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This assignment requires you to consider the risks to physical, non-physical, financial and human assets (detailed individually at your venue).

Using the theory found in the readings and the study guide, critically evaluate the concept of “Risk”.  For instance, what is it? What is subject to risk? Why is it considered essential for a hospitality business to implement a risk management process? 

This section requires you to demonstrate your understanding of how to practically apply a risk management process by conducting a risk assessment of a venue.  It is suggested you use the venue selected for Assessments 1 and 2. 

There are two critical components to this part;

  1. A Risk Ranking System – this is the “how” risks will be assessed.
  2. A Venue Risk Analysis (VRA) form – this the tool used to measure risk.

Venue Risk Analysis Form

  • You need to create a form using a table format or excel spreadsheet.
  • The left hand side should display a menu of identified risks.   A standard of 9-12 risks should be identified covering the range of asset types.
  • The Horizontal banner should categorize the different measures of Risk, according to one of the models you have already evaluated.

Part One: Concept of risk

The concept of Muffin Break traces its origin from Canada back in the 1970s. The Foodco Group later acquired it in the period of 1980s. In 1989, it arrived in Australia where it started its first ever café in Coolangatta. The café has branded itself, and it remains to be the leader in its category. It usually provides their customers with a variety of fresh products which are normally baked, prepared, and made ready on the site-everyday. As such risk management is necessary to ensure smooth operations (Hopkin, p. 5) of the firm. It is also important for the café to determine potential risks that can occur and find mitigation strategies. This paper, therefore, analyzes Muffin Break with regards to potential risks (human, financial, physical, and non-physical). Also, it will carry out risk ranking system and Venue Risk Analysis(VRA) of the Muffin Break.

Risk has been defined by various scholars in various languages, but all mean the same thing. Risk occurrence in businesses is a common incidence that happens time from time. Therefore, it is important for an organization to be prepared to counter the effect of the outcome of a risk. Risk, therefore, can be defined as uncertainty or unintended outcome of the company’s goals and objectives (Vinnari and Skærbæk, p. 495). Hazard, on the other hand, is the agent that can cause harm. The risk usually caused by either internal or external vulnerabilities which cause a damage, loss, liability, or an injury to the organization. Risk occurrence, however, can be avoided through preemptive action. Several people usually see risk as only a negative deviation from the initial results. Nevertheless, positive deviation also is considered as a risk given it was not the expected outcome from the initial plan (Sadgrove, p. 29). As such, it is always prudent for the top management of a company to analyze possible risk that may occur in their operation and hence find means of curbing them. Hospitality sector such as restaurants, hotels, and cafes, are enjoying the benefits that come with the growth of global economy. Therefore, Muffin Break has a high number of customers, and their operations are increasing each day (Watson et al., p. 84). However, the greater the café’s activities and operations, the higher the chances of risk occurrence. Thus, analyzing possible risk is crucial for the survival of the cafe.

It is hardly impossible to avoid risk in business operations, and all organizations encounter risk at one time or another during their operations. Risk varies depending on the business (Spekman and Davis, p. 421) but, generally they can be categorized into four major groups. They include; risks to financial, human, non-physical, and physical assets.

Financial assets primarily have a huge role to play in hospitality industry operations. For smooth flow of business, it is vital to ensure your financial assets are secure. The financial assets include; credit and debit cards, foreign currency, money orders, and external and internal vouchers (Davis and Willen, p. 5). Financial assets normally involve numerous transactions between the firm and the customers (Nocco and Stulz, p. 13). Hence, the reason why they have a high likelihood of posing a threat to the firm. The financial risks encountered at Muffin and Break involves money as it’s the primary medium of exchange between their products and services offered to the customer. They include; credit default, cash flow misappropriation, investment evaluation, and capital variability. The most critical risk that faces hospitality businesses is the global economic crisis (Dwyer et al., p. 177). Muffin Break is located in a mall with an open space. Numerous shops are surrounding the café as well as a large number of people who go for shopping at the Westfield Shopping Centre. These are their customers, and therefore, an economic downtown means that people will not spend and as such, the cafes and restaurants will fail to achieve their target regarding sales and revenue.

Types of risk

Muffin Break has employed various staff who work in different departments. These employees are a threat to the firm since the unfortunate event can occur to them at any time. Risks to human assets, therefore include; the personnel (such as human resource management and employers), patrons, shareholders, and staff (Bhattacharya and Wright, p. 937). Risks to human assets are as well pronounced in Muffin Break as well as in any other business operations. It requires as such to be handled correctly as they influence the outcome of the business operations directly. For instance, if the staff is sick or there are wrangles between the employees and employers, then customers will not be catered for, and their needs will not be meant. If this happens in the long-run, then the firm is probably going to lose customers, operations affected, and eventually, it will collapse. Human capital risk assessment, as well as management, is vital in determining responsibilities of every employee and thereby avoiding the risk of unnecessary wrangles. Human assets risks are connected to human resource organization (Youndt and Snell, p.347), designing of talent strategies, fraud prevention, rewards and appraisal alignment, and ethical behavior promotion.

Non-physical assets are also known as intangible assets. These two words are used interchangeably. They include; company reputation, leases, computer programs, agreements, workforce motivation, customer relations, and intellectual capital (White, p.3). Non-physical assets go further to include corporate intellectual property such as trademarks, copyrights, patents, and business methodologies. As compared to physical assets, the non-physical assets also depreciate, and they undergo wear and tear (Hand and Lev, p. 9) Due to such, they need to be put into consideration and possible risk determined. It is crucial also to understand that, the greater costs of these assets leads to a significant lose especially in the redeeming process thereby causing poor financial ratios.

Physical assets are materials or items that have a tangible existence. These are things that can be touched and seen in a business. In Muffin Break, intangible assets include; chairs, tables, plates, cups, cutlery, buildings, cash, dishwashers, food and drinks, and all other equipment and machines. In case of default, liquidation process of some of the physical assets can be performed in paying off the debt (Shi, p. 121). These assets however, undergo the process of depreciation, deterioration, depletion, and shrinkage over time or during the storage process. People tend to think that physical assets as compared to others, have more value diversification and thereby experience greater risk when it comes to economic uncertainty. Nevertheless, risk can occur in whichever asset and necessary precautions should be taken.

Risks usually are unforeseen outcome of a business process.  Businesses are normally subject to both internal and external risks. Internal risks are normally the business weaknesses and can be controlled once identified. On the other hand, external risks are the threats from the outside and can be out of one’s control. Risk management is crucial to ensuring growth and survival of the organization. Through identification and management of the probable risk (Bromiley et al., p. 269) cash flow in an organization can be improved and maintained. Continual cash flow in a firm, creates a stable business environment which in turn sustains credit relationship while building additional credit in the firm. Managing unexpected risks concerning the human asset, increases accountability among employees which in turn improves the tactical and operational efficiency at every level in the café and other hospitality-related businesses. Human resource has a big role to play in success of hospitality industries. They deal with the customers one-on-one and hence motivating then is essential to the success of the business. Employees can thus be motivated through performing performance appraisal, giving rewards, promotion, and taking care of their welfare (Hameed et al., 5). Strategic risk management plan is very crucial in circumventing outcome of unexpected risk. It helps the top management of the hotel to carry out their operations smoothly and risk swiftly hence increasing longevity of the hotel in the market.

Risk to financial assets

Proper risk management strategies, helps a company to achieve its goals and objectives. The firm’s assets are also protected as well as the business reputation which guarantees the continuity of the business operations (Wheelen and Hunger, p.7). During the normal activities of a firm, there is always a likelihood of either an opportunity or a threat presenting itself. These could either be beneficial or disastrous to the business. However, with effective and efficient risk management strategies, it is possible to overcome the uncertainties. The ultimate goal typically is to avoid business failure and increase the likelihood of success by achieving a maximum sustainable value for all business activities.

Venue Risk Analysis (VRA)

Venue risk assessment is vital in preventing adverse effects of unseen outcomes. Also, it helps the operations of the company to run smoothly hence have a competitive edge over your competitors. Proactive and preventive measures can only be taken through exhaustive analyzation of the venue. Such measures can be achieved by performing a thorough check of the venue by conducting a full business audit (Rausand, p. 203). Undertaking financial, project, and operational risk assessment helps the company respond to any unforeseen event. This section analyzes the Muffin Break by carrying out risk ranking system and venue risk analysis.

In risk ranking system, hazardous elements are usually placed in a sequentially to help in the decision-making process. Risks vary with their severity, and it becomes important to rank them thereby fasten the process of mitigation. The criteria for application of the risk ranking system is based primarily on the quantitative and qualitative information. The process involves identification of all possible risks and those having a higher chance of occurring ranked (Haimes et al., p. 389). The same case applies to those that have a lower chance of occurring as well as those in which utmost consequence of occurring is low/high. Risk identification and ranking help the top management to make affirmative decisions and determine how to deal with them in worst case scenario. It is also crucial to perform risk prioritization whereby the identified hazards are weighted and also compared using various methods. This could be through political will, feasibility, practicability, control measure effectiveness, estimates certainty, and levels of public concern.

Muffin Break has grown recently and apart from Australia; it’s now located in India, New Zealand, and in the United Kingdom. It serves a variety of delicious drinks, snacks, and foods. The design of the Muffin Break has incorporated the modern design where the arrangement of chairs and tables is satisfactory. The point of sale, lighting, kitchen, seating area, counter, lighting, and artwork and décor is on point. The café also contains the coffee machines, ovens, mixers, worktables, refrigerators, baking sheets, and racks as well as other equipment’s. All these equipment’s need to be frequently monitored and their life expectancy determined to avoid risk occurrence. Risk consequence/assessment matrix places probable risk in a table regarding their likelihood of occurrence and their impact (Morgan and Fischhoff, p. 208). It gives the management a quick view and an opportunity to prioritize on the risk hence develop an efficient and effective strategy.

Risks to human assets

Figure 1: Risk matrix table

LIKELIHOOD

CONSEQUENCE/IMPACT

Insignificant/

Negligible (1)

Minor (2)

Moderate (3)

Major (4)

Extreme/Cata-strophic (5)

Rare (1)

Low (1)

Low (2)

Low (3)

Low (4)

Low (5)

Unlikely(2)

Low (2)

Low (4)

Low (6)

Medium (8)

Medium (10)

Possible(3)

Low (3)

Low (6)

Medium (9)

Medium (8)

Medium (15)

Likely(4)

Low (4)

Medium (8)

Medium (12)

High (16)

High (20)

Almost certain(5)

Low (5)

Medium (10)

Medium (15)

High (20)

Extreme (25)

Table 2: Likelihood of risks occurring

Level

Likelihood

Frequency

1

Rare

Very unlikely. In exceptional circumstances.

2

Unlikely

The chance of occurring is less than 25%.

3

Possible

The chance of occurring is between 25-50%.

4

Likely

The chance of occurring is between 50-75%.

5

Almost certain

The chance of occurring is over 75%.

Table 3: Consequence/impact table

Level

Consequence

Impact

1

Insignificant

Little impact with no material disruption. Can be remedied through simple processes.

2

Minor

The impact can be rectified easily using a considerable effort.

3

Moderate

Some of the business objectives affected but can be rectified.

4

Major

Company’s objectives and performance affected.

5

Catastrophic

Performance failure and objectives not achieved.


By creating a risk matrix table, one can tell which risk holds the highest probability of occurrence as well as one that has the greatest impact. With this knowledge, one can then perform a risk management matric and implement strategic policies to circumvent the risks from occurring.

Analysis of the venue and determination of the actual risk that can occur in a firm is essential for smooth business operations. The importance of VRA form, therefore, becomes critical as it helps the management to understand the consequence of the probable risk and impact levels. It also, helps the management to predict potential or future threat in the organization. In doing so, one can assign priorities and thereby develop and implement the risk prevention strategies (Olson and Wu, p.267) Additionally, the maintenance costs of the hotel can be minimized as the overall quality of the venue is upgraded. Muffin Break has a modern design of its venue with spacious seating area. The bespoke banquette seating, as well as the made-to-order chairs, gives the Muffin Break restaurant an irresistible appeal. The venue is well furnished with comfortable furniture and machines. The environment is also conducive with friendly employees. (The risk assessment form of Muffin Break is attached as an excel form).

The risk assessment of Muffin Break indicates that major risks fall under the category of financial and non-physical assets. In financial assets, cash flow misappropriation and income/capital variability risk rates high in the category as compared to others. In hotel operations, financial assets are critical to ensuring either failure or success of the business. Poor finance handling affects all the operations of the hotel leading to business failure. It is, therefore, important for Muffin Break to ensure proper handling of finances through proper audit and employing qualified financial staff.

Risks to non-physical assets also, such as operational risk, reputation damage, and lack of staff motivation also rates high with an impact factor value of 20 each. Such risks affect the reputation of the hotel making it less popular. Disruption of the entire business operations also, can lead to the collapse of the business and be overtaken by rival competitors. The motivation of employees is necessary for enhancing their performance. Highly motivated employees are committed to their work as compared to unmotivated ones. Through performance appraisal, rewards and incentives, employees can be motivated to perform better. The risk to human assets such as customer dissatisfaction also needs to be considered. The café need to cater for the needs of their customers to increase numbers and maximize profit. The lowest risk to occur is the physical asset risks. The Muffin Break has invested much in physical assets, and their tables and chairs and other equipment are of good quality.

Muffin Break has grown tremendously over the years. However, it could employ technology use in its operations to enhance its activities. For instance, it would open an online store when they can do delivery for orders. The business world has revolutionized, and technology is key in ensuring the success of an organization. They should also try increase space to accommodate a large number of customers and avoid congestion.

Conclusion

It is crucial to perform a risk assessment for your business to be prepared to tackle any outcome. Risk identification and ranking help the organization to identify the risks that have a high probability of occurrence and impact and hence implement effective strategies. Muffin Break has maintained high standards of the venue, but it would be necessary to embrace technology in its operations.

References

Bhattacharya, M. and Wright, P.M., 2005. Managing human assets in an uncertain world: applying real options theory to HRM. The International Journal of Human Resource Management, 16(6), pp.929-948.

Bromiley, P., McShane, M., Nair, A. and Rustambekov, E., 2015. Enterprise risk management: Review, critique, and research directions. Long range planning, 48(4), pp.265-276.

Davis, S.J. and Willen, P., 2000. Using financial assets to hedge labor income risks: estimating the benefits. Working paper, University of Chicago. pp.1-9.

Dwyer, L., Forsyth, P., Spurr, R. and Van Ho, T., 2006. Economic effects of the world tourism crisis on Australia. Tourism Economics, 12(2), pp.171-186.

Haimes, Y.Y., Kaplan, S. and Lambert, J.H., 2002. Risk filtering, ranking, and management framework using hierarchical holographic modeling. Risk Analysis, 22(2), pp.383-397.

Hameed, A., Ramzan, M. and Zubair, H.M.K., 2014. Impact of compensation on employee performance (empirical evidence from banking sector of Pakistan). International Journal of Business and Social Science, 5(2), pp.1-11

Hand, J.R. and Lev, B. eds., 2003. Intangible Assets: Values, Measures, and Risks: Values, Measures, and Risks. OUP Oxford. pp.1-7.

Hopkin, P., 2017. Fundamentals of risk management: understanding, evaluating and implementing effective risk management. Kogan Page Publishers, pp.1-13.

Morgan, K.M. and Fischhoff, B., 2001. The use of public risk ranking in regulatory development. Improving regulation: Cases in environment, health, and safety, p.208.

Nocco, B.W. and Stulz, R.M., 2006. Enterprise risk management: Theory and practice. Journal of Applied Corporate Finance, 18(4), pp.8-20.

Olson, D.L. and Wu, D.D., 2015. Enterprise risk management (Vol. 3). World Scientific Publishing Co Inc, pp.1-267.

Rausand, M., 2013. Risk assessment: theory, methods, and applications (Vol. 115). John Wiley & Sons, pp.1-356.

Sadgrove, K., 2016. The complete guide to business risk management. Routledge.pp.1-345.

Shi, S., 2015. Liquidity, assets and business cycles. Journal of Monetary Economics, 70, pp.116-132.

Spekman, R.E. and Davis, E.W., 2004. Risky business: expanding the discussion on risk and the extended enterprise. International Journal of Physical Distribution & Logistics Management, 34(5), pp.414-433.

Vinnari, E. and Skærbæk, P., 2014. The uncertainties of risk management: A field study on risk management internal audit practices in a Finnish municipality. Accounting, Auditing & Accountability Journal, 27(3), pp.489-526.

Watson, W.L., Piazza, S., Wellard, L., Hughes, C. and Chapman, K., 2016. Energy and nutrient composition of menu items at Australian coffee chains. Nutrition & dietetics, 73(1), pp.81-87.

Wheelen, T.L. and Hunger, J.D., 2011. Concepts in strategic management and business policy. Pearson Education India, pp.1-14.

White, A.L., 2006. Business brief: intangibles and CSR. Business for social responsibility, pp1-6.

Youndt, M.A. and Snell, S.A., 2004. Human resource configurations, intellectual capital, and organizational performance. Journal of managerial issues, pp.337-360.

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