Introduction to Risk Management Concepts and Principles PDF

Introduction to Risk Management Concepts and Principles Introduction to Risk Management Concepts and Principles Risk Defined There is no better way of starting the discussions in this book except through defining what risk is. Risk provides opportunities while exposing us to outcomes that...

Introduction to Risk Management Concepts and Principles Introduction to Risk Management Concepts and Principles Risk Defined There is no better way of starting the discussions in this book except through defining what risk is. Risk provides opportunities while exposing us to outcomes that we may not desire. It is the coupling of risk and reward that lies at the core of the risk definition, and the innovations that have been generated in response make risk central to the study of not just finance but to all of the business. The definition of risk here implies awareness that risk is something foreseeable in every kind of business even in the tourism and hospitality world. The exposure to something that we do not desire should not be a barrier for us to execute what is being expected and demanded from us. Our knowledge of risk should be considered as a better opportunity for us to plan and mitigate its adverse effect in our undertakings. Risk, according to the World Tourism Organization (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 of tourism and hospitality, whether a sole proprietorship, partnership, or corporation, the risk immediately attaches. Examples: 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 precautions 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 a risk in itself that must be safeguarded accordingly. Risk vs. Hazard There are instances wherein risk and hazard are being used interchangeably as they thought they were the same, but the Canadian Center for Occupational Health and Safety gave a concrete definition to distinguish the two. 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 workSMARK, (n.d.) a hazard is something that can cause harm while a risk is a chance that any hazard will cause harm to somebody. HAZARD Anything, that can cause harm (eg, a chemical, electricity, ladders, etc) Risk Management as Applied to Safety, Security, and Sanitation 1 | Page Introduction to Risk Management Concepts and Principles RISK How great the chance that someone will be harmed by the hazard Risk management, as defined in ISO 31000, 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 (Hubbard, 2009) to achieve the desired output. To address the issue of risk which is inevitable but foreseeable in any business venture, circumstances must be studied carefully to identify all the risks involved, followed by an intense evaluation of the same to determine which among those risks should be addressed first and which should be treated lastly. Risk management, based on the definition of ISO 31000 and Hubbard, follows a systematic approach to mitigating, if not eradicating entirely the risks. Close coordination with the key people in an organization is something essential to the control of the unfortunate events. Sources of Risks Risk can come from varied sources like: 1. Financial market uncertainty; 2. Threats from failure of project (at any phase in the life-cycle); 3. Legal liabilities; 4. Credit risk; 5. Accidents; Uncertainty in the Financial Markets One consideration that a manager should take into 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. The press briefing statement of Former US Defense Secretary Donald Rumsfeld was quoted in https://www.ezonomics.com/whti/ uncertainty (retrieved, 2018). “We know there are known unknowns; that is to say we know there are some things we do not know. However, there are also unknown unknowns ~ the ones we do not know we do not know.” The statement of Rumsfeld is a reminder to everyone that the awareness on the distinction between certainty and uncertainty could be helpful in many circumstances like the reduction of so much confidence for investors and the protection of wealth for an extended period. In the paper of Nick Bloom, an economist, he argued that uncertainty can hit different groups in different ways. He gave oil-price spike as an example, contending that it may give a good impact for the producers of oil, but not for airlines. As pointed out by Bloom, the OPEC oil Risk Management as Applied to Safety, Security, and Sanitation 2 | Page Introduction to Risk Management Concepts and Principles embargo in 1973 had tipped the US into recession by tripling oil prices and increasing uncertainty over future oil prices. Threats from Project Failures Another source of risk that could hamper the success of the tourism and hospitality business is the threat usually embedded in the project. As a manager, you cannot just avoid the threat; you have to deal with it. As per, the success of Public-Private Partnership is being measured by avoiding the project failure or minimizing their consequences. It means that: the PPP is the right project; it is the right delivery model for the project; the project is appraised, structured, and managed to lessen the negative impacts on cost, scope, time, and quality. 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. 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 the 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 attached 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. Risk management in the 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. Risk management is like hitting two birds with one stone: safety of the guests and employees plus the avoidance of suits and other causes of actions. 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, is the potential that a bank borrower or counterparty will fail to meet its obligations following agreed terms. The goal credit risk management is to maximize a bank’s risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters. Banks need to manage the credit risk inherent in the entire portfolio as well as the risk in individual credits or transactions. Banks should also consider the relationships between credit risk and other risks. The effective Risk Management as Applied to Safety, Security, and Sanitation 3 | Page Introduction to Risk Management Concepts and Principles 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. 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, rental costs, maximization of subrogation recovery. To emphasize, the management of risk is preventive as it would like to limit the occurrence of accidents (automotive-fleet.com). It pertains to the precautionary measures that a manager should take to limit or avoid the accidents. A. Some common injuries in the hospitality industry The following are some of the 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 B. Some Accidents in the Tourism Industry 1. Accidents due to fortuitous events or acts of God. 2. Transportation accidents 3. Accidents pertinent to tourism-related activities. Natural Causes and Disasters 1. Caused by movements of the earth 2. Disasters related to weather 3. Floods, mudslides, landslides and famine. Risk Management as Applied to Safety, Security, and Sanitation 4 | Page