A hotel group has the option of building and operating a new hotel on a Greenfield site on a Caribbean island. In our hypothetical example, we examine the economic, tax, environmental and social impacts on the island, as well as the financial performance of the two options.
Option 1 involves building an eco-friendly hotel that incorporates the latest environmental technology, sources local fresh produce and has a focus on training and employing people from the local community.
Option 2 involves building a more traditional hotel that uses no significantly advanced environmental technology, imports a large proportion of its fresh produce and brings in skilled labour in preference to local training programmes.
TIMM can be used to value both the financial performance and the wider social, tax, economic and environmental implications of each option. The TIMM wheel provides a simplified analysis of the results of the TIMM analysis for the two options. The inner circle shows the Financial Performance in terms of total upfront capital costs and ongoing expenditure, and overall net present value (NPV) for the hotel. Each bar represents a positive (green) or negative (red) impact. The different impacts can be compared and aggregated, and the trade-offs between the two options identified and explored.
Trade-off: Option 1 reduces the overall impact on the environment, but requires a change in land use to grow local produce that the local community might not welcome.
Trade-off: Are the higher up-front investment costs justified to avoid the higher environmental impacts of Option 2?
Trade-off: Although the change of land use is higher in Option 1 to grow fresh produce locally, import taxes and GHGs emissions are higher in Option 2 if they’re imported.
Trade-off: The community relations with Option 1 are better as the operator is more aware of and addressing the hotel’s impact, but at the cost of a higher payroll and investment.
In this hypothetical example, in the absence of total impact thinking, the decision would have been made largely using financial analysis, focussing in on the willingness to pay higher investment costs. TIMM brings a new perspective. Using TIMM to put a value on the qualitative overlays, the total impact of each decision is clear and the many trade-offs between Options A and B can be identified in a holistic manner:
TIMM may not be able to provide the empirical answer, but it gives management significantly more insight into how hotel operations impact external stakeholders so that decision making can be undertaken on a more informed basis. These external impacts affect the hotel's ability to obtain and maintain its "social licence to operate", which is vital to its success over the long term investment horizon. Quantifying external costs and benefits is the first step towards understanding the resulting internal costs and benefits for the business, for example, in terms of brand value, reputation.