Risk Analysis In Hospitality Industry: Case Study Of Postmistress Restaurant

Risk definition and types of risks in businesses

1.Using the theory found in the readings and the study guide, critically evaluate the concept of “Riskâ€Â. For instance, what is it? What is subject to risk? Why is it considered essential for a hospitality business to implement a risk management process?

2.You are requires you to demonstrate your understanding of how to practically apply a risk management process by conducting a risk assessment of a venue.

The risks to assets and human resources cause immense financial risks to business organisations. However, the type of risks and the chances of their occurrences differ with the types of industry. The industry chosen to conduct the risk analysis is hospitality industry and the organisation chosen is the Postmistress, one of the leading Australian restaurant chains (postmistress.com.au 2018). The paper would start with defining the term risk and then delve into the potential of different categories to harm a business. Then the author would point the measures the management of the Postmistress can take to deal with or at least minimise each type of risk identified. The term asset encompasses both physical assets like building and materials and intangible assets like goodwill. The paper would point out risks to these assets which ultimately lead to financial losses and explain the significance of adopting risk management systems in organisations.

Risk definition:

Risk can be defined as future uncertainties stemming from deviations from expected returns and outcomes. Risk is usually related to losses which business organisations suffer due to unexpected or unforeseeable situations which would have potential negative on their business earnings (Oskam and Boswijk 2016). The business organisations including the ones involved in the hospitality business like the Postmistress encounter risks to their physical, intangible assets, financial assets and human resources. These risks are capable of causing short and long term losses which are capable of impairing the business operations temporarily or permanently (postmistress.com.au 2018). Thus, risk can also be defined as uncertainties which tend to threat smooth business operations of business organisation causing business losses.

Business organisations like the Postmistress, Australia encounter the following types of risks:

Economic risks:                

The economic risks can be referred to as situations when incomes from investment in business are lower than the expenditures. The restaurants are dependent on the suppliers of raw food items like chicken and vegetables. Moreover, in order to make their signature dishes, they are dependent on suppliers of ingredients like exotic spices. This analysis shows that in order to offer dishes as per customers’ demands and generate revenue, the restaurant is dependent on the suppliers of these materials, some of which have to be procured from other countries (Dumitru 2017). Thus, increase in costs of these items results in increase in the cost of food preparation of the restaurant. This increase in cost would compel the restaurant to charge high prices from customers which would lead it to lose its middle class customer base who would not be able to afford the expensive food items. This losing of customers would cause business loss to the restaurant (Mochizuki et al. 2015). This analysis shows that economic risks rise in prices of materials threat the revenue generation of business organisations and their future growth.

Types of risks in hospitality industry

Health and safety:

Health and safety risks are risks which organisations encounter due to health hazards like chemicals and fire. Pellegrini, Franco and Hoffmann (2016), state that fire in organisations like restaurants happen while preparing food or from the intricate lighting systems which they use to make their ambiences more enjoyable to customers. Fire is capable of causing damage to human resources because the employees can get burnt or choked due to dense smoke. Fire is capable of causing loss of physical assets like furniture and other electronic goods (Omidiani and HashemiHezaveh 2016). The restaurants are compelled to increase the costs of their food items to recover the financial losses they suffered due to fire which again leads them to losing customers. Thus, fire is capable of both physical losses and financial losses to business organisations.

Information technology risks:

Information technology risks are risks which business organisations suffer due to threats to the databases from hackers and unauthorised identities. Restaurants like the Postmistress acquire intellectual property rights for their special food items which also help them to gain product differentiation in the market from their competitors. These business organisations protect these confidential and crucial pieces of information using high levels of security (Tennakoon 2015). The hackers often invade this crucial information which leads business organisations to lose their important data like customer data, financial information or IPR. Loss of IPR results in restaurants losing their signature recipes which in turn lead them to lose their market goodwill. This analysis shows that IT risks are capable of causing both financial and goodwill losses (Kazim and Zhu 2015).

Natural hazards:

Natural hazards like storms and floods are capable of causing losses of human resources and destruction of assets like buildings. Thus, this category of hazards is capable of causing both financials and loss of assets in organisations (Blaikiev et al. 2014).

An evaluation of the above risks shows that the risks organisations faces are interrelated. For example, health and safety risks like risk of fire are capable of causing loss of assets, thus culminating in financial risks. Again, the IT risks like risk of data thefts result in loss of intellectual properties worth millions of dollars. These losses result in restaurants increasing their cost of food items, thus in turn losing a vast majority of middle class customers, thus suffering from business loss (DeYoung et al. 2015). Thus one can infer from this discussion that, the interrelatedness of the outcomes of the losses and their devastating impacts on the business of the hospitality business organisations necessitate these organisations to adopt risk management systems.

Significance of adopting risk management systems for organisations

Elements subjected to risks:

The above discussion on the categories of risks reveals the following elements which are subjected to risks:

Physical assets:

The physical assets which are subjected to risks like fire and natural hazards consist of both fixed assets and current assets of business organisations. For example, fire can result in loss of fixed assets like automobile and furniture. Similarly, fire can cause loss in current assets like stock of raw materials, work in progress and finished products like food items prepared for the customers. This analysis shows that physical assets belong to both fixed assets and current assets are subject to risks like fire (Dietz et al. 2016). These risks and the consequent huge losses the organisations like restaurants suffer lead them to adopt risk management mechanism.

Non-physical assets:

Non-physical assets comprise of intellectual property rights which business organisations hold. The leading restaurants like the Postmistress hold patents for their special food items and copyrights for their publications which are worth millions of dollars. These food items and publications play significant role in earning the Postmistress product differentiation compared to the other restaurants in Australia. Thus, losses of these intangible assets like IPR and signature recipes due to fire or data theft would lead the restaurant lose its distinct appeal to customers (Baldwin and Henkel 2015). This results in loss of goodwill which is another potentially important intangible asset of the restaurant. Loss of goodwill has far reaching impacts on the business generation of business like loss of customer base to competitor restaurant and gradual reduction in revenue generation. Thus, it can be summarised that non-physical assets like goodwill and IPRs are prone to risks stemming from data theft and fire (Asongu 2015).

Financial losses:

The above analysis clearly points out that risks irrespective of their nature like fire and data theft, results in financial losses to business organisations. The restaurant loss resources due to fire and potential significant information like IPRs due to data thefts. These result in financial losses which in turn impede the long term growth of the business organisations (Pritsker 2017).

Human assets:

Risks like fire and financial losses result in organisations losing their human assets. The business organisations, especially those operating in the service sector like the Postmistress restaurant in Australia are heavily dependent on their talented human resources to serve customers and generate revenue. Risks like fire often result in injury of employees like chefs which prevents the restaurant from using their efficiency to prepare food for customers. Again, death of talented due to fire prevents the organisation from using their efficiencies permanently (Duchin et al. 2017). This analysis shows that risks like fire impact human resources in organisations very badly and in turn impede the operational efficiency of these organisations.  

Physical assets and non-physical assets prone to risks

Essence of risk management process in hospitality business organisations:

The above analysis clearly point out that organisations particularly hospitality organisations like the Postmistress restaurant require implement risk management to achieve the following essential benefits:

Prevent loss of resources and resultant financial losses:

The above analysis shows that risks lead to loss of resources which in turn leads to financial losses to organisations like the Postmistress operating in the hospitality industry. These organisations lose their assets due to risks like fire which in turn impedes their operations and revenue generation, thus causing more financial losses. Thus, adopting of risk management processes help organisations to minimise loss of resources and result financial losses (Luo and Yang 2014).

Retention of human resources:

Loss of human resources due to risks like fire results in hospitality firms losing their potentially important human resources. This loss negatively impacts their capability to serve customers which in turn reduces their revenue generation. This discussion brings into light the fact that hospitality firms like restaurants should adopt risk management initiatives like installing fire alarms and fire extinguishers. This would in turn help them take prompt initiatives in case of accidents like fire and save their human resources. This analysis shows that adoption of risk management techniques enable restaurants to minimise the loss of human resources due to accidents and exploit their talents to earn more revenue (Brymer, Molloy and Gilbert 2014).

Retain their goodwill:

Hospitality firms like the Postmistress require adopting risk management steps to prevent damage to their goodwill. Risks like data theft lead these organisations to lose critical intangible assets like IPRs and signature recipes which in turn results them in losing their unique dishes. They as a result, lose their customers to competitors owing to loss of product differentiation. This shows that organisations should adopt risk management techniques like installing strong data security software to protect their IPRs and market goodwill (Tadajewski 2016).

Practical application of risk management in a venue

Risk ranking system:

Almost certain	5	Moderate	High	Extreme	Extreme	Extreme
Likely	4	Moderate	Moderate	High	Extreme	Extreme
Possible	3	Low	Moderate	Moderate	High	Extreme
Unlikely	2	Low	Low	Moderate	High	High
Rare	1	Low	Low	Low	Moderate	Moderate
		1	2	3	4	5
		Insignificant	Minor	Moderate	Major	Critical

Figure 1. Risk ranking system

(Source: Author

Venue risk analysis form:

Name of the organisation: The Postmistress	Authorised person
Department	Date of analysis
Remarks	Next date of analysis

Identified risks	Asset types(Fixed assets: office building, restaurant area, automobile and assets like faucets and furniture Current assets: cash, raw materials, finished goods and work in progress	Persons at risks	Current risk factor	Actions to be taken to minimise the risks	New Risk factors
1. Fire	Offices, restaurant area, loss of current assets	Customers, employees, apex management people	Loss of assets	Installation of fire extinguishers, CCTV cameras, smoke sensors	Increasing use of ICT systems accelerate the chances of fire.
2. Theft of assets	Office, restaurant area or any part of the restaurant premises, loss of materials, faucets, furniture	Customers, employees	Thefts of precious assets like documents and costly faucets results in huge financial losses to restaurants.	Installation of CCTV cameras, increasing of security and guest checking measures, prompt contacting of police.	Increase in number of customers makes checking of individual customer while entry and exit becomes almost impossible.
3. Data security	Information	Customers, management, suppliers and government	Loss of IPR has long term business impacts	Installation of firewall to prevent data thefts, protecting	Increasing presence of restaurants on social media has increased the risk of data theft.
4. Natural disaster	Office, markets, current assets	Customers, governments, suppliers, distributors, employees and management of restaurants	Causes loss of human resources, assets and financial losses	Relocating of assets upon warning from weather departments to the extent possible	Shifting of heavy and costly assets attracts huge expenditures. Natural calamities like earthquakes devastate resources but do not give warning signs.
5. Risk from suppliers	Financial strength of the restaurant and all the related areas, current assets	Customers, employees	Increase in cost of operations which eats into the revenue generation, thus making the business less profitable.	Better communication with suppliers and acquisition of a large number of suppliers to reduce dependence on a few suppliers	Restaurants often depend on a few suppliers for their signature recipe ingredients
6. War	Entire business and industry	Customers, employees, management bodies, governments and public at large	Causes massive loss of business	No preventative measures can be taken	Increasing political tensions increase the chances of wars
7. Employee conflict	Company	Apex management, customers, employees	Causes suspension of productivity and results in business losses	Better working atmosphere, enhanced employee participation in management and more employee benefits	Increasing pressure on organisations to cut cost results in reduction of workforce which creates more employee-employer conflicts
8. Attacks and vandalism	Company	Customers, employees and management	Damage of assets, loss of human resources	Practically no initiatives can be taken	Increasing terrorist activities and attacks
9. Unethical employee activities	Company	Company, employees, management	Loss of strategic information and breach of stakeholder trust	Ethical training of employees, strict vigilance over data access, usage and sharing	Availability of several data carrying devices like laptops, tablets and smart phones make it difficult for managers to track data usage patterns by subordinates.
Signature and stamp of authorised person with date:

Figure 2. Venue risk assessment form

(Source: Author)

Conclusion:

One can conclude from the discussion that all organisations are prone to risks like financial risks and fire. The risks stem from factors like increase in prices of raw materials and natural hazards which are beyond the control of organisations. The risks, irrespective of their nature result in financial losses to companies. The venue risk analysis chart clearly shows that factors like increasing use of ICT systems aggravate chances of risks like fire. The discussion also points out that the risks like data thefts do not only cause short term business losses but long term impairment of business operations. They are capable of causing damage to crucial intangible assets like IPRs which are of huge importance to long term growth of the business organisations. The VRA also points out that internal factors like employee conflicts and unethical employees are also capable of causing potential harm to business. Thus, it is recommended to hospitality organisations like the Postmistress that they should adopt a stringent risk management strategy and keep close vigilance over the factors which can pose threat to the business. The vigilance should not only encompass external risks like data theft but also internal factors like unethical information sharing by employees.

Impact of risks on financial losses and human resources

References:

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Postmistress. 2018. Postmistress.com.au. Retrieved 30 January 2018, from https://www.postmistress.com.au/

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