With 1,162 properties across nine brands in nearly 100 countries, Starwood Hotels & Resorts is a global player in the hospitality industry. Vice President and CLM Fellow Steve Truono discusses what it’s like to manage risk for a business that never closes and is filled with exposures.
Q. What’s your approach to risk management?
A. My overall approach to risk management is somewhat textbook: identify risks within the organization both existing and potential; understand the implications of those risks to the business and their probability of being realized; and find a variety of solutions to manage those risks. It’s about understanding what the risks are, quantifying them, and coming to an agreement as an organization as to whether or not we can live with those risks. Our goal is not to be risk-free; inherent in any endeavor worth doing is some degree of risk.
Q. Do you think successful risk managers should be risk-averse?
A. I think one of the biggest mistakes that risk managers can make is giving the perception within their organizations that they are risk-averse. As a result, they are doing themselves and their teams a tremendous disservice because business is all about taking calculated risks. If you are perceived as risk averse or too conservative, you quickly become out of synch with the business and your input is often discounted or ignored.
Q. Have you taken a risk and turned it into an opportunity?
A. I had a Fortune 100 company doing a four-week meeting at one of our properties, which happened to be a 40-story hotel. They wanted to do a team-building exercise that involved them rappelling off the hotel, organized with the help of a third-party company that specialized in these types of events. I get a lot of requests that I shoot down immediately, but went through my litany of questions about the third-party company concerning their track record, training protocol, and experience and found all of it was favorable. They had great insurance, and the contract was written favorably for Starwood. From a risk standpoint, they had all of their bases covered. So I said yes—much to the surprise of many in the company. Did I cross my fingers and toes the day of the event? Of course.
Q. What risks are unique to your industry?
A. Starwood consists of nine distinct hotel brands, so first and foremost brand management is important. We work in an industry where customers and guests have choices; if we do something to alienate our guests, they’ll go elsewhere and likely won’t come back.
As for risks unique to our industry, most of them are relatively straightforward. We have premises liability issues related to our pools, spas, gyms, and beachfront areas. We operate 1,200+ restaurants and 900+ bars throughout our properties, so risks like food-borne illnesses and liquor liability are inherent with those operations. Not to mention workers’ compensation issues related to housekeeping, catering, and banquet facilities. Hotels are basically “mini-cities” and are generally located where the wind blows, the water rises, and the earth shakes. That means natural catastrophes are a major concern, too, which was proven during Hurricanes Katrina, Wilma, Irene, and Sandy.
Q. You’ve undoubtedly encountered some unique claims.
A. There was a case involving a gentleman who carried a suitcase of plutonium into one of our hotels, contaminating several rooms. That was a very interesting claim and resolution. We’ve had claims ranging from golf cart accidents to a general lack of judgment by guests. Anything can happen in a hotel.
Q. How are you using predictive analytics?
A. We’re exploring and looking to use this technology more. We’ve done some modeling around workers’ compensation claims, in particular. We try to predict the outcome in a claim’s early stages versus waiting for it to develop. We do that by identifying certain red flags or criteria about the claim that would, based on data and analytics, suggest it will trend in a certain direction. Once we do that, we try to manage those claims more closely. We’ll be doing more like that in the future.