Research Project Report: Economic Performance Of The United Kingdom, France, Germany, And Spain From 2011 To 2021 Free Writing Sample


This report aims to analyze the economic progress of four European countries: France, the United Kingdom, Germany, and Spain. These four countries are similar in that they are all first-world countries and can all be classified as high-income economies. This report will analyze economic trends in the four countries over the last ten years, from 2012 to 2021. The assessment of economic performance will employ temporal analysis of key economic indicators such as unemployment rates, inflation, gross domestic product (GDP), and gross domestic product per capita. The assessment should provide valuable insight into whether the four countries meet the goals of promoting economic growth, lowering unemployment levels, and maintaining low and stable prices for goods.

Country Background

Europe is home to some of the world’s largest economies. Most European countries are part of the European Union, an intergovernmental organization in which countries agree to cooperate for economic growth. As such, members of the European Union must adopt policies to reduce barriers to international trade among member states. Additionally, citizens of the European Union may work or start businesses anywhere in the European Union and enjoy the same benefits as their counterparts. The European Union is arguably one of the most successful international trade organizations globally. With 27 countries making up the European Union, the bloc accounts for 15% of global trade, with exports from member states rivaling exports from China and exceeding those of the United States (European Union, 2022).

According to the Central Intelligence Agency (2022c), the United Kingdom left the European Union in 2016 following a popular referendum amid speculation that the move would result in poor foreign relations and poor economic performance. However, this has not been the case. The country of close to 68 million people is primarily an island nation, and most people are employed in the services sector, with the remainder in industry and agriculture. Germany is another European country bordering the Netherlands, Poland, and Denmark. The country has been a significant world power and was responsible for World War I and II and has the largest economy in Europe (Central Intelligence Agency, 2021). The German government increased the minimum wage to $9.79 in 2015. The country enjoys high budget and trade surpluses which means that the country’s economy is doing exceedingly well. The government recently embarked on a 15-billion-euro investment to stimulate private investment (Central Intelligence Agency, 2021). Nonetheless, this high-income country is one of the world’s leading economies, with a gross domestic product of over $4.2 trillion in 2020 (Central Intelligence Agency, 2021). The country is highly industrialized, and exports of machinery and natural resources like coal account for a large share of the country’s income. Spain was a powerful empire in the 16th and 17th centuries and even controlled the seas of England. The country, like Germany is also a member of the European Union and has adopted the Euro as currency in line with the European Monetary Union’s guidelines. The country faced a prolonged recession in 2008 following the global financial crisis that year (Criminal Intelligence Agency, 2022). As a result of the crisis, unemployment rates rose, more people relied on social benefits, and the government experienced declining revenues. France has a diversified economy that allows the country to remain economically stable despite global challenges. France’s economy faces challenges such as high expenditure with relatively low revenues, which has caused stagnation in GDP, with the country having a GDP of over $2.8 trillion in 2020 (Central Intelligence Agency, 2022).

Assessment of Economic Performance

This assessment includes an analysis of several economic growth indicators such as gross domestic product (GDP), adjusted national income per capita, unemployment rates, and inflation rates. It is worth noting that all four countries are high-income countries, according to The World Bank (2018). This means that these countries have a gross national income (GNI) per capita of over $12,696. Residents of these countries are typically wealthier than those from other countries worldwide and enjoy extensive social benefits coverage by their governments. Most countries in this category tend to be highly industrialized and have invested heavily in their infrastructure.

Gross Domestic Product

GDP is a valuable economic indicator because it measures all the value in goods and services that a country has produced during a period, typically one year. The graph below shows the GDP of four European countries from 2012 to 2020. The data indicates that the GDP of these countries has remained relatively high throughout this period, with significant dips happening towards the end of 2020 and in the period between 2014 and 2016. Peaks in GDP for all these countries are in the periods before either dip in GDP. The dip that occurred in 2020 was caused by government policies to reduce the spread of the coronavirus disease 2019, which reduced international movement and led to the temporary and permanent closure of many industries and businesses (). However, many countries are recovering from this shock to the economy. In Germany alone, the lockdown measures in the second half of 2020 were projected to produce 160 billion euros in government deficits. The situation is similar in other European countries where government expenditure to cushion people economically against the effects of the pandemic control measures increased while revenue decreased.

GDP of Four European Countries

Figure 1. GDP of Four European Countries (World Bank, 2022)

National Income Per Capita

An assessment of national income per capita, also known as per capita income, gives a rough estimate of the gross how much the average person in the country of interest can reasonably expect to earn. Such data is beneficial in predicting the quality of life that people in those countries as higher per capita incomes indicate higher standards of living. There have been fluctuations in the per capita incomes of the four countries assessed here, as shown in Figure 2. Spain has the lowest national income per capita while Germany and the United Kingdom have the highest. Fluctuations are most notable as a general decline in the per capita incomes of all four countries between 2014 and 2016, although the United Kingdom’s decline was delayed. It is also worth noting that the four countries’ GDP and per capita incomes are parallel to each other, reflecting that a change in one is positively correlated with a change in the other. Both indicators are essentially proportional to each other, albeit loosely.

Adjusted National Income Per Capita

Figure 2. Adjusted National Income Per Capita (World Bank, 2022)

Inflation Rate

Inflation rates are usually an indication of a currency’s purchasing power. In this assessment, the consumer price index was used to measure the currency’s purchasing power. Figure 3 below shows that inflation rates fluctuated wildly but in rhythm with each other across all the four European countries assessed. Consistent with the declines in GDP and per capita income in the period between 2014 and 2015, there was a dip in inflation rates in most countries, with rapid deflation noted in 2015. Prices in Spain, for example, were lower in 2015 than they were in 2014, although this quickly changed in 2016 when inflation rates rapidly rose, reaching their peak in 2017 and 2018 before falling again in 2020. Inflation rates in all four countries are generally low, only reaching 3% in 2021 for Spain and Germany. This is probably a result of the reopening of the economies following the pandemic containment guidelines and the subsidization of economic relief packages offered by governments.

Inflation Rates of Four European Countries between 2012 and 2021

Figure 3. Inflation Rates of Four European Countries between 2012 and 2021 (World Bank, 2022)

Unemployment Rates

Unemployment rates have stagnated or declined in all four countries over the last ten years. Spain had the highest unemployment rate among all the countries analyzed, with a high of 26.12% in 2013, although this gradually declined to 14.11% in 2019. However, the unemployment rate again rose by over 1% in Spain in 2020, possibly because of pandemic control measures. This signals overreliance on social support systems by the government among Spaniards, which may make the government more likely to experience budgetary deficits. For the other countries, unemployment rates are relatively low, with Germany consistently having the lowest unemployment rates. All countries, however, experienced an increase in unemployment rates in 2020 as a result of pandemic control measures.

Unemployment Rates in Spain, France, United Kingdom, and Germany from 2011 to 2020

Figure 4. Unemployment Rates in Spain, France, United Kingdom, and Germany from 2011 to 2020 (OECD, 2020)

Conclusion and Judgement

This analysis aims to determine whether the countries analyzed are achieving macroeconomic goals of promoting economic growth, limiting unemployment, and keeping prices low and stable. Over the last ten years, it appears that the economies of each country have generally stagnated, neither growing rapidly nor contracting significantly. However, the absence of rapid growth does not mean that the countries under assessment are doing poorly economically. Their GDPs are significantly higher than those of other countries around the world. However, the countries still have the potential to grow, and more can be done to increase the rate of economic growth. Prices of commodities seem to be fluctuating periodically, but inflation rates generally remain low, meaning that commodities are largely affordable for citizens in these countries. Price stability coupled with high per capita incomes indicates that residents of the four countries are experiencing a high quality of life. While unemployment rates in the three countries are acceptably low, Spain lags. The government needs to address this issue to reduce its expenditure on social security services. Rodriquez-Planas (2013) explains that Spain’s unemployment problem stems from the high labor segmentation in the 1980s. She also blames the lack of permanent employment contracts in favor of short-term contracts due to the high unemployment rates. The government must rapidly address the segmentation of the labor market in the country.


Central Intelligence Agency. (2021). Germany – The World Factbook.

Central Intelligence Agency. (2022a). France – The World Factbook.

Central Intelligence Agency. (2022b). Spain – The World Factbook.

Central Intelligence Agency. (2022c, May 10). The United Kingdom – The World Factbook.

Clemens, M., Junker, Simon, & Pagenhardt, L. (2021). German economy only slowly emerging from the pandemic. Deutsches Institut Für Wirtschaftsforschung11, 276–280.

European Union. (2022). Economy. European-Union.Europa. EU.

OECD. (2021). Unemployment – The unemployment rate – OECD Data. OECD.

Rodriquez-Planas, N. (2013). Spain’s Hard-Hit Labor Market.

The World Bank. (2018). World Bank Country and Lending Groups – World Bank Data Help Desk.

World Bank. (2019). WDI – Home.

Enron Company And Its Financial Issues Essay Example For College

Part A: Financial statement of Enron Company.


The success of every company depends on its financial progress. Financial statements are vital in staging and determining the growth of the company. Enron has witnessed fast and effective growth because it managed its financial quo (Abdel-Khalik, 2019). They are destined on two significant aspects that are knowledge and skills. They use knowledge to coordinate their issues well and run the entire company. Skills are essential in developing an excellent approach to managing the financial problems that can see an efficient growth of the company. The company deals with the energy sector, and they are targeting to maintain its lead in this entire sector (Abdel-Khalik, 2019).

Important issues that need to be known about financial statements.

Stock investors must have the ability to interpret the statistics in Enron company financial statements. Intelligent investment decisions are predicated on interpreting and analyzing balance sheets, various income statements, and essential cash flow statements to determine an Enron company’s investment qualities (Palepu et al., 2020). However, the heterogeneity of financial information necessitates that we somehow familiarize ourselves with key financial statement features before concentrating on the financial statements of specific corporations. This essay will demonstrate the benefits of financial statements and various ways of using them to benefit the Eron company.

Financial Statement Scorecard

There are thousands of amateur investors globally, and although a significant proportion of them have selected mutual fund schemes as their preferred investment vehicle, several others invest directly in inequities. Prudent investment standards require us to search out reputable companies with solid balance sheets, substantial profitability, and positive cash flows. The Enron energy company provides a reasonable opportunity to stress financial success (Palepu et al., 2020).

Useful Financial Statements

Balance sheets, numerous income statements, and statements of cash flow are the income reports used in investment analysis, together with examining Enron company’s investors’ equity and dividend payments. Even though the company’s balance sheet typically attracts the most interest from investors and auditors, it is crucial to include the cash flow report in the study of the Eron company financial statements (Amiram et al., 2018).

Diversity in Reporting

Financial statements cannot be expected to conform to a standard format. Numerous pieces of literature on the analysis of financial statements adopt a blanket approach. Inexperienced investors could become confused when confronted with a display of accounts that deviates from the norm for a “normal” company. Please keep in mind that the variety of business activities leads to various financial statement formats (Amiram et al., 2018). This is especially true for the balance sheet, but the financial report and cash flows are less sensitive to this issue.

Compresence of Financial Jargon

Lack of significant consistency of financial statement terminology affects the comprehension of numerous account entries in financial statements. This situation can be perplexing for novice investors. There is a minimal prospect that this situation will alter shortly, but a decent financial lexicon can greatly assist (Weygandt et al., 2018).

Non-monetary Information

Indirectly represented in the Enron company’s financial statements include the status of the economy, the business, competitive factors, market pressures, changes in technology, the management quality, and the personnel. Investors must appreciate that company’s financial insights are only one, albeit crucial, component of the broader investing puzzle (Weygandt et al., 2018).

The things that should be known about Enron’s financial statement.

The first is revenues. This is the income from the company. It determines the expenses of the company. In 2001, the company made a revenue of $50,129. Notably, these were used to run all the company’s activities (Roychowdhury et al., 2019). Revenues are essential in staging the next course of action for the company. Little revenue ensures the slow growth of an organization. Enron company is a fast-moving organization that has to create more revenue that can facilitate a number of its daily activities and heighten its financial issues.

Secondly is cost and expenses. The company has different prices for gas expenditure, electricity bills, and other valuable products. However, it costs the company $48,159 in the year 2001. The operating expenses totaled $ 993 (Roychowdhury et al., 2019). Taxes also plays a critical part in costs. The company pays up to $88 to facilitate law enforcement on taxation. The third is operating income. These are the various accounting figures that show the profit made by the company after deducting all the possible expenses made. In the year 2001, Enron company’s operating costs were drawn from the following areas; numerous deductions, earnings from the equity sector, selling of various non-merchant commodities, various interests, and dividends (Roychowdhury et al., 2019). Below are the standings of multiple operations made by the company in 2001.

The financial statement also stipulates various issues on the assets of the company. The Enron energy company owns different assets. They include cash equivalents, inventories, deposits and properties, investments, and various accounts. Their quoted price in the year 2001 are as follows (Petra & Spieler, 2020);

Financial statement analysis

Information about extra cash flows

The net money paid for taxable income during the first quarter of 2001 amounted to $100 million. Funds paid for credit on the same period’s net of sums capitalized, $200 million. Enron and Azurix reached a deal in 2000 under the terms of which owners of Azurix’s nearly 39 million $8.375 would be paid in cash for publicly traded shares a transaction for each share (Petra, & Spieler, 2020). On March 16, 2001, Azurix Investors accepted the proposal that Enron would pay around $330 million for an equal amount of the public shares, and Azurix Corp repaid all public company’s shares. The two companies also made non-cash Transactions. Enron obtained a limited partnership in March 2001 in an unconsolidated equity joint venture, Joint Resource Development Ventures Limited Partnership, for $35,000,000 (Negangard, & Fay, 2020). The result from the JEDI has been integrated due to its acquisition.

JEDI’s stability sheet comprised net assets as of the acquisition date of around $500 million, which included an expenditure of $12 million gets to share Enron common shares at an estimated $785 million in merchant interests, and other assets are held by around $670 million in third-party debt and debt. Roughly $950 million were owing to Enron. Enron paid back. About $620 million was owed to third parties previous to the acquisition. In terms of liabilities, the company made significant expenses and revenue quest as follows (Negangard & Fay, 2020);

The Enron company’s financial stability has been heightening since 1995. They have made relevant progress as far as revenue is concerned. This sentiment is supported by the following table (Jones & Stanton, 2021);


Profitability ratios are the classes of financial indicators used to evaluate a company’s ability to create earnings over time compared to its profits, operating expenses, financial statement assets, or investors’ equity utilizing statistics from a single moment. Profitability ratios could be contrasted to productivity ratios, which measure how effectively a corporation utilizes its internal efficiency to increase income. Enron company has made significant steps to facilitate profitability essence within its space (Jones & Stanton, 2021). The following figures compare the net revenue for 2001 and 2000 which depicts the importance of profitability.

Various profit margins, comprising gross margin, some operating margin, the pretax margin, as well as net profit, are being used to assess Eron company’s profitability across various price categories of inquiry. As extra costs like COGS, capital expenditures, and levies are accounted for, the margins diminish (Jones & Stanton, 2021).

Cash flow

Cash flow is the net sum of the ratio that measures the amount and essence of cash transfer in a company (Haswell, & Evans, 2018). The cash received constitutes inflows, while the money spent symbolizes outflows. The ability of a company to create sufficient cash flow and, more particularly, to optimize protracted operating cash flow is essential to its potential to build shareholder value. However, this is the cash created by a firm’s commercial operations after deducting the amount paid on capital expenditures. The following are the Eron company’s electricity cash flow for 2000 and 2001(Haswell, & Evans, 2018).


Liquidity is the convenience that an asset or property can be changed into readily available cash without impacting its sale price (Rashid et al., 2018). Money is the main asset, whereas physical assets become less liquid. The two most important forms of liquidity are trade liquidity as well as accounting liquidity—the Enron company sold some of its assets to acquire revenue, which is vital in its daily operations. The property of the Eron company can act as important security in staging or negotiating financial issues with different partners or firms (Rashid et al., 2018).


Solvency risk tends to be the possibility that a company may not be able to satisfy its financial commitments when they become due, even if its assets are sold. Incapable of paying its debts, and entirely destitute company will be pushed into bankruptcy. Below are the solvency rates of Enron company in 2000 and 2001. It depicts loss creation due to various shares (Thi & Thi, 2022).

Business model

The model indicates more concoctions on natural gas as an essential resource quested in the Eron company. The model ensures effective and efficient cash flows. It also creates an element of solving the instances of solvency. Another critical issue is that it eases the trading codes of the company and ensures good contact between the producer and consumer. The Enron company makes several profits by selling gas energy (Abdel-Khalik, 2019).

Part B: Enron Bankruptcy

When a company cannot meet its financial responsibilities or make payments to its debts, it declares bankruptcy. All of the Enron company’s outstanding obligations are tallied and, if not paid in full, are repaid from the firm’s assets based on a petition filed with the court. The company’s bankruptcy filing is the legal action it takes to be released from its debts (Mohd Ali, 2020). The proprietors are absolved of any unpaid debts owed to creditors. The bankruptcy procedure commences with a complaint filed first by the debtor, that is the most usual scenario, or in favor of lenders, and is less often.

Most of the firm’s assets are evaluated and recorded, and some of the assets can also be used to satisfy the debt. Enron declared bankruptcy in late November after an energy business, Dynegy, withdrew an $8.4 billion acquisition (Mohd Ali, 2020). By the end of the following year, the fall of Enron had cost owners tens of billions, eliminated approximately 5,600 jobs, and terminated nearly $2.1 billion worth of pension plans. Batson determines that Enron misrepresented its profits by almost $1.5 billion and undervalued its debt by over $828 million by informing shareholders that it had “sold” properties at a premium when, in reality, it had lent against assets through an associated partnership (Abdel-Khalik, 2019).

Economic events that led to Enron’s Bankruptcy

Enron Corp.’s history illustrates a corporation that saw a remarkable ascent followed by a dizzying decline. Its demise touched thousands of workers and rattled Wall Street towards its foundations. Before filing for bankruptcy on December 2, 2001, Enron’s assets were selling for $0.26 per share, compared to $90.75 at the company’s height (Abdel-Khalik, 2019). Until now, many are perplexed as to how such a formidable organization — at the time, another of the largest corporations in the United States — could have imploded so rapidly. How its management was able to deceive investigators for an extended period with fictitious assets and off-the-books accountancy is also puzzling. The chart below shows Enron’s revenue compared to other companies in the year 2000 (Noorullah, 2020).

The first economic event was Blockbuster’s role. Blockbuster, the famous video rental giant, was among innocent participants in the Enron debacle. Enron Broadband Providers and Blockbuster formed a collaboration to access the expanding video on demand scale market in July 2000. Enron began recording forecasted earnings depending on the anticipated expansion of the VOD industry, which greatly exaggerated the figures. EOL executed about $350 billion in deals by the middle of 2000 (Noorullah, 2020). Enron planned to construct elevated broadband network infrastructure as the dot-com boom began to deflate. This endeavor cost the corporation vast amounts of money yet yielded virtually little profit. Enron had substantial exposure to the market’s riskiest segments when the crisis arrived in 2000. As a result, numerous investors and debtors found themselves mostly on the brink of losing a market valuation decline.

Secondly, wall street crumbles. Enron began to self-implode even by the fall of 2000. Employing MTM financial reporting, Skill disguised the trade businesses and the firm’s other activities’ financial losses (Marić & Parnicki, 2021). 10 This method calculates the value of the share depending on the current market price, as opposed to its valuation. This can be effective in trading securities but can be terrible for genuine enterprises. In the instance of Enron, the firm would construct a resource, including a power plant, as well as instantly claim the predicted profitability on its books, despite not having earned a single cent from the property. If the power plant’s revenue were less than anticipated, the corporation would move the property to an off-balance-sheet organization, where the deficit would not be recognized. This method of accounting allowed Enron to write off unproductive endeavors without affecting its bottom line. MTM led to strategies meant to conceal the firm’s losses and make it appear more prosperous than it was.

Andrew Fastow, a prominent figure who was named chief operating officer in the year 1998, devised a strategic plan to demonstrate the company’s strong financial condition even though several of its businesses were losing revenue (Marić & Parnicki, 2021). Lastly is solvency. In 2001, the company experienced more solvency rates which slowed down its profit margins. The rates emerged due to the cheap sale of various companies’ assets. The investors predicted the bankruptcy of the Enron company. Much of Enron’s prosperity proved to be an illusion in the end. The firm used a variety of related corporate companies and accounting tricks to disguise enormous business deficits and substantial debt. These strategies eventually failed, and in October 2001, Enron disclosed a massive operating loss and admitted that the company had consistently exaggerated its profitability for at least four years. In November of that year, utility rival Dynegy considered acquiring Enron, but when Dynegy canceled the proposed merger the following month, Enron had no alternative but to declare Chapter 11 bankruptcy (Noorullah, 2020).

It subjected the investors to various lessons as follows; From the Enron scandal, investors can still draw numerous crucial studies. First, it is essential not to be too much of your economic activity in a single security. If you have enough capital invested in a firm, the risk of an unexpected reversal might wipe you out, regardless of how engaging the firm’s story may be. Second, employees should be cautious when purchasing corporate stock (Noorullah, 2020). It’s enticing to venture into a firm you’re familiar with. If something goes wrong, you face losing your principal source of revenue and suffering significant damage to your equity investment. Ensure that you comprehend how a firm’s business operates. Most stockholders did not learn about Enron’s complex trading account, but they did not care if the company kept rising. This rendered them entirely susceptible to fluctuations in the essential health of Enron’s operational business.

Enron warned individuals who were prepared to listen, and investors could have spared a portion of the scandal’s harm if they had avoided the company (Abdel-Khalik, 2019). The following are the actions that the company would have taken to hold off bankruptcy. The first is strengthening the oversight techniques of the board. Some members are destined to embezzle the funds of the firm. They should be well-checked and cautioned. Secondly is by preventing perverse financial credits. However, this will avoid the unplanned use of capital. Lastly is installing ethical discipline in various business organizations (Abdel-Khalik, 2019).


Abdel-Khalik, A. R. (2019). How Enron used accounting for prepaid commodity swaps to delay bankruptcy for one decade: The shadowy relationships with big banks. Journal of Accounting, Auditing & Finance34(2), 309-328.

Amiram, D., Bozanic, Z., Cox, J. D., Dupont, Q., Karpoff, J. M., & Sloan, R. (2018). Financial reporting fraud and other forms of misconduct: a multidisciplinary review of the literature. Review of Accounting Studies23(2), 732-783.

Haswell, S., & Evans, E. (2018). Enron, fair value accounting, and financial crises: a concise history. Accounting, Auditing & Accountability Journal.

Jones, M., & Stanton, P. (2021). Negative accounting stereotype: Enron cartoons. Accounting History26(1), 35-60.

Marić, D., & Parnicki, P. P. (2021). Audit Analysis of Enron Electric Power Corporation Through the Prism of Marketing (Non) Ethics. KULTURA POLISA18(45), 335-345.

Mohd Ali, B. (2020). Reviewing Enron Scandal.

Negangard, E. M., & Fay, R. G. (2020). Electronic discovery (eDiscovery): Performing the early stages of the Enron investigation. Issues in Accounting Education35(1), 43-58.

Noorullah, A. S. (2020). The affecting factors on the quality of the audit before and after the collapse of the US energy company Enron: A.

Palepu, K. G., Healy, P. M., Wright, S., Bradbury, M., & Coulton, J. (2020). Business analysis and valuation: Using financial statements. Cengage AU.

Petra, S., & Spieler, A. C. (2020). Accounting scandals: Enron, Worldcom, and Global Crossing. In Corporate fraud exposed. Emerald Publishing Limited.

Rashid, N., Afthanorhan, A., Yazid, A. S., Johari, R. J., Hamid, N. A., & Rasit, Z. A. (2018). The Causation of the Financial Statement Manipulation Activities. INTERNATIONAL JOURNAL OF ACADEMIC RESEARCH IN BUSINESS AND SOCIAL SCIENCES8(12).

Roychowdhury, S., Shroff, N., & Verdi, R. S. (2019). The effects of financial reporting and disclosure on corporate investment: A review. Journal of Accounting and Economics68(2-3), 101246.

Thi, H. N. D., & Thi, H. D. (2022). A Quality Financial Report: A Conceptual Analysis. International Journal of Research in Vocational Studies (IJRVOCAS)2(1), 26-32.

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Financial Accounting with International Financial Reporting Standards. John Wiley & Sons.

Evaluating Risk And Decisions Free Sample

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