RISK MANAGEMENT

CONCEPTS &
PRINCIPLES

1
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Chapter
 Risk, according to UNWTO, is a situation that exposes
someone or something to danger or loss.

 Risk can be a physical safety matter , a risk of property

loss or a financial business risk.

 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.

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 The business dictionary has defined risk as 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.

 In the point of view of economics, risk implies future

uncertainty about deviation from expected earnings or
expected outcome. Risk measures the uncertainty that
an investor is willing to take to realize a gain from an
investment.

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RISK VS HAZARD
 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.

 According to workSMARK, a hazard is something that

can cause harm while risk is a chance that any hazard
will cause harm to somebody.

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RISK MANAGEMENT
 Risk Management, (as defined in ISO3100), 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 to achieve the desired
output.

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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
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 UNCERTAINTY IN FINANCIAL
MARKETS

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 THREATS FROM PROJECT
FAILURES

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 LEGAL LIABILITIES
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
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.

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 CREDIT RISK
Credit is another source of risk that could impact the
tourism and hospitality industries.

Credit Risk is the potential that a bank borrower or

counterparty will fail to meet its obligation following
agreed terms. (As defined in Principles for the Management
of Credit Risk)

The goal of credit risk management is to maximize a

bank’s risk-adjusted rate of return by maintaining credit
risk exposure within acceptable parameters.
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 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.

 Accident management is necessary to reduce costs

pertinent to the accident, to wit: damage to property,
costs of rental, maximization of subrogation recovery.

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 COMMON INJURIES
IN THE HOSPITALITY
INDUSTRIES
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

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 SLIP-AND-FALL INJURIES

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 MUSCULOSKELETAL
INJURIES

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 SKIN REACTIONS

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 RESPIRATORY ILLNESS

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 SECURITY-RELATED
ACCIDENTS

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 FOOD POISONING

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 ELEVATOR & ESCALATOR
ACCIDENTS

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 ACCIDENTS
IN THE TOURISM INDUSTRY
1. Accidents due to fortuitous events or acts of God
- Earthquakes
- Volcanic eruption
- Flood
- Landslides
- Erosion
- Fire
- Storm
- Typhoon
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 EARTHQUAKES

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 VOLCANIC ERUPTION

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 FLOOD

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 LANDSLIDE

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 EROSION

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 FIRE

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 STORM

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 TYPHOON

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 ACCIDENTS IN THE
TOURISM INDUSTRY
2. Transportation accidents
- Air;
- Water;
- Land

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 ACCIDENTS IN THE
TOURISM INDUSTRY
3. Accidents due to Activities
- Pool accident
- Animal bites or attack
- Drowning
- Electrocution

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 NATURAL CAUSES AND
DISASTERS
The natural disasters maybe categorized into three broad
groups;

1. Caused by movements of the Earth

2. Disasters related to weather
3. Floods, mudslides, landslides, and famine

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 DELIBERATE ATTACK FROM
AN ADVERSARY
Terrorism has become one of the more and more active and
threatening calamities that affect the international community.

 It is the use of violence or threat of violence in the pursuit of

political, religious, ideological or social objectives.
 It can be committed by governments, non-state actors, or
undercover personnel serving on the behalf of their
respective governments.
 It reaches more than the immediate target victims and is also
directed at targets consisting of a larger spectrum of society.

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 EVENTS OF UNCERTAIN OR
UNPREDICTABLE ROOT-CAUSE
Two Types of Events in Risk Management

1. Negative events or risks;

2. Positive events opportunities

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STRATEGIES TO MANAGE
THREATS
The following are some strategies that can be of help to
manage threats:

1. Avoid the threat;

2. Reduction of the adverse effect or probability of the
threat;
3. Transfer of all part of the threat to another party;
4. Retaining some or all part of the potential or actual
consequences of a particular threat, and the opposites
for opportunities.
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HOW TO IMPLEMENT THE
STRATEGIES TO MANAGE
UNCERTAINTIES (METHOD)
The different strategies of managing uncertainties can be
dealt with using the following elements in order:

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

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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 than 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 process;
4. It should explicitly address uncertainty and assumptions;
5. It should be placed in a systematic and structured process;

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RISK MANAGEMENT
PRINCIPLES
7. The best available information should be the bases of risk
management;
8. Risk management should be tailorable;
9. It should take human factors into account;
10. It should be transparent and inclusive;

11. The dynamism, interactivity, and responsiveness to change

must be evident on the risk management;
12. Risk Management should be capable of continual
improvement and enhancement
13. There is a need for continuous and periodic re-assessment
of the risk management.
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STEPS ON RISK
MANAGEMENT PROCESS
The following are the steps for the implementation of the
risk management process based on ISO 31000:
1. Context establishment;
2. Identification of the potential risk;
3. Risk assessment;
4. Creation of risk options;
5. Identification of potential risk management treatments;
6. Make a risk management plan;
7. Execute the plan
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 IDENTIFICATION OF THE
POTENTIAL RISK
Classification of Risk Sources;
1. Internal; and
2. External

The following factors could be considered as determinants

in choosing a method of identifying risks;
3. Culture
4. Industry practice
5. Compliance
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 RISK ASSESSMENT
Risk assessment is the stage wherein 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.

Risk assessment is the determination of a quantitative or

qualitative estimate of risk related to a clear situation and
recognized threat (also called as hazard).

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The techniques in managing risk may be categorized into
the following;

1. Avoidance (eliminate, withdraw from or not become

involved)
2. Reduction (optimize –mitigate)
3. Sharing (transfer – outsource or insure)
4. Retention ( accept and budget)

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 Thank you.


Reference:

RISK MANAGEMENT
For Tourism and Hospitality Management
j.m.d.m/ m.h.m./c.n.c.

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