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Evaluating Risk and Decisions

1. Introduction

The probability of anything bad happening is known as risk. A risk management strategy outlines possible dangers to a business as well as the activities that personnel should take to keep such risks under control. Risk management is not just prudent for ensuring the viability and profitability of a firm. To avoid data breaches and secure sensitive information, most laws, regulations, and industry compliance frameworks demand verification of risk assessments and other techniques. The Ceylon Continental Hotel Colombo is strategically and picturesquely placed in Sri Lanka’s commercial city of Colombo, with views of the Indian Ocean.

The 250-room hotel is located 35 kilometers from the international airport and near local attractions including as zoological gardens, national museums, ancient temples, churches, as well as mosques. This research will look into the risk concept of “Risk of Human Resource Outsourcing,” which is a sub-risk of “Human Resources Risk,” of the employees identified in an intercontinental hotel in Colombo, Sri Lanka, and the impact of the risk on the Hotel, as well as how they manage to overcome and deal with the risks that come with human resource outsourcing.

1.1 Identifying Risk

The Business Risks of Outsourcing Human Resource Management for a First-Class Hotel: The InterContinental Colombo, Sri Lanka.

Human resource management outsourcing began in the late 1970s and became a reality in the late 1980s, against the backdrop of intense competition and growing market liquidity throughout the world. Human resource management is increasingly being handled by the human resource department, rather than by a single department inside the company, through collaboration between enterprises as well as organizations that provide external human resource services. The hotel sector, as one of the most labor-intensive service industries, is facing greater soft-power competition in terms of technology and service.

As a result, outsourcing human resource management may help hotels diversify their sources of revenue, save costs, optimize resource and staff allocation, and boost their operational income rate to a great extent.

However, Hotel faces risks from both the external and internal environment, as well as external service companies, during the outsourcing process. In addition, poor information sharing in collaboration, along with a lack of professional advice and oversight of laws and regulations in the rapidly expanding outsourcing sector, has resulted in a growing number of dangers in practice.

In 1990, American researchers C.K. Prahalad as well as Hamel Gary published The Core Competence of the Corporation in Harvard Business Review, which was the first to propose the notion of “outsourcing.” Businesses would purchase things as well as services from outside business contractors after signing contracts [1], but instead of making them with company workers. Outsourcing human resource management, according to Lee Gretchen, allows firms to boost revenue while cutting expenses, which is especially beneficial for small enterprises with limited resources.They may get more wonderful quality management and combine their important resources to enhance their growth with the support of outsourcing [2].

Human resource management outsourcing, according to Monca Belcourt, is a type of management innovation in which businesses use good external resources. They would reduce operational expenses, increase labor efficiency, completely embody their fundamental competitiveness, and improve their flexibility to changing environments in this way. Outsourcing is a method of transferring internal work to an external service provider.

The Risk of Human Resource Management Outsourcing

James A. Tompkins and Dale Marmelink looked at the risk of outsourcing human resource management from four distinct angles: strategy, alternatives, execution, and management, covering forty different categories of possible risks.

The following phases are involved in the entire outsourcing process: undertaking strategic decision-making, outsourcing or not outsourcing human resource management operations; selecting outsourcing functions, outsourcing suppliers, and method of collaboration. Taking on the responsibility of regulators to organize internal interactions and follow up on a communication during the outsourcing process; lastly, outsourcing quality feedback, cost as well as performance benefits evaluation.

Human Resource Management Outsourcing for Hotel

The hotel sector is a conventional labor-intensive service industry, and the quality of services offered by the hotel is primarily influenced by the hotel’s workforce. In other words, the impact of human resource management determines competitiveness. Human resource management outsourcing for the HotelHotel might focus limited resources on the main company, decrease daily management costs, and then delegate the more tedious operational activities to external businesses as a creative management model.

As a consequence, human resources service firms’ professional advantages and extensive resources may be combined, resulting in improved internal organization structure and resource allocation. However, because to the complexities of the business environment and the enterprise’s lack of self-awareness and capacity to foresee external risks, there is a significant danger that outsourcing efforts would be ineffective or fail to achieve the targeted result.

1.2 Evaluating the risk

Figure 1

Risk Components Impact on Business/ society Negative/ positive impact
A1 The risk of Decision making. Business Negative
A2 High cost Business Negative
B1 information asymmetry Leading to the risk of Converse selection Business Negative
B2 Outsourcing Contract Risk Business Negative
C1 Employee resistance risk Business Negative
C2 lack of monitoring capacity risk. Business Negative
C4 The Outsourcer Insatbilty Risk Business Negative
D1 Information Security Risk Business Negative
D2 Cost And Benefit Analysis Risk Business Negative

Figure 2

Outsourcing Advantages and Disadvantages

1.3 Risk Matrix

  • Risk Matrix- Acceptancy of risk

Figure 3: Risk Assessment Criteria

Level 1 2 3 4 5
Probability 0-10% 11-40% 41-60% 61-90% 91-100%
Impact Level 1 2 3 4 5
Degree Negligible loss Trivial loss General loss Severe loss Intolerable loss
Risk Level A B C D E
significance Negligible Risk Trivial Risk Moderate Risk Severe Risk Key Risk

Risk Assessment template- Risk evaluation and ControlControl

Figure 4: Risk Identification System

Human Resource Management Outsourcing Risk for InterContinental Colombo Sri Lanka. Outsourcing Procedure Ten major risk factors
Preparation phase A1 The risk of Decision making.
A2 High cost.
Selection phase B1 Information asymmetry Leading to the risk of Converse selection.
B2 Outsourcing Contract Risk
Implementation phase C1 Employee resistance risk
C2 lack of monitoring capacity risk.
C3 The moral risk of the outsourcer
C4 The Outsourcer Insatbilty Risk
Exit phase D1 Information Security Risk
D2 Cost And Benefit Analysis Risk

Analysis on Evaluation

Figure 4.

Human Resource Management Outsourcing Risk for InterContinental Colombo Sri Lanka. Outsourcing process Ten main risk factors Probability Influence degree Overall score Risk level
Preparation phase A1 The risk of Decisionmaking. 2.7 4.3 11.61 C
A2 High Cost 2.7 2.8 7.56 B
Selection phase B1 Information asymmetry Leading to the risk of Converse selection. 3.5 4.2 14.70 D
B2 Outsourcing Contract Risk 3.2 3.3 10.56 D
Implementation phase C1 Employee resistance risk 3.0 2.2 6.60 B
C2 lack of monitoring capacity risk. 3.5 3.0 10.50 C
C3 The moral risk of the outsourcer 3.0 2.5 7.50 B
C4 The Outsourcer Insatbilty Risk 1.8 2.8 5.04 B
D Exit phrase D1 Information Security Risk 2.5 3.5 8.75 C
D2 Cost And Benefit Analysis Risk 2.0 2.5 5.00 B

1.4 Economic and legal implications/effects of the risk of Human resource outsourcing

Legal implications

Working with external HRM partners might result in unexpected cost hikes. As the need for workers grows, the cost of outsourcing may rise as well. To achieve compliance with new government laws, outsourcing businesses may have to increase their costs. The outsourcing contract should be written to reduce the chances of the employees discovering that the leading firm and the outsourced company are joint employers. Assume there is a determination of joint employment. In that instance, the corporation may be held accountable for employment-related claims filed by the employees. To avoid joint employment concerns, the employees should be under the sole control and administration of the outsourcing firm after they are transferred to the outsourced company, in addition to a well-drafted outsourcing contract.

Economic Implications

The potential expense of outsourcing is one of the most important impediments for businesses. As a result, many businesses prefer to hire an internal HR specialist. However, finding the proper individual might be difficult, and you may not have the funds to hire them.

2. Risk Management Plan

2.1 Hazard Risks The Organization Is Facing Along With Potential Hazards, Hazard Sources, And Hazardous Events

Figure 5

hazard Hazard source  H, event
Potential high cost outsourcing strategy Budgets approvals.
Information asymmetry Outsourcing options Ethical issues with the outsourcers
Employee resistance Outsourcing implementation Turnover
Enterprise information security. Outsourcing management Confidentiality issues

The hotel sector is a typical labor-intensive service industry, and the quality of services offered by the hotel is directly influenced by the hotel’s workforce. In other words, the impact of human resource management determines competitiveness. As a creative management technique, the Hotel might focus limited resources on the core company, reduce daily management costs, and afterwards assign the more time-consuming operational duties to external enterprises.

As a consequence, human resources service firms’ professional advantages and extensive resources may be combined, resulting in improved internal organization structure and resource allocation. Nevertheless, owing to the complexities of the business environment and the enterprise’s weak capacity to self-cognize and foresee external risks, there is a significant chance that outsourcing efforts would be ineffective or fail to reach the targeted outcome [6]. The risk of human resource management outsourcing was studied by James A. Tompkins and Dale Marmelink from four perspectives: outsourcing strategy, outsourcing alternatives, outsourcing implementation, and outsourcing management [4].

2.2 Classification Of Risk:

Risk Appetite And Tolerance.

Risk appetite may be defined as the amount of various forms of risk that a company is ready to take in order to achieve its goals. Organizations understand that they cannot eliminate all hazards from their operations. We live in a risky environment, and attaining our business objectives necessitates accepting some of those risks while also taking steps to minimize, avoid, or transfer others.

The degree of allowable departure from an organization’s risk appetite is known as risk tolerance. Risk appetite is a broad, strategic philosophy that governs a company’s risk management activities, whereas risk tolerance is a much more tactical notion that recognizes the risk associated with a given undertaking and compares it to the risk appetite of the organization. Risk tolerance for a certain venture may be thought of as an organization’s willingness to tolerate the risk that remains after all appropriate controls have been implemented.

2.3 Assessing the associated risks:

The top five risks associated with high-star hotels’ human resource management outsourcing procedure are as follows:B1, Due to information asymmetry, there is a risk of converse selection.A1 Outsourcing project decision-making risk;B2; The risks of a contract for outsourcing;C2,The risk of businesses without monitoring capabilities;D1The risk of an enterprise’s information security falling into the C and D categories.

In the event that this occurs, the Hotel will incur significant losses, obstructing the quality of vital work and the attainment of key objectives. As a result, it is required to increase preventative risk measures, as well as, if necessary, to modify outsourced choices or modes, as well as to develop contingency plans for such risks.

2.4 The control measures to be implemented for the identified risks.

  • InterContinental Colombo having acquired as well as implemented the CEMEX human resource management system, which includes core function modules for recruitment, training, personnel information management, salary but also welfare, and social insurance, as well as overall and comprehensive systems.
  • The Hotel will hire outsourced workers for services like security and housekeeping that are high-cost, single-channel, and have a high turnover rate, with more than 85 percent of them being offered on a long-term basis. Simultaneously, short-term leases address fluctuating employment demands, such as when service businesses send assistants immediately to a huge dinner.
  • ABC, a market research organization, will conduct employee and customer satisfaction surveys. External organizations are in charge of doing research projects on a regular basis and delivering the final data analysis to the Hotel. Their time and money might be spared while a more objective and complete conclusion is reached.

2.4.1 Risk Control

Risk control refers to reviewing as well as managing a company’s operations in such a way that it identifies and avoids avoidable tragedies from occurring, such as dangers, losses, and so on. The following measures must be followed to assess the risk associated with the business entity:

  • Evaluating the business environment in which the company works is the first step.
  • After that, examine the various events that might have a bad or positive impact on business operations, which are referred to as risks.
  • Then determining the steps that could be used to control or prevent or control the effects, if they could not be totally prevented or controlled.

2.4.2 Possible risk control strategies

Figure 6


Following the analysis of business risks, the next stage is to implement risk-control strategies, which include the following:

  • An avoidance strategy seeks to avoid a circumstance or operation that might result in a risk situation.
  • When all of a business’s risks are uncontrollable, the firm’s activities should be managed and conducted at a level that minimizes the effect, which would be known as the elimination approach.
  • When threats can’t be controlled or dealt with, the activity can be outsourced to someone else but also the activity can be paused in the house to manage the risk, which is recognized as the outsourcing technique.
  • The least common option is to retain things as they are, which means preparing the firm to cope with difficulties as they come, whether they result in a profit or a loss.

 2.4.2 Evaluating the Risk Control Through 4t’s

Figure 7

Evaluating the Risk Control Through 4t’s

The 4Ts of risk management


The risk’s probability as well as impact are both negligible. The company may decide to maintain the risk since it is acceptable in the absence of further action. Monitoring of the risk but also keeping an eye on it is important since taking a risk should always be a well-thought-out decision.


A risk may go so much beyond the organization’s risk appetite that it cannot be accepted. Alternatively, it may be found that the activity that is causing it is having such a detrimental impact on their business that they must stop doing it.


The most serious hazards will almost definitely prompt organizations to take action. As a result, it is critical to take actions to reduce the risk of it occurring or the severity of the consequences if it does. Limit the odds of an external intrusion into HRIS systems by installing a firewall, for instance. If an intruder does get access, network segmentation should be implemented.


There is just not enough insurance to cover every eventuality. Even when the action can be delegated to a third party, the corporation retains responsibility in the event that something goes wrong.

2.5 Controlling and Monitoring Strategy

  • The Hotel will look at the outsourced company’s past, management status, credit history, professional projects, service assessment, as well as growth possibilities. Second, to avoid cultural conflict throughout the outsourcing process, the direct but also implicit expenses, as well as the coherence of the culture and strategic objectives, must be adequately evaluated.
  • The risk of picking the project by mistake should be minimized throughout the preparatory phase. The primary premise is to internalize high-value strategic business, assure information security, as well as internal control, while externalizing low-value operational duties and problematic business with limited resources.
  • The agreement must be based on a thoughtful and methodical approach. Flexibility but also updating are essential for both parties to respond to the external environment and changes in demand.
  • The human resources department should interact with each department to increase communication and cooperation. This is critical since it will aid in overseeing outsourcing quality but also understanding perspectives and ideas. In addition, personnel participating in the outsourcing process should be provided guidance and solutions.
  • Strengthen communication to ensure staff recognition but also comprehension, as well as to eliminate employee resistance. Relevant business training should be done as soon as feasible to assist staff in adapting to the outsourced organizational structure.

3. Conclusion

In Sri Lanka, human resource management outsourcing has progressed well, and all human resource managers have recognized it as a service practice. The market operation and the necessary legal systems, however, are not flawless due to the limitations of outsourcing from practice. At the very same time, the external environment, service providers, but also businesses are all dealing with unknowns. As a result, there are several hazards in outsourcing that pose a threat to management objectives.

4. References & Bibliography

[1] Prahalad, C. K. & Hamel Gray. The core competence of the corporation, Harvard Business Review. 1990, 68(3): 79-91

[2] Lee, Gretchen. When should you outsource HR? [J]. Water Well Journal. 2004, 58(5)

[3] Monca Belcourt. Outsourcing—the benefits and the risks. Human Resource Management Review. 2006(16):269-279

[4] James A. Tompkins, Ph.D. & Dale Marmelink. 40 outsourcing risks you need to know now [J]. Logistics Today. 2004, 45(10)

[5] Liao Xiaoming, Zheng Nan. Risk and avoidance measures of enterprise human resource outsourcing. [J]. Soft Science. 2005(2)

[6] Sun Zehou, Huang Wenfu. Human resource management outsourcing risk management [J].Human Resource Development of China. 2003(12)

[7] Cai Ping. Research of enterprise human resource management outsourcing risk and ControlControl in China [D]. Chongqing Technology and Business University.2012(5)

[8] Liu Bing, Guo Caiyun. Outsourcing theory and method of enterprise human resources management [J]. Beijing: China Economic Press. 2006


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