Tourism & Hospitality Management 2012, Conference Proceedings R. Ribari: FUTURE OF RISK MANAGEMENT IN THE HOTEL INDUSTRY, pp.

396-401

ROBERT RIBARI Technological Center, Buzet, Croatia

FUTURE OF RISK MANAGEMENT IN THE HOTEL INDUSTRY

REVIEW

Risk management in hotel industry is going to be a rapidly developing discipline. There are many and varied views and descriptions of what risk management involves, how it should be conducted and what it is for. The increasing dynamism and complexity of the modern hotel business environment are going to put risk management high on the agenda of many hotel companies. The nature and scope of risks has changed. They are now complex, interconnected and global. As risk management develops and becomes more sophisticated, certain of the terms that are used become central to the successful application of the discipline. Business intelligence, as a process based on the usage of the information, enables the evolution of risk management from the business support to a transparent and efficient process, in an effort to maintain the market competitiveness among all participants in the hotel industry. Enterprise risk management is going to be tailored to meet the needs of the organisation in its early stages and modified as the level of sophistication and comfort with the process grows. The topic of risk appetite in hotel industry will receive more attention in future, and hotel managers need to get a better understanding of what this concept means and how it can be applied. Keywords: enterprise risk management, business intelligence, information

INTRODUCTION The hotel organisations face a very wide range of risks that can impact the outcome of their operations. The desired overall aim may be started as a mission or a set of corporate objectives. Recent events in the world have brought risk into higher profile. The global financial crisis, extreme weather events, terrorism, customer demands, and market globalization represent the extreme risks that are facing society and commerce. It is necessary to have a comprehensive risk management strategy to survive in future market place. Evaluating the range of risk responses available and deciding the most appropriate response in each case is at the heart of risk management. Responding to risks should produce benefits for hotel organisations. Hotel organisations have to address the risks that they face because many of them have to undertake high risk activities, either because these activities cannot be avoided, or because the activities are undertaken in order to produce a positive outcome for the organisations and its stakeholders. Achieving benefits from risk management requires carefully planned implementation of the risk management process in the hotel organisations, s well as the design and successful embedding of a suitable and sufficient risk management framework.

1.

THE TASK AND BENEFITS OF RISK MANAGEMENT

There have been important developments in risk management in the past few years. Organisations have embraced the desire to take a broader approach to risk management. Various terms have been used to describe this approach, including holistic, integrated, and strategic enterprise risk management. It is the term enterprise risk management that is now the most widely used and generally accepted terminology for this broader approach. The enterprise risk management approach in hotel industry means that an organisation looks at all the risks that it faces across all of the operations in the hotel that it undertakes. The enterprise risk management approach is based on looking at the objective, key dependency or core process and evaluating all of the risks that could impact the item being evaluated. Identifying the key activities in hotel organisation that deliver the core process, the management is able to identify the risks that could impact activities and the core process. The

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interrelationship between risks should be identified, so that the total risk exposure of the organisation may be complied. Risk management task is not to create business that is totally free of risks, but to make the stakeholders aware of the risks and to manage risks efficiently. Risk management should be supported by business intelligence. Therefore, it has the following future benefits:1 The risks associated with the project or business are defined clearly and in advance of the start Management decisions are supported by thorough analysis of the data available Improvement of business planning by answering what if questions with imaginative scenarios Provision of alternative plans and appropriate contingencies and consideration concerning their management as part of a risk response The definition and structure of the business are continually and objectively monitored The building up of a statistical profile and historical risk which allows improved modeling for future project Enables better informed and more believable plans, schedules and budgets Contributes to the build up of statistical information to assist in better management of future project Hotel managers who want to improve the quality of their work, such as bring their projects within cost, on time and to the requested performance Hotel managers who want to improve the quality of their work, such as bring their projects within cost, on time and to the requested performance Clients, to get what they want, when they want it and for the cost they can afford Risk management requires the acceptance that uncertainty exist, a thinking process with ingenuity and imagination, and also a realistic attitude of the management in the evaluation of possible risks. There is different between academics and managers views of risk and risk management. Typically, risk has been considered as a threat to hospitality industry whereas the academic view is that risk can have both threats and opportunities and should be considered in greater detail form which strategies can be developed and risk management constantly applied. Table 1. Academics versus managers view of risk management
ACADEMIC VIEW Risk is defined in terms of variability Risk can be calculated and factored in the expected outcome of a course action Risk is a key element of strategic management Risk management assumed to be consistently applied Risk is an objective measure MANAGERS VIEW Risk defined as the downside potential of a course of action Experience and intuition are more highly regarded than mathematical models and expected outcomes Not adequately considered generally in management practice Different risk strategies applied in business areas depending on strategic importance Risk is subject to interpretation and gut feeling.

Source: Cfr: Merna, T., Al-Thani, F.F.: Corporate Risk Management, John Wiley & Sons, Chichester, 2008., p. 60.

To manage risk effectively organisations need to have prevention and response strategies in place. Prevention strategies are there to help organisations understand the significant risks that they may face and to manage these risks down to acceptable levels. Response strategies need to be developed to enable organisations to respond to any risks, so as reduce their impact as far as possible.

Cfr: Chapman, C.B., Ward, S.C.: Project Risk Management, John Wiley & Sons, Chichester, 2007.; Merna, T., Al-Thani, F.F.: Corporate Risk Management, John Wiley & Sons, Chichester, 2008.

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Tourism & Hospitality Management 2012, Conference Proceedings R. Ribari: FUTURE OF RISK MANAGEMENT IN THE HOTEL INDUSTRY, pp. 396-401

2.

BUSINESS INTELIGENTS APPROACH TO RISK MANAGEMENT

There is no generally accepted definition for business intelligence. The term business intelligence can refer to processes, techniques or tools to support the making of faster and better decisions. It is an analytical process by which raw data are converted into relevant, usable and strategic knowledge and intelligence. By utilization of business intelligence, an organisation learns to anticipate the actions of their customers and competitors as well as different phenomena and trends in their market-areas and fields of activity. A business intelligence process is a significant tool in business information management. The business intelligence process concept is understood as a continuous and systematic process by which an organisation acquires, analyses, and disseminates relevant business information to risk management activities. It is a process by which information is turned into usable knowledge. Term intelligence refers to the type of information required in risk management process or specific risk management decision making situation. In this context, the term intelligence can be defined as a quantity of information that have been filtered, analyzed, and turned into knowledge. An effective business intelligence process aims to increase the quality of risk management and to reduce the time used for risk management decision-making. Abreast with information technology, the business environment and requirements are changing rapidly each day. Because of increasing globalization and competition for market share, the target of information processing has shifted from being static to proactive and interactive. New information technology provides a great deal of information, but always it is not complete. Human intelligence is also needed for fulfilled organisation and business environment. According to risk management in the hotel industry, we can divide business intelligence into next five core levels: Customer risk intelligence Competitor risk intelligence Market risk intelligence Organisation risk intelligence Hotel manager as strategic decision maker needs extensive and enriched information in order to manage hotel internal and external risks. According to hotel management levels in hotel risk management, there are three main groups of business intelligence: Strategic risk intelligence Tactical risk intelligence Operative risk intelligence Figure 1 shows a relation between risk management creation and the business intelligence maturity. Stage 0 represents low business intelligence maturity. There are no business intelligence tools. To improve reporting, hotel management has to move to first stage. On the first stage, there are greater maturity and risk management creation present. We have to emphasis that there is still no change in the way information is used. Hotel managers use management information (MI) as typically the delivery of fixed reports and views over historic data. Importance of external or internal information enables management to move on to second stage where information usage is optimized at the management level. When hotel management fully integrate the use of information on the all management levels, they achieve the last, third stage. On the third stage, hotel manager has got optimized information usage. Therefore, it leads to the highest stage of business intelligence maturity and the highest appropriate risk management creation. The development of business intelligence maturity and risk management integration depends of hotel management ability to implement quality business intelligence process.

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Tourism & Hospitality Management 2012, Conference Proceedings R. Ribari: FUTURE OF RISK MANAGEMENT IN THE HOTEL INDUSTRY, pp. 396-401

Figure 1. Relation between risk management creation and business intelligence maturity
Predictive Information integrated into business
Stage 3 Changed information usage paradigms across enterprise to leverage BI Stage 2 Change information usage paradigms in one or more functions to leverage BI

RISK MANAGEMENT CREATION

Building and using information

Stage 1 No change to information usage paradigms

Improved

Historic

Stage 0 No BI experience

Status quo

Support

BUSINESS INTELLIGENCE MATURITY

Business

Source: developed, Cfr: Williams, N.: Charting the Path to Real Business Intelligence. Paper presented at the TDWI World Conference, 2006.

3.

ACHIEVING SUCCESSFUL RISK MANAGEMENT

To improve risk management performance of hotel organisation, a risk management initiative will be required. The nature of this initiative will depend on the size, complexity and nature of hotel organisation. There is no singe correct approach to implementing risk management in a hotel organisation. The drivers for undertaking risk management and the expected outputs and impacts will vary between hotel organisations. There is no singe approach for implementing risk management. The initial and the most important steps are ensuring that the risk management initiative is supported by manager on each level of hotel organisation. To achieve successful risk management, we have some of the next key steps 2: Develop a perception of risk within the hotel organisation Identify the risks within an agreed classification system Develop a risk management culture within hotel organisation Quantify the cost of risk controls Demonstrate that risk management is making contribution Undertake a management review of all risk management activities Hotel manger should identify limitations to the successful implementation of a risk management. There are many factors that will influence the effectiveness of the approach: Middle management influence within hotel departments External influences Nature of the hotel business, its product and culture Corporate attitudes, including previous risk management experiences Distinct of the risk management department

Cfr: Hopkin, P.: Fundamentals of Risk Management, Irm, London, 2010., p.329
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Tourism & Hospitality Management 2012, Conference Proceedings R. Ribari: FUTURE OF RISK MANAGEMENT IN THE HOTEL INDUSTRY, pp. 396-401

Table 2. Implementation barriers and solutions

BARRIER Lack of understanding of risk management and belief that it will suppress entrepreneurship Lack of support and commitment from senior management Not seen as a core part of business activity and too time consuming Approach too complicated and over analytical Risk management seen as static activity not appropriate for a dynamic organisation SOLUTION Establish a shared understanding, common expectations and a consistent language of risk in the organisation Identify a support on the main level of the organisation and confirm shared and common priorities Align effort with core processes and achievement of the goals of the organisation Establish appropriate level of sophistication for risk management framework and undertaking risk assessments Align risk management effort with the goals of organisation and with the business decision making activities

Source: developed: Hopkin, P.: Fundamentals of Risk Management, Irm, London, 2010.

In risk management we should identify barriers (Table 2.). Identification of barriers leads to the ability to put in place actions to overcome them. These include the fact that successful risk management requires the commitment of all parties and that implementation will only be as good as the least committed member of a hotel department. During implementation of risk management, hotel manager can detect many barriers. Thus, manager should solve them. Analysis of these barriers within the context of the specific hotel organisation will lead to the identification of the best options to ensure that risk management delivers the optimum benefits. Risk management does not have to be complex or heavy resource user. It can be tailored to meet the needs of the hotel organisation in its early stages and modified as the level of sophistication and comfort with process grows. It is systematic and proactive approach to managing risk. This means that high risk exposure areas are understood, managed and controlled to an acceptable level of exposure so that the organisation is properly protected to minimize negative consequences.

CONCLUSION In recent years the approach to business management has deeply changed. In the knowledge economy, a rapid and holistic understanding of business is more crucial then ever before. This article focuses on business intelligence phenomenon. Today, the information created and processed by business intelligence and used by an organization is one of its most valuable assets. The main focus of business intelligence is on providing management with information and insight necessary to understand business possibilities and risk. The role of business intelligence is not only to provide a solution for a specific decision situation but also to help decision makers find the right business decision. Effective enterprise risk management implementation requires support of business intelligence. In an increasingly complex world, identifying and analyzing relationship between risks and business intelligence is one of critical factor to success of hotel industry. Risk management can be tailored to meet the needs of the hotel organization in its early stages and modified as the level of sophistication and comfort with the process grows. It must have a clear set of desired benefits. The hotel organisations with effective enterprise risk management system that manages quantitative risks with additional qualitative business judgments, integrates communication between business managers and risk managers, will be better prepared for not only business as usual, but business during stressful times.

REFERENCES
1. 2. 3. 4. Chapman, C.B., Ward, S.C.: Project Risk Management, John Wiley & Sons, Chichester, 2007. Fleisher, C.S., Blenkhorn, D.L.: Management of Global Competitive Intelligence, Praeger Publisher, Westport, 2005. Hampton, J. J.: Fundamentals of Enterprise Risk Management, New York, Amacom, 2009. Hopkin P.: Fundamentals of Risk Management, Irm, London, 2010.

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5. 6. 7. 8. 9. Merna, T., Al-Thani, F.F.: Corporate Risk Management, John Wiley & Sons, Chichester, 2008. Vibert, C.: Competitive Intelligence: A Framework for Web-Based Analaysis and Decision-Making, Thomas South Western, Toronto, 2004. Vitt, E., Luckevich, M., Misner, S.: Business Intelligence, Microsoft Press, Washington, 2002. Weiss, A.: Whats in a World: Business, Competitor and Competitive Intelligence, Competitive Intelligence Magazine, 2003., Vol.6, No.2, p.49 Williams, N.: Charting the Path to Real Business Intelligence. Paper presented at the TDWI World Conference, 2006.

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