Risk Analysis
A Risk is a threat to a business that reduces the likelihood that the business will achieve one or more of its objectives.
These objectives are reliability of financial reports, effectiveness and efficiency of operations, compliance with laws and regulations and safe guarding assetsSome risks are external risks, meaning they are from sources that are outside the business. These external risks can be from industry forces. Like, competitors taking a share of the market through acquisition or causing loss of market share by copying technology and lowering price. There is also a risk that other companies will produce a similar product in similar market. There is also a risk that there are no suppliers to provide raw material and there are no substitutes available or that there are restricted access to raw material and other input for the operations.
There is also a risk that customers may have sufficient bargaining power to bring the prices down.An analysis of competitors will be dealt with separately.The risk discussed above that is most likely to affect the business is the risk of other businesses copying the services provided by the company, particularly after they realized that there is a market for such a service. This means that the business has shouldered the cost and risk of introducing a new service while the others will simply ride on the success of the company. The planned Thursday buffet can be copied by other existing restaurants, if the buffet becomes popular with customers, both foreign and local.The existence of three café and cafeterias in a very small area can cause a price war if one or more of the establishments start lowering their prices.
The business is particularly vulnerable to this tactic since it is new and has not yet carved a niche in the market. Price wars are usually used by big companies to stop competitors from gaining a share of the market. They are willing and able to bear the burden of a radical decrease in price since they can make up for it by either the increase in sales volume or by simple allowing other operations to absorb the loss. This tactic was used with incredible success by Microsoft.
There is also a risk that the business will not find a reliable supplier of coffee for the café, fresh ingredients for its menu and meat that are Halal. The success of the business depends upon the quality of the food and the assurance that the meat used by the business is Halal since the target customers are predominantly Muslim. This is one of the major selling points of the café and cafeteria. The failure of the business to find a supplier that will meet its needs can cause the failure of the business.As a new entrant in the industry it will have to deal with a different set of industry forces, such as “barriers to entry.” Examples of “barriers to entry are government regulation, technology, start-up cost, and profitability.
As part of food service industry, it would subject to inspections by regulatory agencies and subject to regulations on food preparation and health and sanitation. Failure to meet government regulations on food and sanitation can lead to closure of the business which can also lead to loss of income and customer confidence.The unique design of the establishment, facilities and location will require a significant amount of capital investment. The failure to raise this capital or find financial backing from banks and other lending institutions means that the business will not be realized at all.Like most new businesses, this business has the risk that it will not register a profit in the first few months or even years of operations. The profitability of the business will depend upon its ability to attract customers to try its services.
Because of the high cost of operations and the significant capital investments, as shown by the break even analysis, the company must generate a large amount of sales to be able to reflect a profit in its first year. This is very a real risk since most new businesses that require high cost of operations are unable to break-even in the first years of operation, making them very vulnerable to the risk of not being able to finance its continued operations or to pay off debts on time, leading to either closure or foreclosure of the business.Aside from industrial forces, the business may also face macro-environmental forces. Some of these forces are political, such as regulations that affect the company, such as tariffs; some are economic, such as interest rates and inflation. There are social forces as well, such as when society has a different taste and are hesitant to try a new product so different from what they are accustomed to. There are also technological factors.
Technology is continuously and rapidly changing, the business may not be equipped to keep pace with these changes.Among the macro-economic forces mentioned above, the force to which the business is vulnerable to is the social one. The customers of UAE are used to ordinary fare, and in order to be successful, it must be able to convince customers to try its unique dishes. Trying to breakthrough society’s established preference or taste in food will require additional advertising costs for the business.The business must also face the risk of seasonal changes in sales.
It expects its customers to decrease in the summer months; this means that it must be able to make up for this loss in customers in its busier periods. One way of increasing business during the lean summer months is by having discounts and other promotions during this period. This tactic is used by department stores and malls worldwide. By pricing the services offered by the café and cafeteria lower, giving discounts to repeat customers and having fun giveaways to the customer during the summer the business can maintain its sales volume even in the summer.The business also faces internal risks. As the name suggests, these are risks that originate within the business itself.
There is a leadership risk, such as when a process is not adequately managed and accountability and reliability are low. Even if the management of the business has been chosen for their experience, as in the case of the café and cafeteria, there is still leadership risk since the focus of the company in its first year is to raise the public’s awareness of its services and to generate sales to break-even, which can mean a lack of effort to establish policies and rules and regulations regarding staff and management conduct. There is integrity risk, such as when business employee, particularly those in the management level, lacks integrity. This is not a high risk for the business since its management is composed of a small group of persons, it will be very easy to keep track if management’s actions lacks integrity. There is also a financial planning risk. An example of this risk is when the internal resource allocation to a specific operation in insufficient.
This is a risk that is particularly present in new businesses such as this one since its financial planning are based on estimates that are not yet proven by experience. They are usually based on similar enterprises’ past experiences which are not completely suitable to the actual operations of the business. Another risk is the human resource risk. This is the risk that adequate number of employees will not be available to serve the customers. This risk may be mitigated by the fact that the company was able to secure the services of several staff members.competitor AnalysisThe main competitors of the café are the three café and cafeterias located in the same area. It is expected that the café will face stiff competition. With this in mind, the café provided additional services and facilities not found in the other café and cafeterias. These are wireless internet connections, TV projector and play station.Another unique feature that the café and cafeteria offers, which its competitors do not, is the Thursday buffet that serves sumptuous traditional dishes from a gulf state. This will make sure that the café and cafeteria will be chosen by customers who want to experience a unique dining experience and also by tourist who wants to try traditional UAE dishes.
Other competitive advantage that the café has over its competitors is its location. It is located in the building nearest the entrance to the café area. It is also the café nearest to a large car service, which is one of the sources of customers in the area.As a café, the business also faces many competitors in the city, including two branches of Starbucks and Coffee Bean and Tea Leaf, international franchises famous for the quality of their coffee.
Facing these competitors may be very tough since they are internationally known brands. Tourists may choose to avail of their service since they are already assured of the quality of the products and services. One way of competing with these brands is to package the café and cafeteria as a ‘genuine taste of UAE.’ Tourists who come to the country are looking for the ‘local experience’ and these can be used to the advantage of the business. Another way of competing with this international café franchises is to build a strong local market.
By being identified as an establishment that serves authentic UAE food and beverages means that tourist will know where to get a taste of local color.The café and cafeteria business appears to be a very popular business is the city. A café and cafeteria that appears in all web-based tourist directories is the Al Sadaqa Cafeteria and Coffee Shop. This café also offers wireless internet access to its customers. In order to compete with this café and cafeteria and others similar to it, the business must also utilize the internet in its promotions and advertising. Most tourists today try to get information about their place of destination in the internet before actually going there.
Using the internet will be a good venue for the business to introduce itself to customers.
