RISK MANAGEMENT CONCEPTS AND PRINCIPLES

Risk

 Is a situation that exposes someone or something to danger, harm or loss.

 Can be a physical safety matter, a risk of property loss, a financial business risk.
 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.

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 precaution based on standards will not be followed.
2. It is an inevitable practice in both tourism and hospitality businesses to get necessary
information about their guest and clientele for security reasons, not only on the part of the
guests but also on the part of the management as well.

Risk vs. Hazard

Hazard – is something that can cause harm

- A danger or risk.

Risk – is a chance that any hazard will cause harm to somebody.

- A situation involving exposure to danger.

Sources of Risks

Risk can some from different sources like the following:

1. Uncertainty in 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

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.

3. Legal liabilities
 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.

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 amoral and ethical responsibility of the operators
2. Protection to business operations which includes protection against damage to property
persons and property and future litigation.

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 is the potential that a bank
borrower or counterparty will fail to meet its obligations following agreed terms.

5. Accidents
Risk and accidents are sometimes being used interchangeably, but they are different, though
they complement each other. Accidents are reactive while risks are preventive.

A. The following are some of the common injuries in the hospitality industry:
1. Slip-and-fall injuries
Hotel workers are risk of falling and slipping because of the nature of their work which
requires them to move quickly and faster as they can to accomplish their time the soonest
possible.
2. Musculoskeletal injuries
Working in a hotel requires a lot of strengths and agility because of the requirement of their
work to bend and lift that could cause muscular pains and injuries.
3. Skin reactions
The skin reactions may be caused by exposure of the hotel workers to variety of chemicals
on a daily basis, like strong cleaning agents.
4. Respiratory illnesses
There is a possibility that hotel employees usually assigned to the House Keeping
Department could acquire respiratory illnesses due to their exposure to infections diseases
carried through bodily fluids like vomit, feces, and blood.
5. 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.
6. Food poisoning
Food poisoning is typically being experienced in the restaurants and similar establishments,
even in luxury hotels and resorts. It is usually caused by undercooked food, cress-
contamination in the kitchen, or other negligent preparation measures.
7. Elevator and escalator accidents
Elevators and escalators which are common in the hotels, malls, and similar establishments
are very beneficial to both the guests and management as it could give them convenience in
getting from one level of a building to another.

B. Accidents in the Tourism Industry

Accidents occur when there is an unintentional external action at a particular time and
place, with the non-apparent and deliberate cause but with marked effects.

1. 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.
Listed below are some of the natural phenomena identified around the world:
1.1. Earthquakes
1.2. Volcanic eruption
1.3 . Flood
1.4. Landslides
1.5 . Erosion
1.6. Fire
1.7. Storm
1.8. Typhoon

2. Transportation accidents

Operators in the tourism industry usually create packages with the following different
modes of transportation to accommodate tourists:

2.1 Air
2.2 Water
2.3 Land

Some road traffic/accident figures:

1. 13 million- Total driver’s licenses issued

2. 7,463,393- Total motor vehicles registered
3. 270,000 km- Total length of roads nationwide
4. 132,089- Violators of the Seatbelt Use Act
5. 79%- Road crash fatalities caused by defective vehicles
6. 11%- Road crash fatalities caused by defective vehicles
7. 10%- Road Crash fatalities caused by dangerous road conditions and ill-maintained
roads.
8. 16%- Road crashes caused by trucks in the first half of 2013
9. 12%- Road crashes caused by trucks in 2012
 10. 7.5%- percentage of the Road users tax collected annually that wil;l be allotted for
road safety measures.

3. Accidents due to Activities

There are various activities in connection with the tourism industry that are susceptible to
give harm and danger not only to the employees but as well as to the tourists and various
stakeholders. Listed below are some of the accidents that could be confronted while
enjoying tourism-related activities:
a. Pool accident
b. Animal bites or attacks
c. Drowning
d. Electrocution

6. Natural causes and disasters

The natural disasters may be categorized into three broad groups:
1. Caused by movements of the earth
2. Disasters related to weather
3. Floods, mudslides, landslides and famine

7. Deliberate attack from an adversary

In an article of Sinai(2016), he expressed his belief on the vital role of tourism in the economy of
the nation as evidenced by the revenue of the government, employment, and national income.
Sinai said in his article that “In response to such terrorist threats, the hotel industry
around the world has beefed up its security departments, implementing a range of security
measures to protect guest at their properties, ranging from armed guards to concrete barriers
and metal detectors.

8. Events of uncertain or unpredictable root-cause

Two Types of Events in Risk Management
1. Negative events or risks
2. Positive events or opportunities

Strategies to manage Threats ( Uncertainties with Negative Consequences)

1. Avoid the threat

2. Reduction of the adverse effect or probability of the threat
3. Transfer of all or part of the threat to another party
4. Retaining some or all the potential or actual consequences of a particular threat, and the
opposites for opportunities.
 How to Implement the Strategies to manage Uncertainties (Method)

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

The following are some of the risk management principles enunciated by the International
Organization for Standardization:

1. Risk management should create a value wherein the resources expended to mitigate risk
should be less that 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 processes
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 a continuous and periodic re-assessment of the risk management

Steps on Risk Management Process as per ISO 31000

The following are the steps for the implementation of the risk management process based on ISO 31000:

1. Context establishment
Establishing the context of risk management involves the following :
a. Risk identification in a selected domain of interest
b. Planning the rest of the whole risk management process
c. Plotting out the:
o Scope of risk management
o Identify and objectives of stakeholders
o Bases of risks evaluation and constraints
d. The framing of risk management activity and agenda for identification
e. Analysis of risk involved in the process
f. Giving of a solution of risks using available technological, human and organizational
resources.
2. Identification of the potential risks
Good managers must possess the ability to forecast the problems that may arise out of the
current endeavor that they have been attending.
a. The sources of risk may be classified as:
o Internal
o External
b. The risk management process did not stop when the risk and sources of risk were
identified.

3. Risk Assessment
Risk assessment comes next after the risks have been pointed out. It is a stage where in 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.

4. Risk Options
The following are some of the options to mitigate risks:
o Project a novel business procedure with sufficient built-in risk control and containment
measures from the start.
o Conduct a periodic reassessment of risks that are acceptable in ongoing processes as a
regular feature of business operations and modify mitigation measures.
o Handover risks to an external agency like an insurance company
o Avoid risks altogether
5. Potential risk treatments
The techniques in managing risk may be categorized into the following:
a. Avoidance
b. Reduction
c. Sharing
d. Retention

6. Make a risk management plan

a. Risk and consequences
b. Probability
c. Impact
d. Priority
e. Mitigation response

7. Implementation
The challenge indeed of effective risk management is on the actual implementation of the plan.
There are cases that people involved in the preparation can no longer execute what has planned
of time. There is a distinction between the simulation exercises involving earthquake and the
actual happening of the event.
8. Review and evaluation of the Plan
An updated periodic management plan is needed because of the following reasons:
1. Determination of the applicability and effectiveness of the previous security controls
2. Understand the possible changes in risk level in the business environment