Tourism Risk Mitigation PDF

TH2107 Tourism Risk Mitigation Tourism Crisis Crises are periods of intense uncertainty characterized by unpredictability and loss of control over key functions of systems (Moreira, 2007). According to the Council of Australian Tour Operators (2016), a tourism crisis is defined from a wholesaler’s...

TH2107 Tourism Risk Mitigation Tourism Crisis Crises are periods of intense uncertainty characterized by unpredictability and loss of control over key functions of systems (Moreira, 2007). According to the Council of Australian Tour Operators (2016), a tourism crisis is defined from a wholesaler’s perspective as “an event or set of circumstances that can severely compromise or damage the marketability and reputation of a tourism business, its brand, or an entire tourism destination region.” The following are the two (2) broad categories of tourism-related crises that impact tourism operators: Crisis events that are beyond the control of management. These include natural disasters, acts of war or terrorism, political upheavals, crime waves, epidemics, and sudden global economic downturns. Crisis events resulting from the failure of management action, process, or lack of contingency measures taken to deal with predictable risks. These include business collapse due to management failure, inappropriate strategic management, financial fraud, data loss, destruction of a place of business due to fire or flood without adequate backup procedures or insurance cover, massive turnover, or loss of management and staff. It can also include service or equipment failures that compromise the reputation of a business. Tourism Crisis Management In 2003, the Pacific Asia Travel Association (PATA) established the Four R Concept, a tourism crisis management system used by various tourism businesses. This concept includes reduction, readiness/risk preparedness, response, and recovery. Reduction Identifying a potential crisis and seeking ways and means to reduce its impact is closely aligned to risk management. The management needs to perform a Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis on their business or destination. Then, they can evaluate the potential impact of a particular type of crisis and devise appropriate contingency and continuity plans that can reduce the possibility and impact of a crisis. The concept of reduction can be defined as the beginning of the process in which an enterprise resumes functioning after a crisis. Services may be limited, access may be restricted, but it is the beginning of the transition from crisis to recovery. Reduction is the stage in which there has been a full assessment of damage or loss, and there is a need to put in place a recovery alliance. In this case, if the destination has experienced a crisis event, this recovery alliance may involve government leadership and an alliance of all relevant tourism industry sectors. Readiness/Risk Preparedness Contingency plans are well-prepared documents dealing with the most likely risks and threats to a tourism business or destination. It is imperative to stage drills or simulation games to cover these events as an integral part of company training. These should contain the following elements: Assessment of the likely nature of a threat/risk; Assignment of staff and management roles and recording of their emergency contact details for dealing with a risk or threat; Training on duties required to deal with specific roles; Scenario for managing the first hour of a crisis event; Scenario for handling each stage of a crisis process; Spokesperson and key crisis communication messages; SWOT analysis of the enterprise in terms of the risk/threat; Backing-up procedures and personnel; 08 Handout 1 *Property of STI  [email protected] Page 1 of 3  TH2107 Emergency contacts with police and emergency services; Sources and contacts for outside and emergency assistance; and Knowledge of key stakeholders. Response The key element of response to a crisis event is timing. If a contingency plan has been fully developed for a business or destination, it is possible to respond immediately. The most critical is the first hour after an event has occurred, be it an act of man or nature. There is a need to establish to stakeholders and the media that the business operation is aware of events and is managing the situation even if not all of the pertinent facts are at hand. Recovery Apart from an intensive marketing campaign, a successful recovery program must be economically, socially, and environmentally sustainable. Attracting a lot of extra airline passengers, hotel guests, or visitors to destinations and marketing tour programs does not constitute an effective recovery if incentive-based discounts mean that businesses are losing money. Value-added incentives with high perceived value and low costs are as effective incentive tactics as price discounting. Tourism Risk Management Process Risk is essentially the likelihood or probability of negative events and subsequent loss to a tourism business or destination arising from a negative event. According to Cunliffe (as cited in Council of Australian Tour Operators, 2016), risk most commonly refers to the prospect of a loss. This loss is usually some form of unwanted outcome or undesirable consequence from a specific action or consequence. The tourism risk management process is concerned with identifying and analyzing the risks (‘the chance of something happening that will impact objectives’) to a destination or organization and deciding what can and should be done about them. The tourism industry should be involved in crisis management (the organizational process) and disaster management (the multi-agency, community-based process). Effective risk management can prevent an issue from becoming a crisis. Poor understanding and management of risks can lead to a crisis. Risk management involves assessing the probability of negative events that may lead to the tourism sector being unable to operate normally (Committee for Economic and Commercial Cooperation of the Organization of Islamic Cooperation [COMCEC], 2017). The Critical Role of Wholesalers as Risk Managers. One of the key marketing propositions of wholesale tour operators is that wholesalers are deemed to be and market themselves as experts in the destinations they service. In addition to being experts, they are also deemed the safest way for the traveler to experience that destination. Wholesalers have a twin role concerning risk as professional tour operators and protectors of their clients while on tour. A business reputation is largely contingent on its ability to shield its clients from danger to some extent from their naivety. One of the main reasons clients choose to travel with tour operators rather than travel independently is that irrespective of whether they are passive sightseers or active adventurers, they rely on tour operators to shield themselves from risk. There is a variety of risk management models that have been utilized and promoted. Each is generally a variation on the same theme, with each having a slightly different approach to the analysis. Outlined below is the model from Destination Canada for small and medium enterprises. It has four (4) stages: risk identification, risk analysis, risk control, and risk treatment. Risk Identification The initial stage of the risk management process is systematically identifying risks facing the organization. This step is often referred to as risk assessment. An organization can identify risks in the following ways: On-site inspections and discussions with management and staff; Review of products, services, processes, and contracts; Review of historical activities and losses; and Identification of possible risk scenarios; 08 Handout 1 *Property of STI  [email protected] Page 2 of 3  TH2107 Once a list of the risks is compiled, the next step is to ensure a thorough analysis. Risk Analysis A typical risk analysis compares the probability (frequency) of any risks occurring by the consequence (severity) if they do occur. This can be done qualitatively or quantitatively, with either numerical values or descriptors applied. For example, an analysis of the risk of the catastrophic failure of a ski lift at a resort resulting in passengers falling to the ground would likely indicate that the probability of this incident occurring is low due to historical records of use and required maintenance for safety. However, the consequence would likely be high, considering many passengers could be involved in a significant fall, resulting in multiple casualties. Operators need to respond (through risk control) if the analysis determines any of the following: the probability of the risk occurring is unacceptable; the consequence of the risk occurring is unacceptable; or the combined impact of the probability and consequence is deemed unacceptable. Risk Control Once the risks are identified and analyzed, the next step is implementing mitigation strategies for any unacceptable risks. This step is called risk control, and it comprises two (2) primary concepts: exposure avoidance and loss reduction. o Exposure avoidance involves any mitigation strategies used to avoid exposure to the risks. Examples are eliminating particularly hazardous activities or services, avoiding certain areas due to environmental threats, or changing a tourist destination due to political unrest. o Loss reduction is a different approach. It assumes that an operator has acknowledged the risk of a particular activity or service and chooses to continue to offer it but will take steps to mitigate the severity of damage that may occur. An example is requiring all participants in a ski lesson to wear helmets; the risk of falling still exists, but action is taken to reduce the severity of any fall. Risk Treatment Failing the ability to control all risks identified, the next step in the process is risk treatment. Risk treatment includes the concept of risk transfer and risk retention. Risk transfer refers to the transfer of responsibility to another party, either contractually or by insurance. Risk can be transferred through contract either by entering into a contract for service or by requiring participants to sign a waiver. Risk is transferred through insurance by paying premiums to an insurer, which absorbs the financial risk of an incident. Risk retention refers to the level of risk that a company retains through a conscious decision-making process. Examples of this may include the decision to increase the size of insurance deductible to use, the use of self-insurance, or consciously not transferring risks due to an inability to do so. References: Asia-Pacific Economic Cooperation. (2004). Introduction to risk management in tourism - participant’s workbook, 3. Retrieved on November 15, 2021, from https://www.apec.org/docs/default- source/Publications/2007/4/Tourism-Risk-Management-An-Authoritative-Guide-to-Managing-Crisis-in- Tourism-December-2006/TOC/Introduction-Participants-Workbook.pdf COMCEC Coordination Office. (2017). Risk & crisis management in tourism sector: Recovery from crisis in the OIC Member Countries. https://www.sbb.gov.tr/wp- content/uploads/2021/02/Risk_and_Crisis_Management_in_Tourism_Sector.pdf Council of Australian Tour Operators. (2016). Tourism Risk, Crisis and Recovery Management Guide, 4-25. Retrieved on November 15, 2021, from https://www.uts.edu.au/sites/default/files/20160329-Beirman-Risk-Crisis-Recovery- Tour-Wholesalers.pdf Moreira, P. (2007) Aftermath of crises and disasters: notes for an impact assessment approach. In Laws, E., Prideaux, B. and Chon, K. (Eds.) Crisis Management in Tourism. Wallingford: CABI Publishing, Chapter 5 Westcott, M. (2021). 11.2 risk management process – introduction to tourism and hospitality in BC – 2ND edition. BCcampus. https://opentextbc.ca/introtourism2e/chapter/risk-management-process/ 08 Handout 1 *Property of STI  [email protected] Page 3 of 3