Risk Management: Safety, Security & Sanitation (PDF)

Lesson 1 Risk Management What is Risk Management? Risk Management is the process of identifying, assessing and controlling threats to an organization’s capital and earnings. These threats, or risks, could stem from a wide variety of sources, including fina...

Lesson 1 Risk Management What is Risk Management? Risk Management is the process of identifying, assessing and controlling threats to an organization’s capital and earnings. These threats, or risks, could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents and natural disasters. Risk Defined It is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environment), often focusing on negative, undesirable consequences. Many different definitions have been proposed. The international standard definition of risk for common understanding in different applications is "effect of uncertainty on objectives". Risk according to UNWTO is a situation that exposes someone or something to danger harm or loss. Risk can be a physical safety matter, a risk of property loss, a financial business risk, and more. From the moment a person engages himself in the business, whether a sole proprietorship, partnership, or corporation, the risk immediately attaches. Example: 1. Food handling is one issue that must be adequately addressed whenever someone prepares food for the customers. The danger of food poisoning due to the contamination of food is high if the necessary precaution based on standards will not be followed. The government has provided regulations that must be complied with by any business ventures to make sure that the danger or harm is mitigated. Food sanitation permit is a mandatory requirement for businesses in the food industry. 2. It is an inevitable practice in both tourism and hospitality businesses to get the necessary information about their guests and clientele for security reasons, not only on the part of the guests but also on the part of the management as well. The giving and obtaining information per se is considered risk in itself that must be safeguarded accordingly. What is Hazard? It defined as a potential source of harm. Substances, events, or circumstances can constitute hazards when their nature would allow them, even just theoretically, to cause damage to health, life, property, or any other interest of value. The probability of that harm being realized in a specific incident, combined with the magnitude of potential harm, make up its risk, a term often used synonymously in colloquial speech. RISK VS. HAZARD Accordingly, 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. It may also apply to situations with property or equipment loss, or harmful effects on the environment. According to work SMARK, (n.d.) a hazard is something that can cause harm while a risk is a chance that any hazard will cause harm to somebody. What are the Benefits of a Risk Management Framework?  Enables identification of threats and opportunities for an agency.  Improves and informs the planning process.  Reduces likelihood of costly "surprises".  Contributes to improved resource allocation.  Improves efficiency and performance.  Improves accountability.  Encourages continual improvement. Seven Key Questions A good risk management framework seeks to answer these basic questions:  What are we trying to achieve?  What events or circumstances that could affect the achievement of our objectives?  What are the consequences?  How likely are these events?  What can we do to manage these outcomes?  How will we maximize opportunities?  Can the organization recover if a risk eventuates? Principles of Risk Management There are specific core principles in regards to risk management. When looking to perform an actual risk assessment, the following target areas should be part of the overall risk management procedure (as defined by the International Standards Organization; ISO):  The process should create value  It should be an integral part of the organizational process  It should factor into the overall decision-making process.  It must explicitly address uncertainty  It should be systematic and structured  should be transparent and all-inclusive  It should be dynamic and adaptable to change  It should be continuously monitored and improved upon as the project moves forward  When first addressing a risk management procedure for a project, take note of the aforementioned principles to ensure that your specific assessment is matching up with the core ideals as defined by ISO  It should be based on the best available information  It should be tailored to the project  It must take into account human factors Risk Management Process There is a specific procedure that one should follow when it comes to performing a risk assessment. The overall process can be itemized as follows: 1. Identification - Perform a brainstorming session where all conceivable risks are itemized  2. Planning - Once defined, plan for contingencies as part of the overall project plan; implement controls as needed 3. Derive Safeguards - Place specific 'fallback' into the overall project plan as contingencies for risks if they arise 4. Monitor - Continuously monitor the project to determine if any defined (or un-expected) risks manifest themselves Content of a Typical Risk Management Plan A statement of the risk management policy Details of the scope and objectives of risk management in the agency Consistent risk management language and definitions Integration with other management practices and procedures Risk assessment criteria (consequence and likelihood ratings) Description of the internal and external context in which the agency operates List of analyzed risk Summary of the risk treatment plan Outline of the risk reporting protocol Outline of the monitoring and review program Embedding Risk Management Fit for purpose? Risk management should be embedded in all the organization's practices and processes in a way that it is relevant, effective, and efficient. The risk management process should become part of, and not separate from, those organizational processes. In particular, risk management should be embedded into the policy development, business and strategic planning and review, and change management processes.  Lesson 2 Sources of Risk Sources of Risks Risk can come from different sources like the following: 1. Uncertainty in financial markets. 2. Threats from project failures (at any phase in design, development, production, or sustainment life cycles). 3. Legal liabilities. 4. Credit risk. 5. Accidents. 6. Natural causes and disasters. 7. Deliberate attack from an adversary, or 8. Events of uncertain or unpredictable root-cause 1. Uncertainty in the financial markets. One consideration that a manager should take into in the conduct of his or her business is the uncertainty in the financial markets. Managers must be vigilant enough in determining those uncertainties that could give more impact in the entirety of his business. 2. Threats from project failures. Based on Taylor Jr. (2014)., the compelling business development requires taking on calculated risk. Throughout the whole process of project development, the managers could direct their teams on the right actions utilizing establishing the distinction between risks and effects. Consequently, late projects and its failure to meet the quality guidelines could produce an adverse impression on the new members. 3. Legal liabilities in tourism and hospitality industry. As discussed, the risk may be defined as a potential loss or harm to persons and property. When applied to tourism and hospitality industry, it could be any of the following: financial loss, damage to property, or injury to workers or guests. It is a given fact that most people in the hospitality and tourism industry would like to get rid of any legal responsibility attaching to the risks, the reason why they have been using risk management as a precautionary measure. To emphasize, risk management is a tool to avoid injury to guests and employees and to protect their business operations from financial or physical inconveniences. 4. Credit risk. Credit is another source of risk that could impact the tourism and hospitality industries. Credit risk as defined in Principles for the Management of Credit Risk, https://www.bis.org/publ/bcbsc125, is the potential that a bank borrower or counterparty will fail to meet its obligations following agreed terms. The effective management of credit risk is a critical component of a comprehensive approach to risk management and essential to the long-term success of any banking organization. 5. 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. The effects are well known in an accident. There is a possibility of shock on the part of the injured, anger at the one in fault, and confusion on the thing that is supposed to be done immediately after the accident. Accident management is necessary to reduce the costs pertinent to the accident, to wit: damage to property, costs of rental, maximization of subrogation recovery. 6. Accidents due to fortuitous events or acts of God. Accidents in connection with this category are beyond the contemplation of man. The causes are not within the bounds of man. Who would ever forget the horrible Indian Ocean earthquake and tsunami which killed almost 250,000 people, including tourists in Phuket Thailand and 13 other countries? Listed below are some of the natural phenomena identified around the world: Earthquakes; Volcanic eruption; Flood; Landslides; Erosion; Fire; Storm; Typhoon. 7. Security-related accidents No matter how careful the management of a hotel and similar establishment is, there were still some reports of accidents that could be attributed to accident and negligence cases like robbery and theft. 8. Events of uncertain or unpredictable root-cause. The strategies to manage risk typically include transferring the risk to another party, avoiding the risk, reducing the adverse effect or probability of the risk, or even accepting some or all of the potential or actual consequences of a particular risk. Certain aspects of many of the risk management standards have come under criticism for having no measurable improvement on risk, whether the confidence in estimates and decisions seem to increase. Risk Identification How can you identify the causes and effects of the risks in your company? What can happen? In this first stage of the methodology, the possible specific causes of business risks are identified in a systematic manner, together with the range and possible effects thereof, which an entrepreneur must confront. The proper identification of risks calls for a detailed knowledge of the company, of the market in which it operates, of the legal, social, political and cultural environment in which it is set. Risk identification must be systematic and begin by identifying the key objectives of success and the threats that could upset the achievement of these objectives. Perception of the Risk The perception of risk as a threat is the system most often used in order to identify it in this context, managing the risk signifies installing control systems that will minimize both the likelihood that adverse events will occur as well as the severity of such events (the financial loss that would be involved for the entrepreneur). It is a focus of a defensive nature, its aim is to allocate resources in order to reduce the likelihood of sustaining adverse impacts. From the perception of risk as an opportunity, risk management signifies using techniques that will maximize the results, limiting the possible damages or costs. The focus is aggressive in nature. Risk management from the perspective of risk as uncertainty is aimed at minimizing the deviation between the results that entrepreneur wishes to obtain and those that he or she actually does obtain. Strength Location of establishments Highly flexible cost structure Proximity to customers Weaknesses Commercial fragmentation Limited access to Financing Lack of specialized and trained personnel Opportunities Sector in expansion Specialization in market niches Increasingly better-informed consumers Threats Regulatory changes Entry of new competitors Customer tastes change quickly Classification of Risks 1. SECTOR A risk that external factors independent from the entrepreneur's management sold directly or indirectly influence the achievement of his or her objectives and strategies to a significant extent. Examples: Strong exposure to regulatory changes, Business fragmentation, Appearance of new markets 2. OPERATIONAL The operational risks are associated with the entrepreneur's ability to convert the strategy chosen into specific plans, by means of an effective allocation of resources. Examples. Need for making an advertising effort, High staffing costs, Lack of operational and financial planning, Tendency toward subcontracting, Tendency towards concentration 3. TECHNOLOGY This measures the entrepreneur's exposure to the technological risks derived from the need to undertake heavy investment in order to ensure the feasibility of his or her business project within a specific period of time or the need for training the company's employees in the use of the technology Examples: Significant investments, Low level of implementation, Low level of technological training 4. COMPETITORS The size, the financial and operational capacity of the agents in a sector determine the degree of rivalry in that sector and set the rules of the game that any new agent has to consider in order to operate in the marketplace; this can involve risks for the entrepreneur. Examples: Appearance of new competitors, Intense competition, Specialized competition 5. SUPPLIERS The role played by the suppliers in the sector could generate risks for an entrepreneur due to variations in the price of raw materials, to the availability of a variety in the supply and for a continuous period of time, as well as the degree of concentration of the suppliers which will determine the method of payment traditionally accepted in the sector. Examples: Exposure to changes in the price of goods, Dispersion in the supply non-determination of the quality of the service provided, Increase in power of negotiation 6. CUSTOMERS The customer can be a crucial focal point of risk for an entrepreneur, since they are the generators of revenues; the risk can stem from changes in their tastes and needs, from generating pressures forcing prices down or from lengthening the payment period, among other factors, in such a way that the entrepreneur's value proposal must always be customer-oriented Examples: Increase in power of negotiation, Lack of loyalty, Social and demographic changes, Seasonality and decline in the demand 7. FINANCIAL The financial risks refer to the uncertainty associated with effective management and the control of finances carried out by the entrepreneur, as well as to the effects of external factors such as the availability of credit, exchange rates, movements in interest rates, etc. Examples: Long-term financial incapacity, Exposure to interest rate changes, Lack of knowledge of advantageous sources of financing, subsidies, etc. Sources of Identifying Risks Sources of risk are all of those company environments, whether internal or external, that can generate threats of losses or obstacles for achieving the company's objectives. A procedure that facilitates the identification of risks is to ask oneself, respect to each of the sources, whether weaknesses or threats exist in each case. A brief list is set out below. Pressure by competitors The employees The customers The new technologies Changes in the environment Laws and regulations Globalization The operations The suppliers