INTRODUCTION
Significance of the Topic
The tourism industry is crucial for economic growth, especially in developing countries like Vietnam, where rising tourism demand supports job creation and tax revenue However, businesses, particularly in the hotel sector, face inevitable risks influenced by various factors While risks cannot be eliminated, businesses must recognize and manage them to minimize potential losses, as high risks can lead to significant financial setbacks or even bankruptcy Effective financial risk management is essential for service enterprises, especially given the current economic climate that introduces instability The hotel industry is particularly vulnerable to external influences, where changes in related sectors can impact economic performance, reputation, and community relations.
The Corona pandemic has severely impacted the economy, particularly the tourism and hotel sectors, leading to the closure of thousands of hotels due to insufficient capital Assessing the risks faced by the hotel industry is a complex challenge that involves multiple variables, and often, the available forecasts are limited and sometimes inaccurate Therefore, it is crucial for businesses to identify risks, measure potential losses, and develop preventive and remedial strategies to ensure stable growth during times of crisis.
While numerous documents discuss risks across various industries, including currency, precious metals, insurance, and construction, there is a notable lack of comprehensive studies focusing on the hotel business Specifically, there are few systematic evaluations addressing the identification and assessment of financial risk losses within this sector.
To enhance financial risk management processes in the operations of Dana Sailing Hotel, a study was conducted focusing on the theoretical and practical needs of the hotel industry This research aims to improve the theoretical framework of financial risk management and propose specific solutions to increase its effectiveness at Dana Sailing Hotel, a subsidiary of Tran Gia Khanh Co Ltd.
Hotels in general and hotel systems in Vietnam in particular.
Aim of the Topic
On the basis of some fundamental business risk issues and combined with the crisis situation today, the topic has the following main objectives:
- Types of risks and causes of risks that we often faced in hotel business.
- Evaluate the status of financial risk management in business operations of Dana Sailing
- Study the model of financial risk management in business operations of Dana Sailing Hotel, thereby drawing advantages and disadvantages in the work to complete the model.
- Proposing solutions to prevent, avoid, eliminate or minimize financial losses that financial risks may cause.
From the above goals, we have the following research questions:
• Which basic research criteria should be used to evaluate the effectiveness of financial risk management in business operations of Dana Sailing Hotel?
• What are the successes and limitations of the management of financial risks in the business of Dana Sailing Hotel?
• What does Dana Sailing Hotel need to do and implement solutions to improve the financial risk management of Dana Sailing Hotel?
The research findings will enable Dana Sailing Hotel to better recognize financial risks and appreciate the advantages of effective financial risk management, allowing them to select the most suitable solutions for their business needs.
Research Objects and Area
The study of theoretical and practical issues of financial risk management in business operation and the overall financial risks that are likely to affect the Dana Sailing Hotel.
- Research content: focus on researching financial risk management in business activities at
- Research space: topic research on general data of Dana Sailing hotel and current situation of financial risk management in business activities at Dana Sailing hotel.
- Research period: surveying the financial risk management activities in business activities at
Between 2017 and 2019, Dana Sailing Hotel focused on analyzing data relevant to its operations during this period The research aimed to identify effective strategies for managing financial risks associated with its business activities By examining these insights, the hotel sought to implement practical solutions to enhance its financial stability and performance.
Data and Research Methods
The author employs dialectical materialism alongside established economic research methods, including data collection and analysis, to evaluate financial risk management By utilizing firm data and relevant documents, the study aims to analyze and assess information, ultimately drawing conclusions and practical insights to address the research objectives outlined in the thesis.
- Analyzing and synthesizing theory: Studying related Master thesis defended at the
The University of Economics and the University of Danang focus on financial risk management within the hotel industry, drawing insights from scientific articles, research papers, and reference textbooks authored by both domestic and international scholars This approach involves selecting, synthesizing, and integrating diverse information to establish a comprehensive theoretical framework for financial risk management in hotel business services.
- Statistical method: Collecting, summarizing, presenting and calculating data related to the current situation of financial risk management in business operations at Dana Sailing Hotel
- Survey the current situation method include:
Survey internal factors of the Dana Sailing Hotel: by relying on quarterly reports, secondary data sources, documents, official letters, issued and amended decisions.
Analyze old and new regulations to see management reforms.
Analyzing external factors affecting the Dana Sailing Hotel involves gathering insights from various media sources, including television, newspapers, and local events This approach helps identify significant trends, noteworthy occurrences, and breaking news within the hotel industry, allowing us to understand their origins and potential risks.
Meaning in scientific and practical terms of the Research
This thesis aims to systematize the theory of financial risk and its management, focusing specifically on the hotel industry's operational practices It establishes clear criteria for assessing the effectiveness of financial risk management improvements within the business operations of Dana Sailing Hotel, as detailed in Chapter 2.
The thesis provides a comprehensive analysis of financial risk management practices at Dana Sailing Hotel from 2017 to 2019, highlighting both the strengths and weaknesses of current strategies It examines the control techniques employed, as well as those that have been overlooked, and assesses the alignment between management objectives and actual practices Through a detailed review of relevant data, the thesis offers valuable insights into the overall business performance at Dana Sailing Hotel.
Between 2017 and 2019, the Sailing Hotel focused on enhancing financial risk management within its business operations By building on previous research recommendations and examining successful strategies from other hotels, the study proposes actionable ideas to optimize financial risk management at Dana Sailing Hotel These improvements aim to boost corporate value and enhance the hotel's competitiveness in the near future.
Planned Research Structure
6 Meaning in scientific and practical terms of the Research
CHAPTER 1: Review of literature about financial risks management processes in business operations.
CHAPTER 2: Appraise the Current state on financial risks management processes in business operations of Dana Sailing Hotel.
CHAPTER 3: Suggestions and Solutions to Improving financial risks management processes in business operations of Dana Sailing Hotel
Overall research situation
Effective financial risk management is crucial for the hotel industry, especially in the challenging economic climate brought on by the Corona pandemic Many hotels overlook the importance of financial risk management, which can lead to decreased operational efficiency and potential bankruptcy Various authors have conducted extensive analyses on this topic, highlighting both current and general economic conditions, yet their research often remains localized and limited to specific segments outside the hotel sector Additionally, the definition of "risk" can be inconsistent; for instance, Nguyen Thi Lien Huong (2016) describes risk as "unexpected uncertainty causing damage and can be measured," a definition that may not align with contemporary understanding Furthermore, some authors fail to distinguish between risk management and risk financing measures In-depth studies on credit risk management in business often overlook critical aspects, as noted by Dao Thi Bich Phuong (2015), who emphasizes the need for a comprehensive overview of financial risk management processes to achieve effective outcomes.
Financial risk management is a crucial business strategy that emphasizes the need for a comprehensive understanding of its relationship and significance in organizational operations Current research often overlooks the essential functions and responsibilities of risk management, leading to incomplete insights that primarily focus on preventive measures Additionally, there is a lack of attention to derivative financial instruments and other financial risk control methods during the appraisal and supervision of business activities, highlighting a gap in effective risk management practices.
Thi Ha Thanh (2016) and Vu Ngoc Thao Linh (2015) provide valuable insights into the purpose, principles, and steps necessary for effectively executing all four stages of the risk management process However, their research is somewhat broad and lacks depth in specific stages, limiting its practical application Additionally, numerous insightful articles offer various solutions for contemporary financial risk management challenges.
Le Van Chi and Hoang Trung Lai (2015) explored the factors influencing financial risk in hotels using regression estimation methods, leading to insights on the impact of various individual factors Their work offers a fresh perspective on financial risk management in the hospitality sector Additionally, the article on daotao-vhttdl emphasizes the importance of addressing financial risk in the industry.
Hotel Risk Management" on June 3, 2018, also presented a lot of solutions to prevent risks for hotel business
This article emphasizes the importance of accurately understanding risk and the objectives of risk management, particularly in the context of financial decision-making during crises such as epidemics It discusses how to select appropriate financial risk management methods in business activities and outlines evaluation criteria to provide suitable recommendations for navigating these challenging circumstances.
The writer presents the thesis: " IMPROVING FINANCIAL RISKS MANAGEMENT
PROCESSES IN BUSINESS OPERATIONS OF DANA SAILING HOTEL UNDER TRAN
Review of literature about financial risk management processes in business operations.
CHAPTER 1
Overview of financial risk and management of financial risk in hotel business operations
In economics, schools define risks in many different ways such as the negative one in the
Risk, as defined by the Oxford dictionary, refers to the possibility of encountering danger or harm The neutral school of thought describes risk as measurable uncertainty, highlighting its dual nature: while it can lead to damage, it can also present opportunities when effectively managed Personally, I view risk as the potential for unintended events to result in losses We can often identify and quantify these risks to implement strategies that mitigate potential losses However, some risks, despite their low probability, can lead to significant consequences when they materialize A prime example is the European public debt crisis, which stemmed from the global economic crisis (2007-2009) linked to the US real estate loan market The risks associated with derivative trading of underlying assets, specifically subordinated real estate loan contracts, were deemed minimal by experts, yet financial institutions pursued profits regardless.
In this dissertation, I choose the point of view that considering risk as the possibility of an adverse event affecting the resources of enterprises causing current and future losses.
Most noticeable about the risk of an enterprise is the possibility of financial losses such as income or invested capital
Risks arise from uncertain situations, primarily driven by factors such as inflation, interest rate fluctuations, exchange rates, and commodity prices These risks often stem from market miscalculations, whether from underestimating circumstances or making poor investment choices Additionally, changes in political, social, and business environments can further contribute to these uncertainties.
When evaluating risks based on their likelihood of occurrence, we can assess them by comparing the probability of an event happening to the probability of it not happening This approach allows for a clearer classification of risks.
- Risks due to natural environment
- Risks due to cultural environment
- Risks due to social environment
- Risks due to the political environment
- Risks due to the legal environment
- Risks due to economic environment
- Risks due to the operational environment of the organization
- Risks due to human perception
2 Financial risk in business: a Definition:
Due to the nature of business is the service business, the business object is material as a room, so the hotel also face a lot of risks
Small hotels like Dana Sailing, typically owned by a single individual, face significant financial risks due to limited capital compared to larger establishments Room rentals, which account for the majority of the hotel's revenue and total asset value, are particularly vulnerable to financial challenges These risks include potential customer payment defaults, delayed payments, and fluctuations in short-term debt and interest rates.
Effective management and prevention of risks in the hotel industry are challenging, as they can arise unexpectedly and in any location Failure to promptly identify, assess, and address these risks can lead to significant consequences, particularly as businesses expand internationally The cumulative impact of these risks can adversely affect a hotel's financial health, making financial risks a critical indicator of cash flow and potential financial losses within the enterprise.
In terms of risk, financial risk plays a particularly important role However, in reality, there exist many different concepts about the financial risks of enterprises.
Research by Steven Li (2003) states that: Risk is related to the uncertainty of factors such as interest rates, exchange rates, stock prices, and commodity prices called financial risks.
Cao Defan (2005) categorizes financial risks based on their scope, distinguishing between a broad definition that encompasses all elements affecting an enterprise's financial position and a narrow definition that specifically addresses the risk of failing to meet financial obligations when they are due This perspective is supported by various authors, both domestic and international, including Prof Luu Thi Huong.
Prof Vu Duy Hao (2006), Prof Nguyen Dinh Kiem and Prof Bach Duc Hien (2008), Prof.
Vu Duy Hao and Prof Dam Van Hue (2009), Li Zhea, Liu Ke, Wang Kaibi, Shen Xiaoliu
Financial risks in enterprises are closely linked to capital financing methods, as noted by various researchers (2012) Eichhorn (2004) and Ann-Katrin Napp (2011) identify two forms of financial risks: those arising from objective factors, such as fluctuations in interest rates, exchange rates, and commodity prices, and those stemming from subjective factors related to the enterprise's internal financial situation While this perspective encompasses both internal and external risks, it lacks clarity on how the "financial situation" translates into risk To develop a comprehensive understanding of financial risk, it is essential to grasp fundamental financial concepts, particularly the definition of finance as the process of creating, mobilizing, and allocating financial resources to ensure the solvency and effective functioning of entities in socio-economic activities.
Financial risks are influenced by external environmental fluctuations and the choices made in financial decision-making These risks can significantly impact a company's profitability and solvency, potentially leading to bankruptcy Consequently, financial risk is a dynamic concept with varying levels of complexity.
Financial risks such as interest rates, exchange rates, price fluctuations, commercial credit, and financial leverage can significantly impact a business's profitability When these risks materialize, they may cause a temporary or prolonged loss of liquidity If the liquidity crisis is severe, it can ultimately result in bankruptcy for the business Understanding these types of financial risks is crucial for maintaining financial stability and safeguarding against potential losses.
Currently, there is a lack of consensus on the classification of financial risks globally Standard & Poor identifies several key types of financial risks, including Accounting risk, Financial management risk, Cash flow risk, Capital structure risk, and Liquidity risk.
(2005) considers the financial risk to include market risk, credit risk and liquidity risk [7].
In the realm of financial risks, Nguyen Van Kieu identifies key factors such as exchange rate risk, interest rate risk, price fluctuation, and commercial credit Meanwhile, Prof Nguyen Ngoc Trang approaches financial risks through the lens of financial exhaustion, encompassing similar elements Notably, liquidity risk is viewed as a manifestation of other risks rather than being classified alongside them As such, liquidity risk is positioned at a higher level, just below bankruptcy risk, highlighting its critical importance in financial risk assessment.
Therefore, through an overview of the views of previous authors, financial risks include:
Financial risks can be categorized into two main types: external (objective) risks and internal (subjective) risks External financial risks arise from uncontrollable factors such as inflation, commodity prices, credit interest rates, and foreign exchange rates, leading to potential losses for enterprises In contrast, internal financial risks stem from subjective factors, including capital structure, operational capacity, and profitability, which can also adversely affect a company's financial activities This thesis delves deeper into these classifications of financial risks.
Exchange rate risk refers to the potential financial loss that occurs when payments are made in a foreign currency, which may fluctuate in value This volatility can lead to a decrease in the expected value for one of the parties involved in the transaction, highlighting the importance of managing currency exposure in international dealings.
Financial risks can significantly impact future revenue, particularly when there is a decline in the local currency's exchange rate against foreign currencies, which in turn affects the competitiveness of businesses.
Interest rate risk refers to the potential financial impact caused by fluctuations in interest rates, particularly affecting the credit relationships between businesses and financial institutions When interest rates rise, companies face increased interest expenses on their debts, which can diminish their income and potentially lead to financial distress Additionally, loan agreements with fixed interest rates can contribute to this risk, as they may result in higher costs when market interest rates decline.
Financial risks Management in hotel business operations
- Information from the business operation characteristics of the business