Risk Management in the Tourism and Hospitality Industry.pdf

Risk ManageMent in the touRisM and hospitality industRy What is Risk? According to UNWTO, is a situation that exposes someone or something to danger or loss. Risk can be a physical safety matter, a risk of property loss or a financial business risk. From the moment a...

Risk ManageMent in the touRisM and hospitality industRy What is Risk? According to UNWTO, is a situation that exposes someone or something to danger or loss. Risk can be a physical safety matter, a risk of property loss or a financial business risk. From the moment a person engages himself in the business of tourism and hospitality, whether a sole proprietorship, partnership, or corporation, the risk immediately attaches. The business dictionary has defined risk as the probability of threat of damage, injury, liability, or any other adverse occurrence that is caused by external or internal vulnerabilities, and that may be avoided through preemptive action. From the point of view of economics, risk implies future uncertainty about deviation from expected earnings or expected outcome. Risk measures the uncertainty that an investor is willing to take to realize a gain from an investment. What is Hazard? Hazard pertains to any source of potential damage, harm or adverse health effects on something or someone, while risk is the chance or probability that a person will be harmed or experience an adverse health effect if exposed to a hazard. According to workSMARK, a hazard is something that can cause harm while risk is a chance that any hazard will cause harm to somebody. What is Risk Management? Risk Management, (as defined in ISO3100), is the identification, evaluation, and prioritization of risks. It is followed by coordinated and economical application of resources to minimize, monitor, and control the probability of unfortunate events to achieve the desired output. Sources of Risk Risk can come from different sources like the following: 1. Uncertainty in financial markets; 5. Accidents; 2. Threats from project failures (at any 6. Natural causes and disasters; phase in design, development, 7. Deliberate attack from an adversary; production, or sustainment life- or cycles); 8. Events of uncertain or unpredictable 3. Legal liabilities; root cause 4. Credit risk; Legal Liabilities Risk Management in tourism and hospitality industry is a two-way process: 1. The safety of the guests and employees, which includes avoidance to emotional and physical harm is a moral and ethical responsibility of the operators;  2. Protection to business operations which includes protection against damage to property persons and property and future litigation. Credit Risk Defined Credit is another source of risk that could impact the tourism and hospitality industries. Credit Risk is the potential that a bank borrower or counter party will fail to meet its obligation following agreed terms. (As defined in Principles for the Management of Credit Risk). The goal of credit risk management is to maximize a bank’s risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters. Risks Vs Accidents Risks and accidents are sometimes being used interchangeably, but they are different, though they complement each other. Accidents are reactive while risks are preventive. Accident management is necessary to reduce costs pertinent to the accident, to wit: damage to property, costs of rental, maximization of subrogation recovery. Common Injuries in the Hospitality Industry: 1. Slip-and-fall injuries; 2. Musculoskeletal injuries; 3. Skin reactions. 4. Respiratory illnesses 5. Security-related accidents 6. Food Poisoning 7. Elevator and escalator accidents Accidents in the Tourism Industry: 1. Accidents due to fortuitous events or acts of God Examples: Earthquake, volcanic eruption flood, landslides, erosion, fire, storm and typhoon 2. Transportation accidents in air, water and land 3. Accidents due to Activities Examples: Pool accident, animal bites or attack, drowning, electrocution, etc. Natural Disasters The natural disasters maybe categorized into three broad groups: 1. Caused by movements of the Earth 2. Disasters related to weather 3. Floods, mudslides, landslides, and famine Deliberate Attacts from An Adversary Terrorism has become one of the more and more active and threatening calamities that affect the international community.  It is the use of violence or threat of violence in the pursuit of political, religious, ideological or social objectives. It can be committed by governments, non-state actors, or undercover personnel serving on the behalf of their respective governments. It reaches more than the immediate target victims and is also directed at targets consisting of a larger spectrum of society. Events of Uncertain or unpredictable Root-cause Two Types of Events in Risk Management: 1. Negative events or risks 2. Positive events opportunities Strategies to manage threats: 1. Avoid the threat; 2. Reduction of the adverse effect or probability of the threat; 3. Transfer of all part of the threat to another party; 4. Retaining some or all part of the potential or actual consequences of a particular threat, and the opposites for opportunities. How to implement the strategies to manage uncertainties: 1. Threat identification or characterization; 2. Assessment of the vulnerability of critical assets to specific threats; 3. Risk determination; 4. Identification of the techniques to reduce those risks; 5. Prioritization of the measures Risk management principles: 1. Risk management should create a value wherein the resources expended to mitigate risk should be less than the consequences of inaction; 2. It should be an integral part of the organizational processes; 3. The risk management should become part of the decision-making process; 4. It should explicitly address uncertainty and assumptions; 5. It should be placed in a systematic and structured process; 6. The best available information should be the bases of risk management; 7. Risk management should be tailorable; 8. It should take human factors into account; 9. It should be transparent and inclusive; 10. The dynamism, interactivity, and responsiveness to change must be evident on the risk management; 11. Risk Management should be capable of continual improvement and enhancement 12. There is a need for continuous Identification of potential risks 1. Internal; and  2. External The following factors could be considered as determinants in choosing a method of identifying risks: 1. Culture 2. Industry practice 3. Compliance Risk Assessment Defined Risk assessment is the stage wherein the severity of the impact of the said risk is being weighed to make the most intelligent decisions for the full implementation of the risk management plan. Risk assessment is the determination of a quantitative or qualitative estimate of risk related to a clear situation and recognized threat (also called as hazard). Tourism is a complex industry that involves a broad range of businesses, organizations and government agencies that work together at different levels to deliver a complete tourism package. Each party in the chain contributes to the overall holiday experience of the customer - from initial destination marketing through to the ground level experience. Guidelines to manage the risks confronting the tourism sector: 1. Risk identification 2. Determination or creation of a management plan to address risks that could affect the tourism business 3. Collaboration with the stakeholders 4. Provide training for the staff 5. Test the plan 6. Provide transparent and honest crisis communication 7. The revival of the business after a crisis 8. Reposition of the business after a crisis Risk identification is the process of determining risks that could potentially prevent the program, enterprise, or investment from achieving its objective. It includes documenting and communicating the concern. As a way of risk mitigation, if not avoidance, the manager should have made an identification of the eminent risks based on his or her inventory of potential hazards attaching the tourism-related activities. The risk identification could concern any of the following: 1.Natural hazard is an extreme event that occurs naturally and causes harm to humans – or to other things that we care about, though usually focus is on humans. A natural hazard escalates into a natural disaster when an extreme event caused harm in significant amounts and overwhelms the capability of people to cope and respond. 2.Civil or political hazards are those that are being confronted by investors, corporations, and governments brought about by the political decisions may be considered as political hazard. Civil hazard, on the other hand, are hazards caused by circumstances in the society that could vastly affect the society as a whole. Examples: Trade Barriers, Taxes, Legislation, Administration and Political Instability Sex tourism is phenomenon whereby an individual or group of individuals who would travel to another place would engage in sexual activity with prostitutes. Westernization is a process whereby societies come under or adopt Western culture in areas such as industry, technology, law, politics, economics, lifestyle, diet, clothing, language, alphabet, religi on, philosophy, and values. 3.Technological hazards include industrial pollution, nuclear radiation, toxic wastes, dam failures, transport, industrial or technological accidents. It is an effect of the globalization of production, an increase of industrialization, and a certain level of risk of accidents connected with production, processes, transportation, and waste management. 4.Biological hazards pertain to biological substances that stance a danger to the health of the living organism, chiefly humans. Also known as biohazards. Two essential risk concepts: 1. Inherent Risk – refers to the exposure arising from a specific risk before an action is to be made by a risk manager. 2. Residual Risk – is the exposure arising from a specific risk after risk manager has made any, and in case such action has proven useful. The following issues must be addressed well in the risk identification: 1. The cause of the event 2. Areas of impact 3. Enablers 4. Events 5. Potential consequences Determination And Creating of Risk Management Plan Risk management plan is necessary for the conduct of tourism activities to lessen the possibility of the risk being accomplished or at least to lessen the impact of the risk at hand. Basic classifications of a risk management plan: 1. Preventive strategy is designed to lessen the possibility of risk impact before the risk becomes realized. 2. Contingency is designed to address the issue of risk at the time of the happening of the event. strategies of risk management plan: Risk avoidance is the elimination of hazards, activities and exposures that can negatively affect an organization's assets. Whereas risk management aims to control the damages and financial consequences of threatening events, risk avoidance seeks to avoid compromising events entirely. Risk Reduction refers to reducing the risk level through minimizing either the likelihood or the consequence of a specific task through the implementation of precautionary measures, risk controls or treatments. Considerations of Risk Reduction: 1. Observance of the safety standards 2.Use of safety devices 3.Earthquake-proof building/proper waste management system 4.Qualification requirements Risk Transfer - risks can also be partially or completely transferred to a third party. The burden is shifted from one party to another, from one individual to another, from an individual to an insurance company, or from insurers to reinsurers. Risk transfer may be accomplished through any of the following: 1. Outsourcing - A process which commonly transfers a variety of risks to a partner. This usually involves a contract between the management and the provider. May include penalties in case the project will not push through. 2. Derivatives - A financial instrument whose value is derived from the value of another asset, which is known as the underlying. When the price of the underlying changes , the value of the derivative also changes. A derivative is not a product but a contract that derives its value from changes in the price of the underlying. Underlying asset e.g. stocks, bonds, commodities, currencies, interest rates, market indexes. 3. Contracts - According to Boggs (2017), contractual risk transfer is a non-insurance risk transfer mechanism that accomplishes the goals of risk financing and risk control. 4. Insurance - Investopedia (n.d.) has defined insurance as a contract being represented by a policy in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. Risk retention is a company's decision to take responsibility for a particular risk it faces, as opposed to transferring the risk over to an insurance company. Collaboration with the stakeholders Classification of tourism stakeholders: 1. Internal: has a direct relationship with the company (employees, owners, inventors) 2. External: those who do not have a direct relationships but could be affected by the action of the management. (local community, local government, tourist and guest) Provide Training for the Staff Risk and safety management in the tourism sector is a continuous process that focuses on ensuring safety of tourists/clients and staff by efficiently managing operational risks through leadership commitment, clearly defined responsibilities, roles, processes and procedures A safety drill is a concept or practice of preparing people for an emergency. It is done through simulation of the actual happening of uncertainty that may affect the business. First aid is the assistance given to any person suffering a sudden illness or injury, with care provided to preserve life, prevent the condition from worsening, or to promote recovery. It includes initial intervention in a serious condition prior to professional medical help being available, such as performing CPR while awaiting an ambulance, as well as the complete treatment of minor conditions, such as applying a plaster to a cut. Test the Plan for risk management Risk management process does not stop with the identification of a solution to a problem and training the staff for the execution of the plan should the event comes. The risk management plan must be tested to determine its strengths and weaknesses to make sure that we could handle the risks and reduce losses. a. Planning (risk identification, impact analysis, mitigation) b. Designing c. Execution Hospitality industry Guest Behavior Guest may be considered as the lifeblood of the hotel industry. Without happy and contented guests who have been patronizing the services of the hotel, survival of the industry would be up to the lowest extent. There are, however, some instances where the guests are becoming the threat to the profitability of the hotel. Staffing Staffing is another risk that hospitality industry usually faces with as the quality services that clientele desire may only be given to them at any given situation, place, and time. Best Practices For Hotel Service Recovery Deal with guest’s complaints the very moment they arise; Ensure the complaints can reach the right person; Build a full picture on guest preferences. Keep tabs on recovery service costs; In-depth analysis of the service recovery efficiency Liability of Hotel in Personal Injury Claim The Hotel may be held liable in a lawsuit due to negligence or carelessness of hotel employees. The liability may arise if it can be proved that the hotel management acted negligently. Duties of Hotel to the Guests Inspect the hotel grounds and maintain the property in a reasonably safe condition Maintain adequate lightning, a duty to keep steps dry and unobstructed, and a duty to repair hotel defects. Control insect infestation. Maintain proper security to avoid theft and assault on guests. Exercise reasonable care in hiring staff. Train Hotel pool staff to prevent injuries to guests. Maintain stairs and elevators. Maintain lock on hotel rooms. There is also a duty to reasonably construct hotel steps or warn guest of unusual staircase locations. Branding Branding is essential to the decision of prospective guests to avail services of a hotel. Buying Decisions Functional Risk: Product performance does not fulfill customer expectations Physical Risk: Product affections of the physical well-being of the user or others Financial Risk: Poor price/Quality ratio Social Risk: Others do not accept the product. Psychological Risk: Product affections of the user’s mental well-being. Time Risk: Opportunity cost of alternative seeking due to product failure