Risk Management

Report

Student Name: Manuel Handlechner
Programme/Course: BA Hospitality Management

Table of contents

1 INTRODUCTION 3
1.1 DEFINITION 4
2 IDENTIFICATION OF THE CASE STUDY HOTEL 5
3 THE MACRO ­ ENVIRONMENT 5
3.1 THE PEST - ANALYSIS 6
3.2 PEST FRAMEWORK 7
3.3 LINKS INTO THE HOSPITALITY INDUSTRY 7
4 THE MICRO - ENVIRONMENT 9
4.1 THE SWOT - ANALYSIS 10
4.2 SWOT - FRAMEWORK 10
4.3 PORTER′S GENERIC STRATEGIES 12
4.3.1 Cost Leadership 12
4.3.2 Differentiation 13
4.3.3 Focus strategy 13
5 REPUTATIONAL RISK 14
5.1 REPUTATIONAL RISK MANAGEMENT STAGES 16
5.2 CRISES 17
6 CONCLUSION AND RECOMMENDATIONS 18
References
Further Reading
Appendices

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1 Introduction

No one can be sure of what the future will bring; therefore decisions on future events or incidences create risk and uncertainty. Technically, uncertainty is a situation where there are a variety of possible outcomes and little, if anything, is previously known to guide a well-rounded decision. (Garlick 2007) Risk is a situation where there are a variety of possible outcomes and all of the possibilities are known before and final decisions are taken. The higher the variability of these possible outcomes, the greater is the risk. Risk has been gaining a lot of attention in recent years. Until recently, it has always been viewed in a negative light, as something to avoid, as a danger. Risk management embraces risk as being inherent to business and providing the opportunity to maximise wealth. (Knowles et al. 2004)

King (2000) argues that risk traditionally been defined in terms of the possibility of danger, loss, injury or other adverse consequences because for positive events we tend to use the words `chance′ or `possibility′. The Risk Management Standard defined risk as the combination of the probability of an event and its consequences, and risk management is being concerned with both positive and negative aspects of risk. (Institute of Risk Management 2002 quoted in Collier et al. 2007, p. 6)

Over the last few decades, dealing with risk has become a distinctive and important area of management. It is already sees as an essential part of any successful organisation. (King 2000, Jablonski 2006, Löfstedt 2005) Sometimes, especially in business, certain risk can be an opportunity - for example making an investment in the stock market, floating shares or buying a new business. (Jeynes 2002) That is why it is important to do further research in order to avoid crises and point out opportunities especially in the hospitality industry.

Risks can be classified in a number of ways:

- Business or operational risk: relating to the activities carried out with in an organisation

- Financial risk: relating to the financial operation of a business

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- Environmental risk: relating to changes in the political, economic, social and financial environment

- Reputation risk: caused by failing to address some other risk.

1.1 Definition

Risk management is defined as:

"the process by which organisations methodically address the risks attaching to their activities with the goal of achieving sustained benefit within each activity and across the portfolio to all activities." (Collier et al. 2007, p.10)

In the face of this constant barrage of information nowadays, many people would probably claim that the world is a much riskier place today than 50 years ago. In fact, it probably is not ­ we simply have more statistics available and more knowledge now than we have ever had of all the possible way sin which we might come to harm. (King 2000)

Undoubtedly, the tourism industry is one of the most susceptible and vulnerable industries to risk and crises. Recent major events that had devastating impacts on the industry ranges from natural disasters to epidemics from mismanagement to terrorist attacks. (Santana 2003, Stafford et al. 2002, Stern and Wiener 2006)

The costs of taking approach to identifying and managing all the risks may be considerable. This is often stated as the reason why firms are reluctant to start on the path of evaluation of risks, preferring to ignore them and hope nothing will happen. There are likely to be costs associated with some of the actions required to reduce or eliminate risks, but on the other hand there are probably higher costs of trying to deal with the damage that could result from non-action. (Jeynes 2002)

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2 Identification of the case study hotel

The case study hotel is in the `3 red Star′ category and offers 12 individually designed bedrooms. The location is one of the major competitive advantages, because it is situated at the south coast of England with a beautiful view to the Isle of Wight. The new three-Rosette restaurant (35 seats) serves superb `Modern European′ food with a French influence. The head chef trained at the two-Michelin-starred restaurant in Paris, and his skilfully prepared and presented cuisine is far superior to what you might expect from a restaurant with three red rosettes from the AA. The wine list is outstanding with wines from all over the world. The German restaurant manager and her international team ensure the highest level of service. It is a small and independent hotel. It could be argued that there are perhaps more risks occurring than for an international chain hotel. Financial recourses and backing are limited and there are gaps in the technical development. On the other hand the hotel is more flexible and can deliver individual service. In the hospitality industry you can not control every risk factor but at least you should know them. In order to minimise the reputational risk and to maintain to good public image the case study hotel is involved in several charity events. They are sponsoring the local `girls-football-club′ and make the restaurant once a month available to the `veteran meeting′. There are a few obvious strength and weaknesses, advantages and risks, but for a competitive strategy plan it is necessary to identify all influences to an organisation. The analysis of the macro and micro environment will help to create a fitting business plan.

3 The Macro ­ Environment

Nowadays an organisation needs to consider many different types of risk. For the firm it is essential to understand how the risk is created and driven. In the past experts created frameworks to identify risks within an organisation. Some risks are externally driven, and some are internally driven. The external environment is not under the direct control of the organisation, it is important to build strategic capabilities to identify and take advantage of market opportunities. Organisations have to react to these external influences and therefore they need to identify these factors and risks. The most common and widely accepted framework is the PEST analysis.

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