Five Stages of Risk Management in

Tourism Industry

Risk Management and Service Delivery EA

Fall 2014

Dwita Diah Astari

12410023

APM
I. Introduction

Nowadays, tourism is considered as the industry with the highest growth rate

and potential for job creation worldwide. Moreover, tourism, as any other industry, is

susceptible to risk. The risk could manifest itself in many forms that can have

disastrous consequences upon the tourism industry if they are not managed

effectively. To avoid and to face the risk, tourism industry should have to do or know

risk management.

Risk management in the tourism context refers to the planning and

implementation of processes directed towards managing the adverse effects of crises

and disasters on tourism. It also addresses tourisms potential opportunities for the

improvement in systems and procedures. Moreover, it is essentially about anticipating

and minimizing risks, crisis occurs when an unforeseen or unavoidable event does

occur. According to PATA (2003) a crisis is defined as; Any situation that has the

potential to affect long-term confidence in an organization or a product, or which may

interfere with its ability to continue operating normally. In this report, the author is

going to explain five steps of risk management for tourism industry.

II. Five Steps of Risk Management

Risk Management is a way of looking at an event and considering what can

stop the organizer from achieving what they want to achieve. Therefore, risk

management is an on-going process that can be applied to all aspects of an event.

Event holders should carry out a risk assessment for any new event, but it is also a

continuous process that is designed to help them prioritize where to dedicate

resources and funds, which means the assessment should be revisited every time you

hold an event and always have it front of mind. And the goal of doing risk

management in tourism is to identified, documented, prioritized each of the risk.

There are five important steps in risk management process.

The first step is to establish the context. It is really important for company or

tourism industry to understand the context in which is exist and we have to define the

relationship between our organizations and the environment that it operates in so that

the boundaries for dealing with risk as clear. We can establish the content by

considering the strategic context (the environment within which the organization

operates) and organizational context (the objectives, core activities and operations of

the organization or community). To establish the basic parameters is to identify the

nature and scope of issues to be addressed to ensure the safety of the destination,

relevant disaster/emergency management legislations, policies and management

arrangements.

Second, we have to identify stakeholders and their concerns, perceptions of

risk, and we have to know the values and develop risk evaluation criteria for the

destination. The criteria might include:

Any preventable disaster which causes damage to infrastructure or affects the

continuity of normal tourism business is unacceptable.

Any preventable disaster which results in serious disruption to community utilities

(power, water, sewerage, etc) is unacceptable.

 Any preventable outbreak of disease or epidemic which causes illness or deaths in

the community and to visitors is unacceptable.

Any preventable disaster which results in significant or long-term social disruption

to the destination is unacceptable.

Any preventable accident to a visitor which results in loss of life is unacceptable.

Any preventable incident which affects the safety and security or confidence of

visitors in the destination is unacceptable.

(Asia Pacific Economic Cooperation, 2006)

The second step is identifying risks. The purpose of this step is to identify

what could go wrong and what could happen to prevent the event from being

successful or doing what was originally set out to do. Risks can be physical, financial,

ethical or legal. Physical risks are those involving personal injuries, environmental

and weather conditions and the physical assets of the organization such as property,

buildings, equipment, vehicles, stock and grounds. Financial risks are those that

involve the assets of the organization and include theft, fraud, loans, license fees,

attendances, membership fees, insurance costs, lease payments, pay-out of damages

claims or penalties and fines by the government. Ethical risks involve actual or

potential harm to the reputation or beliefs of your club, while legal risks consist of

responsibilities imposed on providers, participants and consumers arising from laws

made by federal, state and local government authorities.

To face and to avoid the risk there are several methods. First is by experience

(start by reviewing internal and industry records for the types of incidents that have

happened in the past and this is only an indicator as not all future risk incidents have

previously happened); by brainstorming (it is to find out what the business relies upon
and the things that can go wrong); by analysis (analyze internal systems and processes

to identify critical points); by personal feedback (to check any reports or reviews that

might identify things that could affect the ability of the event to succeed. The advent

of social media means that many successful and less than successful events have

running commentary available relating to how well those events were managed) and

the last method is audit and (look for findings).

Third step is analyzing the risk. Once we have identified the sources of risk in

our tourism destination or business/organization, we have to analyze their

consequences. In order to do so, we have to know which will have the most negative

effects in order to prioritize our actions. Risk evaluation involves comparing the level

of risk found during the analysis process with previously established risk criteria, and

deciding whether risks can be accepted. If the risk falls into the low or acceptable

categories, they may be accepted with minimal further treatment. These risks should

be monitored and periodically reviewed to ensure they remain acceptable. If risks do

not fall into the low or acceptable category, they should be treated using one or more

of the treatment options considered in step four.

The fourth step is to treat the risk. If a risk is identified as high or unacceptable

then it should be evaluated in terms of what else can be done do to reduce the risk by

implementing new risk controls. Risk treatment is involves identifying the range of

options for treating the risk, evaluating those options, preparing the risk treatment

plans and implementing those plans. It is about considering the options for treatment

and selecting the most appropriate method to achieve the desired outcome.

According to the standard by National Organizational Development Network (2008),

treatment options include:

 Accepting the risk for example most people would consider minor injuries

in participating in the sporting activity as being an inherent risk.

Avoiding the risk is about your club deciding either not to proceed with an

activity, or choosing an alternate activity with acceptable risk which meets the

objects of your club. For example, a cricket club wishing to raise funds may

decide that a rock climbing competition without a properly trained and

accredited instructor, equipment etc may decide a safer way of raising funds.

Reducing the risk likelihood or consequences or both is commonly practiced

treatment of a risk within sport, for example use of mouth guards for players

in some sports i.e. contact sports.

Transferring the risk in full or in part, will generally occur through contracts

or notices for example your insurance contract is perhaps the most commonly

used risk transfer form used. Other examples include lease agreements,

waivers, disclaimers, tickets, and warning signs.

Retaining the risk is knowing that the risk treatment is not about risk

elimination, rather it is about acknowledging the risk is an important part of

the sport activity and some must be retained because of the inherent nature of

the sport activity. It is important to consider the level of risk which is inherent

and acceptable.

Financing the risk means the club funding the consequences of risk i.e.

providing funds to cover the costs of implementing the risk treatment. Most

community non profit sport clubs would not consider this option.

The last but not least is the fifth step, monitor and review. This step is very

essential to ensure continual improvement and the currency and relevance of the

tourism risk management process. Monitoring and review ensure that the important
information generated by the risk management process is captured, used and

maintained. With communication and consultation, monitoring and review is an on-

going part of risk management that is integral to every step of the process. It is also

the part of risk management that is most often given inadequate focus, and as a result

the risk management programs of many organizations become irrelevant and

ineffective over time.

III. Conclusion

In conclusion, risk management is really important not only for tourism

industry but also any other business and organization. By defining risk management

processes for tourism industry, we as organization/company can minimizing and

eliminating negative risk so the tourism industry can grow better and bigger without

having lots of trouble that will make the reputation of the tourism destination goes

bad. With proper and effective risk management strategies too, it will allow the

organization/business to maximize profit and minimize the expenses on activities that

do not produce a return investment.

 Reference:

Edmead, M. T. (n.d.). Understanding the risk management process. Retrieved

from
http://www.theiia.org/intAuditor/itaudit/archives/2007/may/understanding
-the-risk-management-process/

Oroian, M. (2011). Contributions to a possible risk management model for the

tourism industry in romania. Retrieved from
http://riscurisicatastrofe.reviste.ubbcluj.ro/Volume/X_Nr_9_2011/PDF/M
Oroian.pdf

Robertson, D., Kean, I., & Moore, S. (2006, December).Tourism risk

management an authoritative guide to managing crises in tourism.
Retrieved from
http://www.crctourism.com.au/WMS/Upload/Resources/aicst/06_twg_ris
kmgmt_Guide eng.pdf

Unknown. (n.d.). An introduction to risk management for event holders in

western australia . Retrieved from
http://www.tourism.wa.gov.au/Events/Documents/An introduction to
Risk Management for Event Holders - May 2013.pdf

Unknown. (n.d.). Tourism risk management. Retrieved from

http://www.sustainabletourismnetwork.co.za/wp-
content/uploads/2009/11/Introduction-Presentation-English.pdf