STRENGTHEN THE PROJECT CONTROL MECHANISM IN MANAGING COAL MINING BUSINESS RISK WITH A CAPITAL BUDGETING APPROACH: STUDY IN PT. XYZ

• Main Author: Elisman, Ongky
• Format: Theses
• Language: Indonesia
• Subjects: Manajemen umum
• Online Access: https://digilib.itb.ac.id/gdl/view/51121
• Institution: Institut Teknologi Bandung

The coal mining business is an expense-intensive business. This business is the field of the risks and the uncertainties throughout the long life-cycle. As part of the commodity trading business, this business is highly influenced by the intense fluctuation of global market prices and uncertain macroeconomic conditions. From the internal side, the effectiveness of operational management is the key to business continuity. Amid high business uncertainty and some negative record on project control in the period of 2018-2020, experiencing excessive mining cost performance and lost revenue opportunities, PT XYZ plans to open a new mining project in 2021 with the coal production target of 16.4 million tons for four years. This plan is part of the company's strategy in maintaining the production capacity and low-cost mining profiles. The project requires US$ 71.8 million capital expenditure, allocated separately to PT XYZ and its mining service contractor, referring to the allocation of work scope in the mining contract model. The certainty of the project's financial projection and project stability amid high uncertain business conditions becomes an essential and become the aim of this study. The synergy of appropriate capital budgeting, sensitivity-scenario analysis, and risk management is expected to be the comprehensive method to provide insightful sustainable solutions to the challenges faced by PT XYZ in developing the project. Base on the study, the planned project is financially feasible by providing US$ 14.65 million NPV with 68% of IRR and 1.63 years of PBP. However, the project also has an NPV output range from US$ 39.87 million losses to US$ 74.99 million gains, illustrates the reasonable range on the uncertainty condition. The company is assessed has ineffective mechanisms in managing the major business driver factors (coal price fluctuation, mine stripping ratio achievement, production factors, mining service price changes, and productivity performance). The study shows that strengthening the risk sense and awareness on reviewing and improving the project control by focusing on improving contract effectiveness as long term tools can reduce risks exposure.