LONDON—The term “risk management” has received broader consideration in the hotel industry in recent years, as economic crises, health scares and natural disasters have garnered as many headlines as terrorist attacks.
These and other threats have necessitated a more holistic, long-term approach in the discipline, according to industry leaders who met this week during the Institute of Hospitality conference at the World Travel Market 2011.
“Since the bombing of the King David hotel in Jerusalem in 1947, every year there is some kind of act on an industry establishment because we’re a soft target,” said Philipe Rossiter, CEO of the Institute of Hospitality.
“But it isn’t just that challenge that all hotel managers have,” he added. “The current debt crisis affects the industry, there’s various health scares in recent years like SARS and foot and mouth disease here in the U.K. a few years ago, which stopped people traveling around the country, and we have natural disasters that are always unpredictable like the earthquake and tsunami in Japan earlier this year and the current flooding in Thailand. … It is not just security in terms of hard protection, but how you manage all the risks that are affecting our business.”
Rossiter said there’s a dichotomy in the field of risk management.
“What we want to be doing is opening our doors and welcoming people, and we really have a dilemma as to how we manage that at the same time as protecting people.”
Defining ‘risk management’
The definition of risk management itself was up for analysis.
Alexander Paraskevas, senior lecturer in strategic risk management for the faculty of hospitality, leisure and tourism management at U.K. Oxford Brookes University, said the industry has not reached the level an understanding risk management in its totality.
There are three levels of risk management, he said:
• operational risk that we face day to day in the operation of hotels;
• project risk when we start building a new hotel and choosing where we are going to expand; and
• strategic risk that has to do with decisions about risk the company faces when it pursues its strategic objectives.
“When it comes to the first one, the industry is doing quite a good job so far, but with project risk or when dealing with strategic risks we lag behind,” Paraskevas said.
Tony Potter, CEO of Malta-based Corinthia Hotels, which had properties in many of the countries affected by the Arab Spring, said risk management is by its nature organic and “sometimes you are forced into taking risks.”
“When we were operating our 300-room Tripoli hotel (in the recent crisis), some people asked, ‘How did you make the decision to keep the hotel open?’ The fact is that the 375 guests made the decision for us,” he said. “They didn’t want to leave.”
“We have to be engaged so that we are constantly doing what we can to raise the safety and security levels in a hotel, and I don’t believe you can do that through very clearly defined ideas on what risk management is,” said Paul Moxness, VP for corporate safety and security at The Rezidor Hotel Group. “One of the drivers is basically the market that tells us that we don’t accept unacceptable levels of risk in our hotels.”
Led by the customer
Increased litigation has had a significant impact on risk assessment, the panelists agreed, with hotels now facing potentially high fees and fines if safety becomes an issue.
Changes in security presence were seen as integral to the smooth running of a hotel operation.
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“It’s even more important that security now becomes a customer service department. You want people who are discreet, people who can escort customers and give them confidence,” Potter said.
“We spent a lot of time designing security in our new hotel in Westminster to see what does a customer demand, what does a diplomat want, how does someone who is paying £10,000 (US$15,965) a night want to get to their suite? They don’t want to just walk through the door. The last thing we want to do with risk management is fear mongering. Knowing the consequences and understanding what the possibilities are is what is important.”
Moxness agreed this customer-led initiative is a significant change in tack.
“Twenty years ago when I started as a security guard, officially bad things never happened in hotels, it was our job to cover it up,” he said. “We waited for things to happen, and then went out and dealt with them, but we have shifted now from this to risk management and assessment.”
Gaps in hospitality education
Paraskevas admitted one of the issues is that risk management is not generally being taught on mainstream hospitality courses of study.
“Unfortunately, security and safety in particularly have lost their prominence in the curriculum,” he said. “Most universities are more drawn to management subjects like (human resources), marketing and finance. At Oxford Brookes, we have a stream of research on risk management and safety, however for the moment in most universities it is an elective and not necessarily hospitality related, more for generic businesses.”
That could change, however, as business push for corporate responsibility, Paraskevas said.
“There is a lot of push from the industry and the generic business environment towards corporate responsibility, environmentally friendly hotels. So I see risk management becoming part of something wider. Keeping hotels safe is part of doing business responsibly,” he said.
Costs and benefits
The panel was adamant that the benefits of implementing a risk management team far outweighed the costs.
“(Rezidor) can really prove with numbers that risk management programs really improve our business,” Moxness said. “People used to argue against risk management strategies as it was not a legal requirement, but there’s no legal requirement for telephones or flat-screen TVs. We brought things in because the guest wants them, and we see how much more business this brings us. The revenue managers can tweak the systems but their growth, to the growth we have brought, cannot be compared. There is a business benefit in having risk management strategies, and the more this is understood the more resilient the market.”
In terms of cost savings, Paraskevas said, “If a company has such rigorous risk management policies and strategies in place, it manages to significantly reduce insurance premiums. This is why companies that take risk management seriously have the support of the entire company. Everyone benefits.”
Potter agreed. “Insurance is a very good point. Today it is actually very difficult to get insurance for certain thing full stop. Insurance premiums are horrendous, and if you have the right people in position and you are doing the right things, those premiums will come down.”
Impossible to foresee everything
Even the best risk management platform cannot mitigate all risk. But the benefits of implementing strategies were still clear, Potter said.
“In my experience in particularly big hotels you can’t get everything right all the time. But I find that if you have the right structure in place, the local authorities are not going to let you off, but they’re going to be a lot more reasonable. Authorities do have to be pedantic, but you find the way they deal with you as a business will be far more understanding and might be far less punitive if you have the right processes in place,” he said.
“We can’t afford not to do this as it just doesn’t put you in the ball game,” Potter continued. “If we all get involved with risk management, it can actually (be) a means to generate profit.”
Potter described Corinthia’s decision to move into Libya as an example.
“It is wide open for tourism. All the risks are there, but you have to ask yourself what is going to happen,” he said. “I accept if you’re looking at a war-torn situation there are certain added risks you have to weigh up, but you have to be prepared to take risks. If you know the territory and have the right connections, then it is worth taking a risk.”
Health, safety and risk management are more important than revenue management, Potter said.
“It touches every single part of the business.”