Mr. Roman

Security & Safety

Boosting Margins: A Security Analysis

By Anthony C. Roman, CEO, Roman & Associates

Imagine, guests happily paying more to feel safe. This is not an Alice in Wonderland fantasy. I recently registered as a guest at an international brand in the heart of the Philadelphia, PA. It was late, and I was tired and wet from the long business day and relentless rain. This is a familiar scenario for business travelers. As a seasoned veteran, I was hoping for no check-in surprises. As I approached the front desk, I was pleasantly greeted with a warm smile and a genuine hello. During the check-in process I was asked if I would like to check-in to a more secure room, one with key card elevator access and extra security, for a surcharge. Hmmmm...visions of the previous weeks hoodlum violence in the area during which business people and tourists alike were accosted came to mind...."YES", I said without hesitation.

I learned that these secure floors had substantially higher occupancy rates than the same room on a floor without these features. I was told they were always the first to sell-out. Of course, it will be argued that an unusual pulse of local crime is the reason, and this is likely true. No matter, it’s clear guests want to feel safe. Travelers around the globe may gripe about security and inconvenience when faced with long lines or time consuming special procedures associated with modern security measures. Nonetheless, it’s clear that it’s widely accepted, if not embraced in order to be more secure. The same appears to be true in the hospitality industry.

Although the cost of security departments is significant, viewing it only as an expense may be a self fulfilling prophecy. Squeezing every drop of profit dollar from your operations has become a paramount challenge in this recession based economy. We’ve read about or experienced the culling of flowers from the lobby, the reduction of restaurants hours, and the cutting back of ancillary guest services. These, among other methods, are all seemingly insignificant but effective cost reduction models.

How often can we change an existing operational expense, into a cost saving enterprise? The security department is an often overlooked source of substantial expense reduction. It may pay for you to perform a cost-benefit analysis of security operations considering all related losses suffered across your business models. In this analysis, the associated insurance, legal, contractual and regulatory costs affected by these losses should be factored. The impact of negative press reports and its brand tarnishing effects can be quantified in lost revenue due to shifting customer loyalty as well.

What are some of the common, but costly categories of loss expenses that can be substantially reduced by implementing a modern security management model coupled with real time loss data and information?

• Insurance Claims Losses
• Regulatory Violations
• Data Security Losses
• PCI DSS Contractual Violations (Payment Card Industry Data Security Standard)
• Crime Losses
• Terrorism

It’s clear that with the exception of crime losses, you have other departments that are responsible for controlling each of these loss segments. Consider that the various departments primarily responsible for insurance risk, law and contracts, and information technology often have no physical presence at each location; they manage in abstentia. Resident managers, preoccupied with general daily operations and guests concerns, cannot realistically be effective in monitoring these risks and their solutions. However, security is on site at most locations and with simple departmental re-organization, in-house training provided by each of the above departments, and a depreciable investment for intelligent software and hardware, you can reverse the expense model of your security department. The additional stand alone costs when factored across your business models are collectively minute. Yet, the statistical expense reductions enjoyed, in as soon as the first quarter following department reorganization, will be recognized as astounding.

Security operations are likely to be substantially different for each business model. Your brand may have varying luxury classes, leased hotels and resorts operated by corporate, franchises operated by the franchisee, and timeshares that may be a conglomerate of operating models. You have urban hotels, vacation resorts, economy brands with thin margins. Each model and segment has unique risks and associated costs. Each poses different and significant security management challenges. In order to have these various security models return positive margins, while adding to your loyal customer base, traditional vs. modern security methods must be considered.

Protecting all business models poses unique challenges requiring the consideration of modern security management methods coupled with new intelligent security management software and technology. The day of a security director with no formal or practical management experience is, well, kaput. The political, technological, and regulatory environments have all changed radically in the 10 years since the 9-11 attack. We are faced with sophisticated and dedicated adversaries who find hotels easy, attractive targets. Terrorism, advances in technology, regulatory enforcement, crime, litigious guests, and the relentless 24 hour news cycle are all security challenges that have evolved at a rate which, at the time, was inconceivable.

Today, all of the evidence reflects that despite radically changing business, legal and social environments, the majority of the industry doggedly maintains traditional outdated security methods and management; and we are paying for our neglect. Some fundamental changes have been attempted. Management may see one solution as out-sourcing security operations, thereby reducing the direct costs of operations and management, while attempting to shift liabilities such as law suits and workers compensation. This appears to be an attractive alternative to maintaining an in-house department. Yes, there will be a realized saving in the first two to three quarters. Well, if it seems too good to be true…it may well be. The hidden but real cost of outsourcing security and attempting to shed it’s liabilities is a questionable practice that probably will not have the projected revenue results following the fourth or fifth quarter of implementation. Those who have tried will see a correlation between this measure and losses associated with increased insurance claims and payments, lawsuits, regulatory fines, crime and the concurrent substantial increase of insurance premiums. Likewise, any costs saved by reducing the number of security personnel per shift is a short term strategy which will be exposed as prohibitively expensive as incidents of crime and other losses escalate, and the subsequent costs are realized.

Let’s look at the security challenges that have emerged which require new thinking and a new management model. The terror attacks against major brands in Times Square, Kenya, Mexico, and Mumbai, The Philippines, and other tourist and business destinations continue and are escalating in number. Kidnap/Ransom of guests in Mexico, the Middle East, and South America continue to increase. Cyber attacks, in which credit card and guest personal identity data is easily culled from hotel systems and personnel, permeates the ‘round the clock news cycle. Regulatory and contractual violations under the security umbrella are a plague that can cost hundreds of thousands of dollars, ending up in the hungry coffers of credit vendors and governments scouring for new sources revenue.

Evolving modern threats require evolving security management. An MBA or a management applicant with equivalent business experience, coupled with a substantial security background, can re-organize management programs that will lower accidents, incidents, regulatory fines and crime and terror rates. A depreciable investment in intelligent security software with real time loss data flow and management software elements includes GPS to track security personnel to ensure safety and optimal performance as well as security cameras with software that can identify known criminals, count vehicles in congested traffic choke points on your property and see through the darkest night. All will help lower insurance expenses, law suit costs, regulatory / contractual violation fines, and brand damage due to adverse 24 hour news reports globally. This restructuring will earn positive margins, while offering brand protection.

The elements to be considered in a modern management program include the integration of the security department into the legal, insurance risk management, information technology and marketing management teams. New, smart software that is used to collect real time on scene data provided by on scene security at the time of a loss are the lynch pins that will begin to provide executive management in each related department with an instant understanding of loss trends in all categories. From there both procedural and practical action can be taken to prevent further accidents incidents, crime, IT and regulatory violations.

Defective on site conditions can then be proactively identified and repaired before losses are suffered. Obscure risks identified following a loss can be eliminated before a second or third loss occurs. The risk of the theft of a guest’s personal data can be markedly reduced through periodic on-site security audits, policy testing, and management enforcement. Real time detailed loss investigation reports whose preparation is software guided can instantly turn security personnel into competent on-site legal investigators providing useful loss details to be used for insurance, legal and regulatory evaluation and action which will save a small fortune. This information can also be used by your public relations department to better understand the dilemmas you are facing and to do it faster. With this robust data rich security program the press can be more effectively managed. Brand tarnishing and its economic impact will then be minimized.

Modern security management affects all aspects of your operation and margins. Tourists and business traveler’s reaction to better, more effective security eclipses the effect of any small perceived inconvenience. Nothing is more important than feeling that you and yours are safe in the temporary home you’ve chosen. A modern security department using intelligent management software is no longer only an expense, it’s an often overlooked cost reducer and revenue generator.

Anthony C. Roman is CEO of Roman and Associates, a global insurance and corporate investigation, risk management, and security consulting firm. He is a frequent contributor to CNN, MSNBC, CNN International, Associated Press, New York Times, Crain’s New York Business, and New York Newsday. He is the software designer of WEB TRAC, a claims, legal, risk management and security intelligent software program. Mr. Roman has performed investigations throughout the United States, Europe, the Caribbean, South America and Chile. He has 35 years investigating criminal, corporate, insurance fraud and technical cases. The Roman & Associates management team is comprised of attorney investigators, former United States Justice Department special agents and former investigative journalists. Mr. Roman can be contacted at aroman@romansearch.com Extended Bio...

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