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Risk Management In Trying times

The Risk matrix which Industries/companies will need to follow, will need to be altered in line with the changing global scenario.

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Auto Industry Hit By Covid-19

We are all faced with unprecedented times while battling this global battle against the Covid Virus. This is not the first instance of global crisis (Albeit not this extent) and hence there are some companies and industries who are better prepared compared to others. The greatest risk we face today is loss of lives but following which we will also need to battle the economic battle and possible recession. The Risk matrix which Industries / companies will need to follow, will need to be altered in line with the changing global scenario.

Possibly the aftermath could be longer in time frame and could extend to more than 12 months. Let’s evaluate possible Risks and management which are currently being seen and how some are facing them and finding a risk management solution towards them.

The earlier world crisis like War’s, Terror strikes etc. had already awakened most of the multinational companies and so many today have solutions based on technology for work from home and business continuity. However even these solutions have fallen short of execution as current lockdown situation in most countries do not support execution. For example: you could have a big Fashion company with global sales offices being technologically updated to work from home for its Top management, designers, Finance and procurement teams. The software could generate purchase orders, but what after that? Since all their procurements require physical deliveries the process has come to a standstill. This actually means closure of manufacturing and could eventually lead to loss of sales and lay-offs.

Closer home I am seeing a lot of stress in industries who have high dependency on physical movement. Let’s evaluate some of the risks to some specific industries.

Hospitality industry for example is facing huge stress in times of lockdown. The Flights have stopped leading to negligible travel which in turn have caused hotels getting empty. The Indian hospitality sector is staring at a loss of $4.2 billion to $4.7 billion in revenues due to coronavirus outbreak. The loss to the organised market, which is about 5 per cent of the total lodging sector in the country, is estimated to range between $1.3 billion and $1.55 billon. This amounts to an erosion of 27-32 per cent of the overall revenues as compared to the previous financial year

Hotel industry also has a huge workforce and hence protecting Job’s and reducing impact for people would also be critical from a socio-economic point of view. These conditions are further impacted by debt which the hospitality players have on books for building the hotels. Hotel industry for age’s has been asking for it to be classified as part of infrastructure industry and this demand during these times looks all the more justified. The industry is fearful that if enough support is not brought in quickly they could see many big hotels finding it difficult to sustain a comeback.

Given the above Risks, I would like to highlight how some players where possible are managing risks and business. However, I would like to highlight that this is possible for some of them due to their location and presence and other Players may not have the option or possibility for such solutions.

I. Hotels closer to IT and ITES companies have started giving their rooms for makeshift offices to these companies. This has helped sustain occupancy.

II. Hotels have started giving rooms to the administration where at a fixed cost the people who have been asked to be in self quarantine by administration for two weeks can opt to do the same at these Hotels in case it’s not possible at the hospital or their residences. This avenue would go further up as the numbers increase.

III. Approaching corporates with expatriate employee bases who have been unable to get back to their countries or are on mission critical jobs. Hotels represent a good option for them to work and stay with full facilities including connectivity and food plus a sanitized environment. This is seeing some business in strategically located hotels.

IV. Hotels are focusing on food and delivery. There are several dependents, bachelors etc. who are stuck in metro locations who do not have the facility of cooking at home and hotels are using the opportunity for delivery. Again, this is specific to the location but hotels who have initiated this process are seeing a good demand in Food and beverage revenue thereby allowing the costs to be mitigated.

V. Hotels who are giving offices are also providing American Plan as an option which means that for an extra amount which is added to the basic rate the guest also gets breakfast, lunch and dinner. This is a boon to the guests as well as a good source of revenue to the hotels

The above through an example of hospitality industry indicates how the industry is mitigating risks through innovation and initiative.

On the social side, we have seen announcements by the Mahindra group which has opened up the doors of its resorts to people who need the facilities for medical isolation. This is a great move and showcases the heart of the industry and its commitment to the country selflessly. They also are looking at some reciprocation and direction from the government to take these initiatives further.

On the cost side there are several initiatives which can help in risk management.

I. Business development and client contact to work on orders for future date

II. Using the opportunity of Maintenance, many a times critical maintenance gets impacted as closure of facilities are not possible. In such forced lockdown, using the opportunity for the maintenance makes the days productive and part of business costs

III. There are some hidden costs which can be set off during these periods without impacting Human Resources. There are several who are consuming all the balance leave against the lockdown period which ensures business continuity and continuity of salary at the same time reducing long term liabilities for the companies.

IV. Conserving cash and keeping themselves ready for a bounce back

V. Using the opportunity to improve on receivables management, these in today’s day and age can be done without physical meetings

 VI. Utilizing the time for Online training and refresher courses for its employees both on technical and soft skills.

VII. Having competition and ideation with rewards for innovation which has seen some outstanding ideas and results for companies. Given the opportunity to think many companies have reported great solutions and ideas which would be implemented once the lock down is over.

While these are just a percentage and can be set off’s but the critical factor would be to work closely with the government machinery. Creating a robust industry body and association which represents the industries effectively with the government is coming across as a big influencing factor for industry wide solutions.

The world would change once it reopens and many industries would need to put checks and balances in place. For example, in hospitality industry the process of screening guests and employees would change just like it changed with terror attacks. This would require training, innovation and investments. Working as an industry to come up with innovative solutions pre-empting that these would be mandated could be a good opportunity to utilize these time.

For future basis this crisis, I am sure the industries will align much better and keep this as a Top Risk mitigation strategy as it can be seen that the world has become global and by industries aligning globally they will be able to influence world leaders to look at finding solutions to industry wide problems.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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Vikas Chadha

The author is a Financial leader, Hospitality expert, Executive director and CFO With strong experience incorporates like Tata Global beverages, Thomas Cook, Berggruen hotels, Bharti Airtel Group, Marico ltd, Ampersand education. Vikas is also Founder and Director at First Equals LLP

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