if they have been wronged.
• Organizations are being held liable for the actions of their employees/volunteers.
• Organizations are perceived as having a lot of assets and/or high insurance policy
limits.

Reference : http://www.ibc.ca/en/Business_Insurance/Risk_Management/

Entrepreneur and the investor

Angel investors, or individuals who invest in private companies, may be more important to the growing
economy and the advancement of technology than any other source of capital. Angel capital is critical to early
stage companies.

According to an estimate by the Center For Venture Research, University of New Hampshire, 50,000
companies received $40 billion dollars of angel funding for the year 2000 and there are about three million
individuals in the United States that have made an angel investment. Since there are no reporting
requirements for private investments, these estimates may be substantially lower than reality. Comparatively,
approximately only 7000 companies received capital from venture capital firms in 2000 and of this, only 28%
was invested in early stage companies.

In addition to the money they invest, angel investors act as mentors and advisors to their portfolio companies
providing much more than just dollars.
Reference : http://www.angel-investor-news.com/ART_angelpower.htm

Venture capital can be defined as funds that are generally invested in the
form of equity or quasi-equity which rarely affords any guarantee.
Investments may take the form of simple shareholder's equity (common
or preferred shares), as well as options, warrants, convertible debentures
and other vehicles. The structure of the investment generally depends on
the company's needs and its stage of development, taking into account
the objectives of both the entrepreneur and the investor.

As a result, this form of financing is risky, which the investor hopes will be offset by a
proportional return on his investment. The return is generally realized out of the capital gain
or the increase in the company's share value.

INVESTMENT STRATEGY

With respect to investment strategy, venture capitalists have this in


common:

1. They all strive to invest their money in companies that offer strong growth
potential and a promising strategic position on their respective markets.

2. They endeavour to increase the value of their investments by providing the


entrepreneur with capital, of course, but also with the expertise, the network
and the experience necessary to accelerate the company's growth.
3. They invest for the medium and long term, in order to develop the
company's potential to the fullest and thus maximize the return for all
shareholders.

ADVANTAGES FOR THE COMPANY

o Because the investment is in the form of capital, the


company's financial structure and financial ratios are
improved accordingly, giving the entrepreneur the necessary
flexibility and financial capacity to achieve his objectives;
o Little or nothing to repay in the short term, so that the capital
invested and funds generated internally can be used
exclusively to accelerate the company's growth;
o In most leveraged buy-outs and start-ups, it is the principal
source of financing available;
o The venture capitalist is not there to manage the company,
but to stimulate its growth through active strategic support
and constructive involvement, by giving the entrepreneur the
benefit of his own experience as well as that of his business
network;
o Easier access to additional capital should the need arise.

INVESTMENT CRITERIA

The fundamental investment criteria of venture capitalists boil down to


these three points:

- the management team

- the product or service

- the market

The management team is the key to a company's success and an important criteria for the
investor. A strong, dynamic, highly committed team is essential. In addition to being
motivated and competent, the team must have a clear and realistic strategic vision of the
company's future growth, and be familiar with sound management techniques.

In addition to solid management, venture capitalists have a preference for companies with a
unique technology or market approach, and that hold a promising strategic position on their
respective markets.

In short, all these factors must convince the investor that the company's growth potential and
its capacity to yield the desired return are real.

Reference : http://www.reseaucapital.com/Association/Venture_Capital.html
Those regulations and policies can be summarized as follows:

1. Presidential Instruction number 4 of 1995


As mentioned above, during President Soeharto era,
Presidential Instruction of number 4 of 1995 about
National Movement for Socializing and Cultivating
Entrepreneurship was enacted. The instruction stated that
the society should actively involve in the development of
nation economy, therefore they should have entrepreneurship
behavior that will support their businesses. In the relation to
that , then the government decided to socialize and cultivate
entrepreneurship among the society. Under the
coordination of the Ministry Cooperatives and SMEs and
supported by the other Ministries, provincial governments,
and business people. The national movement of socializing
and cultivating entrepreneurship programs were
implemented for several years. The programs consist of
three main programs, namely :

a) Institutionalizing Entrepreneurship; the activities include


preparing software of entrepreneurship (concepts,
manuals for building entrepreneurship skills), preparing
networking development for SMEs , coordinating
programs for SMEs development, developing
consultation and information center for SMEs
development, building capacity for field workers for
SMEs development, and mobilizing and training for the
Extension Workers, Field Consultants, and other
Strategic Groups.
b) Socializing Entrepreneurship; activities of the programs
consist of developing strategic group participation,
developing general society participation, campaigning
through mass media, giving information and extension
for society leaders, journalist and reporters, conducting
workshop for business people, and including
entrepreneurship in formal education curricula at the
earliest level till the highest level.
c) Cultivating Entrepreneurship; activities comprise of
implementing entrepreneurship training programs,
giving consultation and guidance, conducting
comparative study and on the job training,
implementing business matching and business
promotion, preparing and distributing self learning
facilities, developing appropriate technology for local
industry, developing access to local, regional, and
international market, and assisting financial access for
SMEs.

2. Lesson Learnt from APEC Center for Entrepreneurship

The idea of developing APEC Center for Entrepreneurship or ACE


is not only for the benefit of Indonesia but also for other APEC member
economies. There were 5 strategic objectives suppose to be taken by the
ACE, namely:
a) Targeted training for SMES; this objective is to limit and to focus the
target group of SMEs for capacity building, particularly on required
training programs.
b) Adoption to globalization; not all SMEs aware of globalization,
therefore, this objectives is supposed to bring awareness of
globalization for SMEs.
c) Best Practices on policies and programs; this center is also hoped to
share experiences in terms of policies and programs for SMEs
development.
d) Strategic Alliances; through ACE facilitation SMEs in the APEC
region can also create strategic alliances to strengthen their
competitiveness.
e) E-commerce; as a virtual center, ACE has already intended to facilitate
SMEs in the APEC region to enter the paperless trading program,
which is now well known as E-Commerce.

Acknowledging the important of the ACE for private sector


development, the government of Indonesia aware to give the chance to
private sector. In this regard, Chamber of Commerce and Industry (CCI)
had been given the chance to lead this center. In fact, due to limited
professional staffs, the ACE was unable to run properly. The BRI as the
biggest SMEs’ bank has been working together with CCI to operate the
Center of Development for SMEs (CD-SMEs) under the G-15 program.
This center has also supported by the government of Korea through
KOICA.
The KOICA has granted facilities amounted of US $ 2.5 millions.
Up until now around 2,000 SMEs have become the members of CD-
SMEs. In addition, 18 SME-Centers have been developed in Indonesia
with the cooperation of CCI, PT. BRI, and PT. Telkom. The development
of CD-SMEs has given a positive impact to the domestic concerns of
other banks to establish SME-Centers. Beside under the BRI, other banks
such as PT. BNI, Bank Mandiri, and Bank Danamon have also developed
SME-Centers to support entrepreneurship development.

3. Technopreneur development policy

Indonesian Government under BPPT (The Agency for Technology


Development and Technology Implementation) has developed a policy
to develop technopreneur as follows :
• Decentralization of Government should be followed by sufficient
support for capacity building of local official and stakeholders to assist
and to develop technopreneur
• Strengthening of scientific and technology activities in region to
enhance competitiveness of technopreneur cluster through
dissemination and implementation of R& D product from research
centers and universities producing innovative technology.
• Develop technology- based technopreneurs through services and
business communication establishment.
• Provide direct support such as institutions or board, financial assistant,
and direction of market access especially to new technopreneur to rise
up competitiveness.

4. Entrepreneurship Curriculum for Formal Education


Acknowledging the important of entrepreneurship development,
the government of Indonesia pays special attention on
entrepreneurship spirit for universities and academies alumni. Due to
the culture influences, most of universities and academies alumni
usually do not have interest to become entrepreneurs. For this reason,
the government introduces entrepreneurship curriculum for formal
education starting from junior high school until universities. Besides,
some universities also promote business incubators in order to
promote knowledge-based entrepreneurs. These incubators also get the
support from the government and big companies. Although there are
still very limited good business incubators, it seems likely that these
incubators will become the prime mover for entrepreneurship
development in Indonesia.

D. Entrepreneurship Development Strategies

Some strategies to develop entrepreneurship in Indonesia can be mentioned


as follows:
• Entrepreneurship development through SME
Clusters
To increase the number of entrepreneurs in the country, it is important to
develop entrepreneurship society in the country. The government has given
assistant to Indonesian society to develop the SMEs clusters by so many
programs such as to increase the capacity of the Business Development
Services Providers by giving the operational financial assistant, Financial
assistant for SMEs clusters through Cooperatives, and training to build the
capacity of entrepreneurship the SMEs. Around seven hundreds Sees
Clusters already exist all over the country to develop the entrepreneurship
society along with the development of the business of the clusters.

• Business Creation, capital formation, and financial


access for SMEs and Micro Enterprises.
Business creation, capital formation, and financial access for SMEs and
Micro Enterprises are very valuable to develop entrepreneurship society
in the country. So many people benefit from the business creation
because of the economic development in the certain location such as
trading or market center, tourist objects, and production centers or
industrial centers. In company with the business creation, capital
formation and financial access for SMEs and Micro Enterprises are very
important to create new entrepreneurs even to develop experienced
entrepreneurs.
• Capacity Building for and addressing the
impediments to SMEs Exporters
So many SMEs in Indonesia face the impediments to
market their products abroad even though their products
have the competitiveness in export market. Therefore, it is
important to build the capacity for SMEs exporters for
addressing the impediments for market export. At the end,
the efforts will create and enhance the entrepreneurs from
the SMEs in Indonesia and APEC region.

E. Intermediate Action Plan to develop entrepreneurship in Indonesia


Indonesia has developed the intermediate action plan for
entrepreneurship development. The plan has aimed to develop
entrepreneurship behavior among the SMEs, and the objective
is to create the SMEs that own entrepreneurship spirit,
cooperative spirit, professional, and giving attention and
applying the business conduct and business ethics. The plans
cover the program as follows:

• Providing the incentives and entrepreneurship promotion


to create new entrepreneurs.
• Developing and strengthening the entrepreneurship
training and education institution throughout the country.
• Developing cooperation and networking system especially
on transferred technology, export marketing, and human
resources development.
• Providing incentive system and facilities for Exporter
Entrepreneurs and Entrepreneurs that develop local
creation and innovation.

Upgrading the quality of human resources of Entrepreneurs


including the Women Entrepreneurs.

Reference : apec meeting document


www.apec.org/.../medialib/apec_media_library/downloads/workinggroups/smewg/mtg/2004/word.Par.
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