Risk Categories in Hospitality Industry

According to the AS/NZS ISO 31000:2009, as cited in The Australian Government (2009), the risk is the effect of uncertainty on objectives that could be positive or negative and could involve different aspects. Risk management reflects the management policies, procedures and practices that could be applied by organizations for the purpose of establishing tasks. It includes several activities like identifying, analyzing, assessing, treating, monitoring and communicating the risk management processes to the stakeholders through the media channels. The hospitality industry is exposed to industrially related business chocks in a direct way, like customers’ deaths or injuries or in an indirect way, like economic downturn and currency fluctuations. These risks could result in negative consequences if they were not avoided by organizations. Organizations that are not ready for potential risk are likely to face troubles in their financial positions, public image, lower customer satisfaction and high employee turnover rates. The threat of unmanaged risk impact led to the issuance of the international standard of risk management to protect the business organizations and industries (Raspotnig & Opdahl 2013).  

Hotels and resorts management are meant with setting the objectives of risk management programs. Their main objective is usually related to organizational survival and risk mitigation (Amirudin, Nawawi & Salin 2017).  

The hospitality organization, for example, the hotels and resorts tend to manage their risks through a risk management program for three reasons; to maximize the organization value, maintain efficient liquidity and solvency. Organizations should develop their risk management program to minimize the risk impact that depends on three major strategies according to (URAL 2015; Mihalic 2014), as follows:

• Loss control:It aims at risk mitigation of avoiding the negative impact of financial risk and resistance to the impacts of hazards by applying safety standards in the precautions at-risk areas.
• Loss financing:Aims at preventing the risk of financial disasters through insurance. Tourism organizations are required to purchase a hedge to create a source of payment in case the tourism physical facility is damaged.
• Risk reduction: That could be implemented through withdrawal of the business activity or location if the tourism facility is located in several areas or diversification that could be achieved by integration with other business organizations.

The risk that takes place in the hospitality and tourism industry can be sourced from several activities and operations, like industrial operation, technology, and natural disaster, including floods and earthquake, or terrorist crimes. According to URAL (2015) and Khazai (2016), risks could be categorized in physical, financial, human risks and non-physical, as follows:

• Physical risk:It refers to the physical assets owned by the organization, including buildings and equipment, for example, the facility building, vehicles, gardens, furnishing, guests and staff members. Physical assets are exposed to theft, damage, natural disasters and terrorist attacks.
• Financial risk: It refers to financially related threats, including fraud by employees, nonpayment by the guests and scarcity of liquidity, reduction of the company value of assets and governmental regulations that changes the exchange rates and tax rates
• Human risk:It refers to the risk that could affect any of the staff member, guests, owners or the community
• Intangible risk:Refers to non-physical risks, like the customer satisfaction level, employees’ loyalty, organization image and brand name. 

Hotel management is required to proceed in implementing actions based on the technique used in risk evaluation. Each department head should be involved in the application of the decisions taken by the hotel management and to review their effectiveness in reducing risks. The results of implementing the decisions should be evaluated by the team that was involved in the implementation phase with the assistance of an external expert to ensure objectivity in evaluating the results (Amirudin, Nawawi & Salin 2017).

Risk Management Framework in Hospitality Industry

Risk management framework refers to the types of techniques that could be applied by the hotel and resort management to manage the risk, including risk reduction, risk avoidance, risk retention and risk sharing. According to Amirudin, Nawawi & Salin (2017) and Kaplan & Mikes (2012), risk reduction refers to the process of controlling risk to ensure safety management. It aims to reduce the severity and volume of losses. The loss prevention method and safety programs are risk techniques designed to prevent losses and reduce their impact in case they occurred. For example, using the sprinklers in the room to prevent the effect of fire. Risk avoidance represents the case when the hotel management refuses to accept the risk. It is considered a management technique meant to prevent any possibility of risk by preventing hazards. For example, preventing physical activities like mountain climbing due to bad weather conditions. Risk retention is a strategy implemented by the hotel management to absorb the risks either totally or partially. Risk retention could take place due to the small size of risk that does not require much attention or because of the lack of time to take any action to avoid the risk. Finally, risk sharing occurs when the hotel management decides to transfer the risk consequences to another entity such as the insurance companies (Robertson, Kean & Moore 2004). 

The evaluation of risk is a process related to the size of expected losses to be suffered by the hotel and its occurrence probability. The hotel management is responsible for ranking the risks to decide the level of action to be implemented (Beirman 2016).

The risk management process in the hospitality industry is based on two activities; communicate and consult and monitor and review as argued by Kean and Moore (2006), as cited in Ural (2016), as follows:

• Communication and consultation:Are essential to managing the risk that should be involved in each step in the process of risk management.  The effective communication and adequate consultation ensure that the tourism risk process is considered and sensed by the stakeholders. Documentation is important to ensure that the discussed issues and recommendations by the stakeholders in their meetings are accurately recorded and kept safe. The stakeholders of the tourism and facilities organizations are tourism organizations, technical advisors, politicians, government officials, media and interest groups.
• Monitoring and reviewing: Are essential for continuous improvement of the risk management process. They ensure the accuracy and currency of the tourism risk management process. By this, they act as enabling activities that prevent hazards and progress positive outcomes.

The venue concerned in this report to be used for the application of risk management analysis is the Ibis Melbourne Hotel. Ibis is an affiliate of Accor Hotels, the French company. It is considered among ibis megabrand (ibis, ibis Styles, ibis budget). It is a famous hotel brand that operates across the globe with 1137 hotels in 67 countries. It offers convenient and modern facilities to satisfy its guests and maintain a good image for the customers worldwide. It has 24,186 rooms that serve business guests who represent 58% and leisure guests who represent 42% (Ibis Hotel 2018; Accor Hotels 2017). 

Ibis Risk Ranking System

The Risk rating system is one of the most common methods used for managing risk by organizations. It focuses on the critical risks by ranking them among the complex set of risk by breaking down the sets of risks into risk components and evaluating their contribution to the overall risk. This report will adopt the risk ranking and filtering method by identifying the groups of risk and classifying the risk factors among them, then prioritizing them by giving them scores according to their likelihood and consequences (Risk Management Working Group 2015).

Ibis risk ranking system

Risk	Consequence	Category	Like-lihood	Impact	Rank	Treatment	Owner
Flooring	Parquet flooring hazards	Slips trips & falls	4	2	8	Reducing the impact of the products and equipment used in the hotel. Integrating the essential wood origin selection and efforts are required to identify solutions that lower impacts related to glues and varnishes	Procurement teams
Bedding: Duvets/pillows/ bed bases and mattresses	Uncomfortable staying that represents a major concern to the guests. It involves a health dimension since materials could be manufactured from harmful substances.	Slips trips & falls	3	3	9	Guests should benefit from the best bedding and living spaces just like home being away from home for business or leisure.	Procurement teams
Cleaning products	Spillage of chemicals from the cleaning products, pollution from cooling towers and mistreatment of hazardous waste.	Intoxication	4	3	12	Ibis should continue to use few toxic products to lower the risk of accidental pollution. It should also take necessary actions to limit the CO2 emissions and let its guests enjoy good and healthy staying.	Hotel management
Liquidity risk	Ibis is a subsidiary of Accor Hotels, the matter that strengthens its financial positions and facilitates its access to liquidity with the lowest possible cost. Ibis can securely meet its short term needs of cash and fund expansion	Malpractice & fraud	1	2	2	Ibis has a strong liquidity position and can access diversified financial resources, including debt and equity markets and bank borrowings. Also, Ibis is not subject to any sort of restrictions in using its funds.	Financial Management
Currency and interest rate risks	Ibis uses different financial instruments, like swaps, sales of foreign currencies and forward purchases to be able to manage its currency and interest rates associated risks. These tools help Ibis to manage its debt and minimize risks on its business transactions.	Malpractice & fraud	2	4	8	Ibis has a dedicated treasury management information system to track the debt. It helps in fixing or floating the exchange rates. It finances its assets and operating requirements in the local currency to create a natural hedge and avoid risk	Financial Management
Competition in the job market	Ibis is considered an attractive employer that is capable of attracting and retaining talented employees. Although, the risk associated with the digital transformation program could affect the guest experience due to the changes in operations that negatively affect the employees’ adaptability with the new system.	Malpractice & fraud	4	4	16	Ibis competitiveness and fair compensation policy represented in wages and rewards enhance its competitiveness in the job market. Ibis aims at developing good relations with its employees who represent its business in front of the guests.	Human Resources Management
Breaches by partners	It could negatively impact its image and reputation, the matter that threatens its business and growth.	External threat	1	4	4	Ibis facilitates compliance by partners by supporting them in the initial implementation and their ongoing operations. It allows its partners to get the required documents to ensure the standardizations of operations.	Hotel management
Harassment	In general, the hospitality sector is exposed to harassment risk. Both the employees and guests are subject to harassment by another guest or employee. This type of risk highly affects the hotel reputation and image.	Cuts & abrasions	4	5	20	A plan should be developed and implemented to secure the employees against this type of risks.	Hotel management
Changes in the competitive environment	Ibis operates in a highly competitive market characterized by accelerating the pace of technological innovations and their rapid applications. Ibis is exposed to the competitors who can use technology to raise their recognition and control the market.	External threat	3	4	12	Ibis teams work should continue to develop its services and align them with the customer expectations to avoid losing business to competitors.	IT team
Technological	Technological development offers an opportunity and risk at the same time. The Ibis construction of a completely new building provides a core competency to the hotel that differentiates it from its competitors and puts it at risk at the same time	Malpractice & fraud	3	2	6	Ibis has a possibility of attracting customers and increasing its market share. Careful analysis is required to minimize risk.	Hotel management

Sources: (Kleban & Silvhagen 2011; Gallardo et al. 2010; Accor Hotels 2017).

Key:

Likelihood

5	Almost certain: Will probably occur, could occur several times per year
4	Likely: High probability, likely to arise once per year
3	Possible: Reasonable likelihood that it may arise over a five-year period
2	Unlikely: Plausible, could occur over a five to ten year period
1	Rare: Very unlikely but not impossible, unlikely over a ten year period

 Potential impact

5	Catastrophic: Company most objectives may not be achieved, or several severely affected
4	Major: Most objectives threatened, or one severely affected
3	Moderate: Some objectives affected, considerable effort to rectify
2	Minor: Easily remedied, with some effort the objectives can be achieved
1	Negligible: Very small impact, rectified by normal processes

The major components of the overall risk are identified and categorized in major groups and subtopics that represent the venue risk analysis. The two-criterion evaluation will be applied to show the probability of the harm and its severity in the form of the “Risk Matrix” (Risk Management Working Group 2015).

Ibis risk matrix

Likelihood	Consequence
5-Catastrophic	4-Major	3-Moderate	2-Minor	1-Negligible
5 – Almost Certain
4 – Likely	Harassment	Competition in the job market	Cleaning products	Flooring
3 – Possible		Changes in the competitive environment	Bedding	Technological
2 – Unlikely		Currency and interest rate risks	Training
1 – Rare		Breaches by stakeholders		Liquidity risk

Key

1-4		5-11
12-16		17-25

According to Ibis risk matrix, it is obvious that the majority of risks that face Ibis are moderate and major risks. The risk of harassment is likely to take place in the hospitality industry and its impact is major on the guest and employees from one side and the business image and reputation from another side.

The process of risk management at Ibis follows sequential stages of risk identification that was conducted to identify and rate different sources of risk through the risk ranking system. Then risk assessment is essential to identify the severity of hazards and respond accordingly. Ibis Melbourne is part of Accor Hotels group that highly responds to risk and documents the related processes and procedures in the report stage. Finally, they continuously review their risk management plans on annual basis to ensure safety and compliance to the market changes and clients’ needs (Accor Hotels 2017). Figure (1) shows the risk management process at Ibis Melbourne.

The process of Risk management is complex and involves Ibis stakeholders to ensure safety. The risk analysis shows that Ibis Melbourne depends on internal and external policies to mitigate risk through implementing risk plans and reviewing them and risk transfer by hedging to avoid financial risk and maintain a good financial position that supports its public image. It depends on physical control; by maintaining safety measures and providing necessary equipment and employees training; by gathering all of its employees for annual training to gain fresh knowledge about risk management and defining their responsibilities as shown in figure (2) detailed risk management at Ibis Melbourne (Accor Hotels 2017).

Strategies for Managing Risks in Hospitality Industry

Ibis is a highly reputed hotel, in addition to providing high-quality services, it has to meet the customers’ expectations by fulfilling their needs and quickly responds to them. Ibis management should deal with various types of risks either physical, financial, human or non-physical. Different degrees of interventions are required according to the risk analysis results (Abram & Jarzabek 2016).

Ibis takes the necessary steps towards risk reduction in most of cases except the case of harassment that requires a risk management plan for its potential occurrence. Also, it is characterized by readiness as it adopts many positive risk management activities towards reducing or preventing the negative consequences of risk. But it still needs to effectively respond to the crisis in terms of developing and implementing communication plan after the crisis (Jafari & Xiao 2015; Wilks & Moore 2003). Figure (3), shows that the risk management process at Ibis Melbourne should be communicated with all of the stakeholders through every step of process implementation.

Being part of a global hospitality business, Ibis is recommended to develop a risk management plan that involves its stakeholders in Australia. This plan is expected to identify the structures and frameworks through which the tourism operators can develop their capacities to effectively respond and recover from the crisis. This plan should be tested to make sure of its readiness for any source of risk and the staff should be well trained and familiarized with their roles and responsibilities (The Ministry of Foreign Affairs 2018).

Development of consumer campaign by using technology applications is likely to attract customers and lower the risk of market competition (UNWTO 2017). 

References

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