A risk according to Schwalbe (2014) is an uncertainty that can have a negative or positive effect on meeting project objectives. Risks can occur due to negligence, financial crisis among many others. All risks affect the business in one way or another but the effects may differ in magnitude. Some may have mild effect on the business while others may have devastating effects. Risks that have a very high probability of occurrence and a very high impact cause very huge effects on the business and therefore require more attention than those with low likelihood and low impact. A probability/impact matrix is on the other hand is the tool that combines the likelihood of a risk occurring and its potential effect on the operations of a business. It is a planning tool that helps the business to predict the problems they are likely to face in the course of their operations and the effect they are exposed to should the risks actually happen. It helps to prioritize the risks. This essay will give some uncertainties that a hotel business is likely to face and their likelihood and possible effects that they will have on the business. This article is going to address the following issues about the risks: the likelihood, the reasons for the likelihood, and the potential effect they will have on the business.
Despite the boom of the hotel business in the recent past, many such businesses are doing poorly. The reasons as pointed out may range from mere negligence or huge government intervention and may affect the business either in a good or bad way (Anderson, 2009). The hotel business is a joint venture that we started as partners and the business is facing various risks that we had not planned for. The following are the major risks that the business is facing: lack of customers, food spoilage, and lack of adequate supplies, weather changes, tourist boom/recession, government taxation, diverse partner interests and the costs of running the business. The risks have affected the business in various ways and the probability of the problems occurring is also different depending on the problem. Some of these risks have a higher likelihood of happening while others have just a low probability. The reasons behind the likelihood are different and each risk is likely to cause a different effect on this hotel business venture. There are many ways of expressing the probability and impact relationship of the risks in a project. The most popular way is to rate them as very high high medium low and so on (Schwalbe, 2014). The following matrix will show the above risks, their probabilities of occurrence and the impact they have on the hotel business enterprise.
PROBABILITY LOW LOW MEDIUM HIGH
LOW LOW LOW MEDIUM
MEDIUM LOW MEDIUM HIGH
HIGH MEDIUM HIGH HIGH
Table: Probability impact matrix
The reasons behind these risks are different. Sometimes in this business the lack of customers is caused by poor services by the hotel waiters or poorly prepared food. The likelihood is low since the management has recruited good cooks and waiters from recognized hospitality institutions in the country. The impact of lack of customers is high since the existence of hotel businesses and any other business is the availability of customers who demand the services of the business.
Food spoilage is caused by the lack of customers and poor storage. Prepared food will go bad if it is not consumed by the customers. The impact of this problem on the hotel is high since it took some purchased inputs to prepare it. However, the probability is medium since the business has invested heavily on refrigerators and other facilities for proper food storage and the customer base is also large and thus most prepared food is consumed within good time (Anderson, 2009).
Lack of adequate supply. The hotel supplies include fuel, milk, and other essential supplies that are important in food preparation. According to Anderson (2009) every business without proper input supply is doomed. Sometimes, the supply is low due to the suppliers push for higher prices for their goods and services. The likelihood is however low since the hotel gives good prices to the suppliers. The impact of inadequate an unreliable supply is high because the products on sale are all dependent on the supply of their inputs.
Weather change is another risk that the hotel faces. Sometimes, the sudden weather changes may cause the customers to refuse to consume the services that are offered by the hotel, for instance, during summer when it is warm the customers need cold drinks. But sudden weather changes like rain mat cause the demand of warm drinks and foods to go high. The business may not have fully prepared for this demand since the change is abrupt. The impact of weather changes is low since the changes quickly fade away and the business continues running normally. The tourist boom is a good risk that the hotel may experience. The reason for the tourist increase would be fair weather and the strategic location in which the hotel is situated. However such a boom is low and the impact is also low since it is seasonal (Anderson, 2009).
All businesses in a country have to conform to all the policies by the governments of the countries in which they operate (Schwalbe, 2014). The government policies in the hotel industry may include lower/higher taxes and the availability of government incentives. The hotel industry has had very high taxes imposed on it by the government. This has a huge effect on the hotel operation in the country which eats in to the profitability of the hotel. The reason for the change in government can range from increased expenditures or even national securities. However the probability is low because the government aims at increased investments in the country.
Diverse partner interests are another risk that this venture has faced. The reasons are different according to each partner but the likelihood is low. This is because the partners must have a common goal for uniting and starting the business. The impact of divergent objectives on the partners is high since a partnership depends on the union of the starting partners (Schwalbe, 2014). The costs of running the hotel have been high because of the unplanned increase in electricity costs used for cooking and lighting in the hotel. The likelihood is low since the management adjusts the prices of the services offered according to the bills as thy come. But the impact is high since the price changes have caused customers to go away. The profitability therefore goes down.
In conclusion risks are in all types of businesses. The risks may have different causes and their impact may also differ depending on the type of the risk in question. The probability of occurrence is also different. A business should focus more attention on the most likely and the ones with huge impact on its operations. A good analysis of the likely risks will also help the business prepare adequately for the risks should they occur.
Anderson, E.J. (2009).Business Risk Management: Models and Analysis. New Jersey, Wiley. Hoboken Publishers.
Schwalbe, K. (2014).Information Technology Management (7th ed.).Boston, MA: Course Technology Publishers.
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