The global crisis caused by the coronavirus pandemic has radically changed the tourism industry around the world. The range of uncertainties facing business leaders around the globe in 2021 is overwhelming. Unprecedented levels of business complexity, changing geopolitical scenarios, epidemics and pandemics, increased number of natural and man-made disasters and threats make risk abounds nowadays. Challenges triggered by an airborne virus creating global pandemic continue to unfold, combined with numerous other issues such as growing social unrest and polarization, and ever present challenges ranging from new technologies and digitalization innovations to ever changing markets, increased competition and new business models, and staying abreast of emerging risk issues and opportunities is becoming increasingly difficult.
Maldives being a high-end tourist destination and the economy depends significantly, over 25% directly and over 50% indirectly to the GDP, It is vital the hospitality industry to be more resilient and have a robust risk management framework to protect from customer, industry and national economic perspectives. When there is a drop in the occupancy at the resorts, the entire economy gets affected and the reverse is also very much true here. The saying goes, ‘when there is cold in Europe, people in Maldives sneeze’. Directly and indirectly, general consumption is very much dependent on the average occupancy levels. The industry has been subject to various risks including pandemics and epidemics, economic and financial crises, customer perceptions, food safety, changing customer expectations and behaviours, supply chain, staff related, operational risks and etc.
The Concept of Enterprise Risk Management (ERM) was first introduced to the Banking and Financial Services industry as it was an industry with possible contagion to other industries. Similarly, Maldives hospitality industry too is integrated with many other sectors in the economy it needs a stronger risk management framework. ERM is now practiced in many industries where there are high risks beyond the financial services industry. This paradigm concept is emphasizing a more comprehensive view of risk and replacing the silo approach, which compartmentalized from a department to another in an organization. ERM is a comprehensive and integrated framework for managing key risks in order to achieve business objectives, minimise unexpected earning volatility and maximise firm value. Several researchers found that when organisations manage risk through ERM that adopts a systematic and consistent approach, it tends to lower the organization’s overall risk of failure and thereby increase performance and the value of the organization. Further, results from some studies indicate that ERM implementation has significant positive linear relationship with firm’s performance and value.
Presently, ERM has been increasingly implemented in many large hospitality Companies around the world including in US, Europe, Japan, Malaysia, India and etc. Based on Enterprise Risk Management-Integrated Framework, there are several types of risk management techniques and strategies that can be used by the resort management to manage the risk such as risk avoidance, risk reduction, risk sharing, risk retention, and risk transfer. The risks need to be identified, analysed, monitored closely through Key Risk Indicators (KRI’s) and then managed effectively. A widely accepted body in Risk Management COSO (2004, 2017), confirms that ERM is not a function or department, but it is the culture, capabilities, and practices that organizations integrate with strategy-setting and apply when they carry out that strategy, with a purpose of managing risk in creating, preserving, and realizing value. Further, according to Deloitte, a leading consulting firm, “In the fully developed Risk Intelligent Enterprise, risk management is viewed not as a project but part of the culture, the way of doing business”.
Therefore, in order to identify the emerging risks and manage them effectively. organizations need to develop a suitable culture including appropriate systems and procedures alongside the awareness and temperament for the staff to openly communicate with the relevant people. The right styles of leadership will set the tone for such a blend of cultural artifacts within any organization. Thus, the resorts sector needs to revisit their systems, procedures, organizational and governance structures, priorities in management meetings, formal and informal events, and leadership styles in order to identify the emerging risks, analyse appropriately and strategise to manage them effectively. The Government shall also support in such an effort and eventually monitor implementation of such safety net if the entire industry to be protected for long term sustainability thus the stability of the economy.
Mr. M. Fawas Farook is a regular opinion writer to Maldives Business Review with valuable insight towards Islamic Compliance Financing and Islamic Banking. He is also well versed and educated on business and technical consultancy and analysis.