Risk Management in Tourism

and Hospitality (TMgt3125)

dagnuwgu@gmail.com
March, 2022

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 Chapter One
Introduction to Risk Management

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 Introduction to RM
Defining Risk and Crises
Risk
– Is the likelihood of negative events and subsequent loss to
tourism business
• Can be measured statistically
• Are factors in the consequence of a given risk occurring
• Risk most commonly refers to the prospect of loss
• Loss are unwanted outcome/undesirable consequence from
an event
Crises
• Are period of intense uncertainty featured by unpredictability
or loss of control over key functions
• Crises in tourism damage the market potential and reputation

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 Introduction to RM
Crises Management
• Strategies, processes and measures planned and put into
force to prevent and cope with crises
• Risk management is assessing the probability of negative
events
• Risk and crises management are an integral component of
overall tourism and hospitality management
• Can be practiced at destination level and by individual
businesses
• At destination level
– Public sector agencies, Communities and Large enterprises
• Effective RM prevents an issue from becoming crises
• Poor understanding leads to crises situation

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 Introduction to RM
Functions of Risk Management
1. Identify
– Identify risk or hazards before occurrence
2. Analyse
– Evaluate the probabilities, time frames and potential
impacts of each risk and classify and prioritize them
3. Plan
– Formulate contingency action plans for mitigating the
potential impact of each risk
4. Track
– Monitor the likely effectiveness of these plans by
reviewing evolving risk

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Functions of Risk Management…
5. Control
• Revise the plans according to data from
monitoring stage
6. Communicate
• Ensure stakeholders buy in and support in
monitoring changes in the risk environment

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 Introduction to RM
Types and impacts of crises in tourism
• Based on predictability and avoidance there are two
categories of tourism related crises
1. Beyond the control of managers, politicians and policy
makers
1. Natural disaster
2. Diseases epidemics
3. Sudden global economic events
2. Failure of resulting from weakness of management and
governments to deal risk
– Poor management, Financial fraud, Loss of data, Destruction of
places of business without adequate coverage, act of war, terrorism,
political upheavals, crime waves, anthropogenic climate change

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 Introduction to RM

Group Work

Give example of for both categories of crises in Ethiopia

– Beyond the control of managers, politicians and policy makers
– Failure of resulting from weakness of management and governments
to deal risk

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 Introduction to RM
According to UNWTO, crises is placed into five categories
1. Environmental: Includes geological and extreme weather,
(human induced) climate change and deforestation
1. Geological:
– Hurricanes and cyclones, volcanic eruptions, earthquake
and tsunami
– Many types of geological events cannot be predicted with
exceptions of tropical storms
– Geological events are likely to cause major disruptions in
normal operations (Infrastructure, communications and
facilities)
– Can be challenging to evacuate tourists from these areas

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 Introduction to RM
Significant geological events affecting
tourism in recent years
• The Indian ocean tsunami, December, 2004
(affects 11 countries)
–Most severely Indonesia, Sri Lanka, India
and Thailand (230000 fatalities)
• The Nepal earthquake of April 2015 (causes
9000 dead)
• Offshore earthquake of Japan (22000 dead)
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 Introduction to RM
2. Extreme weather conditions
• Hurricanes, floods, prolonged drought
– Give example from Ethiopia
• Examples from across the globe
– Hurricane Katrina and flooding in new Orleans in
2010 (1800 loss of life)
– Tennessee in December, 2016 (14 loss of life)
– Fire in Portugal in June 2017 (60 loss of life)

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 Introduction to RM
3. Anthropogenic
• Are human induced environmental events
• Climate change, pollution, and deforestation

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 Introduction to RM
2. Societal/political events
• Crime, politically motivated disturbances, terrorism,
wars, and human right abuses
1. Crime
– Physical attacks targeted tourist
• The 2008 SA record loss of 22million tourists
2. Politically motivated disturbances
• coups, civil war, and act of terrorism
3. Human right abuse
4. External threats (terrorism, if the roots are external)
5. Health related (Avianflu, Foot and mouth diseas, SARS,
Salmonella, Ebola, Corona)
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 Introduction to RM
2. Societal/political events…
5. Health related…
• There are two broad categories of health related crises
affecting tourism
– Macro level
• Outbreak threaten both the resident and tourists
– SARS (Severe Acute Respiratory Sydrome), H5N1,
H7N9 (Avian Flu, Ebola, Corona
– Micro level
• Resulted from poor hygiene or safety of service
providers
– Food poisoning

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 Introduction to RM
3. Technological Crises
• Caused by technological events such as transportation
accidents and failure of IT systems
• Caused by malfunctions in technology or human shortcomings
in operating the technical systems
• The increased reliability or aeroplanes, ships and trains has
kept the incidents of accident low
• Some examples between 2000-2009
– 46901 deaths by road accident between
– 1474 deaths in aviation and maritime accident
• This attract greater media attention
– 65 fatal air accident between 2006-2015 (0.29 per million)
– Where flights are a subject of terrorist attack same procedures to
recover from crises is necessary

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3. Technological Crises…
• Single cruise ship accident is recorded since 2000 (Costa
Concordia, 2012) sinking 32 pax
• Rail accidents are common with low standard of tracks and
equipment maintenance
• There is possibility of tourists being caught and injured in road
transport accident and common in low regulatory standards
• Due to safety record of international transportation the
occurrence of accident is low
• Reaction of tourist to transportation accident do not involve
aircraft tends to be less dramatic
– Rescue and recovery efforts are conducted quickly and professionally
– When investigation into the cause are conducted with speed and
openness
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4. Economic events
• Economic crises affecting tourism results a loss of consumer
confidence and alter propensity to travel including
– Global recessions
– Weak national economies and
– Sudden changes
• The most of these event is the 2008/09 financial crises and
subsequent global economic slowdown
• World wide the event has resulted a decline in international
tourist arrival and receipt of 4% and 6% respectively
– Exception to this is Asia-pacific and Sub-Saharan
• The impact was short lived; the sector rebounded with 7%
growth in arrival
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4. Economic Events
• Relative value of national currencies to source market tends
to increase or decrease tourist flow
• A significant influence on US and Europe tourist flow is the
relative exchange rate between these currencies
• The principal consequence of crises is a rapid decline in
overall tourist arrival and occupancy rate for hotels, tour
operators and airline due to
– Physical damage to physical infrastructure
– Heightened perception of risk and erosion of consumer confidence
– Decisions by consumer to cancel or postpone trips
– Removal by TO of holiday in affected countries from their ad campaign
– Decisions by airlines to reduce flights to affected destination

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4. Economic Events
• These issues will result in a loss of jobs and fall in economic
benefit of tourism including
– Reduced income for businesses and individuals along the supply chain
– Loss of tax revenues for government
– Reduced investment in facilities
• Many disruptive events are limited to a relatively small
geographic area in a country
• However, market concern about safety and image may apply to
the whole country
• The effect of event can be short duration if remedial action is
done including the following
– infrastructure repair
– security improvement and
– Reassuring communication
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 Introduction to RM

4. Economic Events
• Sensitivity to a destination differs between markets
and segments depending on
– Age, background, cultural outlook and experience
of travel
• Who are more sensitive?
– Young?
– Old?
• West European market are the most sensitive to crises
followed by North America
• There is an evidence terrorist attacks (threats) are the
most common cause of trip cancellation
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 Introduction to RM
Summary of key risk to tourism and tourism enterprises
Risk category Examples
Economic Currency fluctuations, economic downturn, increase in interest rate
Health Epidemics, pandemics
related
Psychological Negative images and perceptions which may have resulted from bad
/emotional publicity, negative experiences from clients/visitors, malicious propaganda

Environment Damage to environment through natural causes or through human pollution

al
Financial Overpricing, fraud, embezzlement, dispute over the contractual agreement
between suppliers and customers
Human Riots, political instability, terrorism, war, crime waves, service error,
industrial action
Natural Earthquakes, volcano, storms and climatic related issues, forest fire, tsunami
hazards

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 Introduction to RM

Summary of key risk to tourism and tourism enterprises

Risk category Examples

Occupational Inadequate safety measures, poor safety management, inadequate sanitation, poor
health & safety water quality

Product Building and engineering design failure, mechanical breakdown in aircrafts and
deficiencies transport, no delivery of services

Property Loss, injury and death due to design and construction faults
damage
Professional Failure in professional advice, negligence, misrepresentation, failure to deliver
liability contracted services

Public liability Danger to people who are on the property of business

Security Vandalism, theft, terrorism, vulnerable computer and data system, lack of protection
for staff, guests and clients and attendees of events

Technological Airline, car, bus, vehicle or train crashes due to poor maintenance, failure of obsolete
technology resulting in service failure, failure of computer system and either loss,
theft or corruption of data
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 Introduction to RM

Risk management process

• Effective RM can prevent an issue from becoming a
crises
• Poor understanding and management of risk can lead
to a crises situations
• RM involves assessing the probability of events that
lead the industry unable to operate normally
• It includes the following process
– Establish the context
– Identify the risk
– Analyse the risk
– Evaluate the risk
– Treat the risk
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 Introduction to RM
Risk management process
• Communication and consultation as well as Monitoring and
Reviewing need to be done at each stage

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 Introduction to RM

Risk management process

 Communicating and consulting
• Are enabling activity fundamental to RM and must be
taken at each stage
• A two way process of internal and externa
communication and consultation must be established
and maintained between decision makers and
stakeholders
• Stakeholders needs and opinions should be sought for
different views
• It is essential to document all meetings and
discussions
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 Introduction to RM
Risk management process
Communicating and consulting
• Stakeholders in tourism destination context
– Politicians
– Emergency services (police, fire, ambulance)
– Tourism organizations and sectoral associations at different
levels
– Government officials
– Hospital and medical personnel
– NGOs
– Social welfare/recovery personnel
– Owners/managers of at risk facilities
– Expert/technical advisor
– Industry representatives and others
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Risk management process
 Monitoring and reviewing
• Are enabling activities essential in order improvement achieved
• Risk doesn’t remain static, and TRM is an ongoing process with
regular monitoring and review of hazards, elements at risk and
the progress, outcomes and efficacy of risk treatment measures
• Systematic monitoring and review system should be developed
and maintained by
– Establishing arrangements for monitoring and reviewing
– Develop a risk register computer data base
– Repeating the RM cycle on regular basis
– Measuring progress
– Evaluating lessons from review process amending plan

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Risk management process
1. Establish the context
• Is related with establishing parameters or framework including
– Identify relevant policies, systems, procedures and inter and intra-
organizational relationship
• The organizational context includes internal and external environment
– Establish basic parameters
• The nature and scope of issue to be addressed
• Relevant disaster management legislation, policy and
management arrangement
• Public health issues, occupational health and safety
requirement
– Establish stakeholders and their concern, perceptions of risk and
values
– Establish relevant community structure and arrangements
– Develop risk evaluation criteria for the destination
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Risk management process
1. Establish the context
• Criteria
– Preventable disaster causes damages to infrastructure
– Preventable disaster causes disruption to community
utility
– Preventable outbreak of diseases causes illness or deaths
– Preventable disaster causes significant social disruption
– Preventable accident to a visitor causes loss of life
– Preventable incident affects safety and security or
confidence of visitor

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Risk management process
2. Identify Risk
• Systematic process is required to ensure all relevant risk are
identified
• Risk will change, monitoring and review processes helps to
identify new risk
• It is essential to identify susceptibility (the potential to be
affected by loss) and resilience (a measure of how quick a
system recovers from failure)
• Part of RM process to reduce these in this regard include
– Gather information on hazards (from scientific data, disaster
management sources, record of past events, consultation with
stakeholders and expert)
– Identify hazards against descriptor (duration, scope of impacts)
– Describe the element at risk (people, environment , facilities,
infrastructure, utilities, economy )
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 Introduction to RM
Risk management process
2. Identify Risk
Elements at risk (example)
Elements at Risk
Sources of risk
(hazards) infrastructure
people environment utilities

 
Tsunami

Epidemic        
Earthquake        
Crime against  
     
visitors
Riot        

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Risk management process
2. Identify Risk
• Identify the risk relationship and if so establish relationship
• Develop risk statement for each of the relationship
– There is a risk that flooding within the town will inundate
the X visitor hotel
– There is a risk that in the event of bad weather there could
be an aircraft crash with loss of many lives including
visitors
Sources of risk Element at risk Relationship (example)
Flood Visitor Hotel Inappropriate siting of building
on known flood plain

Aircraft People, Inadequate all-weather

infrastructure navigation aids at airport
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Risk management process
3. Analyse Risk
• The purpose is to develop understanding of the risk the
destination is facing
• Assists in decision making on which risk need to be treated
and identifying the best risk treatment strategies
• Steps include the following
1. Identifying existing control measure & their effectiveness
• Flood plain management system, evacuation plan, warning
system, emergency services, municipal response and recovery
plans, annual test of plan, public education system
2. Establish form of qualitative and quantitative analysis
1. Qualitative: words are used to describe the magnitude of
potential
2. Quantitative: numerical values for likelihood
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 Introduction to RM
Risk management process
Qualitative measures of consequence for TRM
Level Descriptor Description
1 Insignificant No disruption to destination; no disturbance of visitors; no
financial loss; no media or public interest

2 Minor Minimal disruption to destination and visitors; limited or no

financial loss; no media coverage or public interest

3 Moderate Short-term disruption to destination and services to visitors; some

financial loss; limited media reporting

4 Major Disruption to destination and services to visitors for more than 24

hours; financial losses, anger and frustration on the part of
visitors; critical media reports and public criticism of destination

5 Catastrophic Unable to meet visitors’ requirements and provide normal service

type and level; severe financial losses; widespread criticism of
destination; critical international media reports; mass cancellation
of bookings
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Risk management process
Qualitative measures of likelihood
Level Descriptor Description
A Almost certain Is expected to occur in most
circumstances
B Likely Will probably occur in most
circumstances
C Possible Might occur at some time

D Unlikely Could occur at some time

E Rare May occur only in exceptional

circumstances

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Risk management process
Qualitative Risk Analysis Matrix- Level of Risk
Likelihood Consequences
Insignificant 1 Minor 2 Moderate 3 Major 4 Catastrophic 5
A (almost certain) H H E E E
B (likely) M H H E E
C (moderate) L M H E E
D (unlikely) L L M H E
E (rare) L L M H H

Legend
• E: Extreme risk; immediate action required
• H: High risk; senior management attention needed
• M: Moderate risk; Management responsibility must be specified
• L: Low risk; manage by routine process

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Risk management process
4. Evaluate Risk
• Decisions about which risks have to be treated and in
what order
• Decisions on risk treatment needs and priorities must
be aligned with destinations expectations, values and
perceptions of risk
– Establish treatment needs and priorities in descending
order
– Stakeholders consultation is essential
– Document on
• The risk which are not to be treated
• The risk which will be treated in order of priority
• How the decisions were arrived at
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Risk management process
5. Treat Risk
Standard risk treatment options available include
• Avoid risk
• Reduce the likelihood of consequence
• Reduce the consequence of the occurrence
• Transfer the risk (insurance)
• Retain the risk (accept and plan)
• Prevention/mitigation (legislation, rules, codes)
• Preparedness (awareness and education)
• Reponses (plan implementation)
• Recovery (restoration of essential service)

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Risk management process
5. Treat Risk
• Criteria for assessing which options are applicable
– Is the options affordable?
– Is it the most cost-effective?
– Will it be endorsed by government?
– Will it be accepted by the stakeholders, including visitors?
– Will it encourage further risk reduction measures by
others?
– Is it too complicated or difficult?
– Will it provide long-term benefits?
– Will the benefit be realized quickly?
– Will it adversely affect the destination? And others

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Risk management framework

• Tourism managers and policy makers need to
understand the nature of crises and their likely
development and possible magnitude
• There are six phase framework for
understanding the stages of crises and
responses necessary from stakeholders

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 Introduction to RM
Risk management framework
S. N Phase Principal strategies and actions Key stages
1 Pre-event Contingency planning Prevention, based on
known information
2 Prodromal Initiation of contingency plan Response
(onset of crisis    
situation)
3 Emergency Protective actions during crisis Response
4 Intermediate Short-term needs addressed, clear Response
  communication strategy in place  
6 Recovery Restoring infrastructure, facilities, Stimulation of
and tourist attractions, coordinated recovery in mid and
and sustained marketing response long term

7 Resolution Review of actions taken to feed into Prevention, based on

further contingency plans new learning

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 Thank You

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