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THE EFFECTIVENESS OF KEY PERFORMANCE

INDICATORS TO MANAGE CLEARING

TRANSACTIONS OPERATIONAL

RISK IN BANK BUKOPIN

PONTIANAK

By

Cesy Iola Kariza 014201100206

A Skripsi presented to the

Faculty of Business President University

in partial fulfillment of the requirements for

Bachelor Degree in Economics Major in Management

February 2015

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PANEL OF EXAMINERS

APPROVAL SHEET

The Panel of Examiners declare that the Skripsi entitled

“THE EFFECTIVENESS OF KEY

PERFORMANCE INDICATORS TO MANAGE

CLEARING TRANSACTION OPERATIONAL

RISK IN BANK BUKOPIN PONTIANAK” that was

submitted by Cesy Iola Kariza majoring in Management

from the Faculty of Business was assessed and approved

to have passed the Oral Examinations on February 3rd,

2015.

Ir. Yunita Ismail Masjud, M.Si

Chair - Panel of Examiners

Ir. Erny Hutabarat, MBA

Examiner I

Rosita Widjojo, SE., MBA., CRMP

Examiner I

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SKRIPSI ADVISER

RECOMMENDATION

LETTER

This Skripsi entitled “THE EFFECTIVENESS OF KEY

PERFORMANCE INDICTORS TO MANAGE

CLEARING TRANSACTION OPERATIONAL RISKS

IN BANK BUKOPIN PONTIANAK” prepared and

submitted by Cesy Iola Kariza in partial fulfillment of the

requirements for the degree of Bachelor of Economics in the

Faculty of Business has been reviewed and found to have

satisfied the requirements for a Skripsi fit to be examined. I

therefore recommend this Skripsi for Oral Defense

Cikarang, Indonesia, 22 January 2015

Acknowledged by, Recommended by,

Vinsensius Jajat Kristanto SE., MM., MBA. Rosita Widjojo, SE., MBA., CRMP

Head, Management Study Program Advisor

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DECLARATION OF

ORIGINALITY

I declare that this Skripsi, entitled “THE EFFECTIVENESS OF KEY

PERFORMANCE INDICATORS TO MANAGE CLEARING

TRANSACTION OPERATIONAL RISK IN BANK BUKOPIN

PONTIANAK” is, to the best of my knowledge and belief, an original

piece of work that has not been submitted, either in whole or in part, to

another university to obtain a degree.

Cikarang, Indonesia, January 22nd 2015

Cesy Iola Kariza

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ABSTRACT

The objectives of the research is to find out the operational risks in clearing

transaction, the key performance indicators to manage operational risk, and to find

out the effectiveness of key performance indicators to minimize the operational risk

in clearing transaction in Bank Bukopin Pontianak. Research method used is

qualitative. The significance of study for this research is to analyze the

effectiveness of Bank Bukopin Pontianak KPIs, moreover it is expected to be

recommendation for implementing research activities in the same field in the

future. This research is expected to give contribution to Bank Bukopin Pontianak

as consideration for additional KPIs that might minimize the risk rate. This research

is also conducted to analyze the Key Performance Indicators for banking operation,

and focused in how effective that Key Performance Indicators in minimizing risk

in clearing transaction in Bank Bukopin Pontianak. That KPIs is effective since the

clearing risk rate is 1% compared to the clearing standard which is 5%.

Keywords: clearing transaction, risk, key performance indicators.

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ACKNOWLEDGEMENT

First of all, the researcher would like to say deep gratitude to the presence

of Allah SWT and Muhammad SAW for His grace and blessing so that the

researcher could finish and complete the skripsi successfully. This research is

written as for the completion in the end of academic program to gain Bachelor

Degree of Economic.

In this chance, the researcher would like to say thank you to all who have

helped finish this research;

1. Researcher parents, Rizal and Kartika Dewi, who spiritually and mentally

support and motivate the researcher to finish the research, also researcher

brother, Fajar Muhammad Pramudia, who support the researcher until

finish.

2. Ms. Rosita Widjojo, as advisor, thank you for your guidance, attention,

suggestion, help, and motivation to the researcher until finish the research.

3. Bank Bukopin officers, Mr. Mars Satrio, Mr. Hadi Sandiar, Ms.Risma, Ms.

Ridha, by sparing time to help the researcher to find information to finish

the research.

4. Ms. Marie Ann, thank you so much for the lecturers that you gave to me.

You are a good and fun lecturer.

5. Researcher best friends, Rizki Andira Lauria, who always gives support and

believe in researcher.

6. Gita Kurniasari Sitorus, who always makes the researcher laugh.

7. Ulya Yuthika, who always support and help the researcher.

8. Mazaya Ulfa Rahmatina, Ira Yuli Rodame, Rinda Putri Sari, Suri Hidayat,

and Ety, who always be there and help the researcher.

9. Bilingual Friends, Maulidya Elsera, Reksy Indra Rakasiwie, Aditya

Putrawan, Syf. Suci Armilia, Mafisah, Yustina Octifanny, Zulfadila Hira

Permana, Susilo Nur Aji, Bimo Eka Putra, Raisa Nabila, Satria Nugroho,

and Ghina Khalida.

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10. Grandma, Zubaidah, who always sends prayers to the researcher.

11. Everyone who cannot be named one by one to help researcher to finish the

research. Thank you for the support.

Finally, researcher hope this research can be beneficial to the development

of knowledge, especially in risk management.

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TABLE OF CONTENTS

Page

PANEL OF EXAMINERS APPROVAL SHEET ................................................... i

SKRIPSI ADVISER RECOMMENDATION LETTER ........................................ ii

DECLARATION OF ORIGINALITY .................................................................. iii

ABSTRACT ........................................................................................................... iv

ACKNOWLEDGEMENT ...................................................................................... v

TABLE OF CONTENTS ...................................................................................... vii

LIST OF TABLES ................................................................................................. ix

LIST OF FIGURES ................................................................................................ x

LIST OF ACRONYMS ......................................................................................... xi

CHAPTER I INTRODUCTION ............................................................................. 1

1.1. Background of Study ....................................................................................... 1

1.2. Problem Identification ..................................................................................... 3

1.3. Statement of The Problem ............................................................................... 3

1.4. Research Objectives ........................................................................................ 4

1.5. Definition of Terms ......................................................................................... 4

1.6. Scope and Limitations ..................................................................................... 5

1.7. Research Benefits ............................................................................................ 5

CHAPTER II REVIEW OF LITERATURE .......................................................... 7

2.1 Theoretical Review ......................................................................................... 7

2.1.1. Key Performance Indicator ............................................................................... 7

2.1.2. The Banking Industry ..................................................................................... 14

2.1.3. Clearing ........................................................................................................... 16

2.1.4. Risk ................................................................................................................. 17

2.1.5. Operational Risk by Basel II ........................................................................... 23

2.2 Subject of Case Study ................................................................................... 25

2.3 Review of Related Research ......................................................................... 25

2.4 Theoretical Framework ................................................................................. 28

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CHAPTER III RESEARCH METHODOLOGY ................................................. 32

3.1. Research Questions ....................................................................................... 32

3.2. Setting ........................................................................................................... 33

3.3. Population ..................................................................................................... 34

3.4. Data Source ................................................................................................... 34

3.5. Ethical Consideration .................................................................................... 35

3.6. Research Design ............................................................................................ 35

3.7. Interview Instrument and Protocol ................................................................ 36

3.8. Data Analysis Strategy .................................................................................. 38

3.9. Summary ....................................................................................................... 40

CHAPTER IV ANALYSIS AND INTERPRETATION ...................................... 42

4.1. Company Profile ........................................................................................... 42

4.1.1. Vision and Mission ................................................................................... 42

4.1.2. Corporate Value ........................................................................................ 43

4.1.3. Corporate Subsidiary ................................................................................ 44

4.2. Data Analysis and Interpretation of Result ................................................... 44

CHAPTER V CONCLUSION AND RECOMMENDATION ............................. 62

5.1 Conclusion ..................................................................................................... 62

5.2. Recommendation ........................................................................................... 63

REFERENCES ..................................................................................................... 64

APPENDICES ...................................................................................................... 66

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LIST OF TABLES

Page

TABLE 2.1 ELEMENTS OF A KPI ...................................................................... 9

TABLE 2.2 DEFINITION OF RISK .................................................................... 18

TABLE 3.1 SAMPLE INTERVIEW QUESTIONS ............................................ 37

TABLE 4.1 CLEARING PARTICIPANTS IN PONTIANAK ............................ 45

TABLE 4.2 THE DIFFERENCES BETWEEN RTGS AND CLEARING ......... 51

TABLE 4.3 FAILED CLEARING TRANSACTION IN BANK BUKOPIN

PONTIANAK .................................................................................... 54

TABLE 4.4 TEN CHARACTERISTICS HIGH IMPACT KPIS OF BANK

BUKOPIN PONTIANAK ................................................................. 58

TABLE 4.5 SUGGESTED KPIS FOR BANK BUKOPIN PONTINAK ............ 60

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LIST OF FIGURES

Page

FIGURE 2.1 A QUANTIFIED APPROACH TO OPERATIONAL RISK

MANAGEMENT ACCORDING TO BASEL II ............................... 24

FIGURE 4.1 CLEARING FLOWCHART ........................................................... 47

FIGURE 4.2 CLEARING PATTERN .................................................................. 50

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LIST OF ACRONYMS

Acronym Meaning Page

ATM Automated Teller Machine 1

BCA Bank Central Asia 48

BI Bank Indonesia 32

CCP Central Counter Party 17

KPI Key Performance Indicator 2

MSME Micro, Small, Medium Enterprise 42

RTGS Real Time Gross Settlement 2

SOP Standard Operating Procedure 34

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CHAPTER I

INTRODUCTION

1.1. Background of Study

The banking industry has important roles as to provide customers with

a variety of services and options. The major roles of a bank are mainly

investing, borrowing, and storing money. Banks involve in transferring

funds from savers to borrowers, or from one party to another party. Banks

also involve in paying for goods and services. Usually customers will use

bank-supplied checks, credit or debit cards, or mobile banking service that

provided by the bank. Banks are the principal source of credit (loanable

funds) for millions of individuals, families and government as well. Banks

also serve people with the source of short-term working capital for

businesses; either it is small, medium, or large-sized business. Besides that,

banks also serve people for long-term business loan to finance the company

or to purchase new plant and equipment.

There is no difference in Bank Bukopin. Bank Bukopin also provides a

safe place to invest, borrowing, and storing money. The bank provides

various products to support different needs of the customers. In Bank

Bukopin Pontianak, there are only some divisions, such as Operational

Division, Credit Division, Human Resource Division, and Marketing

Division. These divisions have their own jobs to be done every day to

process transactions. Operational Division’s main job is to process every

transaction that occurred in the Front Office. There are six employees that

work behind the Back Office. They are the coordinator of the back office,

his assistant, the coordinator of tellers and customer services, the helper for

customer services, the ATM personnel, and the personnel who is in charge

in doing transfer, Real Time Gross Settlement (RTGS), clearing, and

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collection. Some of these people work from Monday to Saturday to make

sure every job that is assigned to them is running well.

The coordinator of teller and customer service’s job is to process and

double-check any transaction that happened in the Front Office. This

personnel is the one who gives approvals to every transaction done by the

tellers and customer services. The helper for customer services’ job is to

make check-book and transfer form based on the request from the customer

that visited in the customer service’s desk. The helper is also the one who

is responsible in safe deposit box borrowing, and also the one who makes

the report. The ATM personnel is responsible in everything related to the

ATM machine. Then, the personnel in charge of transfer, RTGS, clearing,

and collection is responsible to related transaction. All of these are

supervised by the coordinator of the Back Office.

These jobs come with procedures that the employees should follow.

Following the standard that been set before might help the bank to achieve

their objectives. Besides that, every company needs Key Performance

Indicators (KPIs) to help them to define and measure progress toward

organization objectives. Indeed first thing the company did was set their

objectives. After setting their objectives, the company surly set their KPI to

define and measure progress towards their objectives. Besides that, the KPIs

are also needed to reduce the risk that might happens within the process to

the company objectives. There are some risk that might interfere Bank

Bukopin Pontianak. There are many types of risks that might interfere in

banking industry. There are credit risk, liquidity risk, interest rate risk,

operational risk, exchange risk, and crime risk.

In operational division Bank Bukopin Pontianak, the risk that might

interfere is the operational risk. The operational risk can occurred by the

failures of people, processes, systems, and external events. In Bank

Bukopin Pontianak, the failure in clearing transaction is rarely happens. In

2012 there was no failed clearing transaction. In 2013 there was only 1

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failed clearing transaction happened. The next year, in 2014 the failed

clearing transaction became 2 transactions.

1.2. Problem Identification

In Bank Bukopin Pontianak, there is a particular procedure of how

clearing transaction should be processed. Besides having procedure, having

Key Performance Indicators are also a necessity for every company,

nevertheless Bank Bukopin Pontianak. Having KPIs might avoid risks and

might support the bank to achieve its objectives. The failed clearing

transactions are increasing year by year. Despite of that, the risk rate of

clearing transaction is not getting close to the risk rate for clearing

transaction that is set by the bank. Therefore, in this study the researcher

intended to analyze how effective are Key Performance Indicators to

minimize the clearing transaction operational risk in Bank Bukopin

Pontianak.

Based on the problem above, the title of this study will be “THE

EFFECTIVENESS OF KEY PERFORMANCE INDICATORS TO

MANAGE CLEARING TRANSACTION OPERATIONAL RISK IN

BANK BUKOPIN”.

1.3. Statement of The Problem

Specifically this study aims to answer the following question:

1. What are the operational risks in clearing transaction in Bank Bukopin

Pontianak?

2. Which key performance indicators to manage operational risk in

clearing transaction in Bank Bukopin Pontianak?

3. How effective are these key performance indicators to minimize the

operational risk in clearing transaction in Bank Bukopin Pontianak?

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1.4. Research Objectives

Based on the preceding research question, the research objective of the

study can be translated as follow:

1. To find out the operational risk in clearing transaction in Bank Bukopin.

2. To find out which key performance indicators to manage operational

risk in clearing transaction in Bank Bukopin.

3. To find out the effectiveness of key performance indicators to minimize

the operational risk in clearing transaction in Bank Bukopin.

1.5. Definition of Terms

Terms used in this research as follows:

Banking Operation

The legal transactions executed by a bank in its daily business, such as

providing loans, mortgages and investments, depending on the focus and

size of the bank.

Operational Risk

A form of risk that summarizes the risks a company or firm undertakes

when it attempts to operate within a given field or industry.

Operational risk is the risk that is not inherent in check or transfer form,

systematic or market-wide risk. It is the risk remaining after determining

financing and systematic risk, and includes risks resulting from breakdowns

in internal procedures, people and systems. It is also defined as the risk of

loss resulting from inadequate or failed processes, people, and systems or

from external events.

Key Performance Indicator

Performance measurement is a fundamental principle of management. The

measurement of performance is important because it identifies current

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performance gaps between current and desired performance and provides

indication of progress towards closing the gaps.

Clearing

Movement of a check from the bank in which it was deposited to the bank

on which it was drawn, and the movement of its face amount in the opposite

direction. This process (called 'clearing cycle') normally results in a credit

to the account at the bank of deposit, and an equivalent debit to the account

at the bank on which it was drawn.

1.6. Scope and Limitations

Scope

This study is conducted to analyze the key performance indicators for

clearing transaction.

Limitations

This study is focused in how effective are the existing Key Performance

Indicators in clearing transaction in Bank Bukopin Pontianak.

1.7. Research Benefits

This research can hopefully deliver new knowledge, information, and

suggestions for:

1. Bank Bukopin Pontianak

The output of this research could be useful to the bank as they can

improve their performance and their capabilities to manage operational

risks that might happen anytime.

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2. The University

To increase the knowledge in the field of banking risk management,

specifically in key performance indicators.

3. Researcher

To find out what are the key performance indicators that can work to

manage operational risk in Bank Bukopin Pontianak.

4. The Future Researcher

The output of the research would become a reference and additional

knowledge to those who would like to do future research about the

analysis of key performance indicators to manage operational risk in

banks.

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CHAPTER II

REVIEW OF LITERATURE

2.1 Theoretical Review

2.1.1. Key Performance Indicator

Key Performance Indicators (KPIs) are the vital navigation instruments

used by managers to understand whether their business is on a successful

voyage or whether it is veering off the prosperous path (Marr, 2012). A KPI

is a metric measuring how well the organization or an individual performs

an operational, tactical or strategic activity that is critical for the current and

future success of the organization (Eckerson, 2009).

Key performance indicators are financial and non-financial indicators

that organizations use in order to estimate and fortify how successful they

are, aiming previously established long lasting goals. Appropriate selection

of indicators that will be used for measuring is of a greatest importance.

Process organization of business is necessary to be constitute in order to

realize such effective and efficient system or performance measuring via

KPI. Process organization also implies customer orientation and necessary

flexibility in nowadays condition of global competition (Velimirovic,

Vilimiroic, and Stankovic, 2011).

Key performance indicators are the measurement that help an

organization define and measure progress toward organization goals. Once

an organization has analyzed its mission, identified all its stakeholders, and

defined its goals, it needs a way to measure progress toward those goals.

(management.about.com, 2014). KPIs is critical components of all earned

value measurement systems. Terms such as cost variance, schedule

variance, schedule performance index, cost performance index, and time or

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cost at completion are actually KPIs if used correctly but not always

referred to as such. The need for these KPIs is simple: what gets measured

gets done. If the goal of a performance measurement system is to improve

efficiency and effectiveness, then the KPI must reflect controllable factors

(Kerzner, 2013).

Performance measurement is a fundamental principle of management.

The measurement of performance is important because it identifies current

performance gaps between current and desired performance and provides

indication of progress towards closing the gaps. A key principle of

performance management is to measure what you can manage. In order to

maintain and improve manufacturing performance each function in the

organization must focus on the portion of the indicators that they influence.

Maintenance performance contributes to manufacturing performance

(Weber & Thomas, 2009).

According to Kerzner (2013), KPIs have been used in a variety of

industries and specialized purposes such as:

a. Construction

b. Maintenance

c. Risk management

d. Safety

e. Quality

f. Sales

g. Marketing

h. IT

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TABLE 2.1

ELEMENTS OF A KPI

Strategy KPIs embody a strategic objective.

Targets KPIs measure performance against

specific targets. Targets are defined in

strategic, planning or budget sessions

and can take different forms (e.g.,

achievement, reduction, absolute,

zero).

Ranges Targets have ranges of performance

(e.g., above, on, or below target).

Encodings Range are encoded in software,

enabling the visual display or

performance (e.g., green, yellow, red).

Encodings can be based on percentages

or more complex rules.

Time Frames Targets are assigned time frames by

which they must be accomplished. A

time frame is often divided into smaller

intervals to provide mileposts of

performance along the way.

Benchmarks Targets are measured against a baseline

or benchmark. The previous year’s

result often serve as a benchmark, but

arbitrary numbers or external

benchmarks may also be used.

Source: Eckerson (2009)

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According to Eckerson (2009), there are two fundamental types of

KPIs: outcome and drivers. Outcome KPIs—sometimes known as lagging

indicators—measure the output of past activity. They are often financial in

nature, but not always. Examples include revenues, margins, return on

equity, customer satisfaction, an employee retention. On the other hand,

driver KPIs—sometimes known as leading indicators or value drivers—

measure activities that have a significant impact on outcome KPIs. These

KPIs measure activity in its current state (number of sales meetings today)

or a future state (number of sales meeting scheduled for the next two weeks.

The latter is more powerful, since it gives individuals and their managers

more time to adjust behavior to influence a desired outcome.

Another distinction between KPIs by Eckerson (2009) is that some are

based on quantitative data, while others are based on qualitative or

subjective data. Quantitative data measures activity by counting, adding, or

averaging numbers. Operational systems that manage inventory, supply

chain, purchasing, orders, accounting, and so on all gather quantitative data

used by KPIs. Financial KPIs are based on quantitative data, as are

employee injuries, number of training classes and so on. Quantitative data

forms the backbone of most KPIs. But qualitative KPIs are just as

important. The most common ones gauge customer or employee

satisfaction through surveys. While the survey data itself is quantitative, the

measures ate based on a subjective interpretation of a customer’s or

employee’s opinion on various issues. These opinions can help explain why

performance is dropping when all other indicators seem fine. Many

company use customer satisfaction KPIs to refine products and optimize

processes.

According to Eckerson (2009), the key to creating effective KPIs is as

much art as science, but there are many guidelines to help the uninitiated

achieve success. Organizations that create KPIs with the following 10

characteristics are likely to deliver high impact KPIs:

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a. Sparse:

The fewer KPIs, the better. When it comes to the number of KPIs to

deploy, most performance management practitioners say less is

more. The common argument is that most people can only focus on

a maximum of five to seven items at once; therefore, we should limit

the number of KPIs to that range.

b. Drillable:

Users can drill into detail. The problem with having only a handful

of KPIs is that organization represents a dynamic balance between

strategy and process. Strategy seeks change, while process seeks

stability. The manager can represent strategy with a few KPIs, but

the manager needs hundreds or more to monitor processes, which

often cut across departmental boundaries. Therefore, the best

performance dashboards parse out KPIs and data based on role,

level, and task. The high-level or initial view of a dashboard

contains a handful of strategic KPIs that cascade to hundreds and

thousands of KPIs at more detailed views within a performance

dashboard. This internal cascading is true for all types of

dashboards: strategic, tactical, and operational.

c. Simple:

Users understand the KPIs. KPIs must be easy to understand.

Employees must know what’s being measured and how it’s

calculated. Complex KPIs consisting of indexes, ratios, or multiple

calculations are difficult to understand and, more importantly,

difficult to act on. In short, if users do not understand the meaning

of a KPI, they cannot influence its outcome. It is important to train

people on KPI targets. For instance, is a high score good or bad? If

the metric is customer loyalty, a high score is good, but if the metric

is customer churn, a high score is bad. Sometimes a metric can have

dual polarity; that is, a high score is good only until a certain point.

For instance, a telemarketer who makes 20 calls per hour may be

doing exceptionally well, but one makes 30 calls per hour may not

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be connecting well with potential clients. An effective scoring and

encoding system is critical to making KPIs simple and

understandable.

d. Actionable:

Users know how to affect outcomes. Not only should KPIs be easy

to understand, but users should also know how to positively affect

the outcome of a KPI.

e. Owned:

KPIs have an owner. Every KPI needs an owner who is accountable

for its outcome. Some think it is imperative that each KPI have only

one owner so there is no potential for finger-pointing, and that the

individual owner feels highly motivated and responsible for

managing the KPI. Others say the opposite: make two people

responsible for a KPI and the manager engenders teamwork. This

coordination might be especially valuable in an organization that

wants to break down departmental silos and cross-pollinate ideas

among different groups.

f. Referenced:

Users can view origins and context. The data has to be clean,

accurate, and most importantly, perceived as accurate. Just being

accurate isn’t enough; users must believe it is as accurate as their

existing reports or spreadsheets (which may be woefully inaccurate,

but are trusted nevertheless). One way to engender trust in KPIs is

to provide reference data about them. Users should be able to right-

click on a KPI or button to reveal a dialogue box that identifies the

business and technical owners of the KPI as well as the details about

the origins of the KPI, how it was calculated, when it was last

updated, and other relevant details.

g. Correlated:

KPIs drive desired outcomes. Ultimately, KPIs need to impact

performance in the proper direction. Unfortunately, many

organizations create KPIs but never evaluate them after the fact to

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see if they statistically correlate with desired outcomes. This

correlation makes explicit the linkage between driver KPIs and

outcome KPIs and gives executives greater confidence in making

decisions. It is important to correlate KPIs on a continuous basis

because their impact changes over time as the internal, economic,

and competitive landscape shifts. Most KPIs have a finite lifespan;

the manager get most of the value from them in the first year or so.

Afterward, the manager needs to rethink the targets or KPIs to

sustain progress or move to new KPIs that better reflect the current

strategy. But if the manager does not continuously monitoring the

impact of KPIs, the manager will never be able to evaluate any shifts

in their effectiveness. Many organizations spend lots of time and

energy evaluating the effectiveness of their KPIs, especially if

monetary incentives are attached to the results. They use

statisticians to perform regressions that map KPIs to intended results

and engage in discussions with peers and executives to negotiate the

KPIs and targets.

h. Balanced:

KPIs consist of both financial and non-financial metrics. It is also

important that the manager offer a balanced set of KPIs. This is the

philosophical underpinning of the balanced scorecard methodology.

Its creators, Robert Kaplan and David Norton, believe organizations

should measure performance across multiple dimensions of a

business, not just a financial perspective. They advocate a

“balanced” approach to measurement, which helps executives focus

on and invest in the key drivers of long-term growth and

sustainability. Kaplan and Norton offer four perspectives or

categories of metrics: financial, customer, operations, and learning

and growth. They also advocate that organizations create a strategy

map that defines strategic objectives in each perspective and shows

how they interrelate, giving executives a pictorial view of what

drives goals. On a micro level, it’s important that KPIs provide a

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balanced perspective to individuals whose performance is being

monitored.

i. Aligned:

KPIs do not undermine each other. It is important that KPIs are

aligned and don’t unintentionally undermine each other, a

phenomenon that some call “KPI sub-optimization.”

j. Validated:

Workers cannot circumvent the KPIs. KPIs need to be not only

aligned and balanced, but also tested to ensure workers can’t

“game” the system—or circumvent the KPIs out of laziness or

greed. Organizations need to test their KPIs to ensure workers can’t

affect their outcome without taking the required actions to improve

the business. One way to avoid this problem is to include employees

in defining the KPIs and targets in the first place. They know better

than anyone the nuances involved in the processes and potential

loopholes that may tempt users to game the system. The tendency

to game KPIs increases dramatically once organizations attach

monetary incentives to KPIs. So it’s imperative to test and validate

KPIs in the reality of the workplace before using them as part of an

employee incentive system.

2.1.2. The Banking Industry

A bank can be defined in terms of the economic functions it serves, the

services it offers its customers, or the legal basis for its existence. Certainly

banks can be identified by the functions they perform in the economy. They

are involved in transferring funds from savers to borrowers (financial

intermediation) and in paying goods and services (Rose & Hudgins, 2010).

There are three main types of bank. The first is commercial banks.

Commercial banks sell deposit and make loans to businesses and

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individuals. The next one is saving banks. Saving banks attract saving

deposits and make loans to individuals and families. The third is investment

banks. Investment banks underwrite issues of new securities from their

corporate customers (Rose & Hudgins, 2010).

Historically banks have been recognized for the great range of financial

services they offer—from checking an debit accounts, credit cards, and

savings plans to loans for businesses, consumers, and governments.

However, bank service menus are expanding rapidly today to include

investment banking (security underwriting), insurance protection, financial

planning, advice for merging companies, the sales of risk-management

services to business and consumers, and numerous other innovative

services. Banks no longer limit their service offerings to traditional services

but have increasingly become general financial-service provider (Rose &

Hudgins, 2010).

According to Rose & Hudgins (2010), the modern bank has to adopt

many roles to remain competitive and responsive to public needs. The

banking principal roles (and the roles performed by any of its competitors)

today include:

1. The intermediation role

Transforming saving received primarily from households into credit

(loans) for business firms and others in order to make investments

in new buildings, equipment, and other goods.

2. The payments role

Carrying out payments for goods and services on behalf of

customers (such as by issuing and clearing checks and providing a

conduit for electronic payments).

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3. The guarantor role

Standing behind their customers to pay off customer debts when

those customers are unable to pay (such as by issuing letters of

credit).

4. The risk manager role

Assisting customers in preparing financially for the risk of loss to

property, persons, and financial assets.

5. The investment banking role

Assisting corporations and governments in marketing securities and

raising new funds.

6. The savings/investment advisor role

Aiding customers in fulfilling their ling-range goals for a better life

by building and investing savings.

7. The safekeeping/certification of value role

Safeguarding a customer’s valuables and certifying their true value.

8. The agency role

Acting on behalf of customers to manage and protect their property.

9. The policy role

Serving as a conduit for government policy in attempting to regulate

the growth of the economy and pursue social goals.

2.1.3. Clearing

According to European Central Bank (2009), clearing is the process of

transmitting, reconciling and, in some cases, confirming transfer orders

prior to settlement, potentially including the netting of orders and the

establishment of final positions for settlement. Sometimes this term is also

used (imprecisely) to cover settlement. For the clearing of futures and

options, this term also refers to the daily balancing of profits and losses and

the daily calculation of collateral requirements. A set of rules and

procedures whereby financial institutions present and exchange data and/or

17

documents relating to transfers of funds or securities to other financial

institutions at a single location (e.g. a clearing house). These procedures

often include a mechanism for calculating participants’ mutual positions,

potentially on a net basis, with a view to facilitating the settlement of their

obligations in a settlement system is called clearing system. The ones who

can participate in clearing is only clearing member of clearing house.

Clearing house is a common entity (or a common processing

mechanism) through which participants agree to exchange transfer

instructions for funds, securities or other instruments. In some cases, a

clearing house may act as a central counterparty for those participants,

thereby taking on significant financial risks. Clearing fund is a fund

composed of assets contributed by participants in a central counterparty

(CCP) or by providers of guarantee arrangements that may be used to meet

the obligations of a defaulting CCP participant. In certain circumstances, it

may also be used to settle transactions and cover losses and liquidity

pressures resulting from such defaults. A clearing fund serves as insurance

against unusual price movements not covered by the margin calculation in

the event of a member defaulting.

2.1.4. Risk

Risk in an organization context is usually defined as anything that can

impact the fulfillment of corporate objectives (Hopkin, 2012). Risk is a

condition in which there is a possibility of an adverse deviation from a

desired outcome that is expected or hoped for (Vaughan & Vaughan, 2008).

18

TABLE 2.2

DEFINITION OF RISK

Organization Definition of risk

ISO Guide 73

ISO 31000

Effect of uncertainty on objectives.

Note that an effect may be positive,

negative, or deviation from the

expected. Also, risk is often described

by an event, a change in circumstances

or a consequence.

Institute of Risk Management (IRM) Risk is the combination of the

probability of an event and its

consequence. Consequences can range

from positive to negative.

Orange Book from HM Treasury Uncertainty of outcome, within a

range of exposure, arising from a

combination of the impact and the

probability of potential events.

Institute of Internal Auditor The uncertainty of an event occurring

that could have an impact on the

achievement of the objectives. Risk is

measured in terms of consequences

and likelihood.

Source: Hopkin (2012)

19

According to Rose & Hudgins (2010), there are key risks in banking

and financial institutions’ management:

1. Credit Risk

There is, first of all, credit risk. For example, financial

intermediaries make loans and take on securities that are nothing

more than promises to pay. When borrowing customers fail to make

some or all of their promised payments, these defaulted loans and

securities result in losses that can eventually erode capital. Because

owner’s capital is usually no more than about 10 percent of the

volume of loans and risky securities (often much less than that), it

does not take to many defaults before capital simply becomes

inadequate to absorb further losses. At this point, the financial firm

fails and will close unless the regulatory authorities elect to keep it

afloat until a buyer can be found. Credit risk is the risk that a counter

party will not settle the full value of an obligation – neither when it

becomes due, nor at any time thereafter. Credit risk includes

replacement cost risk and principal risk. It also includes the risk of

the settlement bank failing. The change in net asset value due to

changes the perceived ability of counter parties to meet their

contractual obligations also considered credit risk.

2. Liquidity Risk

Depository institution encounter substantial liquidity risk—the

danger running out of cash when cash is needed to cover deposit

withdrawals and to meet credit requests from good customers. For

example, if a depository institution cannot raise cash in timely

fashion, it is likely to lose many of its customers and suffer a loss in

earnings for its owners. If the cash shortage persist, it may lead to

runs by depositors and ultimate collapse. The inability to meet

liquidity needs at reasonable cost is often a prime signal that a

financial firm is in trouble. Liquidity risk is the risk that a counter

party will not settle an obligation in full when it becomes due.

20

Liquidity risk does not imply that a counterparty or participant is

insolvent, since it may be able to effect the required settlement at

some unspecified time thereafter.

3. Interest Rate Risk

Financial intermediaries also encounter risk to their spread—the

danger that revenues from earning assets will decline or that interest

expenses will rise, squeezing the spread between revenues and

expenses and thereby reducing net income. Changes in the spread

are usually related to either portfolio management decisions (i.e.,

changes in the composition of assets and liabilities) or to interest

rate risk—the probability that fluctuating interest rates will result in

significant appreciation or depreciation in the value of and return

from the institution’s assets. In recent years financial firms have

found ways to reduce their interest rate risk exposure, but such risks

have not been completely eliminated—nor can they be.

4. Operational Risk

Financial-service providers also face operational risk due to weather

damage, aging or faulty computer systems, breakdowns in quality

control, inefficiencies in producing and delivering services, natural

disasters, terrorist acts, errors in judgment by management, and

fluctuations in the economy that impact the demand for each

financial service. These changes can adversely affect revenue flows,

operating costs, and the value of the owner’s investment in the

institution (e.g., its stock price).

Operational risk is the risk that deficiencies in information systems

or internal controls, human error or management failures will result

in unexpected losses. This relates to both internal and external

events. It is the risk of loss from an operational failure. Operational

risk permeates all aspects of the risk universe—that is to say it over

laps with and exacerbates all other types of risks, such as market,

credit, liquidity, and underwriting risk. In fact, in the absence of

operational failure, the other risks are much less significant.

21

However, when the banking industry was confronted with this

“boundary issue” many years ago, the Basel Committee ruled that

credit losses driven by operational failure were to be treated as credit

losses for capital adequacy purposes. This compromise ruling,

which was based on historical precedence and expedience, had the

unintended effect of diminishing the importance of operational

risk—not just in banking but across all industries that followed suit.

Under this narrow definition, operational risk was associated with a

low capital charge; therefore, many banks viewed it as a low-

priority issue. Not only did this divert resources and management

attention away from this key risk, but it also obscured the underlying

causes of many of the largest losses.

Operational risk is much more than just operational risk. Operations

risk is a subset of operational risk and is characterized by

unconscious execution errors and processing failures. Because these

risks are generally well known, they also tend to be well managed.

In addition, because these events stem from “normal” operational

failures, the consequential single-event losses are relatively small—

rarely in excess of a million dollars. Operational risk, by contrast, is

driven primarily by “non-normal” operational failures, particularly

conscious violations of professional or moral standards and

excessive risk taking. Examples include sales practice violations

and unauthorized trading activities. Ironically, many multibillion-

dollar losses occur when the perpetrators nominally intend to benefit

their respective firms, but do things that are not in their best long-

term interests.

Operational risk results from costs incurred through mistakes made

in carrying out transactions such as settlement failures, failures to

meet regulatory requirements, and untimely collections.

Operational risk had been defined in the past as all risk that is not

captured in market and credit risk management programs. Early

22

operational risk programs, therefore, took the view that if it was not

market risk, and it was not credit risk, then it was operational risk.

There are four main causes of operational risk that are identified in

standard operational risk definitions. Operational risk events can

occur when there are inadequacies or failures due to:

a. People (human factors)

b. Processes

c. Systems, or

d. External events

There are four main causes of operational risk events: the person

doing the activity makes an error, the process that supports the

activity is flawed, the system that facilitated the activity is broken,

or an external event occurs that disrupts the activity.

5. Exchange Risk

Larger banks and securities firms face exchange risk from their

dealings in foreign currency. The world’s most tradable currencies

float with changing market conditions today. Institutions trading in

these currencies for themselves and their customers continually run

the risk of adverse price movements on both the buying and selling

sides of this market.

6. Crime Risk

Finally, all financial firms encounter significant crime risk. Fraud or

embezzlement by employees or directors can severely weaken a

financial institution and, in some instances, lead to its failure. In

fact, the Federal Deposit Insurance Corporation lists fraud and

embezzlement from insiders as one of the prime causes of recent

bank closing. Moreover, the large amounts of money that banks

keep in their vaults often prove to be an irresistible attraction to

outsiders.

23

2.1.5 Operational Risk by Basel II

Basel II calls operational risks as “the risk of losses resulting from

inadequate or failed internal processes, people and systems, or from internal

events.” That also says legal risks that are exposed to fines, penalties,

damages, resulting from private settlements, etc., but strategic reputational

risks are not included in this definition for the purpose of a minimum

regulatory operational risk capital charge.

According to Basel II, the rigorous, consistent, and quantified approach

to operational risk includes identification, assessment, monitoring, control,

and mitigation. The possible tools that can be used by financial

organizations for assessing operational risks are:

a. Self or risk assessment

A bank assesses its operation and activities against a menu of

potential operational risk vulnerabilities. This process is internally

driven and often incorporates checklists or workshops to identify the

strengths and weakness of the operational risk environment.

b. Risk mapping

In this section, any business units, organizational functions, or

process flows are mapped by risk type. This process can show

particular areas of weaknesses and help prioritize the subsequent

management action.

c. Risk indicators

Statistics or metrics that can provide insight into bank’s risk position

is called risk indicators. These indicators tend to be reviewed on a

periodic basis, monthly or quarterly, to alert banks to changes that

may be indicative of risk concerns.

d. Risk measurement

Variety of approaches can be used to quantify exposure to

operational risk. Data on a bank’s historical loss experience could

provide meaningful information for assessing the bank’s exposure

24

to operational risk and developing a policy to mitigate and control

the risk. The effective way to make good use of the information is

to make a framework for systematically tracking and recording the

frequency, severity, and other relevant information on individual

loss events. Some other organization have also mix internal loss data

with external loss data, scenario analysis, and risk assessment

factors.

FIGURE 2.1

A QUANTIFIED APPROACH TO OPERATIONAL RISK

MANAGEMENT ACCORDING TO BASEL II

Source: Akkizidis & Bouchereau (2005)

Operational risk

Identification

Assessment

MonitoringControl

Mitigation

25

2.2 Subject of Case Study

In Bank Bukopin Pontianak, there is particular procedure and standards

of how clearing transaction should be processed. Processing transactions as

procedure and standards do not truly avoid risks that might happen and

might keep the bank from achieving its goals.

This study aims to find out the operational risks in clearing transaction

in Bank Bukopin Pontianak. In order to find out the operational risks, the

researcher conduct interview with two officers who in charge in dealing

with clearing transaction and also the coordinator in operational division.

The researcher only interviewed this two officers, because they are the ones

who really know about clearing transaction; the process, the standard, the

Key Performance Indicators, and also the operational risks. This study also

aims to find out the key performance indicators to manage operational risk

in Bank Bukopin. Conducting interview and document analysis is the

method researcher use to finding out of those key performance indicators

used to manage operational risk in Bank Bukopin. In this study, the

researcher also wants to find out of how effective key performance

indicators to minimize operational risk in clearing transaction. To find out

about this the researcher conduct interview and analyzing documents.

2.3 Review of Related Research

1. Ricky Linarto (2012) conducted a research about “The Analysis of

Balanced Scorecard Design for PT. Budi Acid Jaya Tbk. (BAJ)”. It is

conducted to determine the performance appraisal system that is

currently in the PT. Budi Acid Jaya Tbk; to improve the control system

in PT. Budi Acid Jaya by using Balanced Scorecard implementation.

The research concludes that to create design performance measurement

26

for PT. Budi Acid Jaya Tbk, and also to create the strategy map as well

as the balanced scorecard to give an advice and image for the company.

2. Andre Abednego (2006) conducted a research about “Perancangan

Indikator Kinerja dengan Menggunakan Balanced Scorecard pada PT.

Faber-Castell International Indonesia”. It is conducted to identify

vision, mission, and company strategy into determining targets; to find

out the key performance indicators that being used recently; to make

Balanced Scorecard design for the company, therefore the company can

measure either the target is being accomplished or not. The research

concludes, by using Balanced Scorecard, the management can get the

more accurate and complete view of the business performance. And also

the Balance Scorecard can be used as the communication tools between

the management and the stakeholder.

3. Sinta (2008) conducted a research about “Usulan Pendekatan Metode

Balanced Scorecard Untuk Mengukur Kinerja CV. Sinta Lestari”. It is

conducted to find out the performance measurement with using

traditional method; to find out performance measurement with using

Balanced Scorecard method. The research concludes, that using

traditional method is less effective, different when using Balanced

Scorecard which create output in each perspective.

4. Fernando (2012) conducted a research about “Pengukuran Kinerja

Berbasis Balanced Scorecard pada PT. Homa Sejahtera”. It is

conducted to make better performance for PT. Homa Sejahtera by

designing Balance Scorecard; to measure performance measurement in

production division by using Key Performance Indicator (KPI); to find

out which KPI that needed to be fix based on the measurement output.

The research concludes the KPI that needed to be fix in the performance

is in the customer perspectives.

5. Nivia Ayusari (2012) conducted a research about “Analisis Pengukuran

Kinerja Berbasis Balanced Scorecard pada Departemen Produksi PT.

Bakrie Building Industries”. It is conducted to determine the good

performance measurement for production department with the Key

27

Performance Indicator design on PT. Bakrie Building Industries; to

analyze the output of performance measurement in the production

department with the balanced scorecard method; to analyze the

operational activity in production department in supporting execution

strategy planning that already had before. The research concludes the

performance measurement is measured by four perspectives or by

balanced scorecard method.

28

2.4 Theoretical Framework

START

OBSERVATION

DATA COLLECTION

OPERATIONAL RISK

CLEARING

TRANSACTION

KPI

ANALYZING

INTEPRETATION OF

DATA ANALYSIS

RESEARCH CONCLUSION

AND RECOMMENDATION

END

YES

NO

29

Observation is the first thing researcher do to find out the problem

within the company. After finding the problem, the researcher will collect

data through interview and document analysis. The researcher focuses on

the operational risk in clearing transaction. The researcher find out whether

the clearing transaction has KPI or not. If there is KPI for clearing then the

researcher will analyze that existing KPI, whether the KPI can minimize the

risk or not and also whether that KPI is effective or not. If there is not, then

the researcher will analyze the clearing transaction again and construct the

new KPI that should work effectively for minimizing risks that might

happen in that bank. After analyzing the KPI, the researcher will interpret

the finding. Lastly, the researcher will make conclusion and

recommendation toward the finding.

Operational Definition

Key Performance Indicator

A KPI is a metric measuring how well the organization or an individual

performs an operational, tactical or strategic activity that is critical for the

current and future success of the organization.

Risk Management

The practice of identifying potential risks in advance, analyzing them and

taking precautionary steps to reduce or curb the risk.

Clearing transaction

The process of transmitting, reconciling and, in some cases, confirming

transfer orders prior to settlement, potentially including the netting of orders

and the establishment of final positions for settlement. Sometimes this term

is also used (imprecisely) to cover settlement. For the clearing of futures

and options, this term also refers to the daily balancing of profits and losses

and the daily calculation of collateral requirements.

30

2.5 Summary

In every company there should be procedure and standard to make the

company achieve its goals and also to minimize the risks that might happen

to that company. Nevertheless for Bank Bukopin Pontianak. This research

aims to find out the operational risks in clearing transaction in Bank

Bukopin. To find out the operational risks, the researcher conduct interview

with officers who in charge in dealing with clearing transaction and also the

coordinator in operational division. This study also aims to find out the key

performance indicators to manage operational risk in Bank Bukopin. To

find out the key performance indicators Bank Bukopin, the researcher will

ask questions related to that. Besides asking questions in the interview, the

researcher will also analyzing documents. The next thing researcher wants

to find out is about how effective key performance indicators to minimize

operational risk in clearing transaction. To find out about this the researcher

conduct interview and analyzing documents.

There are five related previous researches. They are The Analysis of

Balanced Scorecard Design for PT. Budi Acid Jaya Tbk. (BAJ) by Ricky

Linarto and Perancangan Indikator Kinerja dengan Menggunakan Balanced

Scorecard pada PT. Fiber-Castell International Indonesia by Andre

Abednego. There are also Usulan Pendekatan Metode Balance Scorecard

Untuk Mengukur Kinerja CV. Sinta Lestari by Sinta, Pengukuran Kinerja

Berbasis Balanced Scorecard pada PT. Homa Sejahtera by Fernando, and

Analisis Pengukuran Kinerja Berbasis Balanced Scorecard pada

Departemen Produksi PT. Bakrie Building Industries by Nivia Ayusari.

The first thing researcher do is observing. After that, the researcher will

collect data through interview and document analysis to related problem.

The next this researcher do is focusing on operational risk in clearing

transaction. Then, the researcher will analyzing whether the clearing

transaction has KPI or not. If the clearing transaction has KPI, then the

31

researcher will analyze the KPI. The researcher will analyze whether the

KPI is effective to minimize the risk or not. If the clearing transaction does

not have KPI, then the researcher will make the KPI that should work to

minimize risks. After analyzing the KPI, the researcher will interpret the

data and compare it with the bank’s standards. Finally the researcher makes

conclusions and recommendations for the effectiveness of KPIs in clearing

transactions.

32

CHAPTER III

RESEARCH METHODOLOGY

3.1. Research Questions

The researcher sets to find out the effectiveness of key performance

indicators to manage the clearing transaction operational risk in Bank

Bukopin. Research was conducted by observing Bank Bukopin,

interviewing the authorized officer, and document analysis on several

sources.

Research question one (RQ1): What are the operational risks in

clearing transactions in Bank Bukopin Pontianak?

Proposition one (P1): Operational risk in clearing transaction is system

failure for Bank Indonesia (BI) online.

According to Rose & Hudgins, operational risk is the risk that deficiencies

in information systems or internal controls, human error or management

failures will result in unexpected losses. It is the risk of loss from an

operational failures.

Research question two (RQ2): Which key performance indicators to

manage operational risk in clearing transaction in Bank Bukopin

Pontianak?

Proposition two (P2): To discover what the key performance indicators are

to manage operational risk in clearing transaction compared with the

operational risk standard.

According to Eckerson, Key Performance Indicator is a metric measuring

how well the organization or an individual performs an operational, tactical

or strategic activity that is critical for the current and future success of the

organization.

33

Research question three (RQ3): How effective are these key

performance indicators to minimize the operational risk in clearing

transaction in Bank Bukopin Pontianak?

Proposition three (P3): To find out if the key performance indicator is

effective compared to the standards of the operational risk in clearing

transaction.

According to Eckerson, organizations that create KPIs with 10

characteristics (sparse, drillable, simple, actionable, owned, referenced,

correlated, balance, aligned, and validated) are likely create effective and

high impact KPIs.

3.2. Setting

This research is about the effectiveness of key performance indicators

in Bank Bukopin Pontianak. The research took place in Bank Bukopin

Pontianak in its operational division where the clearing transaction happens.

The observation was conducted since April to July 2014.

The researcher observed the clearing transaction process in that office. First

the check or transfer form from customer is received by the authorized

officer from the front office. Then the officer will input the information

from the check or transfer form to the system which is connected online to

Bank Indonesia. After input all the check or transfer form to the online

system, the officer will print the recap and bring them to Bank Indonesia.

Then, at 11am, the officer will bring all the check or transfer form and the

recap to Bank Indonesia. The recap is given to BI and the check or transfer

form are put based on the originate bank.

The next is the authorized officer will return to the office to check the

received check or transfer form from the other banks customer. The officer

34

will check on owners’ balance, stamp, and signature. These are the

requirements that needs to be fulfilled so that the transaction can be proceed.

At 2pm, the officer will go back to Bank Indonesia says that the check or

transfer form that he has checked fulfill the requirements and can be

processed. The officer reports to Bank Indonesia which customer has not

enough balance, or if the stamp and signature is do not match with the

specimen. Finally, the officer return to the office again and process the

clearing.

3.3. Population

Population is generalization area that consist of the object or subject that

has certain qualities and characteristics that are determined by the

researchers to study and the drawn the conclusions (Sugiono, 2011). The

population in this research is the employees of Bank Bukopin Pontianak

since the research took place in Bank Bukopin Pontianak.

3.4. Data Source

In this research, data collection procedure that were used by the

researcher were by using primary data and secondary data. The interview

and observation are the primary data. The researcher interviewed the Bank

Bukopin Pontianak authorized officers and observed the bank especially in

the operational division.

Secondary data is the document analysis. The researcher analyzes any

documents related to the research object. The documents used in this

research is the SOP handbooks that explains about the operation of the bank,

especially clearing transaction. The SOP hand book was borrowed from

35

Bank Bukopin Pontianak and required just to be read at the office. The

researcher also used books, journals, and internet articles as the information

for this research.

3.5. Ethical Consideration

The interviewees required not to be recorded during the interview. The

confidential company documents that given by the bank is not allowed to

be shown. At the end of the research, the result will be the right of the

interviewees. The usage of the research is the benefit that the interviewees

might achieve.

3.6. Research Design

In doing scientific research there are two methods. They are qualitative

and quantitative method. The differences between qualitative and

quantitative research are by the type of data, research process, instrument

used in collecting data and also the purpose of the research.

Qualitative research is generated from the broad answer to specific

questions in interviews, or from responses to open-ended questions in a

questionnaire or through observation, or from already available information

gathered from various sources (Sekaran, 2010). In this research, based on

the topic, the researcher uses qualitative method in order to analyze the

effectiveness Key Performance Indicators to manage clearing transaction

operational risk in Bank Bukopin and also using case study as the research

design. Case study is a detailed study based upon the observation of the

intrinsic details of individuals, groups of individuals, and organizations

(Malholtra, 2008). The researcher is using case study because the researcher

observes the key performance indicators within a specific bank.

36

The research process used by the researcher is observation to find out

the problem within the company. After finding the problem, the researcher

will collect data through interview and document analysis. The researcher

focuses on the operational risk in clearing transaction. The researcher would

like to find out whether the clearing transaction has KPI or not. If there is

KPI for clearing then the researcher will analyze that existing KPI, whether

the KPI is effective to minimize the risk or not. If there is not, the researcher

will construct the new KPI that should work for minimizing risks that might

happen in that bank. After analyzing the KPI, the researcher will interpret

the finding. Lastly, the researcher will make conclusions and

recommendations based on the findings.

3.7. Interview Instrument and Protocol

Interview is a fact finding technique to gather information from

individuals through face to face interaction. Interview is used to find fact,

validate fact, get clearance data, get end-user, identify needs, and unite idea

and opinion. Interviewer is the one who responsible to organize and conduct

interview. Interviewee will answer the questions asked. There are two types

of interview, such as:

1) Structured interview

The interviewer has already prepared particular questions to get the

desired responds from the interviewee.

2) Unstructured Interview

Interviewer gives general questions, then the interviewee will

answer those. Usually the answers given will be out of the context.

This type of interview will not work well for analysis and system

design.

37

TABLE 3.1

SAMPLE INTERVIEW QUESTIONS

Indicator Question

Key Performance Indicator 1. Is there any Key Performance

Indicator used in this company to

manage operational risk? What

are they?

(if there is one(s))

2. Are they useful in making

progress toward the company’s

goal?

(if there is none)

3. Do you think if there is Key

Performance Indicator(s) in this

company, will it able to reduce

the operational risk that might

happen to the company?

Operational Risk

(Clearing)

1. What is clearing?

2. How is the procedure? How is the

Standard Operating Procedure

(SOP)?

3. Is there any risk in doing

Clearing?

4. How to handle the risk?

The interview questions are the research instrument. The interviewees

for these questions are the employee of Bank Bukopin Pontianak who

responsible in running transfer, clearing, and collection transactions and the

coordinator of operational division. The researcher only interview this two

persons because this two persons have deep knowledge about clearing

transaction. The authorize officer of clearing transaction indeed know

everything about clearing. The coordinator of operational division surely

know how clearing transaction is and what the key performance indicators

are.

38

In this research, the researcher used structured interview, the researcher

has already prepared for the questions and there might be some questions

popped up and give the researcher more information. The questions that

going to be asked are about operational risks, Key Performance Indicator,

the procedure and operational risks of clearing.

There are two type questions that can be used in the interview; they are

open-ended questions and close-ended questions. Open-ended questions are

questions that allow to be answered in any ways. This type of questions is

usually used on the semi-structured interview. The close-ended questions

are questions that limit respondent’s answers into specific options or direct

and short responds. In this research, the researcher used open-ended

questions in conducting the interview.

3.8. Data Analysis Strategy

Qualitative method usually gathered by observations, interviews or

focus groups and the data is also gathered from written documents and

through case studies, it less emphasis on counting numbers of people who

think or behave in certain ways and more emphasis on explaining why

people think and behave in certain ways.

There are two types of techniques design used to determine the way of

taking sample and choosing the sample consist of probability sampling and

non-probability sampling (Malhotra, 2009). Probability sampling is a type

of sampling that have common chances of being selected as sample. In

contrast, non-probability sampling is a type of sampling that have unequal

chances of being include in the sample. Non-probability sampling includes

convenience sampling, quota sampling, and purposive sampling.

Convenience sampling is selecting the easiest population members from

which to obtain information. Quota sampling finds and interviews a

prescribed number of people in each of several categories. Purposive

39

sampling is choosing the sample based on who the researcher thought will

be appropriate for the research. This is often chosen when there is a limited

number of people that have expertise in the area being researched.

According to the topic of the research, purposive sampling is used as

the sampling design technique. In the area that being researched there are

two officers whom considered as expertise and perfect to be interviewed.

Besides interview, the researcher also observes the operational process in

Bank Bukopin Pontianak. Observation is another fact finding technique by

observing directly and write about that systematically toward the research

object. The researcher observed and write about the activity in operational

division. Then, the researcher also analyzes documents from the bank which

is Bank Bukopin SOP hand book and other literatures.

Proving the qualitative research is reliable and valid is different with

proving the reliability and validity of quantitative research. In qualitative

research, reliability is an examination of the stability or consistency of

responses. Qualitative validity is based on determining if the findings are

accurate from the standpoint of the researcher, the participant or the reader

(Creswell, 2009).

The reliability of this research is proven by the consistency answer from

the interviewees during the interview. Validity in this research is proven by

the corresponded findings that the researcher discovers when comparing the

interview result with the SOP hand book.

40

3.9. Summary

In this research, there are three research questions. They are:

1. What are the operational risks in clearing transaction in Bank

Bukopin Pontianak?

2. Which key performance indicators to manage operational risk in

clearing transactions in Bank Bukopin Pontianak?

3. How effective are these key performance indicators to minimize the

operational risk in clearing transaction in Bank Bukopin Pontianak?

The proposition that researcher made for research question number one

is system failure for BI online. To discover what are the key performance

indicators to manage operational risk in clearing transaction compared with

operational risk standard. For question number three, the researcher

intended to find out if the key performance indicators are effective

compared to the standard of operational risk in clearing transaction.

Observation was conducted at Bank Bukopin Pontianak since April to

July 2014. The researcher interviewed two officers in Bank Bukopin

Pontianak. This officer is responsible in running transfer transactions,

clearing transactions, and collection transactions. The other officer is the

coordinator of operational division.

The researcher analyzes documents related to the research object. The

researcher used books, journals, and internet articles. The researcher also

uses office documents that were borrowed from Bank Bukopin Pontianak.

The interviewees asked not to be recorded during the interview. The

documents borrowed are also not allowed to be copied or taken home, so

documents are only allowed to read at the office. The result of the research

will be the right of the interviewees, and the usage of the research is the

benefit that the interviewees might achieve.

41

The researcher uses qualitative method and case study analysis. In this

research, the researcher use purposive sampling as the sampling design

technique. In the area being researched there are two officers whom

considered as expertise and perfect to be interviewed. The interviewees are

the employee of Bank Bukopin Pontianak who responsible in running

transfer, clearing, and collection transactions and also the coordinator of

operational division.

The researcher used structured interview, where the researcher has

already prepared for the questions. There also might be some questions

popped up during the interviews to give the researcher more information.

Therefor the researcher also used an unstructured interview. The questions

that going to be asked are about operational risks, Key Performance

Indicator, the procedure and operational risks of clearing transaction.

42

CHAPTER IV

ANALYSIS AND INTERPRETATION

4.1. Company Profile

Bank Bukopin is a medium-up size national private bank which focus

on micro segment on the first establishment. Established in the 10th July

1970, Bank Bukopin has four business segments; Micro segment, Micro,

Small, Medium Enterprise (MSME), consumer segment, and commercial

segment. Those four business segments, and including International

Banking Business and Treasury, become the six pillars of Bank Bukopin’s

business.

4.1.1. Vision and Mission

Vision

Becoming the integrated well-known financial institution.

Mission

1. Giving the best financial solution and comprehend that can fulfill

the needs of customer in the business, family, and personal sector.

2. Actively act in developing medium-sized, small-sized, and micro

enterprises.

3. Building engagement between employees to increase productivity

of employees’ welfare.

43

4.1.2. Corporate Value

Bank Bukopin believes that corporate culture aspect is important to be

managed therefore it gives impact to the increasing of productivity. Based

on that, Bank Bukopin rearrange the corporate culture and have create new

values for Bank Bukopin, which are Professionalism, Respect Others,

Integrity, Dedicated to Customer, and Excellence, or PRIDE.

PRIDE describe the general attitude regulation that bond all employees

to act as the highest professionalism standard and integrity in whole

corporate activity aspects, also obey Undang-Undang Dasar, system,

regulation, and corporate policy.

1. Professionalism

Cope the job and responsible in giving the best result. Main attitude:

Competent and responsible.

2. Respect Others

Respect role and contribution of each person, helping each other,

and also caring the environment to create positive energy. Main

attitude: Caring, cooperating, friendly, and commutative.

3. Integrity

Prioritize honesty, sincerity, discipline, and commitment to build

trust. Main attitude: honest, sincere, discipline, and commitment.

4. Dedicated to Customer

Prioritize customer satisfaction. Main attitude: Oriented to time

effectiveness, ease, and cozy, pro-active and responsive.

5. Excellence

Keep doing improvement to increase value and always be the best.

Main attitude: innovative, creative, and oriented to the value and

best result.

44

4.1.3. Corporate Subsidiary

Bank Bukopin runs in banking service industry. The banking services

that offered are:

1. Micro segment

2. Micro, Small, Medium Enterprise (MSME)

3. Consumer segment

4. Commercial segment

5. International banking

6. Treasury

4.2. Data Analysis and Interpretation of Result

There are four main transactions that run in the operational division or

usually also be called back office. They are transfer transactions, clearing

transactions, Real Time Gross Settlement (RTGS), and collection

transactions. Each transaction has their own procedure, operational risks,

and key performance indicators. This research is only focus on clearing

transactions. Below are the data analysis and interpretation of result of each

statement of problems.

1. Operational Risks in Clearing Transaction

According to Rose & Hudgins, Bank Bukopin is a type of commercial

bank. The bank sells deposits and make loans to businesses and individuals.

The banks has many products and services in order to serve the customers’

need and want.

According to European Central Bank, clearing is the process of

transmitting, reconciling, and in some cases, confirming transfer orders

45

prior to settlement, potentially including the netting of orders and the

establishment of final positions for settlement. Clearing is the process of

exchanging check or transfer form between clearing participants as the

customer representative which is finished in a certain time. Certain time

here means maximum one day. It also depends on the customers, if they

give the check or transfer form before the 11am, the transaction can be

processed on the same day. If the customers give the check or transfer form

past the 11am, the transaction will be processed on the next day.

According to the interview, clearing is the exchanging of electronic

check or transfer form between other clearing participants in the customer’s

representation which finished in a certain time.

There are two kinds of clearing, they are debit clearing and credit

clearing. Debit clearing is the activity of giving and returning clearing, to

debit transfer between bank that include delivery debit document (check,

transfer form, debit note, etc). Credit clearing is paperless transfer credit

between banks.

TABLE 4.1

CLEARING PARTICIPANTS IN PONTIANAK

CLEARING PARTICIPANTS

1. BRI

2. Mandiri

3. BNI

4. Danamon

5. Permata

6. BCA

7. BII

8. Panin

19. Sinarmas

20. Muamalat

21. BTN

22. BTPN

23. Mega

24. BNI Syariah

25. Bukopin

26. Syariah Mandiri

46

9. CIMB Niaga

10. UON Buana

11. NISP

12. Windu Kentjana

13. DBS

14. Ekonomi

15. Rabo

16. Mayapada

17. BPD Kalbar

18. BPD Syariah

27. Syariah Mega

28. Harda

29. Nobu

30. Common Wealth

31. Artha Graha

32. Permata Syariah

33. Sinarmas Syariah

34. BRI Argoniaga

35. Agris

Based on the interview, there are 35 clearing bank participants. The

table above shows all the clearing participants in Pontianak. From all the

clearing participant there, there is only one person handle the clearing

transaction. The reason there is only one person handling clearing

transaction is to reduce the possibility of fraud. By handling by one person

the clearing transaction process will be efficient and effective. Efficient

because he will do the process well since he is the one who really know

about clearing. Effective because he will be useful in doing clearing

transaction since he is qualified person.

For the bank that does not include as clearing participant, then the

liquidity of the money will be through collection. The collection process

took longer time than clearing transaction.

47

FIGURE 4.1

CLEARING FLOWCHART

As described by the figure above, the clearing transactions flow based

on the interview are:

1. Check or transfer form from customer is received by the authorized

officer from the front office. Then the officer will input the

information from the check or transfer form to the system which is

connected online to Bank Indonesia. After input all the check or

transfer form to the online system, the officer will print the recap

and bring them to Bank Indonesia.

2. At 11am, the officer will bring all the check or transfer form and

the recap to Bank Indonesia. The recap is given to BI and the check

or transfer form are put based on the originate bank.

For example, there is a Bank Bukopin customer who wants to do

clearing for his check or transfer form from Bank Mandiri to his

account in Bank Bukopin. He brings the Bank Mandiri check or

transfer form to Bank Bukopin, and then the clearing officer will

give that check or transfer form to Bank Mandiri officer at BI. Bank

Mandiri officer will check on this check or transfer form back at

his office.

At BI the Bank Bukopin officer also receives check or transfer form

from another banks.

CUSTOMER BANK BI BANK BI BANK

1 2 3 4 5

48

For example, there is a BCA Bank customer who just receive check

or transfer form from Bank Bukopin. He wants to clear that Bank

Bukopin check or transfer form to his account in BCA Bank,

therefor he brings that check or transfer form to BCA Bank. The

clearing officer of BCA Bank will bring that check or transfer form

to BI and put it in Bank Bukopin table. That check or transfer form

is from Bank Bukopin customer who has account in Bank Bukopin.

3. The authorized officer will return to the office to check the received

check or transfer form from the other banks customer. The officer

will check on owners’ balance, stamp, and signature. These are the

requirements that needs to be fulfilled so that the transaction can

be proceed.

For example, the officer will check on the Bank Bukopin check or

transfer form from BCA Bank customer.

4. At 2pm, the officer will go back to Bank Indonesia says that the

check or transfer form that he has checked fulfill the requirements

and can be processed. The officer reports to Bank Indonesia which

customer has not enough balance, or if the stamp and signature is

do not match with the specimen.

For example, if that check or transfer form from Bank Bukopin

have enough balance, clear stamp, and signature same as the

specimen, the Bank Bukopin officer will tell the BCA Bank

clearing officer that check or transfer form can be processed.

Remembering again that the BCA Bank customer intended to clear

the money to his account in BCA Bank.

In the other hand, the Bank Mandiri officer will tell the Bank

Bukopin officer whether the check or transfer form fulfilled the

requirements or not. If the check or transfer form fulfills the

requirements, the transaction can be process by Bank Bukopin

officer.

5. Then the officer return to the office again and process the clearing.

49

Based on interview, the cut off time for clearing transaction is maximum

one day. It depends on the customer, if the customer gives the check or

transfer form before 11am, the transaction can be process right on the same

day. In contrast, if the customer gives the check or transfer form pass from

11am, the transaction will be processed on the next day. There is no

different between clearing transaction for regional and local checks. It takes

maximum 1 day process.

According to the interview, there are clearing winning and clearing

losing. Clearing winning is a condition where in a clearing meeting,

participant banks receive transfer from the other banks which the balance is

bigger than its bank transfer to other banks. Clearing losing is a condition

where in a clearing meeting, participant banks receive transfer from other

banks less than the amount transferred to other banks. Empty balance,

system failure, different signature, unclear stamp, and authorized officer

come who late are the intervention factors.

Empty balance means the financial balance account is not enough or the

account has been closed. Then the transaction is declined. When the banks

receive empty checks or transfer documents, they apply sanctions based on

the regulations. The regulations were made in order to protect and keep the

customers’ trust about withdrawing empty check or transfer form issues.

50

FIGURE 4.2

CLEARING PATTERN

Source: Bank Bukopin SOP HandBook (2009)

As described on figure above, with having clearing arranger (Bank

Indonesia) the clearing process is becoming well-organized. Imagine if

there is no clearing arranger, the Bank A might have to go to Bank B to

liquidate the check or transfer form, and Bank B have to go to Bank C to do

the same. Simply said, each bank have to go to the original bank to clear

the check or transfer form. The process will be inefficient and time-

consuming.

CLEARING ARRANGER

BI

BANK A

BANK F

BANK E

BANK D

BANK C

BANK B

51

TABLE 4.2

THE DIFFERENCES BETWEEN RTGS AND

CLEARING

RTGS CLEARING

Faster By period or cycle

The nominal transferred is free or

no limitation

The nominal transferred is lesser

than Rp. 100,000,000,-

Fee charge if the transferred

nominal more than 1 billion is Rp.

35,000,-

If the nominal transferred less than

1 billion the charge is Rp. 25,000,-

Transfer and clearing charge Rp.

5,000,-

Transfer non-customer Rp. 10,000,-

Clearing non-customer Rp. 15,000,-

Credit transfer only Debit and credit document only

Source: Bank Bukopin SOP Handbook (2009)

The table above explain the differences between RTGS and clearing.

The first different is the cut off time. The RTGS is faster, while clearing is

by period or cycle. RTGS is faster because the process is through electronic

system. When the customer asks to be transfer the money through RTGS

the teller directly process it and approved by the back office officer who in

charge in approving RTGS transaction. Different with RTGS, the clearing

transaction involve the online Bank Indonesia’s system which operate

based on cycle; morning cycle. Morning cycle here is from 8am until 11am.

If the customer passed the morning cycle then the transaction will be

processed on the next day.

The other difference is the maximum nominal transferred. The RTGS

has no limitation on the nominal transferred. In contrast, the clearing

transaction’s nominal transferred should be lesser than Rp. 100,000,000,-.

52

The fee charge between those two transactions is also different as shown on

the table above. The last difference is the RTGS serves credit transfer only,

while the clearing transaction serves debit and credit document.

Risk in an organization context is usually defined as anything that can

impact the fulfillment of corporate objective. This is according to Hopkin.

In Bank Bukopin Pontianak, there are corporate objectives that are set by

the bank before to accomplish the Bank’s target. In the way to accomplish

the bank’s target, the bank indeed has risks that might happen anytime that

can impact to the fulfillment of the bank’s objectives.

The researcher is doing research in the operational division especially

in clearing transaction. In clearing transaction there are operational risks

that can impact the fulfilment of bank’s objectives.

According to Rose & Hudgins, operational risk events can occur when

there are inadequacies or failure due to:

1. People

2. Processes

3. Systems

4. External events.

Based on the interview, the problems that sometimes happen for

clearing transaction are:

1. Empty balance

2. System failure

3. Different signature

4. Unclear stamp, and

5. Authorize officer that comes late to BI.

The empty balance is include into the category of external event. As

same as the different signature and unclear stamp. The bank has nothing to

53

do with those. Those risks came from the customer itself and cannot be

control. The system failure is include into the category of failure of system.

The authorize officer come late is include into the category of the

inadequacies due to people.

Problems that happen mostly all the time is unclear stamp and empty

balance or having not enough balance on the account. When the officer

receive Bank Bukopin’s the check or transfer form from another bank at BI,

the officer will go back to the office and check for the customer information.

Most importantly he will check on the balance of the customer.

The one thing that mostly the officer found out is the empty balance.

The balance of requested customer is zero or not enough amount to clear

the transaction. By this the officer needs to call the customer to inform that

the balance is zero or not enough and ask him or her to deposit money to

the account. But if the customer failed to do this, the officer will not be able

to proceed the transaction. As a matter of fact, a customer with an empty

balance will be reported to Bank Indonesia and given a warning letter.

Besides empty balances, the stamp on the check or transfer form is

unclear. Either the bank’s name is unclear or the logo of the bank is unclear.

This problem creates the impression that the check book or transfer form

book is being misused by another party for his or her own goods.

2. The Key Performance Indicators to Manage Operational Risk in

Clearing Transaction

In the check and transfer form, there are some blank spaces need to be

completed before clearing; the name of the owner or the sender, the nominal

transferred, and the signature. Those are considered as the KPI that need to

be fulfilled to process the transaction. The other KPI is when the officer

receives check or transfer form from other banks at BI, the officer will

54

check the customer balance. If the balance is zero or not enough, the officer

has to call the customer to ask him or her to fill the account, so that the

transaction can be processed.

TABLE 4.3

FAILED CLEARING TRANSACTION IN BANK

BUKOPIN PONTIANAK

Year 2012 2013 2014

Total failed

transaction 0 1 2

Based on the interview, there are an average of 15 clearing transactions

daily. Failed transaction is rarely happens. There is one year that there is no

failed transaction at all that is in 2012. In 2013, there was one clearing

transaction cannot be processed because the stamp on the check or transfer

form was not clear. In 2014, there is 2 failed clearing transactions. By

having not enough balance is the cause. Due to this, two different customers

were given a warning letter given by the bank to make them aware that there

is not enough balance on their account and to do not issue any check or

transfer form until they deposit money to that account. Even though it is not

the bank’s fault if the account have not enough balance, the bank expects

that there will be only a maximum of one failed clearing transaction per

year.

Based on the observation, the officer always double check on the

account, all the spaces that need to be filled in the document, and match

them with what has been saved on the system. If the customer’s account

has not enough money when checked by the officer, the office will called

the customer and tell the customer that he or she should deposit money in

55

his or her account within one hour. If the customer failed to deposit the

money, the officer will decline the transaction and give a warning letter to

that customer.

Based on the interview and data analysis, there are KPIs for clearing

transaction. These KPIs are create to be the fundamental principle in

processing clearing transaction. The user of this KPIs is the authorized

officer of clearing transaction. He is the one who do these KPIs and at the

end of the year will be the one who is being evaluate and rate for them.

According to Eckerson, a KPI is a metric measuring how well the

organization or an individual performs an operational, tactical or strategic

activity that is critical for the current and future success of the organization.

In this case, the KPIs made are intended to measure the clearing officer to

perform the clearing transaction for the current and future success of the

bank.

According to Weber & Thomas, measurement of performance is

important because it identifies current performance gaps between current

and desired performance and provides indication of progress towards

closing the gaps. The point of having KPIs is to measure the performance.

The bank needs to identify its current performance gaps and its desired

performance. The bank need to know whether the bank is getting close to

its desired performance or whether there is performance gaps within the

company. In the condition where the bank has performance gaps, the bank

has to identify how to close the gaps.

The KPIs of Bank Bukopin Pontianak for clearing transaction is, first,

on the check or transfer form, all the blank spaces have to fill correctly, the

officer have to make sure of this. The most important space that should be

filled are the name of the owner or the sender, the nominal transferred, clear

duly stamp and the signature same as the specimen. The second KPI is the

56

officer has to call the customer as giving information that the balance in the

account is not enough.

3. The Effectiveness of The Key Performance Indicators to Minimize

Operational Risk in Clearing Transaction

Based on the interview, there are usually 15 clearing transaction per day

in Bank Bukopin and failures rarely happen. The researcher thinks that the

applied KPI is effective enough that the failure can be zero for one year

which is in the year of 2012.

In 2013, one clearing transaction cannot be processed because the stamp

on the check or transfer form was not clear. Therefore, the clearing

transaction is declined. In 2014, there are two failed clearing transactions

because of not having enough balance.

Based on the fact, it means the risk that happened in clearing transaction

is 1%. This is a result from two failed transactions divided by an average of

clearing transactions which is 180, and the result will be in percent, and

making the result 1%.

2

15 ∗ 12= 0.01 ∗ 100% = 1%

The researcher thinks that existing Key Performance Indicators in

clearing transaction of Bank Bukopin is effective because the bank have not

more than 5% rate of risk. 5% is the risk rate set by the bank for clearing

transaction. If the risk rate is 5% or more, it can be considered dangerous

for the bank. The bank will lost trust from the customer about clearing

transaction. Banking industry lies its business on customer trust. When they

lost the customer trust the bank can lost its customers.

According to Eckerson, there are ten characteristic are likely to deliver

high impact KPIs. Based on the researcher analysis, the bank has those ten

57

characteristics that likely to deliver high impact KPIs for the clearing

transaction performance. The existing KPIs of the bank are sparse, simple,

and actionable. The KPIs is sparse because the bank has two KPIs for

clearing transaction. Most performance management practitioners say less

is more. According to Eckerson, management should limit the number of

KPIs to make the officer focus. The KPIs also have drillable characteristic.

The KPIs are not only clear, but they are also detailed.

The bank KPIs are also simple because those are easy to understand and

easy to act on. The officer know what is being measured. The effective KPIs

should not consist indexes, ratios, or multiple calculation which are difficult

to understand and difficult to act on. If the officer does not understand the

meaning of the KPIs, he cannot influence its outcome. If the officer

understands the meaning of the KPI, the officer can make positive influence

on its outcome. Which by this, the Bank Bukopin KPIs are actionable.

The Bank Bukopin KPIs are also owned. Owned because the KPIs has

the owner which is the clearing transaction officer who accountable for its

outcome. Since the officer owned it, the officer will feel highly motivated

and responsible for managing the KPIs. If the KPIs have only one owner,

there will be no finger-pointing, and that individual owner will feels highly

motivated and responsible for managing the KPIs. The KPIs are also

referenced. The KPIs are accurate since the reference about them are

known.

The KPIs are also correlated. The KPIs has impact performance in the

proper direction which mean the KPIs are correlated. The KPIs can make

the clearing risk rate only 1%, which means the KPIs drive desired outcome.

The KPIs need to be evaluate after the fact to see if they are statistically

correlate with desire outcomes. The correlation makes explicit the linkage

between driver KPIs and outcome and gives executives greater confidence

in making decisions. The KPIs need to continuously monitor the impact.

The manager will be able to evaluate any shifts in their effectiveness.

58

The Bank Bukopin KPIs are balance because those provide a balance

perspective to individuals whose performance is being monitored. Aligned

and validated are also the characteristic of Bank Bukopin KPIs. Those KPIs

are aligned because it does not undermine each other. The KPIs are

validated because those are tested to ensure that the officer cannot

manipulate the KPIs.

TABLE 4.4

TEN CHARACTERISTIC HIGH IMPACT KPIS OF

BANK BUKOPIN PONTIANAK

No. Characteristic or Explanation

1 Sparse The bank has two KPIs for clearing

transaction to be focused on.

2 Drillable The KPIs are not only clear but also

detailed.

3 Simple The KPIs are easy to understand and

easy to act on.

4 Actionable The officer understands the meaning

of the KPIs. Therefore, the officer

can make positive influence on its

outcome.

5 Owned The KPIs for clearing transaction has

the owner which is the authorized

officer for clearing transaction who is

accountable for its outcome. Since

the officer owned it, the officer will

feel motivated and responsible for

managing the KPIs.

59

TABLE 4.4 (Cont’d)

No. Characteristic or Explanation

6 Referenced The KPIs are accurate since the

reference about them are known.

7 Correlated The KPIs has impact performance in

the proper direction.

8 Balanced The KPIs provide a balance

perspective to individuals whose

performance is being monitored.

9 Aligned The two KPIs does not undermine

each other.

10 Validated The KPIs are tested to ensure that the

officer cannot manipulate them.

By having those ten characteristic, the KPIs has the high impact and has

low risk rate. Though risk cannot be made until 0%. Risk only can be

reduce. So the researcher intended to add KPIs that should work and might

minimize the risk until 0.5%.

According to Eckerson, there are two types of KPIs; the outcome and

the drivers. The outcome KPI measures the output of past activity. On the

other hand, driver KPIs measures activities that have significant impact on

outcome KPI. The researcher intends to make KPI drivers which can

measure the activities in its current state scheduled for the end of the year.

60

TABLE 4.5

SUGGESTED KPI FOR BANK BUKOPIN PONTIANAK

Transaction Existing KPI Suggested KPI

Clearing All blank spaces on the

check or transfer form need

to be filled; the owner or the

sender, the nominal intended

to be transferred, and the

signature.

The officer has to call the

customer if there is not

enough balance on the

account and ask him or her to

fill the account balance.

There should be clear stamp

on the check or transfer

form.

The existing KPI from the bank requires the officer to make sure all the

blank spaces in the check or transfer form to be filled; the owner’s name

space, the nominal transferred space, and the signature space are the spaces

need to be filled. Then also the officer has to call the customer if there is

not enough balance on the account then ask him or her to fill the account

balance. The researcher made new additional KPIs that should be able to

minimize risk to 0.5%.

The researcher thinks that on the check or transfer form should have a

clear stamp of the company that proves that the check or transfer form is

issued from the bank.

By applying the suggested KPI, the bank should monitor and evaluate

the effectiveness the suggested KPI. At the end of the year, the bank has to

check and rate the performance of the officer that runs the existing and

61

additional KPI, whether the officer has achieved a high rate and in the end,

will minimize the risk or not. The researcher expects that if the officer

consistently applied the additional KPIs, the risk in clearing transaction

could be minimized to 0.5%.

62

CHAPTER V

CONCLUSION AND RECOMMENDATION

5.1 Conclusion

Risk are everywhere. Nonetheless at the operational division of the

bank. Operational division can be said as the heart of a bank. Its role is very

important. As being important there also risks awaiting on every transaction

processed in that place. Below are the conclusion of each statement of

problems.

1. The risks await at operational division of Bank Bukopin, especially in

clearing transaction:

a. There is zero balance or not enough balance on the account.

b. System failure.

c. The signature on the check or transfer form is different with what

has been registered on the system.

d. The authorize officer come late.

e. The stamp is not clear.

2. Based on the research, there are two key performance indicators for

clearing transaction in Bank Bukopin Pontianak:

a. All the blank spaces on the check or transfer form need to be filled;

the owner or the sender, the nominal intended to be transferred, and

the signature.

b. The officer has to call the customer if there is not enough balance

on the account and ask him or her to fill the account balance.

3. By implementing that KPIs, the risk rate in Bank Bukopin Pontianak is

only 1%, which is good, because it is very low. Compared to the

standard set by the bank which is 5% risk rate. The KPIs of the bank is

effective.

63

5.2. Recommendation

Bank Bukopin Pontianak has done a good job in keeping down the risk

rate in clearing transaction. The risks could be minimize to 0.5% with the

additional KPIs in the clearing transactions. The KPIs should help the

management, not only to minimize the risk, but also to increase the service

quality to the customers. The recommendation that could be considered by

Bank Bukopin Pontianak are as follows:

1. Bank Bukopin Pontianak should implement the suggested KPI

where there should be a clear stamp on the check or transfer form.

2. The authorized officer should be consistent in implementing the

KPIs.

64

REFERENCES

Books

Berenson, Mark L., Levine, David M., & Krehbiel, Timothy C. (2009). Basic

Business Statistics: Concepts and Applications. United Kingdom: Pearson.

Hopkin, Paul. (2012). Fundamentals of Risk Management: Understanding,

Evaluating, and Implementing Effective Risk Management. United

Kingdom: Kogan Page Publishers.

Kerzner, Harold. (2013). Project Management Metrics, KPIs, and Dashboards: A

Guide to Measuring and Monitoring Project Performance. United

Kingdom: John Wiley & Sons.

Marr, Bernard. (2013). Key Performance Indicators (KPI). United Kingdom:

Pearson.

Rose, Peter S., & Hudgins, Sylvia C. (2010). Bank Management & Financial

Services. New York: McGraw-Hill.

Journals

Eckerson, Wayne. (2009). Performance Management Strategies: How to Create

and Deploy Effective Metrics. TDWI Journals, 2009.

Samad-Khan, Ali. (2008). Modern Operational Risk Management. Financial

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Velimirovic, Velimirovic, Stankovic. (2011). Role and Importance of Key

Performance Indicators Measurement. Serbian Journal of Management 6

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Weber, Al. (2009). Key Performance Indicators: Measuring and Managing the

Maintenance Function. Ivara Journals, 2009.

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Internet Articles

Businessdictionary.com (2014). Banking Operation. From

http://www.businessdictionary.com/definition/banking-operations.html

Businessdictionary.com (2014). Collection. From

http://www.businessdictionary.com/definition/collection.html

Businessdictionary.com (2014). Check-clearing. From

http://www.businessdictionary.com/definition/check-clearing.html

Bukopin.co.id (2014). Bank Products. From http://www.bukopin.co.id.html

Investopedia.com (2014). Key Performance Indicator – KPI. From

http://www.investopedia.com/terms/k/kpi.asp

Investopedia.com (2014). Transfer. From

http://www.investopedia.com/terms/t/transfer.asp

Investopedia.com (2014). Operational Risk. From

http://www.investopedia.com/terms/o/operational_risk.asp

Investopedia.com (2014). Real Time Gross Settlement – RTGS. From

http://www.investopedia.com/terms/r/rtgs.asp

66

APPENDICES

APPENDIX A - INTERVIEW RESULT

Authorized Clearing Officer

Question Answer

Is there any Key

Performance

Indicator used in

this company to

manage operational

risk?

There is KPI for clearing transaction.

What is Clearing? Clearing is the changing of electronic financial

documents between clearing participants in the

customer’s representation which finished in a certain

time.

Who is the clearing

participants?

There are 35 clearing participants in Pontianak. They are

BRI, Mandiri, BNI, Danamon, Permata, BCA, BII,

Panin, CIMB Niaga, UOB Buana, NISP, WinduKentjana,

DBS, Ekonomi, Rabo, Mayapada, BPD Kalbar, BPD

Syariah, Sinarmas, Muamalat, BTN, BTPN, Mega, BNI

Syariah, Bukopin, Bank SyariahMandiri, Syariah Mega,

Harda, Nobu, Common Wealth, ArthaGraha,

PermataSyariah, SinarmasSyariah, BRI Argoniaga,

Agris. If there is any bank that does not include as

clearing participant, then the liquidity of the money will

be through collection.

How is the clearing

transaction

process?

The financial document from customer is received by the

authorized officer which is me, from the front office, I

input the information from the financial document to the

system. Then after finish collecting all of the financial

documents, bring those to Bank Indonesia before 11am.

At Bank Indonesia, there are 35 tables for each

participant banks, and each financial documents that

receive before are putted based on originate the bank. I

receive financial documents from the other banks that

putted in my table and then check what is written in

financial documents and what has been inputted. The

ones that should be checked are the requirements (fulfill

or not), the customers’ balance, and the specimen. If all

the requirements are fulfilled, the transaction can be

proceed. All the checking process I do back at the office.

At 2pm, I go back to Bank Indonesia giving back

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financial documents that I’ve been checked and then the

clearing process is proceed and done.

Do you have any

standard in doing

this transaction?

I have to check on the name, account number, balance,

and signature. I have to call the customer if when I check

there is not enough balance or empty balance on his or

her account to ask him or her to fill the account so that

the transaction can be process.

Is there any

problem that often

happened?

1. There is no balance on the account.

2. System failure.

3. The signature on the check or transfer form is different

with the specimen.

4. The officer comes late.

5. The stamp is not clear.

Then, how you

handle those

problems?

For some problem, the bank have to report to the Bank

Indonesia as DHN (Daftar Hitam Nasional) as black list

the account. But for not having balance on the account I

will call the marketing officer to contact the customer, if

until 1pm the customer do not do something about it then

the transaction is declined. System failure is rarely

happened. But when it happens there is nothing to do

about it just wait until the system going up again. For

coming late, I always make myself go to BI at 10.15am

to avoid being late.

Is there any failure

in clearing

transaction?

The failure rarely happen. It ever happened that there is

no failure for the whole year. It was on 2012. In 2013,

there was one clearing transaction cannot be processed

because the stamp on the transfer form was not clear.

Last year, 2014, there were two failure in clearing

transactions. The cause is the customers have not enough

balance in their account.

What is the risk

rate in clearing

transaction?

It must not exceed 5%.

Is there anything I

need to know more

about clearing?

Clearing transaction is quite complicated and I have to do

it carefully to decrease the risk that I might have.

Clearing only took maximum 1 day process.

There are clearing winning and clearing losing. Clearing

winning is where in clearing meeting, participant banks

receive transfer from another banks which the balance is

bigger than its bank transfer to other banks. Clearing

losing is a condition where in clearing meeting,

participant banks receive transfer from other banks less

than the amount transferred to other banks.

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Coordinator of Operational Division

Is there any Key

Performance

Indicator used in

this company to

manage operational

risk?

Yes. KPIs for clearing transaction.

Do you think if

there is KPI in this

company, it might

help the company

to reduce the

operational risk?

It might help. I think it might depends on how the back

officers perform it. If they consistent on doing it, it might

help to reduce any risks.

What is the risk

that often happens

in clearing

transaction?

Zero balance, system failure, but system failure is rarely

happens, the signature on the check or transfer form is

different with the specimen, the stamp is not clear, the

officer of the bank comes late.

If zero balance happen the authorized clearing officer has

to call the customer. Ask the customer to deposit more

money.

Is there any

standard in doing

clearing

transaction?

The authorized officer has to check on the name, account

number, balance, and signature. If there is any

differences or wrong especially on the balance, the

authorized officer has to call the customer to ask him or

her to fill the account so that the transaction can be

process.

What is the risk

rate in clearing

transaction?

It must not exceed 5%.

Is there any failure

in clearing

transaction?

The failure very rarely happen.

In 2013, there was one clearing transaction cannot be

processed because the stamp on the transfer form was not

clear. In 2014, there were two failure in clearing

transactions. The cause is the customers have not enough

balance on their account.

It ever happened that there is no failure for the whole

year.

If there is

additional KPI for

clearing

transaction, do you

think the risk can

be reduce?

I think it can be. More standard makes the officer more

careful in doing transaction. Then the risk might be

reduced.

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APPENDIX B - PRODUCTS AND SERVICES OF

BANK BUKOPIN

Products

Tabungan SiAga Bukopin Saving in Tabungan SiAga Bukopin does not only

give secure feeling, but also gave beneficial

interest, and also various ease and interesting

facilities.

Tabungan SiAga Bukopin

Premium

Saving with interest that equal to deposit but with

various of services, and ease in doing transaction.

Tabungan SiAga Bukopin

Bisnis

Saving that help customer to take a note of each

transaction detail therefore the customer easier to

monitor the business.

Tabungan SiKosi Saving that have purpose to support fund mobility

of Indonesian Corporation.

Tabungan Rencana

Bukopin

Saving that targeted to individual to fulfill the

coming need with total transfer constant every

month and only can be withdrawn in a particular

time as the promissory earlier.

Tabungan Haji dan

Umroh Bukopin

Saving that give many benefit, such as: the certain

departure Haji date because it connected online to

SISKOHAT, free administration charge,

automatically get free insurance protection.

Deposito Merdeka The most flexible and beneficial way to invest.

The money can be liquidate anytime, without

penalty.

Deposito Dollar Saving in dollar that the withdrawal only can be

done in a particular time based on promissory

between the customer and the bank officer.

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Deposito Umum Saving that the withdrawal only can be done on a

particular time based on the promissory between

the customer and the bank officer.

Deposito On Call Deposito On Call is putting fund by the customer

in the form of saving that the withdrawal only can

be done on the early notice based on the

promissory between the customer and the bank.

Giro Bukopin Giro Bukopin facility that free in doing transaction

anywhere. With the real-time-on-line system, the

Giro Bukopin holder can do transaction in all Bank

Bukopin. Check and Bilyet Giro can be liquidated

in any Bank Bukopin offices.

Giro Valas ‘Giro Valas Bukopin” is saving in the form of

foreign money that can be withdrawn anytime as

the need of the customer, and also can be owned

by individual, institution or corporation.

SiAga Dollar SiAga Dollar gives beneficial interest with high

interest rate that can be calculate daily and it is

flexible because the transfer and withdrawal can

be done in Rupiah, Dollar, and other foreign

currencies. Transfer and withdrawal can be done

cash, overbooking or through transfer and the

account can be opened by individual and

corporation.

TabunganKu Saving for individual with easy requirements that

established along as another banks in Indonesia in

order to create saving culture and also increasing

people welfare.

Deposito Rupiah Deposito Rupiah Bank Bukopin is one of many

choices to save and develop customer’s money

safely and beneficially.

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Kredit Mobil Bukopin Help customer to buy dream car fast, easy, and

flexible.

KPR Bukopin Help customer to buy dream house fast, easy, and

flexible.

Kredit Serba Guna Credit that targeted to employees for their

consumption needs, such as: education fund,

household utilities fund, traveling, and so on.

Back to Back Loan Optimize deposit fund by getting loan from Bank

Bukopin.

Kredit Usaha Rakyat Credit to funding productive micro, small,

medium enterprise and corporation, that feasible

but not yet bankable for capital and or investment

through direct funding or indirect funding that

guaranteed by Lembaga Penjamin Kredit.

Kredit SU-005 Capital credit and or investment credit with source

fund SU-005 given by Bank Bukopin, as Lembaga

Keuangan Pelaksana, to micro and small firm.

Kredit Ketahanan

Pangan dan Energi

(KKP-E)

Credit given by the bank to farmer, breeder, and

fisherman.

Kredit Kepada Koperasi

Karyawan untuk Anggota

(K3A)

Credit facility given to the cooperation’s

employees to be given next to the members in

order to fulfil various needs, such as; cars, houses,

and other needs.

Skim Hiswana Migas Credit given to Hiswana Migas member either in

the form of capital or investment for financing the

work.

Kredit Kemitraan UKM Credit given by bank based on cooperation

between bank with main company and act as

avalist.

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Kredit Pembiayaan Alat

Berat

Credit facility given to individual or business

entities or corporations to buy heavy tools.

Kredit Pembiayaan Gula Credit intended to those in sugar business.

Kredit Pundi Credit given to small productive business that own

by poor family.

Pembiayaan Modal Kerja

untuk Penyelenggaraan

Ibadah Haji Khusus

Credit given by Bank Bukopin to hajj arranger.

Pinjaman Rekening

Koran

Capital credit in short term where the withdrawal

can be done anytime with using financial

document (check/Giro document).

Kredit Modal Kerja Short term credit given to fulfil capital needs with

taking limit maximum is 1 year.

Kredit Investasi Medium and long term credit given to finance

assets or make a project with taking limit 3 until

10 years.

Kredit Sindikasi Financing to borrower done by a few banks in one

time to finance one project.

Direct Loan Micro Bank Bukopin develops Micro and small

enterprise through the easiness of capital access.

Swamitra Swamitra is a name of corporation or partnership

between Bank Bukopin and cooperation to

develop and help the corporation become modern

through network technology.

SKBDN Bank Bukopin serves and provide facility to open

account, transfer, and also acceptance Surat

Berdokumen Dalam Negeri (SKBDN).

Clean Collection Bank Bukopin provides service in collecting other

bank financial documents in foreign currency.

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Cash Letter Bank Bukopin provides Cash Letter as the

outward media collection with fast payment or

temporary payment.

Cash to Cash Transfer and receiving fund service in minutes.

Kartu Debit Bukopin

VISA

Easy to be used for shopping and doing transaction

in shopping area and payment in any place with

VISA and VISA ELECTRON sign.

Kartu Kredit Bukopin Credit card with various interesting programs for

customer needs with no different level of rates

between doing transaction or withdrawal.

ATM Bukopin ATM can be used in 35.000 ATM

without getting any charge; ATM BCA/Prima and

ATM Bersama.

Phone Banking Customer only need to call 14005 to get any ease

in banking issue, wherever and whenever.

SMS Banking With sending text to 3663, customer can do any

banking transactions.

Bukopin Prioritas Bukopin Prioritas gives customer many facilities,

such as executive lounge at the airport.

Paying Agent Financial service to people that participate in

credit syndicate or club deal which is lender or

other parties that related in doing payment

finishing or can be called settlement, to disburse,

payment on main borrowing, payment on interent,

and payment on other liabilities.

Listrik Prabayar

(Prepaid)

Prepaid payment on electricity is PLN service to

customer in order to manage electricity usage

through electronic prepaid meter.

Wali Amanat Service given to the investor in order to take part

on the publishing of a stock.

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Arranger Service given by the bank as the responsibility

from the borrower to collect some fund to finance

a project own by a person by credit syndicate

payment pattern.

Source: Bukopin.co.id (2012)