by samuel otu
THIS BOOK OUTLINES SOME OF THE BASIC RISK FACTORS SURROUNDING THE HOSPITALITY INDUSTRY
The greatest appreciation goes to the Lord almighty for the knowledge he has given me about the hospitality industry.
Secondly, I will like to thank Mrs. Paulina Duah of Akosombo for her support in making this project successful. To my mother, Madam Nakour Elizabeth of Cocoa Research Institute of Ghana - Akim Tafo. To my brothers, Henry, Isaac, Bright and Richmond. To my wife, Mrs. Gertrude Otu of Asuogyaman Rural Bank - Atimpoku. To my lovely daughters, Wendy and Christabel, and the entire family for their support in diverse ways to make this project a success.
Finally, a very big thank you to the entire staff of Tourism Society of Ghana (TOSOGHA), Akosombo Continental Hotel (A.C.H) and Aseda River Resort and Hotel, for being part of my experience in the hospitality industry.
God bless every hand that worked to bring this project to its completion state.
Copyright2018 by Mr. Samuel Coffie Otu.
All rights reserved.
This book or part thereof may not be produced in any form, stored in retrieval system or transmitted in any form by any means - electronic, mechanical, photocopy, recording, or otherwise without prior written permission of Mr. Samuel Coffie Otu.
CHAPTER ONE: UNDERSTANDING RISK IN THE HOSPITALITY
CHAPTER TWO: THE VARIOUS RISK FACTORS OF THE HOSPITALITY
DATA PRIVACY RISK
STAFF RISK/ POACHING
CHAPTER THREE: HOLISTIC APPROACH TO RISK MANAGEMENT. 27-30
UNDERSTANDING RISK IN THE HOSPITALITY INDUSTRY
Every business entity in the world has its own level of risk exposure it needs to deal with in other to make the business survive. The hospitality industry is not exceptional when it comes to risk that industries face and how if not planned for or managed effectively, can go a long way to cripple the business.
Actually, a research conducted by the tourism awareness team from 2013 to 2016, indicated that the greater number of Ghanaians now patronize the services of the hospitality industry. This came as good news to the owners and managers in the various sectors of the hospitality industry, but not without a level of higher risk. It must be understood that the more the industry is patronized, the higher the risk it comes with.
"YOU HAVE ALL ETERNITY TO BE CAUTIOUS AND THE NEXT THING IS THAT YOU DIE WITH UNFULLFILED DREAMS"
Management in the various sectors within the industry should be able to plan and manage the activities of their businesses properly to limit the company's exposure to risk. The hospitality industry is diverse and vast, which means that different owners are exposed to different forms of risk, depending on the setup and the services they provide. That is why each owner needs the services of an expert who understands the various risk factors surrounding their operations, in order to help them make quality decisions, as to the right polices and risk management strategies that will help the company share either part of its risk or all to a right broker.
Even with all the risk management policies in place, there is still the probability of the occurrence of unforeseeable outcomes that may cost the company.
In Ghana, most of the clients who patronize the hospitality industry turn to overlook most of the issue that confront them every time. Due to that, many owners and managers in the industry do not take risk management issues serious. In other places around the world, companies within the industry has folded up due to these same issues that guest of the various companies are going through in Ghana but are not complaining. It is actually about time the various statutory hospitality authorities make it a must for all facilities that fall under the hospitality industry to roll out special protection policies that will seek to protect the interest and property of clients who patronize their services. This when well engineered, will bring some level of sanity into the industry, improve service provision and also avoid payment of damages that may cripple the business.
Owners and directors of the various businesses under the hospitality industry must make sure that management puts in place comprehensive plans to mitigate various risk associated with their operations, for business to continue triumphing profitably. To make the industry a very profitable venture with a target achieving motive, there is the need to make sure that your clients are always satisfied with the kind of services that are offered to them. If the client realizes that there is an open risk staring into his/her face in your facility, he/she may not patronize your service any longer and may even go ahead to inform other prospective client to watch out if they are planning to patronize your service. Hence, the need for management to properly analyze the business thoroughly and recommend a customized plan to help mitigate risk. It must be noted that successful managers in every sector of the economy take calculated risk to achieve their goals. If any manager fails to manage risk and concentrate on achieving goals, he is going to have a stagnant company. All they need to do is to measure opportunities against risk and take prudent decisions for the growth of the business. It is time managers in the industry use risk as a competitive advantage to help the industry shift their focus from risk responsiveness and compliance to evaluating risk in the industry proactively.
Clients who patronize the services of the hospitality industry demand high quality and modern customer service at competitive prices, while the owners and investors expects outstanding performance and growth from their inputs.
FIGURE 1. Safety measures clients look out for before selecting a safe facility.
THE VARIOUS RISK FACTORS OF THE HOSPITALITY INDUSTRY
There are a lot of risk exposures that the owners and managers of the hospitality industry confront at all times. Some are dealt with and others are overlooked. The following are few examples of the risk that the industry has t deal with:
The hospitality industry exists because of the clients who patronize the services of the various facilities that fall within the industry. Without the guest, there shall be no business for the industry. It must be noted that on any day that a single hotel room is unsold, it becomes a loss forever. Though the clients act as the fuel for the industry, they being within your premises at any point in time for your services poses a level of risk to your company. Anything that affects the client while in your premises becomes the company's liability. The following are some of the client attitudes that affect the company.
As long as the client remains within the confines of your premises, any harm, injury or accident that may affect him/her becomes a liability to your facility. And it must be noted that most injuries that client get within the premises are caused by their own attitudes, yet they become the liability of the facility. Managers of various facilities under the industry should put in place measures to help mitigate such accidents, harm or injury that their clients may suffer whiles in the company's premises.
When clients in the confines of the company takes in too much alcohol and becomes intoxicated, the company can be held liable for any altercations that may be cause to that guest or to other clients within the premises by that intoxicated client. This is the reason why most countries have laws that regulate the sales and intake of alcohol in various public places. Employees who serve alcoholic beverages should be trained to know when a client has consumed enough alcohol to prevent excessive drinking.
Examples of such premises and attitude risks are:
When a client is electrocuted due to faulty gargets in the facility.
Clients who get hurt in the process of diving into the company's swimming pool due to the lack of detail information on the depth of the swimming pool.
Clients who slip and fall on wet floors which have no inscriptions to alert users of the facility.
When infectious diseases spread among the client within the facility.
Theft of either company's assets or clients assets.
To prevent or limit the occurrence of all the above, the following measures must be put in place:
Ensure that all smoke and fire detectors/alarms are working.
Install security cameras and encourage system patrols.
Establish a healthy relationship with the police service in and around your area of operation in order to know the communities risk exposures as well and take precautions.
Trim landscape, keep windows, doorways and pavements must be clear of trees and bushes.
Makes safes available for clients to keep their valuables.
Put in place all safety stairways, rails, wet floors and elevators.
Mark and direct to all exits with clear visibility standards.
Plan to backup light lighting system for the facility in case of power outages.
Fumigate the premises periodically to prevent spread of diseases.
MOTOR /AUTOMOTIVE RISK
This risk is usually of a higher level in situations where the company runs automotive services like picking people in and out of their destinations to the facility. Any accident, damages and thefts shall be a liability to the facility. Also when the client lost any baggage in transit, this loss becomes a liability to the company. Once the service that is being rendered is from the company, the company must analyze all the risk factors associated in order to put in place measures to mitigate such risk. The following are measures that the company can put in place to mitigate the risk surrounding client auto services:
Restrict driving to only quality professional company drivers.
Review all prospective employees' motor vehicle records during interview before employment.
Always transfer high risk to a private contractor through outsourcing.
Most of the sectors under the hospitality industry, especially the hotels, motels and retreat centres keep detailed records of the clients who patronize their services. When it comes to the picnic centres, fun parks and restaurants, the clients just spend a little time in the premises and leaves immediately after they have been served and this makes the owners and managers feel that there is a little or no risk attached to their services, unlike the hotels and the motels that they have people who sleep over for a day or more.
It is very necessary to keep records on clients who spend time in your premises at all times for the following reasons:
It helps the facility to get the true identity of whomever they are rendering services to. The facility cannot just accept any client at all because the company wants to make money. The reception staff must be trained to be able to identify suspicious clients. This can help maintain security of the facility as well as other clients in the facility.
Statutory order has made it clear that all the sectors under the hospitality industry that render the service of accommodation to their clients submit detailed report on every expatriate that patronize their service. The immigration service needs this to identify where foreigners who have entered the country can be located.
These records can also be used to receive feedback from past clients as well as help the marketing department to contact their proud client even after so many years of patronizing the facility.
These same records assist in accounting and auditing of the books of the facility since it provides the actual number of people the facility served over a period of time. It also gives details as to the number of rooms which were actually used and the unused at any point in time.
Even though the data may be kept well, either manual bookkeeping or computerized bookkeeping, there is the probability of tempering and cyber attacks.
In the manual bookkeeping environment, all records are made in books and files, which make it very simple for records to get into wrong hands. The way most of the waste papers are disposed in the manual environment gives out valuable private information to the public. It has become quite common now that when you buy groundnut, pie, roasted plantain and many more, the seller raps the item in a paper on which private information of an organization can be sourced. People in charge are simply not protecting valuable information. All office waste papers can be shredded before disposal to prevent this information from getting into wrong hands or the outside community.
Also, the computerized environment has all its records kept on a computer so that when there is the need to share any information with owners, manager's auditors and more, it can either be printed out or mailed directly. Electronic businesses, globalization systems privacy and the increase in online booking has rapidly increased the risk of the hospitality industry. Therefore risk management should extend well beyond financial and insurable hazards to operational, reputation regulatory and information risk. A very good example is a privacy strategy that benefits the hospitality industry in the following ways:
It creates a way by which the company can separate itself from competition.
It makes privacy process and practices very cost effective.
It helps mitigate risk in the form of branding, reputation, customer trust, litigations and ensures compliance.
It helps protect the company's brain capital and client information.
It gives the client comfort and ultimately, increases in revenue.
The following are few recommendations to manage data risk factor in the hospitality industry:
Do proper background checks before employing your staff.
Train your staff on the importance of protecting both the facility's data and that of clients.
Inspect and service computers regularly.
Ensure regular upgrade of transaction devices like the Point of Sales devices (P.O.S)
Form a vibrant data management team to handle data issues.
Manage and review your security protocols and keep the system up to date.
Make sure you sign on to a kind of insurance policy that will cover both the first and third party such as cyber liability cover or data breach cover.
Staffs of the various sectors within the hospitality industry go through a lot of risk in their daily duties. Most of them are quite on whatever they go through because of the fear that they will lose their jobs. Others too see them as part of the usual occupational hazards but the fact is that all necessary steps should be taken to safeguard the working environment for all staffs. The following are some of the risk that workers in the industry face:
Various accidents in the kitchen (knife cuts, burns and falls caused by oily floors)
General grounds workers encounter animal bites, machines and cutlass wounds.
Electricians are electrocuted and sometimes fall from ladders.
Laundry staffs get infections from the dirty items that are parked from the rooms, restaurant and kitchen for washing.
Waitresses who do room services and housekeeping ladies are sometimes raped.
Housekeeping staff can get infections during cleaning and sometimes fall during cleaning.
HUMAN CAPITAL DRAIN/POACHING
The hospitality industry normally suffers strong poaching from competitors within the same industry. This usually occurs when the competitors are coming into the business new or reviewing its policies to seek the welfare of the staff. It is normal that every individual wants to be paid well for the job that he/she does. That's the reason why at any point in time that a competitor will come into the business with good incentives for staff, old giants in the business who are not taking good care of their staff suffers.
Management of the various sectors of the industry should make it a point to take very good care of their staff by putting the welfare of their staff first. This is because when your staffs are the face of the business. They are the ones that always have one on one interruption with your clients. If they are not happy, they will not give out the best of customer service to your clients and this may reduce productivity.
"IF YOU PRETED TO BE PAYING YOUR WORKER WELL, THEY WILL ALSO PRETENDING TO BE WORKING WELL FOR YOU"
Every well meaning company that Is in the industry has a brand that defines what the company is all about. There is the risk of other emerging competitor companies copying and using your brand or trade mark to enter the market. This is done intentionally to get into the competitive market swiftly, even though it is now struggling to get a branding in the market for itself.
When an emerging company succeeds in using a well known companies brand to market itself, it goes a long way to affect the company whose brand is being copied. This can affect your productivity as well as create legal liabilities for the company in case the emerging company uses the brand name wrongly.
Example, let's say there is a company that is well branded and has the name EASTERN PALACE HOTEL. The new company comes on board with the name EASTAN PALACE HOTEL. You will notice that the names are different in spelling but similar in pronunciation. The emerging company may argue that the names are not same so there is no infringement but there is. This surely comes with the probable emergence of legal liabilities since clients will think they are working with you whiles they are actually working with a wrong entity. All the actions and inactions of the emerging may affect you either positively or negatively.
Owners of the various establishments in the hospitality industry should register their trademarks and have copyright over them, which will make them unique from all others. When you have the copyright over your trademark and any company tries to copy or use it without your permission, you can sue the for copyright infringement and claim damages for the harm that has been caused to your company.
It must be noted that it is very difficult and takes a lot of time money and expertise to build a very reputable corporate brand. Taking this tiring process into consideration, there is the need to always go as much as you can as management to protect your hard earned brand name.
The most disturbing part of this issue in this instance is when the company that is stealing your brand name goes into any illegal venture and is caught, your brand name will be tarnished in the market and that will affect productivity.
Fraud related payments with credit & debit cards are the most commonly reported data breaches. Hence companies that accept card payments should ensure that they follow the necessary Payment Cards Industry Data Security Policies (P.C.I.D.S.P) to avoid fraud.
Financial risk in the hospitality industry is actually centered on two major agents in the industry. These are the staff of the facility and the clients who patronize the facility. Financial risk management is very important in every business setup that wants to prevent financial losses and increase productivity. Whenever this factor is overlooked, there is a big opening for both staff and clients of the business to steal money. The following are some of the way the staffs in the industry can steal money from their companies:
Accounts officers do over invoicing and overstate prices of transactions
Purchasing officers and store keepers can overstate the prices of the purchases they make, backing them with fake receipts. Some store keepers even steal items from the store and resell them outside the facility if the security of the facility is not well positioned.
Even the security officers in the facilities sometimes turn to steal themselves, what they have been hired to guard.
Account officers can team up with cashiers to steal, where there are no proper audit structures in place. The cashiers account to the accounts office after the close of day, with the total cash received from all the sales points. This is where the accountant and the cashier can change figures and maneuver receipts to cover up
Reception staff can team up with housekeepers and sell out room to clients without the necessary recordings in the various books. In doing this, the reception staff will allocated the room to the client late night and then call the housekeeper on duty the next day to come early and dress the room so that it will not be noticed that the room has been used. If this goes unnoticed, then they share the room proceeds.
Bar attendants' team up with waiters and waitresses to sell and keep the money for themselves by not written order slips for whatever they sell.
The chefs and cooks team up with the waiters and waitresses to prepare food orders and sell them out and keep the money by not receiving food order slip even before they prepare the food.
To manage all the above;
There is the need for the establishment to put in place vibrant accounting and audit team to do proper checks of all transactions before payments are made.
There must be a robust audit strategy to prevent stealing/ fraud.
The accounts section must make sure that they do stock taking from time to time to monitor the movement of stock and also to help know the items that need to be restocked.
Moneys should be received and paid out backed by receipts and payment vouchers.
On the part of the guest, there are several ways they steal from players of the hospitality industry. The following are few of them:
Fake online bookings that are not verified by the company before allocating rooms or rendering services.
Clients usually pay for their drinks and meals after they are done drinking or eating. Most of them have taken advantage of that and runs away with the companies money most of the time.
Some clients are into the attitude of creating seen after services have been rendered to them so as to be left to go without paying for whatever service they received. An example is a woman who always had broken finger nails in her bag. She comes into the restaurant, eats about 90% of whatever she ordered for, and then drops some finger nails into the food. She then starts raising her voice and threatening legal actions against the restaurant.
This thing went on for a while and it always have to take management to come and apologize to this woman and let her go without paying for her meal. The most shocking thing was that no other client ever had that experience in that restaurant.
Management then decided to mount a CCTV camera to monitor the restaurant area. It was through this that the woman was caught dropping some finger nails herself.
In all the above, the best way management can tackle them is to put in place better checks and security measures that must be followed by every staff of the company so that they can obtain good results.
There is the need for every business setup in the world to make provision for unforeseeable occurrences that are beyond the control of the company, when making projections for the profitability each time of the business year. Some of such unforeseeable events are:
The economy in which every business operates has a greater tendency of affecting the business' operations both positively and negatively. When there is a drastic growth in the economy, business will also boom and generate more income. When the economic growth becomes slow too, business becomes stagnant and profitability is low.
When the economy begins to grow slowly, prospective guest will find it difficult to spend on leisure since the economic growth will affected his pocket too. Clients will rather used the little cash they have on other more important things rather than spending on leisure. No one spends when he/she has no medium of payment to pay for the services he/she needs.
In instances like this, the only way out for the managers in the industry is to take a second look at the kind of products they have to offer to their client, review their details and adjust prices to suite the economic situation at the present time. Manager must also avoid much input during that time and invest in other profitable areas to support their operations.
FIRE & FLOODS
Natural disasters like fire and flood can also affect the industry. This will create legal liabilities for the company as well as renovation cost. This are all part of the property risk legalities that are common to the hospitality industry. In this situation, both the owner's property and that of the guest are at risk.
Once client and prospective clients are coming in and going out of the facility, there is a very high probability of theft. Naturally there are some people who have the habit of stealing and this can be either the company's own staff or prospective clients. Both items belonging to the facility and that of the clients in the facility are at risk when it comes to theft in the hospitality industry. This is why there is the need for owners and manager to come out with strategic measures to help mitigate the theft factor. This can be done by:
Beefing up the security of the facility.
Acquiring an insurance policy that covers third party for the facility.
River sport is usually peculiar with the sectors within the hospitality industry that operate beside rivers, lakes and oceans. They use the natural resource available to make extra money by operating boat services for their client to have that water cruising experience. It is a very nice way of making good use of available resources to generate income but not without risk. There is a greater probability of boat accidents while on the river, lake or ocean.
The issue with this operating system is that, most of these facilities rendering this service do not employ people who are experienced and licensed to drive the boats. Also, they don't secure comprehensive insurance covers for the clients who patronize this service. In order for the hospitality industry to be able to manage or mitigate the risk involved here:
Licensed persons should be employed and trained periodically on their job.
Life jackets must be provided for all passengers on the boats at all times.
There should be a proper backup service to bring people back to the banks or shores in case the boat engine becomes faulty and it is stuck on the river, lake or ocean.
There should be a very comprehensive insurance policy to cover all risks and their associated liabilities.
The hospitality industry cannot be left out when it comes to businesses that invest part of their incomes in other venture to yield some more income. Some of these ventures are:
In other businesses/joint ventures that are making much profits
Business managers do this in order to mitigate risk. As an Ghanaian proverb goes like;
"it is not wise to put all your eggs in one basket. Any accident can make you lose all".
Managers who go into any of the above do checks to know the type that pays out enough returns on investment before investing in it. It must be noted that when it comes to investments, the higher the risk exposure on an investment product, the higher the returns on investment.
Most managers in the hospitality industry are able to clearly tell the business and profitability trends in the industry with regards to seasonal and economic trends. They can indicate that from a particular period to another, business is good and within a particular period too the business is bad. Due to this experience, it becomes very wise to invest part of your budgeted inputs into other profitable ventures when the season becomes unprofitable for the industry.
In as much as this is a very wise way of management, it also comes with its own level of risk. It has become a win or lose affair, especially with the treasury bills, stocks and investing in other profitable industries. The economic trends usually determine the fate of these ventures at any point in time. This is the reason why there is the need to insure your investments so that in case of any unforeseeable event that may cause a greater loss to the business, the insurance company will come to your aid.
Competition can never be pushed aside in the hospitality industry since the industry is expanding and client are developing the appetite for better and modern customer satisfaction oriented facilities and services. In fact any industry that does not face competition will seize to grow because, it is competition that makes the various players in the industry improve upon their services in order to maintain their cherished clients and increase their patronage.
It must be noted that unhealthy competitions makes competitors do whatever it takes, whether good or bad, to break down the market of their competitors for their own survival. In dealing with this situation, every industry has a recognized association that regulates the activities of the industry. This is where the industrial association body should come in and regulate activities to maintain law and order in the industry.
There are a lot of things that owners and managers in the various sectors of the hospitality industry overlook almost all the time. They go unpunished because it happens to be that most of the clients who patronize the industry do not either know they are being faulted or they choose to overlook them.
Spillover is a popular term that is used to describe the situation whereby one hotel receives clients that outnumber their total rooms available or restaurants receive client that they cannot take care of at that particular time and in both cases decides to send them to another hotel or restaurant to be served there. The following are some few questions that both facilities in question should be asking for answers:
Who shall be liable if the client is injured or suffers food poisoning in the second facility that is receiving the clients?
Do both facilities have insurance covers that take care of the interest and property of their clients?
On the way to the second facility that is receiving the clients, if there is an accident, who is liable? Is it the main facility or the relieving one?
Facility owners mostly overlook the various risk exposures that their businesses are exposed to any time they are taking the decision of sending their extra client to another facility. This is because, in Ghana for example, the facility owners are not slapped with legal liabilities associated with the services they provide to their clients. Clients normally let things go and move one so the facility owners do not see the need to put in place the necessary measures to protect their clients.
HOLISTIC APPROACH TO RISK MANAGEMENT
FIGURE 2. Process of making risk management effective.
It is very necessary to regularly access and validate your company's risk exposures and to review the risk management strategies. In doing this, management need to extensively:
Establish an infrastructure for risk management.
Identify all the risk that the company is exposed to.
Quantify and prioritize each type of risk you identify.
Plan ways to mitigate these risks, taking into consideration the appropriate insurance coverage as one of your comprehensive risk management strategies.
Access and review the risk exposures periodically to know if there is the need for any changes to be made in order to help mitigate emerging risks too.
Make the risk exposures identified and their plans to mitigate them clear to the board of directors, management and staff of the facility. That's creating the risk awareness attitude within the business.
Ensure that you empower every area of the business to be responsible for managing risk according to the companies risk policies.
Insuring your risk is the best way to manage insurable risk in the hospitality industry. The moment an insurance cover is taken for a particular risk exposure in a company, the legal liabilities attached to that risk are either taken fully or partially by the insurance company. Most of the legal liabilities that rise in the hospitality industry are the types that are capable of crippling the institutions involved hence if liabilities are slapped against only the business in question, it becomes very disastrous.
Before management signed on to any insurance coverage, the following are the few questions that management needs to ask the insurance broker:
What are the areas of the business and their risk attached that can be insured?
Does the legal liability cover third party claims?
Can the cover take care of business' assets and that of clients, including renovation cost?
When there is a fire outbreak that destroys both business' assets and that of clients.
Theft of both business assets and that of clients.
Does the broker understand the hospitality industry and the types of risk unique to the industry?
These are all issues that hospitality business owners may overlook when considering any insurance policy for their business but which could have very devastating outcomes if they are not included in the pre decision making process.
Tactically, there is the need to hire the services of an expertise or specialist in the identification of risk exposures and the insurance policies suitable for the hospitality industry. This expert will make sure that the policies are written in such a way as to avoid legal liabilities that may be made against the business and gives the company the best of protection, including your clients, their assets and the company's reputation.
Management at all levels should make sure that after a comprehensive dialogue with the insurance broker, they understand and can differentiate between the various risk categories of the company; that is separating the insurable risk from the uninsurable risk. It is vital to do this so that you can select the types of risk that you can share their liability by insuring them.
It must as well be noted that when you insure the company's risk too, it comes with the periodic premiums that need to be paid to the insurance company. This will surely drain the coffers a little but it becomes very rewarding when the unforeseeable risk occurs. Brokers are always willing to create policies that fits into whatever risk exposure that one faces. That does not mean that managers should load all risk including the internally manageable ones and dumping them on the brokers at a cost that will unnecessary drain the business. The most higher value risk are the ones that are most advisable for managers to insure so that they put in place plans, policies and accountable standards to deal with the less value risk areas of the business.
ABOUT THE AUTHOR
The author of this book has worked in the hospitality industry for several years, working as a marketing officer, an accountant and a manager. He is currently the district coordinator for the Tourism Society of Ghana (TOSOGHA) for Asuogyaman district. With these experience and expertise he has acquired on the field, he was motivated to come up with this project, to help the various players in the hospitality industry to be productive.
This book has been packed with much knowledge and insight to help the following target groups within Ghana and beyond. They are:
Students offering hospitality courses.
Workers within the hospitality industry.
Trainers within the industry.
Managers of facilities within the industry.
Owners of facilities within the industry.
People with the dream of being in the industry.
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