Chapter 1, Problem 1QTC

To determine

To discuss: the issues related to hiring third-party services and the way these issues can affect the financial viability.

Explanation of Solution

When a restaurant uses third-party services, it may face some operational issues. Some of these issues have been discussed below:

1)Misuse of confidential information: When a restaurant uses third-party services, it puts on the confidential information on risk, that can be used by the third-party for making personal gains.

2)Lack of flexibility: The restaurant may face difficulties in performing its operations. There is a possibility that third-party services might not be performed by skilled workers. Such a scenario may lead to poor quality of restaurant operations and can harm the firm in the long run.

3)Instability: The third party can go out of business at any time which can lead to difficulties in the management.

4)Unsatisfied services: The third-party service may fall behind the expectations of the restaurant. Also, customers might blame the restaurant for a mistake made by third party services.

The way in which these issues affect the financial viability of the restaurant are as discussed below:

1). Risk of uncertainties: When vital functions are outsourced, the restaurant might be dependent on the service provider and risks such as bankruptcy and financial loss cannot be controlled.

2)Market consequences: When the market price changes so frequently, the restaurant can take advantage of this by purchasing at the right time.

3)Extra-market consequences: These are the items that are not directly priced in the market, but in indirect ways, a price may be assigned to these items called shadow price by economists such as injuries and other uncertainties at the workplace.

Economics Concept Introduction

Third-party services: It refers to the services that are rendered by a third party (party other than the company providing services and the client) and third-party service providers can be any agent, consultant, advisor or any independent contractor who is providing services to the main firm.