INTRODUCTION
General description
According to the integration and development roadmap of the economy, on November 7, 2006,
Vietnam's official accession to the World Trade Organization (WTO) presents significant opportunities for businesses, while also introducing substantial challenges As WTO members, companies must navigate a competitive landscape and strategically determine their paths to build resilience and successfully overcome obstacles.
By 2025, Vietnam's tourism sector will be crucial for the country's industrialization and prosperity, serving as a key representation of its identity on the international stage As an integrated economic sector, tourism encompasses various disciplines, including transportation, agriculture, natural resources, culture, and sports, highlighting its interdisciplinary nature Additionally, tourism is highly social, engaging multiple sectors of society and fostering widespread participation.
The tourism industry is characterized by its eco-friendly practices and high economic efficiency, offering significant benefits to a country's economy as well as its political, cultural, and community aspects However, it is notably sensitive to economic, political, and social fluctuations both domestically and internationally Consequently, businesses within the tourism sector, particularly in accommodations like hotels and resorts, encounter various objective and subjective risks.
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 due to various objective and subjective factors While it is impossible to eliminate these risks, businesses must recognize and manage them to minimize potential losses In a competitive market economy, managers must accept certain risks to achieve success and profitability; however, excessive risks can lead to significant financial setbacks or even bankruptcy Therefore, effective financial risk management is essential for service enterprises, particularly in the current economic climate, where instability can adversely impact operations The tourism and hotel industries are particularly vulnerable to risks stemming from interrelated sectors, as changes in one area can lead to economic, reputational, and resource-related losses in hotel operations.
The COVID-19 pandemic has severely impacted the economy, particularly the tourism and hotel sectors, leading to the closure of thousands of hotels due to insufficient capital Identifying risks within the hotel industry is a complex challenge, involving multiple variables and often resulting in limited or inaccurate forecasts Therefore, it is crucial for businesses to assess these risks, measure potential losses, and implement preventive and remedial strategies to ensure stable development during times of crisis.
While numerous documents exist both domestically and internationally that discuss risks, they primarily focus on general risk issues across specific industries such as currency, precious metals, insurance, and construction In contrast, the hotel industry lacks comprehensive and systematic studies that evaluate financial risks, particularly regarding the methods for identifying and assessing potential losses.
This article explores the critical topic of enhancing financial risk management processes in the operations of Dana Sailing Hotel, a subsidiary of Tran Gia Khanh Co Ltd The study aims to enrich the theoretical framework within the hotel industry while providing targeted solutions to improve the effectiveness of financial risk management at Dana Sailing Hotel.
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 enhance Dana Sailing hotel's awareness of financial risks and highlight the advantages of financial risk management, enabling them to select the most suitable solutions for their business.
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 identifying financial risk management solutions tailored to its business activities This research utilized data from the specified period to develop practical strategies aimed at mitigating financial risks effectively.
Data and Research Methods
The author aims to apply dialectical materialism alongside established economic research methods, including data collection and analysis, summarization, and comparison, to effectively evaluate financial risk management By leveraging solid data and documentation, the study seeks to analyze and draw conclusions that address the research objectives outlined in the thesis, ultimately providing practical insights and solutions.
- Analyzing and synthesizing theory: Studying related Master thesis defended at the
The University of Economics and the University of Danang have conducted extensive research on financial risk management in hotel business activities, utilizing scientific articles from journals and reference textbooks authored by both domestic and international scholars This research aims to select, synthesize, and integrate various information sections to establish a comprehensive theoretical framework for financial risk management within the hotel service industry.
- 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 impacting the Dana Sailing Hotel involves gathering insights from various media sources, including television, newspapers, and local events This approach aims to identify significant trends, noteworthy incidents, and breaking news relevant to the hotel industry Understanding the origins of these phenomena and assessing potential risks is crucial for strategic decision-making.
Meaning in scientific and practical terms of the Research
This thesis aims to systematize the theory of financial risk and its management, with a specific focus on the hotel industry's operational practices It establishes clear criteria for assessing the effectiveness of financial risk management improvements in the business operations of the 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 advantages and disadvantages encountered It evaluates the control techniques implemented and those that were overlooked, assessing the alignment between management objectives and actual management practices Overall, the research offers valuable insights into the business performance and financial stability of Dana Sailing Hotel during this period.
Between 2017 and 2019, the Sailing Hotel focused on enhancing its financial risk management strategies in business operations Building on previous research and incorporating successful practices from other hotels, the study proposes actionable methods to improve financial risk management at Dana Sailing Hotel These recommendations aim to increase corporate value and boost competitiveness in the hotel industry for 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 hotel businesses, especially in the challenging economic climate caused by the Corona pandemic Many hotels overlook this priority, which can lead to decreased operational efficiency and potential bankruptcy Numerous authors have explored this topic, highlighting both the current situation and broader economic implications, yet most research remains localized and limited to specific segments outside the hotel industry The definition of "risk" varies; for instance, Nguyen Thi Lien Huong (2016) describes it as unexpected uncertainty that can be measured, a perspective that contrasts with contemporary understandings Furthermore, some authors fail to distinguish between risk management and risk financing measures In-depth analyses, such as those by Dao Thi Bich Phuong (2015), emphasize the importance of understanding financial risk management processes while providing a comprehensive overview of its objectives.
Effective financial risk management is crucial for businesses, yet many research projects overlook its significance and the specific functions involved This gap often leads to an incomplete understanding, with a primary focus on preventive measures Additionally, there is insufficient emphasis on derivative financial instruments and other risk control strategies during the appraisal and supervision of business activities.
Thi Ha Thanh (2016) and Vu Ngoc Thao Linh (2015) provide valuable insights into the purpose, principles, and steps necessary for effectively implementing all four stages of the risk management process However, their research tends to be broad and lacks a focused analysis on specific stages, which limits its practical application Additionally, there are numerous insightful articles that 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 individual factors on financial risk Their work proposes a novel approach to financial risk management in the hospitality sector Additionally, the article on daotao-vhttdl emphasizes the necessity of addressing these financial risks effectively.
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 in business activities It highlights the need to select appropriate financial risk management methods and outlines evaluation criteria for making informed recommendations, particularly in the context of ongoing crises caused by epidemics By building on previous research and addressing existing gaps, the article aims to provide a comprehensive approach to effective risk management.
The writer presents the thesis: " IMPROVING FINANCIAL RISKS MANAGEMENT
PROCESSES IN BUSINESS OPERATIONS OF DANA SAILING HOTEL UNDER TRAN
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 potential for encountering danger, pain, or damage The neutral school of thought describes risk as measurable uncertainty, emphasizing its dual nature: while it can lead to losses, it can also present opportunities when managed effectively Personally, I view risk as the likelihood of unforeseen events resulting in various types of losses We can often identify and quantify these risks, enabling us to implement measures to mitigate potential damages Nonetheless, some risks, despite their low probability, can result in significant consequences when they materialize A prime example is the public debt crisis in Europe, which exemplifies the fallout from the 2007-2009 global economic crisis rooted in the U.S real estate loan market The risks associated with derivative trading of underlying assets, particularly subordinated real estate loan contracts, were deemed minimal by experts, yet financial institutions pursued profits regardless of the warnings.
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, often driven by factors such as inflation, interest rate fluctuations, exchange rate variations, and commodity price changes These risks can stem from market misjudgments, whether through underestimating circumstances or making poor investment choices Additionally, shifts in political, social, and business environments can further exacerbate these risks.
To assess risks based on their frequency, we can evaluate the likelihood of occurrence by comparing the probability of an event happening to the probability of it not happening This leads to a clear 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, often owned by a single individual, face significant financial risks due to limited capital compared to larger hotels Room rentals, which represent the largest revenue source and a substantial portion of total asset value, are particularly vulnerable to various financial challenges These include potential customer payment defaults, delayed payments, and the impact of rising short-term debt and sudden interest rate increases.
Effectively managing and preventing financial risks in the hotel industry is challenging, as these risks can arise unexpectedly and in various contexts If not promptly identified and addressed, they can lead to significant consequences, particularly as businesses expand internationally Ultimately, these financial risks can severely impact a hotel's financial health, representing the flow of capital and the potential for monetary losses.
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, defining them broadly as all factors impacting an enterprise's financial position In a more specific context, financial risk is characterized by the inability to meet financial obligations when they are due This perspective is echoed by various authors, including both domestic and international experts like 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 highlighted by various studies (2012) Eichhorn (2004) and Ann-Katrin Napp (2011) categorize financial risks into two forms: objective risks, which arise from fluctuations in financial markets like interest rates and commodity prices, and subjective risks, stemming from the internal financial health of the enterprise While this classification addresses both internal and external risks, it lacks clarity on how the "financial situation" translates into risk To develop a comprehensive understanding of financial risk, one must first grasp fundamental financial concepts, which define finance as the process of creating, mobilizing, and allocating financial resources to ensure the solvency and growth of entities within socio-economic activities.
Financial risks are primarily influenced by fluctuations in the external environment and stem from the choices made in financial decision-making These risks can significantly impact an enterprise's profitability and solvency, potentially leading to bankruptcy Consequently, financial risk is a "dynamic" concept with various levels of complexity.
Financial risks, including interest rates, exchange rates, price fluctuations, commercial credit, and financial leverage, can significantly impact a business's profitability If these risks are substantial, they may result in a temporary or prolonged loss of liquidity, which, if severe enough, could ultimately lead to bankruptcy Understanding the various types of financial risks is crucial for businesses to maintain stability and avoid financial distress.
Currently, there is a lack of consensus on the classification of financial risks globally Standard & Poor identifies several key categories 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]
While some authors refrain from classifying financial risks due to their uniform nature, Nguyen Van Kieu identifies key components of financial risk, including exchange rate risk, interest rate risk, price fluctuation risk, and commercial credit risk Prof Nguyen Ngoc Trang approaches financial risks from the perspective of financial exhaustion, emphasizing similar risk factors The author posits that liquidity risk should be viewed as a manifestation of other risks rather than grouped with them, positioning it at a higher level, just below bankruptcy risk.
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 factors beyond an enterprise's control, such as inflation, commodity price fluctuations, credit interest rates, and exchange rates, leading to potential losses in financial activities In contrast, internal financial risks stem from subjective factors related to the enterprise itself, including capital structure, operational capacity, and profitability This thesis delves into a detailed analysis of these specific types of financial risks.
Exchange rate risk refers to the potential financial loss that occurs when payments are made in a foreign currency, which can fluctuate in value This volatility can lead to a decrease in the expected value for one of the parties involved in the transaction, ultimately impacting their financial outcomes.
Financial risks arise from a decline in future revenue caused by a depreciation of the local currency against foreign currencies, which negatively impacts the competitiveness of businesses (Armeanu & Bọlu, 2007; Nassauer & Pausenberger, 2000).
Interest rate risk refers to the potential financial losses that businesses face due to fluctuations in interest rates, particularly in their relationships with credit institutions When interest rates rise, the cost of debt increases, which can diminish a company's income and potentially lead to financial strain Additionally, even fixed-rate loan agreements can expose businesses to interest rate risk; if market rates decrease, these agreements may still carry higher interest costs, affecting overall financial performance (Dhanini et al., 2007, p 75).
Financial risks Management in hotel business operations
1 Concept of financial risks management:
Historically, the reliance on insurance contracts for managing corporate risks, particularly financial risks, has led to a narrow view of risk management, often equating it solely with the purchase of insurance However, effective risk management encompasses a broader range of activities beyond insurance transactions, including the measurement and implementation of strategies to prevent, mitigate, and prepare for potential losses from unavoidable risks.
Over time, people's perception of financial risk management has changed, and in view of
Financial risk management involves determining the desired risk level, assessing existing business risks, and utilizing derivative or other financial instruments to align actual risk with the enterprise's objectives (Li, 2003) It aims to mitigate the risk of financial distress and the associated costs of financial depletion (Triantis, 2000).
In Vietnam, Prof Dr Nguyen Thi Ngoc Trang (2007) in "Financial risk management" has the same view on financial risk management as Steven Li (2003)
Financial risk management involves assessing and establishing the acceptable level of financial risk that enterprises are willing to take on.
Recognize, identify and measure the level of financial risk currently bearing on the enterprise and use financial instruments to adjust the level of financial risk to an acceptable level
In this concept, the firm's "level of acceptance" of risk is the key If the risk occurs within the
The enterprise has established an "acceptable level" for risk control, successfully achieving its objectives Any significant deviations from this standard fall outside the "expected" range of the business, and it is the administrator's responsibility to mitigate these unacceptable expected losses, bringing them back to the defined "acceptable level."
Currently, the concepts of "risk appetite" are used interchangeably
Effective risk management is crucial for all businesses, but it holds particular importance in the hospitality industry Many establishments in this sector are small and lack the resources of larger firms, making it essential for them to proactively address risks without the support of extensive professional teams.
2 Purpose of financial risks management in hotel business operations
The primary goal of financial risk management is to enhance corporate value over the long term In the short term, however, it is essential for financial risk management in the hotel industry to focus on two key objectives: effectively controlling financial risks.
Effective financial risk management in business primarily aims to control risks, acknowledging that it cannot eliminate losses but can adjust financial risk to an acceptable level It is essential to understand that risk management does not create a risk-free environment, as financial risks are inherently tied to future uncertainties Research by Lisa (2002) and Standard & Poor (2008) emphasizes that the risk management process is not about eradicating all business risks or replacing internal controls; rather, it ensures that a company's risk appetite aligns with its profit objectives Additionally, successful risk management can transform risks into opportunities for growth and innovation.
Risk is not solely associated with loss or failure; it can also present opportunities for profit A key objective of risk management, especially in finance, is to help businesses understand their risk landscape and leverage it to their advantage By recognizing the potential of risks, companies are more inclined to allocate resources strategically, transforming these risks into avenues for success.
To reach their objectives, businesses must enhance their capabilities, develop tailored investment strategies, and proactively mitigate risks, particularly financial ones, from the outset of their business plans It is essential for enterprises to create multiple scenarios, ranging from the best to the worst, ensuring they can effectively respond to any situation that arises.
This research focuses on understanding risks primarily as "losses" and emphasizes the importance of financial risk management in mitigating damages incurred Converting risks into opportunities is often challenging and not always feasible, particularly when it comes to accurate assessment.
Risk management aims to identify and assess all potential risks while establishing acceptable risk levels to effectively measure and mitigate potential losses It ensures that all risk-related details remain within a manageable range The core functions of risk management involve the identification, measurement, and continuous monitoring of risks.
3 Principles of financial risk management in hotel business operations:
Financial risk management should ensure the following principles:
Firstly, risk management / financial risk management should be linked to risk management goals in certain stages of the business
Misconceptions surrounding risk management often stem from concerns about its costs and the fear of reporting losses This confusion is largely due to a lack of understanding of risk management tools and strategies Consequently, risk managers, including financial risk managers, encounter challenges in securing board approval for hedging tools.
To effectively evaluate financial risk management, particularly in derivative transactions, it is crucial to establish clear goals from the outset Assessing the success of risk management should be based on these initial objectives, enabling a precise determination of its effectiveness.
Effective financial risk management differs significantly from speculation, particularly for businesses utilizing derivative instruments If this distinction is not clearly defined in risk management objectives and strategies, many managers may mistakenly perceive that risk management introduces additional risks In reality, the contrary is true; a robust risk management framework consistently mitigates risks.
Secondly, risk management / financial risk management should be implemented as a systematic, continuous process throughout the enterprise and financial risk management should be implemented like other risk management activities
COSO emphasizes that risk management must be an integrated part of a business's overall development strategy rather than a standalone process To effectively identify, assess, and control risks, businesses should adopt a methodical and comprehensive approach By addressing risks early and professionally, organizations can gain a competitive advantage, transforming potential challenges into opportunities while minimizing the risk of failure.
Conclusion on Chapter 1
The hotel industry, like many other sectors, faces various risks that require careful management There is no universal approach to risk management; instead, hotel managers and accountants must rely on their expertise and sensitivity to accurately evaluate risks By doing so, they can implement suitable management strategies that align with the organization's policies while balancing profitability and risk.
Financial risks in the hotel industry arise from various subjective and objective factors, making effective risk management crucial for success Each hotel must tailor its financial risk control strategies based on its size and specific needs Recognizing the significance of financial risk management, the author has compiled a theoretical framework and established a set of rules to assess the effectiveness of these practices This article will analyze the financial risk management situation at Dana Sailing Hotel and provide recommendations for enhancing its strategies, ensuring long-term stability and growth.
Chapter II of the thesis will present a comparison of the theoretical issues with the actual financial risk management practices at Dana Sailing Hotel.