Management Level Real Preseen Analysis with Answers – May 2020

Aplaca
I CAN Statements
A: Evaluate opportunities to add value
I can select appropriate capital investment appraisal techniques and apply them in order to support capital investment decisions, including product/service
development, digital transformation projects and acquisitions.
If you are given an NPV to critically evaluate, what are some of the key issues you should be looking for?
• Has inflation been applied?
• Has tax been included, both on operating cash flows and via capital allowances?
• Has the appropriate discount rate been used? (WACC is only appropriate if business risk and financial risk remain the same)
• Have adjustments been made in order to adjust forecasts to only include relevant cash flows? (cash flow, future, incremental)
• Has uncertainty been quantified? (expected values)
• Have real options been included? (follow-on, abandon, wait)

What are the real options attached to an investment decision and how could these be applied to Alpaca?
1. Option to abandon
If Alpaca opened a new hotel and this proved unsuccessful, the option to abandon that decision and cancel any lease agreement or sell the property would
prove valuable.
2. Option to wait
This option could be valuable if there is uncertainty over entering a new market. Alpaca may choose to wait to see what other hotel groups such as Portent
Hotels do first. The risk of this option is the loss of competitive advantage.
3. Follow-on options
There are significant follow-on options for Alpaca. Successfully opening a new hotel or entering a new market could lead to an increase in profits from
additional sales through restaurants and spa facilities used by non-residents.

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I can identify and use relevant digital data sources to assist in capital investment decisions.
If data is collected from business intelligence systems, we must ensure it is relevant to the capital investment decision. What is the definition of a
relevant cost for capital investment decisions?
A cost is relevant if there is a change in the cash flow that is caused by the decision. A relevant cost must be:
• Future – ignore any historic or sunk costs
• Incremental – ignore any allocated overheads
• Cash flow – ignore depreciation

I can explain which pricing strategies are appropriate.

Explain the different pricing strategies that could be used by Alpaca
• Premium pricing – Pricing above competitors, appropriate if the room or hotel is superior.
• Market skimming – A high price is set initially, so that only those who are desperately keen on the hotel will book it. Then the price is lowered, making
rooms in that hotel more affordable to all. This could be appropriate for rooms in new hotels.
• Penetration pricing – Set a very low price for the rooms in a new hotel initially. The aim is to establish a large market share quickly.
• Price differentiation – Selling the same type of room to different customers at different prices.

I can select and implement suitable business models that will create value for stakeholders, including business models in the context of digital ecosystems.
How does Alpaca’s business model create value for stakeholders?
• Defining value: Alpaca aims to meet the developing needs of guests for hospitality services for business or leisure.
• Creating value: Alpaca creates value by creating a calming and attractive environment for guests
• Delivering value: Alpaca delivers value by creating an identify that is familiar to guests even if it is their first time visiting.
• Capturing residual value: Alpaca effectively uses resources to deliver and capture value. It is a major employer, providing careers for skilled and
unskilled staff.

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I can analyse the impact of disruptive and digital operating business models in the context of digital ecosystems.
How has technology disrupted the hotel industry?
• Guests share reviews of their stays online; this can have a sharply positive or negative impact on sales.
• Online price comparison sites enable guests to find the best possible prices and compare prices and facilities between hotels in the same area.

I can explain the relevance of weighted average cost of capital.

Under what circumstances can Alpaca use its current WACC as an appropriate discount factor in project appraisal?
Alpaca should only use WACC as a discount rate in project appraisal if:
- there is no change in financial risk - i.e. the capital structure is constant, if the capital structure changes, the weightings in the WACC will also change
- there is no change in business risk - i.e. the new investment has the same business risk profit as Alpaca's existing operations
- the new investment is marginal to Alpaca, if the investment is small none of ke, kd or WACC will change materially, if the investment is substantial it will usually
cause these values to change.

B: Implement senior management decisions

I can apply appropriate project management tools and techniques to effectively manage projects at the appropriate stage in the project life cycle.
State the stages in the project life cycle according to Gido and Clements (1999) and give TWO examples of actions that Alpaca could undertake which
might be managed as projects.
1. Identification of a need
2. Development of a solution
3. Implementation
4. Completion

Projects at Alpaca:
• Acquire hotels in new locations
• Creating a new type of facility or service for hotels to offer guests

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I can identify the key project personnel, explain their responsibilities and set appropriate performance measures.
Which member of the board at Alpaca would be the most likely to serve as the project sponsor when providing finances to support corporate projects
and briefly explain why?
Zoe Diaz would be the most likely board member to serve as the project sponsor overseeing the allocation and use of project funds by the virtue of serving as
Alpaca’s Finance Director. Zoe is responsible for major strategic finance issues such as corporate finance and the design of the overall budgetary control system
across the Group.

I can select and apply suitable tools and techniques for managing risk and uncertainty in capital projects.
What techniques could Alpaca use to deal with risk and uncertainty in decision making?
Risk
• Frequency distributions (identify the spread of results around the mean, i.e. standard deviation)
• Expected values
• Decision trees
• Bayes theorem
Uncertainty
• Increasing the discount rate subjectively in order to submit the project to a higher 'hurdle' rate in investment appraisal – this would be appropriate if Alpaca
diversified into a new market
• Making prudent estimates of outcomes to assess the worst-case outcome
• Assessing both the best and the worst-case outcomes to obtain a range of outcomes
• Using sensitivity analysis to measure the 'margin of safety'

I can select suitable financing sources and explain the characteristics of the different types of funding.
Discuss the sources of finance available to Alpaca should it want to make a significant investment.
Cash - Alpaca has a net positive cash position of M$85 million which it could choose to use to finance investment. However, if the cash balance is used it could
have a detrimental impact on Alpaca’s working capital management.

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Long-term borrowings - Alpaca has existing long-term debt of M$395 million, it repaid M$3 million of debt during2019. Alpaca's current gearing level based on
book values is 20.6% and its interest cover is 3.7, this indicates that Alpaca has the capacity to take on more debt to finance future investments. Alpaca has a
sizeable PPE balance of M$1,985 million, constituting its 50 hotels and related fixtures and fittings. It is therefore likely that Alpaca will have sufficient assets
against which it could secure new debt finance. Debt finance is cheaper than equity finance as the risk faced by providers of debt finance is lower than the risk
faced by shareholders resulting in them requiring a lower return. Interest on debt finance is also subject to tax relief which further reduces it cost.
Equity - Alpaca could make an issue of new shares. However, this would incur higher costs (issue fees, lawyer fees etc) than obtaining additional debt finance.
The ongoing cost of equity finance is also higher as shareholders expect a higher return than providers of debt finance as investing in shares is considered to be
riskier. However, issuing shares gives Alpaca more flexibility compared to obtaining new debt as the timing and amount of dividends payable is not fixed.
Other sources of finance available to Alpaca could include:
• Preference shares
• Bonds
• Leasing
• Venture capital

I can recognise the characteristics of high performing teams.

Although all teams are important and have a role to play in the success of an organisation, which one team within each division, is likely to be the
most critical in delivering Alpaca’s underlying business model?
• Within each division, Alpaca’s operations team is likely to be one of, if not the most important team. This is based on the fact that Alpaca provides
hospitality services to guests. Operations provide all the necessary services to achieve this, from procuring ingredients and materials, monitoring
compliance with policies and procedures, supervising quality and monitoring occupancy rates and providing local advertising and sponsorship.

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C: Manage performance and costs to aid value creation
I can advise on the measurement, analysis and reporting on the performance of responsibility centres.
Can you suggest one performance measure for each quadrant of the balanced scorecard for Alpaca?
Quadrant Performance measure
Financial % growth in market share
Customer Ratings from Visitadvisor
Internal % of sales from a new hotel
Innovation and learning Amount invested in new innovative technologies

I can analyse the processes needed to ensure employee engagement, empowerment and alignment to enhance individual and team performance.
Briefly describe the terms employee engagement, empowerment and alignment.
• Employee engagement: Focuses on getting workers involved in the performance management process
• Empowerment: Involves giving workers greater freedom over completing work tasks and the setting of work targets
• Alignment: Involves linking the goals of individuals to those of the organisation. This can be achieved via vertical and horizontal alignment.

I can compare leadership styles and identify the most appropriate style to use.
The work of the Ashridge Management College distinguished four leadership styles which could be viewed as representing a continuum of styles. List
the four styles.
• Tells - The leader makes all the decisions and issues instructions that must be obeyed without question.
• Sells - The leader still makes all the decisions but believes that subordinates have to be motivated to accept them and carry them out properly.
• Consults - The leader confers with subordinates and takes their views into account but retains the final say.
• Joins - The leader and followers make the decision on the basis of consensus.

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I can use appropriate cost management and cost transformation techniques to manage costs and improve profitability.
How could Alpaca use activity-based management (ABM) to improve efficiency?
• ABM uses the information generated by ABC to control or reduce cost drivers and reduce overheads.
• ABM can be used by Alpaca to reduce or eliminate activities that do not add value, for example perhaps some of their increasing staff costs.
• By accurately determining cost, Alpaca can then set prices for their hotel rooms and services which achieve acceptable margins while remaining
competitive

I can identify and apply appropriate quality management techniques to enhance value.
Explain TQM and list the four costs of quality
The key principle of TQM is ‘get it right first time’ – the belief that the costs of preventing mistakes in the first place are less than the costs of correcting these
mistakes when they occur. TQM can be implemented by Alpaca by aiming for continuous improvement in the service provided at each of their hotels.
There are four basic costs of quality, divided into two types as follows:
Costs of compliance Cost of failure
• Prevention costs • Internal failure costs
• Appraisal costs • External failure costs

I can identify and apply value management techniques to enhance value.

What are the primary tasks in the value chain and how could these be applied to Alpaca?
Primary tasks
• Inbound logistics – This covers the booking process and the acquisition of the wide range of goods and products needed at each hotel. Maintaining a
good relationship with local suppliers is vital.
• Operations – The differentiation between operations and outbound logistics is more blurred for a service company than it is for a manufacturing company.
Operations will cover areas such as the running and maintenance of each hotel, housekeeping and cooking of meals. Alpaca’s hotels appear to be
operating efficiently with an overall budgeted occupancy rate for 2020 of 82%.

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 • Outbound logistics – This involves the provision of a high-quality service at all hotels in line with customer specification and covers all stages of the
customer experience while guests are staying at an Alpaca hotel.
• Marketing and sales – Media, radio, TV and online promotion of hotels and services available to non-residents.
• Service – Responding quickly to guest requirements or complaints

I can apply the techniques that quantify and present risk to stakeholders.
Identify the major risks faced by Alpaca.
Business risks
• Inability to retain and grow occupancy rates
• Competition from other hotels
• Poor service offered at Alpaca’s hotels
• Food-borne or viral-borne illnesses
• Poor reviews on Visitadvisor

Technological risks
• Breakdown of online bookings system
• Cyber security risk over personal financial data

Financial risk
• Unable to secure sufficient finance to open new hotels and maintain existing ones

Regulatory risk
• Breaching compliance with Maylandian Health and Safety Administration.
• Breaching Maylandian minimum wage and working hours legislation

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D: Measure performance
I can use the financial statements to assess and report on financial performance and position, interpreting and reporting on a wide range of ratios.

Assess Alpaca’s performance for the year ended December 2019 compared to the year ended December 2018.
FINANCIAL STATEMENTS
Change in revenue -1.0% Alpaca's revenue has decreased by 1% (M$5m) compared to 2018. It is not obvious why this is the case, however,
there are several possible reasons:
The hotel industry is very competitive. It may be that Alpaca has not invested enough in the past in advertising and
promotion and this has had a negative effect on revenue.
Alpaca's Visitadvisor average rating is currently 3.8. This seems low for a luxury hotel and may have resulted in lost
sales for Alpaca. It is especially concerning that the category with the lowest rating is 'quality of service' at 3.2,
especially since one of Alpaca's values is 'attention to detail - we believe that a hotel is only as good as the service it
provides’.
Alpaca may have inappropriately priced its rooms during 2019, and therefore not made as many sales as it could
have. Alpaca should consider whether its pricing algorithm and the data entered into the algorithm are appropriate.
Change in cost of sales 0.0% Cost of sales has remained constant with 2018, however, given that revenue has decreased, we would have
expected cost of sales to also fall.
Cost of sales includes staff costs. It may be that Alpaca has employed more agency staff in 2019. Given that agency
staff cost around three times more than Alpaca’s own staff, this would result in increased staff costs. The
management accounts for the three months to March 2020 show increased staff costs for Alpaca’s central hotels,
which could also be due to employing more than expected agency staff. Alpaca should investigate whether it has an
issue with high staff turnover or staff morale.
Change in admin expenses 3.9% Administrative expenses have increased by 4% (M$3m) to M$79m since 2018. Given the decline in revenue, this
increase suggests that there may be inefficiencies within the support systems at Alpaca that have not been
addressed. It is likely that head office expenses are included within admin expenses.
Change in distribution costs 17.6% Distribution costs have increased quite significantly by M$3m (17%) to M$20m in the year. Distribution costs in a
hotel chain generally relate to the costs of processing bookings. This is likely therefore to include expenses
associates with online bookings, website maintenance and emailing booking confirmations. Alpaca should therefore
consider if their IT systems can be improved to processes these bookings more efficiently.

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 Other operating expenses have increased by 35.5% to M$42m compared to 2018. This is a large increase in light of
the 1% decrease in revenue.
Alpaca has sold PPE during the year, as seen in the statement of cash flows. If this is related to the disposal of a
hotel building or related fixtures and fittings, the loss on disposal of M$29m will likely have been charged to other
Other operating expenses 35.5%
operating expenses. Furthermore, the purchase of PPE (again as seen in the cashflow) will have resulted in a
higher depreciation charge, and so higher operating expenses during 2019 compared to 2018.
The increase in other operating expenses may also be due to increased promotional spend for the upcoming Year
of Culture, but the sales expected as a result of this spend may not be seen until 2020.
Change in finance costs -6.3% Decrease in finance costs reflects decrease in interest bearing borrowings in the year.

Change in profit for the year -37.0%

Alpaca has experienced a significant fall in profit (37%) compared to 2018. This is due to the fall in revenues not
being matched by a similar fall in costs, in fact as discussed above, most costs have increased during the year.

Year ended Year ended

31 31
December December
2019 2018

Gross margin 39.5% 40.1% Gross margin has fallen slightly since 2018. This is due to cost of sales not falling in line with the
fall in revenue (as discussed above), hence the margin is less.

Operating margin 11.2% 15.5%

Operating margin has decreased by 4.3 percentage points, this reflects the decrease in gross
margin and the fact that operating expenses have increased (as discussed above).

Net margin 6.8% 10.7% Overall net margin has fallen by 3.9 percentage points due to the fall in operating margin, offset by
a reduction in tax payable and finance costs.

Return on capital employed 2.9% 4.1% The decrease in ROCE of 1.2 percentage points reflects the overall decline in PBIT and increase
in equity due to retained profits which offsets the slight decrease in interest-bearing borrowings.
Alpaca is generating less earnings from its capital employed than it was in the prior year.

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 Non-current asset turnover has decreased to 0.3 times. The increase is due to the reduction in
Non-current asset turnover 0.3 0.2 PPE (disposals greater than acquisitions in the year) being greater than the fall in revenue in the
year.
Current ratio 1.1 0.7 The increases in the current and quick ratio during the period are due mainly to the large increase
Quick ratio 1.1 0.6 in the cash balance.

Inventory days have doubled to 4, however, given that the overall balance of inventories is just
Inventory days 4 2
M$3m, this is not overly concerning.

Alpaca's trade receivables days have increased by 6 days since 2018. This means that trade
receivables are taking longer to pay than they were in 2018. Trade receivables are likely to be
Trade receivables days 34 28
made up of amounts owed by travel agents and credit business customers. An increase in trade
receivables could have an impact on Alpaca's cash flows, however, Alpaca currently has a very
healthy cash balance at 31 December 2019.

Alpaca's trade payables days have increased by 7 days to 133 days since 2018. This means
Trade payables days 133 126 Alpaca is taking longer to pay suppliers. Given that trade payables exceed 4 months, Alpaca
should take care not to damage relationships with key suppliers.
The working capital cycle has moved by one day which is not significant. A negative working
Working capital cycle (days) -95 -96 capital cycle means that Alpaca is using the free credit offered by suppliers to finance its working
capital requirements.

Gearing (Debt/(Debt + Equity)) 20.6% 20.9%

Alpaca's gearing has remained constant at approximately 20%. This level of gearing is fairly low,
which means Alpaca should be able to raise more debt finance if needed.

Interest cover 3.7 4.9

Interest cover is comfortable, despite falling slightly due to decreased profits during the period.

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Comment on Alpaca’s budget for the year ended 31 December 2020 compared to Alpaca’s actual performance for the year ended December 2019.
• Care must be taken when comparing the budget for 2020 with the financial statements for 2019 because the budget is prepared for internal use and is
not necessarily prepared on the same basis as the financial statements. For example, items of expenditure may be classified differently for the purposes
of financial reporting vs management accounting. However, some overall comparisons to 2019 actual performance can be made.
• Revenue for 2020 is budgeted to be approximately 15% higher than in 2019. This is likely to reflect increases in revenue predicted due to the build-up for
the forthcoming Year of Culture in 2021.
• Budgeted gross profit margin for 2020 is 36.7%, this is lower than the actual gross profit margin of 39.5% achieved in 2019. It is not clear why gross profit
margin is predicted to fall, but this could be due to things such as a decision to sell rooms at a lower price per room to promote Alpaca hotels during the
build up to the Year of Culture, this would reduce gross profit margin if there is not a corresponding fall in cost per room.
Budgeted data for 2020
Central North South Average
Available rooms per day 2,400 2,200 4,400 9,000
Occupancy rate 78.90% 85.00% 83.00% 82.40%
Annual revenue per room (M$) 89,280 83,585 67,838 77,280
Annual property cost per room (M$) 12,283 14,730 10,442 11,981

• The South region is budgeted to generate the largest proportion of Alpaca’s revenue (43%). However, annual revenue per room is lowest in the South
region. The South region also has the lowest budgeted gross profit, this is due to the South region having higher staff costs than the other two regions,
probably by caused by the fact that there is a higher level of guest services at Southern hotels as guests tend to stay for a two week vacation.
• The North region has the highest budgeted gross profit margin at 38.47%, this may be because the North offers the least in terms of guest services as
guests spend most of their time doing outdoor activities. That said, overall the North region has a much lower budgeted operating profit margin. This may
be because the North has properties that are former castles and mansions, which may be more expensive to run.
• The Central region is budgeted to generate the largest amount of annual revenue per room. However, the occupancy rate is budgeted to be the lowest of
all three regions. It may be that Alpaca can seek to improve this occupancy rate by increasing its marketing activities. The Central region is budgeted to
have the highest operating margin of all three regions. This is probably due to a combination of revenue per room being higher and property costs being
lower.

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Comment on the Alpaca Central management accounts for March 2020.
• March appears to have been a month of poor performance for the Alpaca Central division. Revenue is down on budget by almost 6%, yet direct staff
costs are up by 5% compared to budget.
• It is possible that Alpaca over-estimated the impact of planning for the Year of Culture on potential room bookings and so overbudgeted revenue.
• Staff costs may be higher due to an increased reliance on more expensive agency staff.
• Direct goods costs are in line with budget, but we would have expected some of these to reduce in line with reduction in revenue, for example costs
associated with providing meals and cleaning rooms.
• Property costs, including depreciation, are up 8% compared to budget. This could be due to unforeseen increases in costs, such as repairs and
maintenance.
• Operating profit margin for March is 7%, which is much lower than the 13% budgeted as a result of the decrease in revenue and increase in costs. Such
a large decrease in operating margin compared to budget is worrying and will need to be addressed by Alpaca.
• The Visitadvisor average rating is lower than budgeted - however, it is in line with the current rating given on page 27 of the preseen for Mayburgh
Principal so perhaps the budgeted increase was over confident. The low rating could be resulting in lower occupancy rates and therefore lower revenue

I can support managers by recommending actions to improve financial performance and position and assessing how suggestions impact on the wider
organisational ecosystem.
Recommend actions to improve Alpaca's gross profit margin.
Gross profit margin is calculated as gross profit ÷ revenue. Therefore, to improve gross profit margin, gross profit must increase by a greater proportion than
revenue. Alpaca will be able to increase its gross profit margin if it is more efficient in generating sales and increasing hotel occupancy rates. In addition to this a
drive to reduce increasing staff costs would lead to an improvement in margin. As agency staff cost as much as three times more than Alpaca’s own staff, Alpaca
should seek to limit the amount of agency staff it uses. This may mean making better use of data to predict when increased staffing levels are required (eg during
peak occupancy periods) and therefore planning staffing levels appropriately, rather than relying on agency staff. It may be that staff turnover or sickness levels
are high, resulting in the need for agency staff. If this is the case, then Alpaca should identify why staff may be unhappy in order to rectify this.
In 2019, Alpaca generated a large loss on disposal of non-current assets, if this was charged to cost of sales it would have contributed to the decline in gross
profit margin. The loss on disposal has arisen due to the market value of the assets being lower than their carrying value, this could be an indicator of impairment.
Alpaca should ensure it assesses its hotels for impairment where indicators of impairment exist. Alpaca should also make sure that the valuations it obtains for its
properties are reliable. A large loss can also suggest that the depreciation policy applied to the asset was not appropriate. Alpaca should review its depreciation

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policies to ensure depreciation is charged appropriately and such large losses are not seen in the future. Alpaca should regularly review its depreciation policies
and the useful economic lives of its depreciating assets and adjust these if appropriate.

I can select appropriate accounting treatments and explain their implications for users of the financial statements.
What are the three criteria for making a provision?
1. Present obligation (legal or constructive) as a result of a past event
2. Probable outflow (more likely than not)
3. Reliable measurement (best estimate of amount will pay)
What exchange rate should be used when translating foreign transactions and balances and where should the exchange rates be posted to?
Foreign transactions should be translated at the spot rate at the date of the transaction. At the year end, monetary assets and liabilities are retranslated at the
closing rate but non-monetary assets and liabilities are not retranslated unless they are measured at fair value. Exchange differences are recognised in profit or
loss.

E: Manage internal and external stakeholders

I can explain the financial reporting implications of additions to the group.
What would be the effect on Alpaca's consolidated statement of financial position of acquiring a new subsidiary?
Alpaca should calculate and record goodwill on the acquisition of the subsidiary. Goodwill should be recorded as a non-current asset and is assessed annually for
impairment. Goodwill is not amortised. If Alpaca purchases less than 100% of the equity shares of the subsidiary, then Alpaca will need to choose whether it will
measure the non-controlling interest in the subsidiary at fair value or at the proportionate share of the net assets of the subsidiary. This choice will affect the
goodwill calculation.
For the goodwill calculation, Alpaca should ensure the subsidiary's assets and liabilities are measured at their fair value. Where there is a difference between the
carrying amount and fair value of the subsidiary's assets, a consolidation adjustment will be required to account for additional depreciation associated with those
assets.
Some assets and liabilities that are not currently recognised in the subsidiary's individual financial statements should be recognised in the consolidated financial
statements on acquisition by Alpaca - these include any internally generated brand names and contingent liabilities.

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The assets and liabilities and income and expenses of the new subsidiary should be consolidated on a line by line basis with the financial statements of Alpaca to
show control over the subsidiary.
To show Alpaca's ownership of the new subsidiary, non-controlling interests should be recorded in the consolidated financial statements as a separate line within
equity, initially at either FV or proportionate share of net assets, as selected by Alpaca.

I can explain the behavioural and transfer pricing issues associated with internal trading.
What are the key objectives of transfer pricing?
• Goal congruence – combining the goals of an individual division with those of the company overall.
• Performance measurement – reporting divisional profits that show a reasonable measure of managerial performance
• Maintaining divisional autonomy – the system used to set the transfer price should seek to maintain divisional autonomy
Minimising global tax liability – use the transfer price to move profits to countries with low tax regimes.
I can explain the implications of Integrated Reporting for the reporting entity and its stakeholders.
What are the six capitals? Briefly describe how might they apply to Alpaca.
• Financial - Alpaca has cash funds generated through operations and finance raised through long-term borrowings and the issue of ordinary shares.
• Manufactured - Alpaca's manufactured capital includes all manufactured physical objects (as distinct from natural physical objects) such as its head
office building, all its hotels and all their fixtures and fittings, branded towels, uniforms etc.
• Intellectual - Alpaca's intellectual capital includes organisational knowledge-based intangibles, including intellectual property such as hotel-specific
software and the room pricing algorithm, Alpaca’s branding and any licences and rights that Alpaca has. It also includes any organisational capital, such
as tacit knowledge, systems, procedures and protocols eg know-how of staff specific to the processes of running a hotel business.
• Human - Alpaca's human capital includes the competences, capabilities and experiences and their motivations to innovate – such as Alpaca’s employees
ability to align with and support Alpaca’s vision, their ability to understand and develop Alpaca’s strategy and their loyalties and motivations for improving
Alpaca’s processes and the service it provides to its guests.
• Social and relationship - Alpaca's social and relationship capital includes the institutions and relationships between and within communities and groups of
stakeholders, eg Alpaca’s relationships with its guests and its suppliers of both goods (eg food) and services (eg bought in services, such as say, spa
treatments).

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 • Natural – this includes all environmental resources and processes that provide goods or services for Alpaca. An example of this for Alpaca is its use of
water. A hotel uses a significant amount of water both for guests in bedrooms, for the washing of towels and linen and for use in kitchens and swimming
pools.

I can advise on the communication process.

Which methods of communication are most relevant to Alpaca’s divisional HR teams when communicating with hotel employees?
• Email of confidential information such as payslips and notices of pay rises
• Use of a staff intranet to communicate general information (if available)
• Staff notice boards for less formal communication

I can advise on the negotiation process.

Provide TWO examples of areas that Alpaca is likely to have to negotiate?
• Commission rates with travel agents
• Prices of ingredients and materials used in hotel operations

I can advise on conflict management.

State four strategies for managing conflict.
• Conflict stimulation and orchestration
• Conflict suppression
• Conflict reduction
• Conflict resolution

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