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MNG01222 Facility and Risk Management for Hospitality Operations

REPORT FOR THE LANE SYDNEY

Executive Summary

Risks are inevitable for all types of business and hospitality enterprises are no exception. No matter what kind of hospitality venture is (e.g. accommodation sector, food and beverage sector, entertainment sector), there are four main types of assets required to put the business into operation, gain profit and grow which are: physical, nonphysical, human and financial assets. However, potential risks could pose threats to the success of enterprises if they are not properly managed. In part one of the report, the risk concept will be examined to clear the misuse of the two terms ‘risk’ and ‘hazard’. It is followed by the analysis of the likelihood and outcomes of risk occurrence to physical, nonphysical, financial and human assets applied to the case of The Lane restaurant. Because of the importance of the consequences of unpredictable risks, it becomes important for a business to put appropriate preventive measures into place. Defining and analyzing a venue risk assessment process is provided in the second part of the paper, which includes risk ranking and venue risk assessment (VRA) form. A VRA sheet tailored to The Lane restaurant is conducted to demonstrate understanding of how to practically apply a risk management process. The paper will also provide constructive recommendations which can be acted upon The Lane’s owner or manager to minimize exposure to risk and ensure the success of the venue.

Introduction

The Lane restaurant is located in the Sydney CBD with two frontages on two streets that makes it become an ideal dining destination at any time of day and willing to satisfy customers’ taste buds with its special European inspired menu. Like any other establishments in the hospitality industry, it is necessary for The Lane’s owner to devise risk management strategies to deal with potential hazards with the purpose of bringing a safe and secure environment for their stakeholders (employees, customers, shareholder, and the general public). This report, therefore, will assess The Lane Sydney restaurant under a risk management process.

I. The notion of risk

1. Risk concept

Tourism and Hospitality industry has always been faced with certain risks, especially in the old days since it was filled with different types of dangers and unexpected events (Steene 2017). However, the term ‘risk’ is often mistakenly used interchangeably with the word ‘hazard’. Hazard is a dangerous situation or thing while a risk is the possibility and consequence of the hazard affecting people and property (Petera 2018). Hazard may never become real unless its target (humans, environment or the surroundings) is exposed to that hazard (Scheer et al. 2014). Risk, by contrast, is the likelihood of the occurrence of a harmful event and the scale of its damage, whether it is unpredicted and happen in unexpected time or possible to foresee (Gajewska & Ropel 2011). Since possible risks in hospitality industry is increasing, the focus on risk management is stronger than in the past (Saouma 2011). A venue with small or large crowds, new or former staff and the physical movement of goods always has potential risks for unintended outcomes to its physical, non-physical, financial and human assets.

2. Types of risk

Risks could probably happen to human, physical, nonphysical and financial assets of hospitality enterprises. Hence, it is essential for managerial team to identify particular types of risk, and different corresponding ways in order to prevent them from occurring or even eliminate those risks.

  • Risks to physical assets

Physical assets of a hospitality enterprise are tangible items owned and taken care of by the organization for its employees and customers and spread throughout all areas. Stakeholders (staff, customers, shareholders) all have contact with an enterprise’s physical assets in some way (Peterb 2018). For example, in a restaurant, guests could be sitting on chairs, drinking out of glasses; or some physical assets can be liquidated to pay off debts and dividends to shareholders. Physical assets can be classified into: buildings (temporary structures), furniture and fittings, plant and equipment, stock and documents, guests/members property. Identifying risks, examining how they can happen to physical assets, thereby devising strategic measures to reduce the occurrence of those risks is critical to enterprises. They are broken up into:

Internal

External

Technical/Economic

Fire

Temporary structure collapses

Faulty maintenance

Embezzlement

Structural damage due to natural disaster

Adverse weather

Theft

Human/Social/Organizational

Panic leading to crowds crushing due to violent acts by guests

Sabotage by disgruntled staff

Adverse media coverage of internal events

Legislative change

Riots

(Source: Peterb 2018)

For example in the case of The Lane, if a new cook is hired without being trained properly to get used to equipment at the new kitchen, he is more likely to cause cooking fires or the breakdown of equipment. It not only put the restaurant’s physical assets and day-to-day operation at risk but also cause severe damage on people.

This typology assists managers in preparing management responses for risks happening to physical assets by focusing on different sources and forcing the managerial team to discover risks which are not evident in day-to-day business operation. Accordingly, it prolongs the useful life of physical assets and minimize risks happening to unmanaged physical assets (Peterb 2018).

  • Risks to non-physical assets

Non-physical assets are intangible assets valuable to an organization consisting of customer relations, organization reputation, agreements and leases, brand name and image, copyrights, computer programs, workforce motivation, intellectual property, and research and development costs (Lambin 2014). The awareness of non-physical assets needs to be created, especially for the managerial team so that they are able to identify, analyze and manage risks, such as: losing intellectual capital (IC) or becoming a part of litigation that might damage the company’s reputation and image (Peterc 2018). Take The Lane Sydney as an example, guests are more likely to blame the restaurant for getting food poisoning from the takeaway. It may be either the restaurant’s fault or customers themselves in case they do not preserve the takeaway food properly. Whatsoever, it poses a risk to the venue’s reputation and image, which is considered as a nonphysical asset

  • Risks to financial assets

Financial assets are financial instruments used as a means of exchange for goods and services in hospitality enterprises (Peterc).

Four major risk areas within hospitality enterprises for financial assets are: (1) cash registers and change desks, (2) electronic transactions, (3) safes and strong rooms, (4) financial expenditure controlled by staff – petty cash tills, cheques, credit cards, vouchers (Peterc 2018).

Care should be taken clearly differentiate risks to financial assets and risks to profit or profitability. This confusion arises since all risks involving in a monetary dimension. If something goes wrong with a hospitality venue, loss of profit is first thing taken into account. However, financial assets of an enterprise is “how much is left of the revenue the enterprise has earned compared to expenses incurred when earning the revenue” (Peterc 2018)

Let’s examine the case of The Lane Sydney in the four mentioned areas: (1) both cash registers and change desks hold a lot of cash and go through the same cash register system, so a potential risk could be anyone attempting to steal financial assets from an unattended cash register when the cash drawer is unlocked without supervision. (2) For the second are, many financial transactions and business operations of The Lane depend on electronic communications (e.g. paying by credit card or online ordering) which help customers perform transactions more efficiently and conveniently. However, because of this digital platform, the security and privacy of customer’s information are more likely to be at risk from being copied easily, inexpensively and used for illegal purposes. (3) The restaurant’s takings and spare financial assets might be kept in safes or strong rooms at certain times. If the responsibility of authorized staff for the access to safes/strong room is not separated from accessing financial assets’ accounting records, they could misappropriate the restaurant’s financial assets records to cover up embezzled money. (4) Petty cash funds and bankcards are used by senior staff to pay immediate expenses (e.g. buying some ice for the kitchen/bar) while cheques are for an enterprise’s expenses. If petty cash vouchers are not stamped and stapled with supporting documents and signed by an authorized staff, for instance, they can be fraudulently reused.

  • Risks to human assets

Apart from financial and physical assets, human capital is probably the most important asset for any business, especially for hospitality enterprises. Without staff members or customers, no business could survive. Therefore, protecting customers and employees from potential risks and conversely, the business from risks actions by employees are very important. Risks to the human asset of a hospitality venue happen to people or are caused by people. Risks may happen to humans in many forms - staff getting injured by tripping or carrying overweight boxes and equipment, or customer slipping and falling because of the wet floor. On the other hand, risks can also be caused by people. Inexperienced staff works without being trained properly about safety procedures can be considered a risk, for example fire being caused by a new cook since he has yet to get used to a new working place. Not only be liable for compensation but faced with the prospect of business loss that is why hospitality enterprises must assess and manage risks involved in human assets properly (Peterd 2018).

3. The importance of risk management process

For all types of business, risks are inevitable. Thus, it is crucial for hospitality enterprises to devise strategies in order to manage risks efficiently and avoid unexpected events causing interruption to day-to-day business operations (Benavides et al. 2014). It protects the venue’s assets (physical, nonphysical, financial and human) and reputation by implementing laws and regulations, thus ensuring the business operation’s continuity. Accordingly, the organization could avoid pitfalls and experiencing surprises along the way. That is why when taken in sequence, risk management process will support better decision making by contributing to a greater insight into risks and their impacts (Petera 2018).

Risk management also increases responsibility among staff members, supports business performance measurement, reduces the probability of uncertainty, hence increases tactical and operation efficiency at all levels (Petera 2018). It fits into place when managing risks related to human assets. It is integral to know how to deal with employees or customers in particular situations for the success of hospitality enterprises, especially restaurants (Lugosi 2014). Caring about welfare, giving performance appraisal or opportunity for promotion to staff could boost their morale and in turn, the business productivity.

II. Venue Risk Analysis

1. Definition of VRA (venue risk assessment)

Venue Risk Assessment (VRA) is a process examining a workplace in three stages: (1) identifying hazards and potential risks which might cause harm to an organization’s assets (hazard identification) (2) Once hazards are identified, managers need to analyze and evaluate how likely and severe the risks are (risk analysis and evaluation). (3) The last step is determining appropriate measures to effectively eliminate the hazards or control the risks from happening (risk control) (Petera 2018). By doing a venue risk assessment, hazards and risks are likely to be removed or minimized, thereby a safer and healthier workplace is maintained for the enterprise’s stakeholders.

2. Risk Ranking System

At the second stage in the venue risk assessment process, hazards and risks must be ranked according to their probability of occurrence and their impacts on a venue’s assets. In the risk ranking system provided below, the likelihood (probability) and potential impact of risks happening has been categorized from score 1 (the lowest) to score 5 (the highest).

Probability:

5

ALMOST CERTAIN (> 90% chance): will probably occur, could occur several times per year

4

LIKELY (50-90%): high probability, likely to arise once per year

3

POSSIBLE (10-50%): reasonable likelihood that it may arise over a five-year period

2

UNLIKELY (3-10%): plausible, could occur over a five to ten year period

1

RARE (<3%): very unlikely but not impossible, unlikely over a ten year period

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

INSIGNIFICANT: very small impact, rectified by normal processes

Establishing a ranking system helps assigning a priority to certain risks for further action (which is the most serious, hence needs to be controlled first) based on the criteria of probability of occurrence and the consequence of impact. This guarantees immediate control actions to be applied to avoid or reduce the impact and occurrence of risks occurring.

Likelihood

Impact

Insignificant

Minor

Moderate

Major

Catastrophic

Almost certain

5

10

15

20

25

Likely

4

8

12

16

20

Possible

3

6

9

12

15

Unlikely

2

4

6

8

10

Rare

1

2

3

4

5

3. Venue Risk Analysis (VRA) form

4. Analysis of results

As can be seen from the VRA sheet which is tailored to apply to The Lane Sydney restaurant, slipping (falls) and cuts and burns are most likely to happen and could severely affect the human and physical assets as well as business operations on a daily basis. Dishonest employees, break-ins and check/credit/debit/charge card forgery are risks mostly happening to financial assets that pose significant threats to the restaurant’s profit, cash flows and reputation. Similarly, risks to physical assets such as: dishes and glasses breakage, dirty restroom and worn out floor have negative impacts on The Lane’s reputation as well but with a higher probability of occurrence.

5. Recommendations

Slips (falls) or cuts and burns are the most common and costly accidents in a restaurant, yet preventable. The best way to prevent slips and falls is to keep all areas of the restaurant clean at all times. Clean up any spills immediately since falling is very dangerous, especially in the kitchen. Using caution signs to alert customers and staff of any wet areas. To reduce injuries from cuts and burns, providing proper protective equipment such as aprons, cut-resistant gloves, and slip-resistant shoes is required. In addition, keeping a regularly stocked first-aid kit available would limit exposure to infection or additional irritation. Most importantly, implementing floor ongoing maintenance along with proper training and supervision for new employees is the key to prevention.

Theft is a risk to financial assets which can be caused by internal (dishonest employees) and external elements (break-ins). To prevent internal theft, The Lane’s manager should have a good internal control system associated with some tips such as: ensuring proper handling and taking over cashier, reconciling the beginning cash, transactions and ending cash daily or simply forcing the cashier to give customers a print receipt to avoid misappropriation. Also, large windows at The Lane are opportunity attracting potential intruders to break in and steal. So installing a security system (e.g. surveillance cameras) and ensuring all doors and windows are locked before leaving could probably reduce break-ins.

In order to reduce the dishes and glasses breakages, the manager can give employees instructions and proper training about how to carry, handle or treat differently for different glass equipment. Applying a warning or a fine could help staff realize the seriousness of this kind of risk so that they are more aware while working.

Dirty restroom is inexcusable and the reason customers would not return to a restaurant since it implies dirty kitchen in customers’ perspective. Consequently, The Lane’s owner should take a good care of the bathroom for guests and staff by having a regular cleaning and maintenance schedule or hiring a cleaning service if needed.

Similarly, worn out floor is not only substantial risk to physical assets but also human capital. Dirt on an ugly floor indicates an overall restaurant cleanliness and hinder staff from moving around to finish their tasks. It is recommended to keep floor clean by covering entryway and high traffic areas with matting and mopping the floor after every working shift.

Conclusion

To conclude based on the notion of risks in the hospitality industry such as risks to physical, non-physical, human and capital assets, and the examination of how a venue risk assessment process is implemented and important to the venture, a VRA form applied to The Lane Sydney restaurant and corresponding recommendations are provided. It is worth noting that risks could be caused by either internal or external factors but preventable through proper management and pre-emptive actions.

References

Benavides, CA, Quintana, GC and Marchante, LM 2014, ‘Total quality management, corporate social responsibility and performance in the hotel industry’, International Journal of Hospitality Management, no. 41, pp.77-87.

Gajewska, E & Ropel, M 2011, ‘Risk Management Practices in a Construction Project – a case study’, Master thesis, Chalmers University of Technology, Goteborg, Sweden.

Lambin, JJ 2014, ‘Rethinking the Market Economy’, Symphonya. Emerging Issues in Management, vol. 2, no. 2, pp. 133-146

Lugosi, P 2014, ‘Hospitality and organizations: Enchantment, entrenchment and reconfiguration’, Hospitality & Society, vol. 4, no. 1, pp. 75-92.

Petera, WM 2018, MNG01222 Facility & Risk Management for Hospitality Operations: study guide, Topic 6, The Hotel School Sydney, Sydney, NSW

Peterb, WM 2018, MNG01222 Facility & Risk Management for Hospitality Operations: study guide, Topic 7, The Hotel School Sydney, Sydney, NSW.

Peterc, WM 2018, MNG01222 Facility & Risk Management for Hospitality Operations: study guide, Topic 8, The Hotel School Sydney, Sydney, NSW.

Peterd, WM 2018, MNG01222 Facility & Risk Management for Hospitality Operations: study guide, Topic 9, The Hotel School Sydney, Sydney, NSW

Saouma, R 2011, ‘Risk Management in the Swedish Hotel Industry – Managing Safety & Security Infra Hospitium’, Master thesis, Södertörn University, Stockholm, Sweden.

Scheer, D, Benighaus, C, Benighaus, L, Renn, O, Gold, S, Roder, B & Bol, GF 2014, ‘The Distinction Between Risk and Hazard: Understanding and Use in Stakeholder Communication’, Risk Analysis, vol. 34, no. 7.

Steene, A 2017, ‘Risk Management within Tourism and Travel’, Turizam, vol. 47, no. 1, pp. 13-18

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