Business Risks — Overview of the Risk Environment
There are various types of business risks in the business environment, and these risks, of course, can differ from environment to environment depending on the type of business or organization. The severity and category of the risk also depends on the largeness of the organization and on various other factors, such as location, personality of employer, quantity of employees employed, and so forth (Crockford, 1986).
Generally, the most common risks are the following:
Workplace safety — Every workplace environment runs the risk of not evidencing workplace safety according to the regulations of Occupational Safety and Health Environment (OSHA). Workplace safety applies to conditions of safety that exists both between workplace manager and his employees and between workplace and those who frequent, or profit from the services of the workplace. As regards the hospitality industry, for instance particularly the spa, workplace safety is inordinately important since lack of it can not only destroy the reputation of the spa but can also involve the manager in numerous and exorbitant law suits. As regards safety in the environment of the spa, many factors are involved from cooking utensils and hygienic restaurant / cocking environment to ascertaining the tidiness and roominess of the place itself with particular attention focused on guests’ safety and comfort. Attention too must be allocated to elderly guests.
2. Employee conflicts – these run the gamut from miscommunication amongst employees to conflict between employees and employer over work-related issues. Managers must ascertain that conflict is ‘nipped in the bud’ before it progresses to contaminate the workplace and destroy the harmonious work environment. Rules such as those implemented by the Equal Employment Opportunity Commission should also be carefully followed. This will ensure that all proper procedures are maintained. Conformance to such rules are all the more important in a hospitality environment such as a spa where ethnicities and backgrounds of employees are likely to be diversified, where employee base is likely to be large, and where there is all the more opportunity for conflict.
3. Product quality — for companies that serve or provide certain products to the public this may be a source of concern where the product may run the risk of being contaminated and harm a consumer, running the company into expensive suit cases and possibly into bankruptcy. The company has to take proper steps to meet its quality requirements being careful o abstain from negligence of products and service.
Such an instance may manifest itself in the spa in various ways ranging form the food provided (e.g. food contamination) to a person drowning in the pool. All instances must be carefully thought of to prevent risk from occurring in these situations.
4. Workplace violence – This is similar to workplace conflict but extend beyond that to actual aggressive risk. The Bureau of Justice Statistics from between 1992 to 2006, more than 11,00 deaths occurred on the workplace. Not all of this is between employees and the hospitality sector in general and spas, in specific, have to be particularly careful between violence between its mix of employees and violence between its mix of guests. Thefts, too, can be a problem. The employer must take steps in preventing these risks from occurring for otherwise he can be accused of negligence and the business may mortally suffer (Crockford, 1986).
Other risks may proceed from uncertainty in financial transactions, as well as from competition, and from factors in both external and internal environment. Threats include credit risk, accidents, natural disasters, and challenging unpredictable events that include political factors. All business have their risks. The spa, as per hospitality factors, has its own degree of risks which may, in some aspects be more intensified than those occurring in other businesses.
The need for risk management and the effect of risk on service / tourism / spa factor
It is well-known that there is a great deal of global risks in both natural and human systems. As Faulkner et al. (2010) point out; tourism is not immune to this and, on the contrary, may be more susceptible to these risks than most other — if not all other industries and services. Mores so, authors such as Drabek (1995) hypothesize that the increased volume of global tourism make these risks all the more possible and that tourists are exposed to ever grater levels of risk. Despite this factor, Faulkner et al. (2010) urge the need for grater levels of risk assessment and risk management in the tourism industry point out that not only is little research done in this area but that governments and tourism sectors themselves should go to more greater lengths of enhancing and intensifying their risk management factors than they do at the moment. This is particularly important in the post November 11 tragedy.
Crisis according to the AICST (2004) 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 terms of the tourism sector, crisis management, accordingly, refers to the ability to which the organization can shelter itself from and respond to crises.
Crises on tourism sectors have been common in the not so and even recent past that include form natural events such as Hurricane Katrina and form terrorism such as in the Bali Bombings. In both instances, the disaster not only impacted the services of the organization at the moment but also destroyed its ability to regain normal operations and continue its standing.
All tourism industries have to work in conjunction with the government in developing risk management programs. The development of effective plans within the tourist sector is contingent upon the following:
Regular inter-institution meetings and liaison
Implementation of a risk management process
Development of plans to that extent
Community consultation
Training of personnel
Constant and efficient review of their standards. (AICST, 2006)
Risk management plans for tourism industries should focus on the safety of visitors and employees as well as ensure security of buildings from disaster, have supply resources in stock, and create procedures for returning their organization to original working conditions.
The organization too has to distinguish between hazard and risk with hazard being a source of potential harm to the community or organization and risk being a disaster to the organization’s objective. A hazard may also be a source of risk, but may not be in itself a disaster. The best example is an earthquake occurring in the town where the spa is located. The earthquake is a hazard. Yet it may not be a risk in that it may not attack the spa.
Strategic management approaches to risk and the process of risk management
Several risk management standards have been developed by organizations such as the Project Management Institute, the National Institute of Science and Technology, International Organization for Standardization (ISO) standards, and actuarial societies. The methods and objectives vary, of course, from business to business with risk management standards depending on the type of organization and service.
Risk management is defined by a prioritization process where risks are prioritized according to their intensity of importance and according to their greatest probability of occurrence. Those with greatest probability and greatest intensity are handled first. This helps the organization allocate its resources and attention profitably.
The method that the organization adopts in its risk management is most frequently the following:
1. It identifies and defines possible threats to its industry or service
2. It asses the vulnerability of its assets to the threats
3. It determines the risk and other consequence of the threats on the specific assets
4. It brainstorms ways to reduce these risks, and
5. It prioritizes risk reduction measures according to certain strategies or tools (Dorfman, 2007).
The principles of risk management, according to the International Organization for Standardization (ISO) involves the following elements: it should be systematic and structures, be planned by the entire organization and stakeholders, be constructive and accurately address the issues, consider human factors, be constantly monitored and reviewed, be premised on reliable and current information, be responsive to change, be profitable and not involve too much pain and expense to the organization, be flexible, and address uncertainties and assumptions (i.e. take into account contingency situations) (Committee Draft of ISO 31000 Risk management).
The risk management models vary based upon culture and industry as well as problems that the industry sector may face. The most common risk management methods are the following:
Scenario-based risk identification model – where various scenarios are mapped and any event that triggers an undesirable scenario in regards to the organization is identified and tagged as risk
Objectives-based risk identification – The organization or industry has objectives. Any challenges and threats to those objectives are termed risks.
Taxonomy — based risk identification – The taxonomy works according to a breakdown and identification of possible risk sources. A questionnaire is crated, based on taxonomy and the knowledge of what to do in risk management situations
Common-risk checking. This strategy lists all known risks that may be existent in that particular work environment and tehn checks off to see whether those risks apply in the particular work environment in question and / in a particular situation
Risk charting — This method involves and integrates all the previous methods by listing all these possible risks to the organization and the preventative and mitigating factors to these risks. The method is worked from either end: one can start with the organization’s resources and identify possible risks and then assess mitigating factors, or one can start with the threats and identify susceptible resources. Alternately, one can begin with an outcome-based situation identifying the factors that may cause these adverse circumstances (Dorfman, 2007)..
Risks are worked out according to the composite risk index, which represents the impact of the risk event as a product of the probability of occurrence. The impact of the Risk event is assessed on an arbitrary scale of 1 to 5 with 1 being the least possible and 5 being the most probable. Ultimately, however, the probability of the risk occurrence is never definite and is, therefore, difficult to calculate.
6. Enterprise risk management (ERM) models and approaches with relevance to the hotel management service.
Unpredictability of risk occurrence is all the more common in an enterprise, and possibly most common in the hospitality sector, which includes spas.
In enterprise sectors, risks can impact the very fabric of the enterprise, which includes the resources (both human and capital) as well as the products and service and customers.
Recommendations in terms of risk mitigation usually include aims to carefully design the service process with adequate built-in control measures such as lifeguards by the pools and facilities for handicapped individuals. Other attempts are to periodically review risks that may impede the service and may need attention, such as a spa that is located in a politically temperament environment.
The spa too can transfer as many of its risks as possible to an external source such as to an insurance agency. Finally, the spa can attempt to avoid whichever of its risks it can, such, as for instance, simplifying its diet, and not serving food that may cause elderly individuals to choke.
Risks, accordingly, fall into one or more of these four categories:
Avoidance — where the spa can decide to withdraw or retract itself from the risk
Reduction – where the spa minimizes the risk to whichever extent possible
Sharing — where it transfers responsibility of the risk, and,
Retention — where it accepts but mitigates the risk to whichever extent possible. (Enterprise Risk Management Committee, 2003)
The Casualty Actuarial Society defined ERM as cutting across two dimensions of (a) risk type and (b) risk management process. These include hazard risks (such as catastrophe with drowning in hotel pool), financial risk, operational risk (e.g. customer dissatisfaction with spa), and strategic risk (for instance, competition) (ibid).
The management of the ERM, in this case, the spa, creates a risk management plan where metrics are used to measure each risk and where effective security controls are put forward to mitigating and reducing the risks. Ideally, too, strategies for control implementation should be put in place with certain people delegated to ensure that these are kept.
The risk treatment plan differs from the risk management plan in that it puts the latter in motion and determines how each of the identified risks should be handled. For example, the spa may note on its risk management plan that food contamination may be a problem. The risk treatment plan records the measures that have actually been implemented to suppress that problem. Security controls are documented in a Statement of Applicability, which identifies and provides rationale for the specific controls that have been chosen.
The hotel sector should evaluate its risk analysis plans on a persistent level specially since conditions and situations are fluid and often changing in the hospitality sector and a spa and hotel must always be prepared for unpredictable events. Reasons for monitoring are to ensure that:
1. The previously selected controls are still viable and applicable and
2. To assess whether the hotel internal or external environment may not negate present risks and/or demand more and/or intensified controls to be put in place.
Sources
APEC International Center for Sustainable Tourism (AICST) (2004), ‘Tourism Risk Management in the Asia Pacific Region’, APEC
APEC International Center for Sustainable Tourism (AICST) (2006) “Tourism risk management: An authoritative guide to managing tourism..”
APEC Tourism Working Group (2001), ‘Statement on the Impact of Tourism of the September 11 Terrorist Attacks in the United States’, APEC
Committee Draft of ISO 31000 Risk management” (PDF). International Organization for Standardization. http://www.nsai.ie/uploads/file/N047_Committee_Draft_of_ISO_31000.pdf.
Crockford, Neil (1986). An Introduction to Risk Management (2 ed.). Cambridge, UK: Woodhead-Faulkner
Dorfman, Mark S. (2007). Introduction to Risk Management and Insurance (9 ed.). Englewood Cliffs, N.J: Prentice Hall
Enterprise Risk Management Committee (May 2003) (PDF). Overview of Enterprise Risk Management. Casualty Actuarial Society
Faulkner, HW et al. (2010) Progressing Tourism Research, USA
ISO/DIS 31000 (2009). Risk management — Principles and guidelines on implementation. International Organization for Standardization. http://www.iso.org/iso/iso_catalogue/catalogue_tc/catalogue_detail.htm?csnumber=43170.
World Tourism Organization (UNWTO) (2003), ‘WTO – World Tourism Barometer’, [online]
http://www.worldtourism.org/market_research/WTOBarom03_1.pdf
World Tourism Organization (UNWTO) (2005), ‘Tourism Highlights 2005 Edition’, [online] facts and figures section at www.world-tourism.org,
World Tourism Organization (UNWTO) (2003), ‘WTO – World Tourism Barometer’, [online]
http://www.worldtourism.org/market_research/WTOBarom03_1.pdf
World Tourism Organization (WTO) (2001), ‘Tourism 2020 Vision: Volume 7: Global Forecasts and Profiles of Market Segments’, WTO
World Travel and Tourism Council (WTTC) (2006), ‘World Travel & Tourism Climbing to New Heights — The 2006 Travel & Tourism Economic Research’, [online] www.wttc.org,
World Travel and Tourism Council (WTTC) (2002), ‘APEC: The Impact of Travel & Tourism on Jobs & the Economy’, [online] www.apecsec.org.sg/apec/apec_groups/working_groups/tourism.html,
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