Non-payment risk management in Cuban hotel entities

The objective of this work is to carry out a brief review of the main problems currently being faced by the analysis of the risk of default at MINTUR.

A methodological-philosophical outline of how to approach the analysis of the existing methodology is outlined, and a research project on this problem is described. The main problem is indicated, as well as the hypothesis that presupposes the solution to the problem. The variables on which it is proposed to influence are the age of the debt and the average number of days of collection. An alternative methodology is offered. The management methodology proposed for this purpose in Ibergecyt 2006 is validated.

Key words: Default risk management methodology at MINTUR.

default-risk-management

According to the World Bank's 2002 Development Report, effective institutions are defined as those that fulfill the following functions:

Channel information on the market situation, its assets and participants. Define and enforce property rights and contracts, determining who gets what and at what time. Intensify or reduce competition in the markets.

He goes on to point out that: "thanks to these three functions, all institutional structures have an impact on the distribution of assets, income and costs, as well as on the incentives of market participants and the efficiency of their transactions."

Now then, who builds these institutions? Faced with the development of economies and the increasing complexity of transactions, institutions must also evolve. This evolution may be the result of changes that have occurred in existing institutions, but it may also be due to the construction or transplantation of new ones. Who builds these institutions? The state, but also companies and representatives of the community and agents of international markets.

Public authorities who wish to establish institutions, aware of the context of information, enforcement and competition, must assess what inhibits market development or results in concrete results in this area. The key is to identify what types of institutions are needed, rather than assuming that what is needed is a concrete structure. Policymakers should ask themselves:

Who needs information and about what? Are property rights and contracts clearly defined and protected? Is competition sufficient or excessive?

In addition, four basic approaches to institutional development are valid for all sectors and countries: complement what exists, innovate to identify institutions that work, connect communities through information flows, and promote competition.

From all this it follows that after implementing the mechanism capable of achieving the perfection and development of financial institutions that guarantee a sustained and sustainable development both at the macro and micro economic levels, the market will be exposed to a number of risks, among which highlights the risk of default. Precisely the present work aims to outline the fundamental problem of default risk management, such as the lack of methodology for managing this risk in tourism in Cuba, and from there, suggest a philosophical-methodological outline of a alternative variant.

If we look at the epistemic knowledge (*) in the different fields of human concerns, we can see how proliferate the readings and explanations are, which from science, are given to the multiple and contradictory consequences that for men and society have brought the development of science and the so-called new information technologies; so much so that some time here we often talk about, for example, the new economy, post-normal science, as well as many other types of science; which is implying certain ruptures (real or imaginary) with traditional scientific paradigms, since it is almost always assumed that technology has changed the world so much that it can no longer be sufficiently explained by "conventional science". (one)

Now, according to the Philosophical Dictionary:

Science: Form of social consciousness; It constitutes a historically formed system of ordered knowledge whose veracity is constantly checked and pointed out in the use of social practice. As science approaches production (…) it becomes one more productive force. (two)

Considering the two previous approaches, it can be concluded that the economic sciences are not exempt from these contradictions that are cause and effect of development itself. Even and classifying among the so-called «conventional science», with the vertiginous development achieved by the «new economy», the conceptualization and development of new methodologies is essential.

Economy, as a science, has not been alien to these modes and fashions. This field of human knowledge has not only been invaded by new terms and concepts, many of them carried over from other sciences, but above all by a great avalanche of econometric models so abstract and ideal that they are often monstrous intellectual exercises, surprising logical constructions., but that frequently have little or nothing to do with social logic, with the "real" rationality of society or the part of it that is modeled.

About science

Science can be considered as that knowledge system that modifies our vision of the real world and enriches our knowledge about the cosmos, our culture and our imagination. It is therefore also the research process that allows us to obtain new knowledge, which in turn offers Greater possibilities of operation and manipulation of phenomena. Furthermore, science has been considered as a productive force that fosters the transformation of the world and therefore as a source of wealth, as a duly institutionalized profession, carrier of its own culture and with well-identified social functions. For all the above reasons, it is a complex phenomenon whose historical expressions have varied considerably.

The acquisition of knowledge, the search for truth or true scientific theory, with objectivity and rigor, is a function of science. The true or false character of scientific theories depends on their ability to decipher the world in all its contradictory dialectics, in all its diversity and always under the presupposition of the relative nature of the knowledge itself that science itself brings us.

Any effort to formulate a theory of science must underline the social nature of scientific work. That is the orientation of the materialistic dialectical approach to science. (one)

Closely linked to science is the development achieved by the productive forces, which has taken a dizzying momentum, considering fundamentally the shortening of distances through the improvement of communications (Internet, etc.), and the irreversible process of global globalization.

If we define development as:

Development: Process of self-movement from the lower (from the simple) to the higher (to the complex), which reveals and realizes the internal tendencies and the essence of the phenomena, which lead to the appearance of the new (New (the) old). Philosophical dictionary. M.Rosental and P. Iudin. Political Editor. 1981-Pag. 173 (2)

It also seems prudent to us to consider the consideration of science as a direct productive force in the current conditions of production.

There is talk of replacing "outdated images of science and technology" and "more up-to-date alternative images." In Cuba, "renewed conceptual frameworks" are needed, which, we add, can be found in the philosophical ideas and principles developed among Cuban philosophers from non-dogmatic perspectives and "incorporated into Cuban culture and social thought."

Although the reflection on science and technology as a social phenomenon, and the reflection on its use, its institutionalization, its consequences, good or bad, on scientific policies and the need for points of view that start not from positions in which science and technology alone guarantee social development and progress and that in the current conditions the limit of a traditional relationship towards technology and towards the environment in the conditions of current capitalist production with global implications compromises the entire humanity, they are Necessary and peremptory, this does not exclude that these reflections omit points of view that can enrich the debates rather than prevent it, nor does it indicate that philosophy, as knowledge of the present and from the present, is not the one who should assume this function. (3)

Finally, considering that development as a cause and consequence of the progress achieved by science and technology, as well as the influence that all this has on the economic sciences, as an important link in science, let us pause for a moment on this matter.

Let us begin this reflection with an affirmation that at first glance might seem like a truism for not a few specialists who move in the field of economic sciences, and it is the following: political economy is a social science, precisely because it is in charge of studying the whole of relationships established by men in the process of production, distribution, change and consumption of ever scarce resources, as well as the system of laws and contradictions that are inherent in such relationships and processes.

So we can say that among the relationships established in said process, are financial relationships, and that is where the essence of this work is focused, on the conception, so to speak, of a default risk management methodology, such as important element in the context of financial relations as a link in production relations.

Summing up what has been analyzed so far, we can say that the development achieved by science and technology, which makes the latter become one more productive force, has an enormous impact on society; This impact has different edges, but in this specific case that we are dealing with we will focus on the economic impact in general, and in particular on financial relations as the entity of production relations that is the object of study in the economic sciences. Within financial relationships, default risk management is an element to take into account, hence the development of a methodology for this process is, at the same time, a necessity for all that has been explained so far, the problem to be solved, object of the present work.

If we sketch this, it would be as follows:

Figure 1- Science and technology - Development and society interrelation in the management of default risk. Source: self made.

Within financial relationships, a top place is occupied by the default risk methodology, which is made up of the following three aspects:

Course objective Organizational structure Procedures for analyzing the risk of default.

Why?. Because a correct methodology consequently applied in the management of this risk of non-payment concludes the cycle D… M… D´ in the shortest possible time, guaranteeing the process of extended reproduction in general and in the case of tourism in particular, guarantees the capture of Fresh currency for the country and its use in technological improvement (development) and the purchase of goods necessary for social welfare (society).

Currently, there is no methodology for this purpose, showing the lack of cohesion and procedural errors with the consequent financial damage for companies, business groups and the country in general.

In some cases, duplication of analysis and / or solution of financial risk is duplicated, especially regarding credit policy, or the decisive management of a determining link is missing, or the management is not carried out by the primary link that knows the details wasted in addition to time, money and financial possibilities.

Even though the general objective of the risk policy is clearly defined for everyone: "collect everything sold" in the agreed payment period, there are many uncertainties regarding the organizational structure of risk management and risk analysis procedures. of non-payment, resulting in deterioration of the debt manifested in an increase in the collection cycle and aging debt. The root causes of this situation were determined through the Ichikawa diagram.

Figure 2 Ishikawa diagram to determine the causes of the increase in the collection cycle and aging debt with the consequent increase in the risk of default. Source: self made.

Hence, the problem to be solved was the high percentage of aging debt and a long period of days of collection. This in the conditions of Cuba reaches an extraordinary importance.

Consequently, the hypothesis of solution to the problem posed consists of affirming that by defining an adequate default risk management methodology, it is possible to reduce the collection cycles and the age of the debt, with all the financial health that this brings to all the levels, from the company, sector and country. For this, the strategy to be followed is structured according to the following graph:

Table 1 - Strategy of the default risk management process.

General strategic objective: Decrease in the collection cycle and aging debt and bad debt. Decreased risk of default.
Strategic result indicators	Performance inducer	Strategic initiatives
· Collection cycle · Debt composition by age.	· Risk management of default	· Design the procedures for this management. (organizational structure and procedures)

Source: own elaboration in approximation to Robert S. Kaplan & David P.Norton.

This allows us to identify two sections in which to work to shape the default risk management methodology: the first is the organizational structure of this process and the second is the procedures for analyzing this risk. Regarding the organizational structure, the one shown in Figure 3 is proposed for MINTUR.

In relation to the procedures for analyzing the risk of default, the strategic approach used is that of ex ante and ex post risk assessment in the environment of the clients with which there is a commercial relationship that makes up the credit portfolio and then with this same approach analyze each client on time. Figures 4 and 5 summarize these procedures.

Table 4 - Procedures for analyzing the risk of non-payment in the environment. Source: self made.

Table 5 - Procedures for analyzing the risk of customer default. Source: self made.

The validity of this proposed methodology is guaranteed by the results obtained in its application in Sol Meliá Cuba Division hotels. It began to be applied generally in 2003, with a continuous decrease in aging debt and the average collection days shown below.

Graph 1 Behavior of the percentage of aging debt (greater than 60 days and 90 days of payment). Sol Meliá Cuba Hotels (2001-2006) Source: data from the Sol Meliá Cuba corporate

As can be seen in 2001, even though these procedures had already been implemented in some hotels, the aged debt was totally out of control, almost 40% of its amount was over 60 days, with the consequent effect on the flow of box that this represents. Starting in 2003, as has been explained, the use of default risk management procedures is systematized in all Sol Meliá Cuba hotels, hence, as of this year, a sustained decrease in the amount of the aged debt, reaching only 5% in 2006.

To complement this analysis, which values the indicator relatively (in percent), its absolute behavior in the years analyzed is shown below.

Graph 3.2 Behavior in absolute values of the aged debt (greater than 60 days and 90 days of payment). Sol Meliá Cuba Hotels (2001-June / 2007).Source: Sol Meliá Cuba corporate data

In absolute values, between 2001 and 2003, the amount of the debt greater than 60 days old ranged between 4 and 8 million dollars, while from the systematization of the application of the proposed procedures, it begins to decrease this amount, remaining below 4 million until in the first half of 2007 it was possible to reduce this amount to approximately two million, which considering an average annual pension room production of more than 250 million is a very favorable result.

The other indicator to be valued is the average collection days, which shows its behavior in the following graph.

Graph 3.3 Behavior of the average collection days). Sol Meliá Cuba Hotels (2001-June / 2007).Source: Sol Meliá Cuba corporate data

Then, the hotels managed by Sol Melia Cuba, which in the first years of work also showed deterioration in the collection cycle and aging debt indicators, solved the problem stated through the establishment and correct implementation of a risk management methodology for default, achieving internal consistency manifested in the efficiency achieved in managing the risk of default, and a relevant character in its correspondence with the MINTUR context.

In conclusion, there is an innovation in the management of risk of non-payment in Sol Melia hotels that, if generalized to the rest of the hotel entities, takes steps to overcome the vulnerability that exists in this regard.

Following De Souza, institutional sustainability is a state of social recognition and political, institutional and financial support achieved by an organization, as a result of a process of permanent interaction and negotiation with key actors in its relevant environment. Based on this concept, it can be asserted that the results obtained by the Sol Melia Cuba hotels in terms of risk management of non-payment have guaranteed economic and social recognition in the process of interaction with debtors and other key players in the environment., in a coherent and relevant way. It remains then to obtain the political, institutional and financial support to achieve the generalization of this innovation.

Considering the outline of the levels of interpretation and intervention in innovation management drawn up by De Souza, it would be as follows:

Figure 6- Levels of intervention in the management of the risk of non-payment in Cuban hotel entities. Source: Own elaboration in approximation to De Souza.

All this corroborates what was stated in the work: Management of the risk of non-payment in Cuban hotel entities, presented by the author at IBERGECYT 2006.

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(*) Epistemology is referred to knowledge, to epistemology. It can be considered as the doctrine of knowledge, that is, the theory of knowledge. This term has historically been used more in English and American philosophy than in French and German, although in recent times its use has become general and covers practically all fields of scientific knowledge. The introduction of this term is attributed to the Scottish philosopher James Frederick Ferrier in his work Foundations of Metaphysics that divided philosophy into ontology and epistemology; other authors associate the term with Kant.

Humanity has always struggled between being and knowing, between the real fact and the imaginative fact, between eutopia and dystopia. Today, when the advances in science and technology have reached scandalously deep and complex levels, the relationships between being, knowing and having to be have entered a kind of continuous and discontinuous maze of lights and shadows, in which epistemology seems to have a leading role.

(1) Notes for an epistemological study of the economic sciences. Roberto Muñoz González

(2) Philosophical dictionary. M.Rosental and P. Iudin. Political Editor. 1981-Pag. 65

(1) Ibidem. Page 1