Some commentators have taken the position that risk management is actually more important than revenue management in the hospitality industry (Nand, 2011). Accordingly, this report prepares a risk management strategy for a small, boutique hotel in order to address this outstanding need. The business at present has a generalized risk management strategy, primarily concerned with immediate economic business risks. This approach is not as effective as it could be because it is primarily reactive to present crises rather than attempting to predict issues that could arise and prepare solutions in advance. Furthermore, the time period considered within this generalized approach goes no farther than next travel season. Broadening the forward view will provide the business with more time to put proposed solutions into place. There are three major components of risk management in the hospitality industry: operational risk, project risk, and strategic risk (Nand, 2011). Operational risk deals with the risks faced by the business during its day to day operations. Project risk occurs when there are plans to expand the business beyond what services it is currently providing. Strategic risk is a component of the decisions that the business makes in relation to how it plans on meeting its strategic objectives. Because the hotel currently has no plans for expansion, this report will focus on providing a comprehensive, combined operational and strategic risk plan for the business.
The small hotel of this report is called the Brighton Arms and is located in Brighton, United Kingdom, a seaside town that due to its proximity to London is a popular tourist destination. Managers of businesses such as the Brighton Arms look to external factors within the general categories of uncertainty and value in adopting attitudes toward risk management (Andreassen, 1993). Two applicable factors related to both uncertainty and value are the current and anticipated political environment and economic climate. In times of political upheaval or economic uncertainty, risk management is perceived as more likely to be needed and therefore undertaken in a meaningful, forward-looking way. These two conditions are specific considerations to risk management within the hospitality industry because of their direct effect on tourism. In particular, times of political stability and economic boom hold less risk within the industry and therefore may result in a reduced perception of the need for risk management. Conversely, political instability and economic uncertainty such has been globally faced most recently tends to increase focus on risk strategies.
Social considerations are a further contributor to attitudes toward risk management. In this case, a primary social factor is that the Brighton Arms is a small business and all the employees are well known to each other. Although this could arguably reduce the need for a formalized risk management strategy, there is social benefit for the business in planning and executing such a plan from the point of view of employee empowerment. The need for risk management can also be reflective of the policy context of the business, as having a formalized risk management strategy to support and guide decision-making can boost the role of policy within the function of a small business.
Two further external factors considered when evaluating the need for a risk management strategy are legal factors and technological advancements. How likely the threat of litigation is a key consideration for the need for risk management. Certainly the amount of litigation occurring in general is increasing and it has the possibility of affecting any business including small ones such as the Brighton Arms. In particular, litigation can occur in relation to guests, employees, suppliers, or competitors of the hotel. The existence of these possible legal liabilities supports the formulation of an effective risk management strategy, as it would be anticipated that such a strategy could reduce the likelihood of litigation occurring, or reducing the impact of litigation should a suit be filed. Technological advances from the point of view a small business is a mixed blessing, as the increased reach of a small business provided by the Internet also increases the amount of risk associated with the technology. For example, even small businesses such as the Brighton Arms are now exposed to possible information security and data privacy issues because of changes in how guests interact with the business and pay their accounts. Further, a small business’ risk is increased by the mere need to keep up with the rapidly changing technological tools used within the hospitality industry. Accordingly, all of the reviewed factors – the political environment, economic climate, social factors, policy context, legal factors, and technological advancements – support the development of a comprehensive operational and strategic risk program for the use of the management of the Brighton Arms.
The current critical strategic and the operational goals for the Brighton Arms are to provide operational excellence and high quality customer experience in the lodging services provided, enhance the reputation of the business, reduce or at least contain the costs of running the business, and reduce employee turnover through maintenance of employee satisfaction and growth opportunities. The internal stakeholder groups within the scope of the proposed risk management program are the hotel ownership/management, hotel employees, and hotel guests. One external stakeholder is the Brighton tourism organisation, VisitBrighton.com. Among the issues facing the hotel owners/managers are need for comprehensive risk management program development associated with the business’ goals, need for employee participation and support of the project, and effective implementation of the strategies developed by the program. Issues faced by the hotel employees include an effective voice within the program development process, knowledge and understanding of the various components of the program to develop commitment to the program, and management support in the implementation of the components of the program. Hotel guests seek high quality, risk-free accommodations at a fair price. The Brighton tourism organization seeks a variety of high quality, risk-free hotel experiences within its location to offer to visitors to the area. These issues can all be addressed during the risk management program development by using effective communication methods and insuring a good fit between the program and the overall strategic and operational goals of the business.
Communications for this project will run primarily between the owner/management and employees. However, select communications to hotel guests or the VisitBrighton.com may be appropriate after the risk management program is fully developed and implemented. The primary delivery methods of communication will be in person meetings accompanied by e-mail requests for input to allow more employee participation. Program communications will culminate with a final risk management program document that will be shared with all participating employees. Tracking the ultimate program results may occur through e-mail updates and in person review meetings. Some of the key messages of the process will include discussion of why a risk management program is advisable, components of the risk program, how the various risks can be addressed, and the over-arching need for employee input and support during the development and implementation process. Particularly in a small business such as the Brighton Arms, a high amount of employee commitment to the program is required for success. Strategies for encouraging input and participation will include in person meetings at least for kick-off and wind-up of the program, availability of e-mail input at all stages, and acknowledgement of ideas and contributions of employees. Whenever possible, the program will emphasize what positive effects it has for the employee such as expanded work experience opportunities, route for input in overall business planning, and ultimately, a safer work environment.
In order to begin identifying risks that face the Brighton Arms, a SWOT analysis has been prepared including the most prevalent internal strengths and weaknesses and external opportunities and threats within the organisation.
Other tools and techniques that could be used to identify risks beyond a SWOT analysis include research into risks that face the hospitality industry in general, publications of larger organizations in the same industry or within the same location, or articles by risk management experts describing risk areas that should be considered when developing a risk analysis for a business.
Based on the SWOT analysis and adapted from a review of risks facing the hospitality industry in general, Table 3 on page 5 of this report details ten risks have been identified for inclusion. These ten risks are what management has identified as the top 5 strategic risks (risks 1-5) and the top 5 operational risks (risks 6-10) for the Brighton Arms boutique hotel (InterContinental Hotels Group, 2012, 39-44). This table also includes a numeric probability of the risks occurring on a scale of 1 to 10 with 1 being highly unlikely and 10 being certain. A final component of Table 3 is a numeric impact upon the business if this risk occurs on a scale of 1 to 10 with 1 being no impact and 10 being catastrophic (Alexander and Marshall, 2006).
The risk matrix of Table 2 guides the various identified risks to four possible risk strategies or treatments. Common matrix location-treatment combinations are indicated within the boxes: retain, reduce, avoid, or transfer (Alexander and Marshall, 2006). Retain means that the business accepts the risk and decide to invest money into the situation when the event actually occurs. Savings can be utilized to reduce the impact of retained risks. Reduce means that the business takes action to lower either the probability or the consequence of the risk, or both. Avoiding risk means that the business could choose to not take a particular action or path because of the risk imparted. Finally, transferring risk involves purchasing insurance or otherwise pay to move the risk out of the responsibility of the business to another (Alexander and Marshall, 2006). However, it should be noted that these pairings are only suggestions and other possible approaches may make more sense upon review. The
*The latest data available estimates that approximately half of overnight visitors in Brighton are from the United Kingdom, while the other half are from overseas (VisitBrighton.com, 1998). Review of the guest residencies for the past ten years at the Brighton Arms indicates that roughly 50% of visitors are from the United Kingdom, while the remaining 50% are from Western Europe (15%), the United States (10%), Eastern Europe (10%) and Asia (10%) and rest of the world (5%).
central message from a risk matrix is the ability to visualise the components of risk in order to prioritise them for treatment.
Management has decided that the following top three risks should be selected for treatment: 4, 6, and 9. Risk 4, growing reliance on online travel arrangements, was selected because of its high probability, as this is an ongoing issue already well recognized within the business. The appropriate treatment is reduction through action and investment within the business and this agrees with the choices indicated within the matrix. In particular, the Brighton Arms will take necessary steps to become available on the larger internet hotel reservation services, to invest in the premiums or website changes needed to have higher search result ranks, and consider internet based marketing efforts. This can be done by expanding the responsibilities of the outside marketing group already hired by the business or through an internal hire. The second risk considered for treatment is risk 6, location safety, security, and crisis management. Although the matrix suggests that this risk should be avoided, it is unfortunately an unavoidable risk in that there is no business choice in this area. In short, this kind of risk is a necessary part of doing business in the hospitality industry at this time. At present, the Brighton Arms does not have a crisis or emergency response plan in place and it is highly appropriate to address this by putting together a plan that would correct this deficiency. After the plan is developed there will be a need to train all employees in their roles within the crisis response plan. The goal of the risk treatment or response plan would be to reduce the impact of such an event upon the business. This risk was selected for treatment because it is both relatively likely and would have significant impact on the business should it occur.
The third and final risk selected for treatment is risk 9, inability to find and maintain skilled employees. Being located in a resort town that his highly dependent on tourism, employees within training and abilities within this area are very important assets for the company. Unfortunately, the business presently suffers from a high turnover that has a measureable impact on the business’ ability to provide high quality guest service. This impact is felt primarily in the time and energy spent recruiting and training employees, only to have them leave to work for competitors after a single season of employment. Therefore, the action plan to address this risk involves multiple steps or approaches. First, an analysis of the pay structure will be undertaken to ensure that the Brighton Arms is not severely out of step with similar job salaries. Next, an association with area hospitality training and education programs will be established with the possibility of an apprenticeship program to help recruit appropriately trained employees. Finally, an employee satisfaction program will be initiated to measure and understand areas that might benefit from improvement within the business to reduce this risk. In this way, the aim is to have access to more properly trained employees, pay them wages that will keep them working for the Brighton Arms beyond a single season, and implement improvements that will improve the employee satisfaction in the positions.
The specific risks chosen for treatment as well as the content of these various actions plans will be communicated to the employees through the final risk management plan document. It will also be presented orally to all employees through an in person meeting. This is important as several of the steps of most of the plans will require delegation to various employees already working for the hotel. Beyond the final risk management plan document that will be drafted and stored in the hotel central digital document storage system, the crisis response plan will also require a final document detailing the steps involved and roles of each employee on duty when an emergency crisis should occur. This document will be a key part of the training in this area. Like the risk management plan document, it will be stored within the hotel central digital document system. Thus, the steps will entail getting a quote from the marketing service for the expansion of responsibility, comparing this cost to the possibility of moving all marketing work to a single in-house hire, deciding between these two choices and implementing the selected decision. Next, a committee of employees will be appointed to work on the crisis response plan, perhaps with the short-term help of a consultant specialising in this type of planning, developing the plan and getting it approved, followed by training and specific drills. Finally, the wage analysis will be performed, followed by the approach to the educational facilities to establish a possible internship relationship. This could maybe be arranged or facilitated through the VisitBrighton.com staff. A survey to gather data from the employees will be drafted and administered, and suggestions from that survey for long-term improvements factored into the operational goals of the hotel. Follow up surveys can be done to see improvement in employee morale. In this way, the risk management action plan will be implemented using a step by step approach.
The progress of this action plan can be monitored through setting goal dates for the accomplishment of various steps within the plan, and if not being overseen directly by the owner/management, e-mail inquiries can be used to track the progress of the steps. A central part of the goals for the program will be to meet the dates established for reaching the steps of the various action plans. Once all steps within an action plan are completed and time under the new plan accrues, management can gather data to ensure that the steps actually meet the ultimate goals of the risk management plan. This approach can be used evaluate effectiveness of the risk management process. For example, both the reliance on online travel arrangements plan and the employee retention plan can be monitored by measureable goals such as increase in online bookings or increased employee tenure. Although it is hoped that the emergency response plan never has to be used, drills can function as substitute confirmation that the developed plan meets the management goal of reducing the impact of such an emergency on the business.
Even small boutique hotels such as the Brighton Arms can realize significant benefits through a risk management program. The present report discusses how attitudes towards risk management develop, how the central stakeholders for such a risk management plan can be identified and how their issues and concerns can be addressed within the plan. This report identifies, documents, and describes ten risks, five strategic risks and five organizational risks, that currently face the Brighton Arms. After graphing these risks on a risk matrix, three of these risks have been selected as amiable to treatment. Within this report, the three treatment plans are proposed and methods of implementing these plans are discussed. Approaches to documentation, monitoring, and evaluation of the overall risk management plan are described. Accordingly, this report provides for the planning, conducting, and evaluation of a risk management program for a small boutique hotel with the aim of reducing the business risk faced by this organisation in coming years.
References
Alexander, C. and Marshall, M. I. (2006). The risk matrix: Illustrating the importance of risk management strategies. Tools of the Trade. Journal of Extension. Retrieved from
http://www.joe.org/joe/2006april/tt1.php
Andreassen, P. B. (1993). The psychology of risk: a brief primer. The Jerome Levy Economics Institute, Working Paper No. 87. Retrieved from
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=150928
InterContinental Hotels Group (2012). Annual report and financial statements. Retrieved from
http://www.ihgplc.com/files/reports/ar2012/docs/IHG_Report_2012.pdf
Nand, L. F. (2011 November 10). Risk management: A hotelier’s guide. HotelNewsNow. Retrieved from
http://www.hotelnewsnow.com/Article/6925/Risk-management-A-hoteliers-guide
VisitBrighton.com (1998). Tourism Information. Retrieved from
http://www.visitbrighton.com/xsdbimgs/Tourism%20Statistics.pdf
