RISK
MANAGEMENT

      FOR

SMALL TOURISM
  BUSINESSES

  Training Manual
Risk Management
           M
             for
   Small Tourism Businesses
                 Business

This risk management ...
Conditions of Use




STCRC Copyright Statement and Conditions of Use here




DISCLAIMER
The STCRC endeavours to ensure t...
An Introduction to the
Sustainable Tourism Cooperative Research Centre (STCRC)

The Sustainable Tourism Cooperative Resear...
Acknowledgements
The authors wish to thank all those who assisted in the production of this publication and
associated wor...
Risk Management
              for Small Tourism Business
                         One-Day Workshop

Contents              ...
4. Authors   78
Risk Management for Small Tourism Businesses


Foreword

This training manual provides practical knowledge, understanding ...
Risk Management for Small Tourism Businesses



A Brief Overview of the Workshop

Purpose and Scope
Risk Management for Sm...
Risk Management for Small Tourism Businesses


Participant Requirements


To fully benefit from this risk management train...
Risk Management for Small Tourism Businesses




                          Risk Management
                     for Small ...
Risk Management for Small Tourism Businesses


SESSION THREE                                                              ...
Risk Management for Small Tourism Businesses




                                                               SESSION ON...
Risk Management for Small Tourism Businesses



INTRODUCTION TO RISK MANAGEMENT FOR TOURISM

UNDERSTANDING RISK AND RISK M...
Risk Management for Small Tourism Businesses




                                       Risk Event

                      ...
Risk Management for Small Tourism Businesses


advantages for any business:

   - estimating risk helps the business to un...
Risk Management for Small Tourism Businesses


locations, it is essentially a service-based industry. Successful tourism e...
Risk Management for Small Tourism Businesses


Table 1. Potential Risks to Tourism and Tourism Enterprise
(Adapted from AS...
Risk Management for Small Tourism Businesses



      Activity ONE - Risk Recognition
Objective:
To recognise the number ...
Risk Management for Small Tourism Businesses


________________________________________________________________

_________...
Risk Management for Small Tourism Businesses



 Activity TWO - Current Risk Arrangements

Objective:
To determine the sc...
Risk Management for Small Tourism Businesses


Notes:
________________________________________________________________

__...
Risk Management for Small Tourism Businesses


RISK MANAGEMENT - THE PROCESS

While there are a variety of international a...
Risk Management for Small Tourism Businesses


Figure 2.              The Risk Management Process (Adapted from AS/NZS 436...
Risk Management for Small Tourism Businesses



Planning to Manage Risks
Rather than waiting for something to happen, risk...
Risk Management for Small Tourism Businesses



Figure 3.              General Risk Management Policy                     ...
Risk Management for Small Tourism Businesses




                                                              SESSION TWO...
Risk Management for Small Tourism Businesses



THE BUSINESS CONTEXT AND RISKS

COMMUNICATION AND CONSULTATION


Communica...
Risk Management for Small Tourism Businesses


decision, stakeholders affected, and stage or step of the risk management p...
Risk Management for Small Tourism Businesses


Figure 4.              Tourism Communication and Stakeholders

            ...
Risk Management for Small Tourism Businesses



 Activity Three - Key Stakeholders and Contacts


Objective:
To identify ...
Risk Management for Small Tourism Businesses


Notes:
________________________________________________________________

__...
Risk Management for Small Tourism Businesses



STEP 1. ESTABLISH THE BUSINESS CONTEXT

Understanding the Context
Effectiv...
Risk Management for Small Tourism Businesses


Risk Measurement Criteria
Businesses should develop a set of standards that...
Risk Management for Small Tourism Businesses



Establish the Context – Sample Template (adapted from Queensland Governme...
Risk Management for Small Tourism Businesses



STEP 2. IDENTIFY THE RISKS
Understanding Risk Perspectives
The way risk is...
Risk Management for Small Tourism Businesses


Source of Risks


                                A hazard is the origin or...
Risk Management for Small Tourism Businesses




Perceptions or opinions on the elements at risk in any business and its e...
Risk Management for Small Tourism Businesses


Risk Identification – Sample Template (adapted from Queensland Government:...
Risk Management for Small Tourism Businesses




                                                         SESSION THREE

 ...
Risk Management for Small Tourism Businesses



RISK ASSESSMENT AND TREATMENT

ASSESSING THE RISKS


Conducting a Risk Ass...
Risk Management for Small Tourism Businesses



Figure 5. Risk assessment as a guide to treatment decisions
(Adapted from ...
Risk Management for Small Tourism Businesses



STEP 3. ANALYSE THE RISKS
Effective analysis of each identifiable risk com...
Risk Management for Small Tourism Businesses


Example of a likelihood scale:
Likelihood of the risk event occurring to or...
Risk Management for Small Tourism Businesses


With the calculated risk level expressed as a either a descriptor or number...
Risk Management for Small Tourism Businesses


Risk Analysis – Sample Template (adapted from Queensland Government: 2005)...
Risk Management for Small Tourism Businesses


STEP 4. EVALUATE THE RISKS

Based on the outcomes of risk analysis, risk ev...
Risk Management for Small Tourism Businesses


Prioritising for Risk Treatment
As no business has limitless resources, ris...
Risk Management for Small Tourism Businesses



Risk Evaluation Form – Sample Template
ACCEPTABLE RISKS:                 ...
Risk Management for Small Tourism Businesses


            (identified risk)          Calculated   (rank or list from high...
Risk Management for Small Tourism Businesses



 Activity FOUR - Developing a Risk Register


Objective:
To develop famil...
Risk Management for Small Tourism Businesses


Notes:
________________________________________________________________

__...
Risk Management for Small Tourism Businesses


Risk Register – Sample Template

              Risk Event                 ...
Risk Management for Small Tourism Businesses



IMPLEMENTATION


STEP FIVE: Treat the Risks
The primary purpose of treatin...
Risk Management for Small Tourism Businesses


Risk Transfer/Sharing:
Shifting/sharing the responsibility or burden for lo...
Risk Management for Small Tourism Businesses


Treatment options and selected strategies should be realistic and feasible....
Risk Management for Small Tourism Businesses


Risk Treatment Plan – Sample Template (adapted from Queensland Government ...
Risk Management for Small Tourism Businesses



THE RISK MANAGEMENT PLAN


In following a formalised risk management proc...
Risk Management for Small Tourism Businesses




                                                          SESSION FOUR

 ...
Risk Management for Small Tourism Businesses



CRISIS MANAGEMENT

CRISIS MANAGEMENT PLANNING


Defining Crisis

  A crisi...
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  1. 1. RISK MANAGEMENT FOR SMALL TOURISM BUSINESSES Training Manual
  2. 2. Risk Management M for Small Tourism Businesses Business This risk management training manual presents a systematic and comprehensive approach to reducing the negative impacts from both internal and external events that may affect small tourism businesses. Specifically, this risk management training seeks to: - identify and develop processes to minimise the exposure and vulnerability of small tourism businesses to risks and hazards - enhance the capacity of small tourism businesses to undertake proactive risk and crisis management for timely response and recovery. Developed by Scott Cunliffe Written By Yetta Gurtner and Damian Morgan
  3. 3. Conditions of Use STCRC Copyright Statement and Conditions of Use here DISCLAIMER The STCRC endeavours to ensure the accuracy of all information contained herein and otherwise supplied. Advice or opinions given by STCRC in this publication or during the course of the relevant training provided by STCRC, represents the best judgement of STCRC but (and to the extent permitted by law) STCRC accepts no liability for any claims or damages whether caused by its negligence (or that of any of its agents or consultants) or otherwise. Advice should be obtained from qualified sources to address particular issues.
  4. 4. An Introduction to the Sustainable Tourism Cooperative Research Centre (STCRC) The Sustainable Tourism Cooperative Research Centre (STCRC) is established under the Australian Government’s Cooperative Research Centres Program. STCRC is the world’s leading scientific institution delivering research to support the sustainability of travel and tourism - one of the world’s largest and fastest growing industries. The STCRC is a not-for-profit company owned by its industry, government and university partners. STCRC input…
  5. 5. Acknowledgements The authors wish to thank all those who assisted in the production of this publication and associated workshop material. Many people and agencies have freely given their time to provide practical advice, support, and offer constructive criticism. If the following list is in any way incomplete, please be assured that it represents an oversight rather than a lack of appreciation. APEC International Centre for Sustainable Tourism - Ian Kean Centre for Disaster Studies - Dr. Scott Cunliffe, Dr David King Emergency Management Australia – Mike Tarrant Queensland Tourist Industry Council - Daniel Gschwind Sustainable Tourism Cooperative Research Centre – Prof. Leo Jago Sustainable Tourism Services - Stewart Moore Tourism Tropical North Queensland – John McIntyre Straun & Associates - David Bierman Other Partners • Emergency Management Australia • Queensland Tourism Industry Council • Sustainable Tourism Services • Centre for Disaster Studies, James Cook University • Tourism Research Unit, Monash University
  6. 6. Risk Management for Small Tourism Business One-Day Workshop Contents Page Foreword 1 A Brief Overview of the Workshop 2 Workshop Outline 4 Introduction to Risk Management for Tourism 6 Understanding Risk and Risk Management for Tourism 7 The Risk Management Process 16 The Business Context and Risks 20 Collaboration and Communication 21 Step 1. Establish the Business Context 26 Step 2. Identify the Risks 29 Risk Assessment and Treatment 33 Assessing the Risks 34 Step 3. Analyse the Risks 36 Step 4. Evaluate the Risks 40 Implementation 46 Step 5. Treat the Risks 46 The Risk Management Plan 50 Crisis Management 51 Crisis Management Planning 52 Appendix 1. Acronyms 64 2. References 65 3. Glossary 67
  7. 7. 4. Authors 78
  8. 8. Risk Management for Small Tourism Businesses Foreword This training manual provides practical knowledge, understanding and skills for small tourism businesses to implement effective risk and crisis management. Tourism represents a highly complex, dynamic and competitive business environment. To remain profitable, small enterprise must be able to successfully negotiate risks and challenges on a daily basis. Similarly, businesses need to be equally prepared for any unexpected crisis that may affect business viability. A logical and systematic approach to risk and crisis management will reduce the impacts and losses associated with any adverse event. In the past decade, domestic and international tourism has endured a variety of environmental, political, and economic, challenges and disasters. While the global tourism industry demonstrates remarkable resilience, the most significant impacts from these events are generally experienced at a local or regional level. Affected tourism businesses often struggle to maintain a profitable level of operation and market confidence. With few small tourism businesses adequately prepared to manage preventable risks and adversity, sound risk management guidelines for small businesses and operators within the Australian tourism sector is considered a practical necessity. The information presented in this training program is referenced from a range of prominent risk management publications and documentation including; Australian/New Zealand Standard for Risk Management (AS/NZS4630:2004), Small Business Standard (HB221:2004), Queensland Government Risk Training and various manuals produced by Emergency Management Australia. Practical feedback and guidance was also provided throughout the development process by a broad-based tourism industry reference group and risk management professionals. Risk Management Training for Tourism 8 © COPYRIGHT STCRC
  9. 9. Risk Management for Small Tourism Businesses A Brief Overview of the Workshop Purpose and Scope Risk Management for Small Tourism Businesses is a practical risk management training programme for small Australian businesses (typically employing less than 20 people) engaged in tourism enterprise. This training package is designed specifically to equip participants with the necessary knowledge, skills and confidence to coordinate effective risk management practice appropriate to the business environment. Overall learning objectives: The objectives of the workshop and training are: - to increase awareness and appreciation of the nature of risks and crises relevant to small tourism businesses; - to develop understanding and familiarity with the process of systematic risk management; - to promote active communication, networks and partnerships, and; - to enhance the capacity of small tourism business to effectively identify, mitigate and respond to adverse risk events Training methods This manual has been developed to support and be used in conjunction with a one day risk management training workshop. Additional materials include a resource book and website material available at: http://www. The workshop is designed to blend formal instruction with practical activities, guiding participants through each step of the risk management process. Participants are encouraged to take notes and will be expected to apply their learning during discussions and group tasks. While these discussion sessions are intended to examine circumstances relevant to the small tourism business environment, participants are under no obligation to discuss matters that may be commercially sensitive or confidential to any business and its practices. The outline and schedule for the workshop component is presented in the following pages of this manual. Risk Management Training for Tourism 9 © COPYRIGHT STCRC
  10. 10. Risk Management for Small Tourism Businesses Participant Requirements To fully benefit from this risk management training programme, participants are expected to read this manual prior to attending the one day workshop. This preliminary task will require a commitment of two to three hours prior to the workshop. It is not expected that the information and processes will be fully understood at this stage. There will be ample opportunities throughout the workshop to discuss questions identified during this preliminary reading. Guide to Symbols  Practical exercise  Risk Management Documentation (Reproduced in Practical Resource Guide) Risk Management Training for Tourism 10 © COPYRIGHT STCRC
  11. 11. Risk Management for Small Tourism Businesses Risk Management for Small Tourism Businesses Workshop – Outline SESSION ONE 0830-1000 INTRODUCTION TO RISK MANAGEMENT FOR TOURISM Understanding Risk and Risk Management for Tourism Defining Risk Risk Management Practice for Small Tourism Business Risk Management within day-to-day business operations Risk Management for the Tourism Industry Potential Risk to Tourism and Tourism Enterprise Activity ONE - Risk Recognition Activity TWO - Current Risk Arrangements Risk Management - The Process The Australian Risk Management Standard AS/NZS 4360 The Risk Management Process Planning to Manage Risks Defining Responsibility Producing a Risk Management Plan MORNING TEA 1000-1030 SESSION TWO 1030-1200 BUSINESS CONTEXT AND RISKS Communication and Consultation in Risk Management Identifying Stakeholders A Communications Plan Tourism Communications and Stakeholders Activity THREE - Key Stakeholders and Contacts Step1. Establish the Business Context Understanding the Context Defining Business Objectives Critical Environmental Factors Stakeholder Identification and Analysis Risk Measurement Criteria Step 2. Identify the Risks Understanding Risk Risk Identification Elements at Risk Scoping Vulnerability Risk Statements LUNCH TIME 1200-1300 Risk Management Training for Tourism 11 © COPYRIGHT STCRC
  12. 12. Risk Management for Small Tourism Businesses SESSION THREE 1300-1430 RISK ASSESSMENT AND TREATMENT Assessing the Risks Conducting a Risk Assessment Step 3. Risk Analysis Information Gathering Review of Current Control Measures Likelihood of Occurrence Consequences of Occurrence Calculating the Level of Risk Step 4. Evaluate the Risks The Evaluation Process Tolerable and Unacceptable Risks Prioritising for Risk Treatment Activity FOUR – Developing a Risk Register Implementation Step 5. Treat Risks Risk Treatment Options Assessing and Developing Treatment Options Developing a Risk Treatment Schedule/Action Plan Implementation The Risk Management Plan Monitoring and Review AFTERNOON TEA 1430-1500 SESSION FOUR 1500-1630 CRISIS MANAGEMENT Crisis Management Planning Defining Crisis Understanding Crisis Management Crisis Management and Tourism Business Continuity Resource Identification The Four “Rs” of Crisis Management – A Practical Approach Crisis Communications (Containment) and Reporting Recovery and Marketing Developing a Crisis Management Plan for Small Tourism Business Activity FIVE – Proactive Crisis Management Planning QUESTIONS AND DISCUSSION 1630-1700 END WORKSHOP 1700 Risk Management Training for Tourism 12 © COPYRIGHT STCRC
  13. 13. Risk Management for Small Tourism Businesses SESSION ONE INTRODUCTION TO RISK MANAGEMENT FOR TOURISM Understanding Risk and Risk Management for Tourism Defining Risk Risk Management Practice for Small Tourism Business Risk Management within day-to-day business operations Risk Management for the Tourism Industry Potential Risks to Tourism and Tourism Enterprise Activity ONE - Risk Recognition Activity TWO - Current Risk Arrangements Risk Management - The Process The Australian Risk Management Standard AS/NZS 4360 The Risk Management Process Planning to Mange Risks A Risk Management Policy Statement Defining Responsibility Producing a Risk Management Plan Risk Management Training for Tourism 13 © COPYRIGHT STCRC
  14. 14. Risk Management for Small Tourism Businesses INTRODUCTION TO RISK MANAGEMENT FOR TOURISM UNDERSTANDING RISK AND RISK MANAGEMENT FOR TOURISM Most people are familiar with the notion of risk. Individuals and businesses make choices and decisions relating to risk on a daily basis. The risk may be associated with a planned tour, a business acquisition or the most advantageous way to arrange a display. The intent is to achieve the desired aims or objectives without things going wrong. Good decision making in the face of risk is generally improved where accurate information, understanding, and expertise is available. Risk management by small tourism businesses is a practical and systematic approach to making good decisions about risk. Based on a logical sequence of steps, it is a process of strategic planning and management that helps to identify, analyse, evaluate and treat potential risks. In practice, effective risk management should be a collective endeavour that is understood and exercised by all relevant personnel. To develop and coordinate such a system of risk management in any business environment first requires an understanding and familiarity with the concept of risk. Defining risk Risk most commonly refers to the prospect of loss. This loss is usually some form of unwanted outcome or undesirable consequence from a specific action or occurrence. Risk is an intangible term generally associated with the dangers and uncertainties of life. In a business context, risk typically refers to the prospect of loss. More specifically, risk is associated with circumstances that potentially result in a loss of business viability and/or profitability. Like any enterprise, small tourism businesses face a diverse range of risks and uncertainty. Some of these risks affect multiple tourism businesses, such as: dramatic interest rate fluctuation; extremes of weather and climate, changes to legislation or variation in tourist arrival numbers. Other risks like property theft, staff injury, or loss of customers might impact on a single or limited number of tourism businesses. Figure 1. The relationship between risk and a risk event Risk Management Training for Tourism 14 © COPYRIGHT STCRC
  15. 15. Risk Management for Small Tourism Businesses Risk Event Cause RISK Consequence Risk is commonly connected with a cause and a consequence. The cause may represent direct physical exposure, dynamic pressures, unsafe conditions or defective business practice. Risk refers to the specific hazard or potential danger that has been identified. In this sequence, consequence relates to any impacts or affects if the risk eventuates. The entire succession, as illustrated in Figure 1., is known as the risk event. A risk event might refer to a business activity, a person’s behaviour or communications, an incident, or an environmental phenomenon. Risk as a core principle in risk management With sufficient information regarding both cause and consequences it is considered possible to measure the risk associated with a particular risk event. In this context, risk is gauged as a prediction or forecast (based on a likelihood estimate) of a given consequence (this is elaborated in Session 3). Judging the risk of an event assists in choosing appropriate behaviours or actions to prevent or minimise potential loss. Effective risk recognition and analysis constitutes the essence of good risk management decision making. Risk management practice for small tourism businesses When faced with risk events, effective risk management practices increase the likelihood of small tourism businesses reaching commercial goals and objectives. Planning risk management Business planning is the process of developing strategies to achieve business goals and objectives. Strategic business planning also involves a degree of assessment regarding risks associated with future events. Such a level of planning typically incorporates flexible and adaptable strategies to address a range of potential situations or outcomes. Most successful businesses acknowledge that any time taken to devise effective and comprehensive business plans eventually pays for itself. Benefits of risk management Taking a systematic and planned approach to manage risk provides numerous operational Risk Management Training for Tourism 15 © COPYRIGHT STCRC
  16. 16. Risk Management for Small Tourism Businesses advantages for any business: - estimating risk helps the business to understand the causes and consequences of a particular event; - well devised risk management plans prevent or reduce the severity and duration of a risk event . This can save both time and money; - a clear set of procedures assists in the timely identification and coordination of resources. This process helps minimise potential loss of life and property; - prepared and coordinated contingency plans enhance customer relationships ; and, - prepared communication strategies control the flow of critical information during and following the risk event. This prevents the release of incorrect or damaging information to stakeholders or the public. Effective risk management equates to both common sense and good business practice. It protects business profitability, promotes operational viability, complies with legal and social responsibilities, and, provides improved access to insurance. Risk management can also presents additional opportunities such as improved staff management and enhanced relationships with customers and associated organisations. Costs of not managing risk Any comprehensive risk management process requires an investment of time, money, training and resources. Even so, risk management must be practiced, in some form, by all businesses. Routine safety practices, security procedures, contract negotiation and legal compliance all represent common risk management practices. Good risk management planning is designed to enhance existing capabilities and find the best method to minimise the cost of risk to the business. To be effective, risk management should become thoroughly embedded within the business culture, practices and systems. The consequences of not being prepared for risk include: - endangering the health and safety of employees, customers, volunteers and participants; - damaging the business’s reputation, credibility and status; - undermining public and consumer confidence in the business; - jeopardising revenues and the business’s financial position; and, - damaging a business’s plant, equipment or the environment. Research and experience consistently demonstrates that the costs of not being prepared for significant hazards can prove devastating to business enterprise, income, resources and even human lives. Risk management for the tourism industry Even though tourism may comprise a diverse range of products, activities, experiences and Risk Management Training for Tourism 16 © COPYRIGHT STCRC
  17. 17. Risk Management for Small Tourism Businesses locations, it is essentially a service-based industry. Successful tourism enterprise is premised on maintaining customer satisfaction, positive image and reputation, and confidence, in existing levels of safety and security. Unfortunately for individual tourism businesses, offering a quality, safe and responsible operating environment does not always guarantee continued custom and profits. Due to the erratic nature of risk perception and association, the poor service or adverse conditions of other businesses and destinations have the potential to affect local enterprise. Tourism has consistently proven to be highly sensitive to external shocks and threats. Table 1 demonstrates the diversity of potential risks to tourism and individual tourism enterprises. While the steps required for risk management in the tourism industry are essentially the same as for any other industry, the highly connected and interdependent structure of tourism presents the individual business with some unique challenges and risks. To maintain sustainability and prosperity, small tourism businesses require both an intimate familiarity with the specific business environment and its linkages to the wider tourism industry and community. Risk Management Training for Tourism 17 © COPYRIGHT STCRC
  18. 18. Risk Management for Small Tourism Businesses Table 1. Potential Risks to Tourism and Tourism Enterprise (Adapted from AS/NZS 4360) RISK CATEGORY/TYPE EXAMPLES Diseases Contagion affecting humans, plants and/or animals Economic Currency fluctuations, interest rates, share market Psychological/Emotional Negative image/perceptions, rumour, bad Association publicity, association with adversity, visitor dissatisfaction, unfavourable travel advisories Environmental Noise contamination, pollution, loss of biodiversity, erosion Financial Contractual risks, misappropriation of funds, fraud, fines Human Riots, strikes, sabotage, error, terrorism, violence, war Natural hazards Climatic conditions, earthquakes, bushfires, vermin, volcanic activity, tsunami Occupational health and Inadequate safety measures, poor safety safety management, deficient sanitation, low water quality Product liability Design error, substandard quality control, inadequate testing Property damage Fire, water damage, earthquakes, contamination, human error Professional liability Wrong advice, negligence, design error, misrepresentation Public liability Public access, egress and safety Security Cash arrangements, vandalism, theft, misappropriation of information, illegal entry, crime Technological Innovation, obsolescence, explosions, accidents and dependability Risk Management Training for Tourism 18 © COPYRIGHT STCRC
  19. 19. Risk Management for Small Tourism Businesses  Activity ONE - Risk Recognition Objective: To recognise the number and variety of risks that may potentially affect small tourism business operations. Having developed a familiarity with the generic concept of risk, risk events and the relationship of risk management to small tourism business, such risks should be understood within a more practical context. Risk events can clearly have a wide impact across an entire tourism sector, a geographic region, or may be confined to a particular business. Regardless of magnitude, to remain viable a small tourism business must learn to successfully negotiate and manage such risks. Before considering a more formalised approach to the risk management process, it is important to identify and appreciate some of the key risks to a small tourism enterprise. Task: Given the table of Potential Risks to Tourism and Tourism Enterprise provided (Table 1), consider some of the common (and less common) types of risks faced by small tourism businesses. In small groups (3-4) share and discuss what you consider to be some of the main risks (or risk events) that may affect profitability or viability in your business environment. Also include risks that are currently managed or controlled. Group findings will be shared with the other workshop participants to develop a wide-ranging list of relevant risks. On the basis of this workshop discussion use the table below to outline five risk events that pose a significant and/or likely threat to current business operations (try including risks you did not think of yourself). Identify any existing control or mitigation strategies in the left column. Risk event (be as specific as possible) Control/loss mitigation strategy 1. 2. 3. 4. 5. Notes: Risk Management Training for Tourism 19 © COPYRIGHT STCRC
  20. 20. Risk Management for Small Tourism Businesses ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ Risk Management Training for Tourism 20 © COPYRIGHT STCRC
  21. 21. Risk Management for Small Tourism Businesses  Activity TWO - Current Risk Arrangements Objective: To determine the scope of current business risk management practice and develop familiarity with the idea of actively thinking about, planning for and managing risk. Every business practices some form of risk management. This can include mandatory compliance with occupational health and safety legislation, routine security procedures, or insurance carried in the event of damage to property or personal injury. The types of risks faced by individual tourism businesses and the methods used to manage them, however, can vary greatly. The range of significant or influential business factors include: - The nature of the business; - Size and scope of business operations; - The type and number of partnerships with other organisations; - Level of risk awareness and perceptions among owners, managers and employees; - Attitude to risk events held by owners, managers and employees; - Knowledge of suitable options to control risks and minimise loss; and, - Availability of finance and access to resources. Your task: From the list you developed in Activity One, examine your notes on current measures of control and mitigation for each risk event. Identify and list below alternative approaches or ways in which such strategies may be improved. Risk event Current control or loss Suggested improvement or mitigation strategy alternative strategies 1. 2. 3. 4. 5. The merits and constraints to such risk control and mitigation strategies will be discussed by the workshop group. Risk Management Training for Tourism 21 © COPYRIGHT STCRC
  22. 22. Risk Management for Small Tourism Businesses Notes: ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ Risk Management Training for Tourism 22 © COPYRIGHT STCRC
  23. 23. Risk Management for Small Tourism Businesses RISK MANAGEMENT - THE PROCESS While there are a variety of international approaches to formal risk management, most employ similar elements and/or processes. In Australia, the pre-eminent guide is AS/NZS 4360. This training manual remains consistent with this Australian standard. The Australian Risk Management Standard AS/NZS 4360 The Australian Risk Management Standard AS/NZS 4360 and associated handbook HB436 were developed in response to a perceived need for practical assistance in applying risk management in public and private sector organisations. Providing a logical and systematic guide for managing risks, it has become one of the most popular Standards in publication, and has since been adopted by the Australian Government, Emergency Management Australia and a range of large public and multinational companies. The Risk Management Process Consistent with AS/NZS 4360, the risk management process can be outlined as a series of iterative steps, completed for each risk management development cycle. At each progressive step it is important to communicate, consult, monitor and review decisions made. To assist in understanding and continuous improvement, the process should also be carefully recorded and documented throughout. Risk management is a continuous process within business, requiring regular reviews and updates to reflect changing circumstances. The five key steps and associated tasks to this process are: Step One – Establish the context or current situation Profiles the situation and key variables associated with a business internal and external operational environment. Step Two – Identify the risks Creates an inventory of risk events that may directly or indirectly influence business profitability and/or viability (when, where, how, why). Step Three – Analyse the Risks Gathers information about the risk event and current risk control strategies to determine likelihood and consequences. Step Four – Evaluate the Risks Compares analysed risk events to provide a guide to action. Step Five – Treat the Risks Develops cost efficient and effective risk event control measures and risk mitigation strategies. Risk Management Training for Tourism 23 © COPYRIGHT STCRC
  24. 24. Risk Management for Small Tourism Businesses Figure 2. The Risk Management Process (Adapted from AS/NZS 4360) STEP 1. STEP 5. ESTABLISH TREAT THE THE RISKS CONTEXT COMMUNICATE CONSULT DOCUMENT MONITOR STEP 4. REVIEW STEP 2. EVALUATE IDENTIFY THE THE RISKS RISKS STEP 3. ANALYSE THE RISKS Risk Management Training for Tourism 24 © COPYRIGHT STCRC
  25. 25. Risk Management for Small Tourism Businesses Planning to Manage Risks Rather than waiting for something to happen, risk management is designed to be proactive - effective planning and implementation can prevent avoidable damages and loss. A Risk Management Policy Statement Formal commitment to a systematic risk management process is often established and communicated to relevant stakeholders in a Risk Management Policy Statement. Intended to be incorporated with a business’s general management strategies this document briefly outlines: - the intention/rational of the policy; - scope, issues and resources available; - details of implementation; and, - linkages with other business strategies. Figure 3. illustrates the integration of key elements within a general risk management policy. Defining Responsibility Although developing and implementing an effective risk management plan should be a collaborative and consultative effort, the duty is often assigned to a specific person or risk management team. Specific functions and responsibilities may be officially documented in a Risk Management Responsibility Statement. Tasks generally include awareness raising, preparation, coordination, implementation, management and accountability. Additionally this role or document outlines risk management responsibilities and functions (including a monitoring and audit statement) Producing a Risk Management Plan The final product of a systematic risk management planning process is the establishment a Risk Management Plan. This plan will contain (but is not confined to): - a statement of the business risk management policy - an outline of risk management responsibilities and functions (including a monitoring and audit statement) - a communication plan/strategy - a description of the business context, objectives, risk environment and criteria - a risk register of risks identified and assessed - a treatment plan for major risks Each component of a basic risk management plan will be identified and elaborated during this training program. While this manual and workshop only provide the foundation for developing a systematic risk management process, templates, references and generic content guides for associated documentation have also been reproduced in the supplementary Practical Resource Guide. Risk Management Training for Tourism 25 © COPYRIGHT STCRC
  26. 26. Risk Management for Small Tourism Businesses Figure 3. General Risk Management Policy (adapted from Wilkes and Moore 2003 and HB ) Overall Policy Statement Overview and intention of general business risk management policy Issues and Scope Resources Objectives Range of policy issues/extent of risks that Risk management coordinator/team/roles Objective/rationale of the policy need to be managed Cost/source of required finance statement Relationship to future development plans Level of support and expertise Acceptable Risk Link Level of acceptable risk likelihood and Linkage with business/strategic plan consequences for business Documentation Level of documentation/format Communicate the Policy Review and Monitoring Storage/distribution/accessibility/ Communication of policy statement Responsibility for monitoring/ confidentiality Integration of risk management policy audit/review/reporting Date/authorship/approval/circulation Education/awareness/motivation Schedule review/revision of policy Key performance indicators Risk Management Training for Tourism 26 © COPYRIGHT STCRC
  27. 27. Risk Management for Small Tourism Businesses SESSION TWO THE BUSINESS CONTEXT AND RISKS Communication and Consultation Communication and Consultation in Risk Management Identifying Stakeholders A Communications Plan Tourism Communications and Stakeholders Activity THREE – Key Stakeholders and Contacts Step 1. - Establish the Business Context Understanding the Context Defining Business Objectives Critical Environmental Factors Stakeholder Identification and Analysis Risk Measurement Criteria Step 2. Identify the Risks Understanding Risk Risk Identification Elements at Risk Scoping Vulnerability Risk Statements Risk Management Training for Tourism 27 © COPYRIGHT STCRC
  28. 28. Risk Management for Small Tourism Businesses THE BUSINESS CONTEXT AND RISKS COMMUNICATION AND CONSULTATION Communication and Consultation in Risk Management Communication is the provision and/or exchange of information between individuals (e.g. annual report, press statement) Consultation is a process of informed communication or discussion between individuals prior to making a decision, (e.g., staff meeting, supplier negotiation, industry convention) The essence of good risk management is decisions and action. Regardless of the size of the business or organisation, there are a range of individuals who influence, or are affected by any decisions on risk management. Familiar tourism stakeholders include employees, customers, industry partners, destination marketers, suppliers and/or service providers. When considering risk, stakeholders will often hold various and divergent values, experiences, knowledge, beliefs, assumptions, needs, concerns and opinions. This necessitates open communication and consultation throughout the risk management process. Communication and consultation implies a level of discussion or engagement with stakeholders, rather than a singular “top down” decision making approach. Active stakeholder participation assists in a broader identification and understanding of risk, and provides a valuable resource base of information and expertise. The conscious appreciation of all potential risks assists a business to develop suitable and effective risk control strategies. Identifying stakeholders Stakeholders are those people and organisations who may affect, be affected by or perceive themselves to be affected by, a decision, activity or risk The tourism industry is highly integrated and interdependent. Stakeholders affected by the risk management plan should be communicated with or consulted about risk related decisions and actions. The method used to consult and communicate will vary according to the type of Risk Management Training for Tourism 28 © COPYRIGHT STCRC
  29. 29. Risk Management for Small Tourism Businesses decision, stakeholders affected, and stage or step of the risk management plan. Communication between management and business employees should include a series of face to face meetings to devise and review the risk management plan. Customers need to be advised of any specific risk or danger involving the business. Secondary suppliers or partners may be simply provided with written information detailing the action to be taken by the business when faced with a particular risk event. Any risk management plan should also be subject to professional scrutiny to ensure compliance with legal responsibilities and insurance requirements. While tourism remains a competitive business, selected risk partnerships or alliances can be advantageous in risk management. To maintain business operations or finance recovery marketing campaigns in adverse situations it is not uncommon for a group of small tourism businesses to combine available resources. Partnering with peak industry bodies and emergency management services also provides direct access to extensive practical knowledge and expertise. Other external stakeholders that can be prominent in risk management include local government, legal advisors, community/special interest groups and the general public. In addition to such relationships, media management arrangements (public relations) are considered crucial in effective tourism risk communication and consultation. The media, including radio, print, television, internet (and any promotional literature), represents a significant risk management stakeholder. Businesses should establish an ongoing working relationship with local and regional media networks. It is also important to identify and maintain a designated media spokesperson for the business. This facilitates the distribution of timely, accurate and credible information to media sources. Table 2 illustrates the number and diversity of stakeholders that may be influential in a tourism business risk management and communication process. The double-headed arrows signify that communication should be a two-way process. A Communications Plan An efficient communication and consultation process entails the development of a risk communication plan relevant to internal and external stakeholders. The approach taken can be informal or documented in great detail; however, it must be able to address risk event issues and the response process. Additionally, small tourism businesses must be adequately prepared to counter any perceived risks or indirect negative associations. A typical communication plan will include the following elements: 1. The purpose or goal for the communication. 2. The specific target audience and designated spokesperson 3. The communication strategy (including timings( 4. Methods to evaluate the effectiveness of the strategy Risk Management Training for Tourism 29 © COPYRIGHT STCRC
  30. 30. Risk Management for Small Tourism Businesses Figure 4. Tourism Communication and Stakeholders INTERNAL COMMUNICATIONS Employees Management Clients (full-time, part-time, (owners, investors, (tourists, visitors, casual staff, administration, residents) volunteers and operators) families) TOURISM BUSINESS Suppliers and Media Financial and Contractors (mass media, Insurance (goods and services) promotion and Organisations marketing) Local Community/ Local Government Public and and Private Sector Source Markets Industry Partners/ Emergency Other Tourism Services (legislative/ Organisations (Local, State, regulatory authorities, Commonwealth) government) EXTERNAL COMMUNICATIONS Risk Management Training for Tourism 30 © COPYRIGHT STCRC
  31. 31. Risk Management for Small Tourism Businesses  Activity Three - Key Stakeholders and Contacts Objective: To identify the key stakeholders and contacts necessary to establish good risk management practice in your business. Depending on the size and nature of the business, certain individuals or organisations may be considered more relevant to shaping the specific risk management process. These key stakeholders are normally those that are regarded as essential to maintain business operations and profits – under any conditions. Task: Based on current business operations, and the communications diagram provided (Figure 4.), identify and list at least 3* of the internal and external stakeholders that you would consider most significant in: a) identifying the risks and potential solutions at your business (Risk Identification) b) assisting to treat and minimise risks (Risk Mitigation/Treatment) c) aiding response and recovery from a significant event (Response and Recovery) Internal Stakeholder External Stakeholder (specific individual, position/role (specific individual, position/role or representative body) or representative body) Risk Identification (who can help identify relevant risks and possible solutions) Risk Mitigation/Treatment (who can help prevent or reduce the risks identified ) Response and Recovery (who can help your business respond and recover faster if a risk event occurs) *some stakeholders may be relevant in more than one category Given that such stakeholders will normally form the foundation of your risk and crisis communication plan, the workshop group will discuss ways to expand existing relationships and networks to promote or enhance a comprehensive risk consultation process. Risk Management Training for Tourism 31 © COPYRIGHT STCRC
  32. 32. Risk Management for Small Tourism Businesses Notes: ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ Risk Management Training for Tourism 32 © COPYRIGHT STCRC
  33. 33. Risk Management for Small Tourism Businesses STEP 1. ESTABLISH THE BUSINESS CONTEXT Understanding the Context Effective risk management must consider what is at risk. The first logical step in a risk management process is to define the context or the environment in which the business operates. The context is essentially a background description of the business and its activities. It provides a basic understanding or awareness of business operations. The major elements for describing the context are the business core activities; business objectives; critical business factors; stakeholder identification; and the risk measurement criteria. Core business activities Businesses are typically engaged in a range of core activities. Examples from the tourism industry include providing accommodation, planning group tours, or the sale of souvenirs. Depending on the extent of business operations it may be necessary for risk managers to define a risk context for each activity. Defining business objectives Business objectives specify key business outcomes. As anticipated aims or goals, outcomes should relate directly to the core business activities. Many businesses will find that these details may already be outlined in existing documents such as the business plans, budget or strategic plans. Critical factors of the business operational environment A range of factors operating inside and outside the business influence its success, viability and profitability. Such factors may be arranged under the broad categories of business, social, economic, legal, technical or environmental. Some factors will be linked to the internal business environment (e.g., staffing, operating procedures and service quality). While broader external factors such as political instability, competition or legislative changes are not directly controlled by the business, their influence must be considered in comprehensive risk management planning. Stakeholder identification and analysis Consistent with the development of an effective business communications strategy (previously discussed) risk management identifies relevant stakeholder needs, concerns and opinions. Such a process promotes and facilitates broader acceptance of risk management decisions. Risk Management Training for Tourism 33 © COPYRIGHT STCRC
  34. 34. Risk Management for Small Tourism Businesses Risk Measurement Criteria Businesses should develop a set of standards that establish the acceptable (and unacceptable) level of risk (these are often expressed as statements). These criteria create a base line for defining likelihood (how often) and associated consequences that are deemed acceptable for the specific business. Likelihood criteria may consider : - risk frequency (chance and rate of occurrence) - degree of risk escalation i.e. acceptable level of adverse consequences if appropriate action isn’t taken or the cumulative effect of multiple events - manageability e.g. existing capability resources, readiness, skills and knowledge - uncertain or latent risk Particular risk consequences or scenarios can be used to outline acceptable/unacceptable thresholds. Examples include: - human and social factors e.g. fatalities and serious injuries, loss of income, loss of livelihoods - economic factors e.g. damage to facilities or critical infrastructure, business disruption, loss of staff, loss of markets and business opportunities - environmental factors e.g. damage to cultural and heritage sites, damage to ecological sites, pollution - legal factors e.g. litigation relating to statute, regulatory, insurance and common law - tourism industry factors, e.g. loss of image and reputation eg. loss of customer satisfaction, negative publicity/association Risk measurement criteria can represent a set of minimum acceptable standards or be expressed as critical performance measures. For example: The risk of serious injury or death is not acceptable Activity will be discontinued in temperatures of 38 degrees Celsius and above. The tour activity will have no harmful impacts on the National Park Risk Management Training for Tourism 34 © COPYRIGHT STCRC
  35. 35. Risk Management for Small Tourism Businesses Establish the Context – Sample Template (adapted from Queensland Government: 2005) Description of activity (What is the activity I want to risk-manage?) Objectives (What outcomes do I expect from this activity?) Critical Factors Business (What are the critical factors related to the activity?) Political Social/ Cultural Economic/ Financial Legal/ Regulatory Competitive Infrastructure/ Technology Environmental Other Stakeholders (Who are the stakeholders in the activity?) Internal External Risk evaluation criteria (What are the key risk criteria for identifying whether a risk is acceptable or not?) Risk Management Training for Tourism 35 © COPYRIGHT STCRC
  36. 36. Risk Management for Small Tourism Businesses STEP 2. IDENTIFY THE RISKS Understanding Risk Perspectives The way risk is understood directly influences the decision making process. For many reasons, people will understand and interpret the same risk in different ways. Common variations relate to: individual risk perceptions; attitudes regarding voluntary and involuntary risks; and, a personal appreciation of what is acceptable risk. Risk Perceptions and Tourism Most tourism businesses and activities are subject to a range of obvious risks that threaten to compromise life, property and environment. These are common hazards or behaviours which may be limited, regulated or controlled to some degree. Yet as an industry dependant on positive image, reputation and consumer confidence, tourism has proven to be particularly sensitive to risk perception. Risk perception is the appraisal of a risk situation based on intuitive judgement, personal experience and acquired information. To remain profitable and competitive, tourism risk management decisions and actions must account for significant threats and intangible risks, such as rumour, risk association and misinformation. Mass media can play a substantial role in either escalating or reducing public risk perceptions. Voluntary and Involuntary Risks Although public acknowledgement of risks may seem contrary to the relaxed, carefree culture associated with travel and tourism, there is a moral and legal obligation for businesses to inform clients and stakeholders of known risks. Responsible risk management further endeavours to minimise unnecessary or involuntary exposure to possible danger. Airline safety messages, adventure tourism standards, and hazard awareness signage each represent a system of voluntary and informed risk. Acceptable and Unacceptable Risks An acceptable risk is one in which an informed decision has been made to accept the likelihood and consequences of a particular risk. In some cases, benefits or opportunities presented by a particular risk (e.g., borrowing capital for a new business venture) are judged to outweigh the potential losses. From a business perspective an unacceptable risk is any event or latent risk that can have significant adverse impacts, demanding a degree of management or mitigation. Risk Identification Having established the context, relevant business factors and key objectives, the next stage in the risk management process is to identify and describe the risks. Risk identification has four main components: source of risk; risk information; risk elements; and vulnerability assessment. This process should be as thorough as possible because any risk that is not identified during this stage can later pose a significant threat to the business. Risk Management Training for Tourism 36 © COPYRIGHT STCRC
  37. 37. Risk Management for Small Tourism Businesses Source of Risks A hazard is the origin or source of risk Every conceivable risk has an identifiable source and cause (a what and why). Significant risk events can usually be traced back to a specific hazard. To identify risks to a business’s activities and objectives, it is necessary to examine all situations or conditions where there is a potential for loss, harm and negative impacts. Identification of potential risk events To develop a thorough list of business risks requires detailed knowledge and familiarity with the business activities being reviewed. This essentially represents a description of what can happen to the business and how. The method of identifying risks may vary depending on the nature of activities, types of risks, context and purpose of the risk management process. Common approaches include: - past experience (individual, stakeholder, regional, government, industry etc) - historical records (previous incidents, hazard zoning, newspapers, journals etc) - direct observation, audit and physical inspection - scenario planning (hazard mapping, develop and analyse specific scenarios etc) - brainstorming (interviewing, group and/or stakeholder discussions etc), - checklists (relevant research, publications, insurance policies etc) - flowcharts (graphical representations) - expert analysis (professional consultants, industry specialists, professional organisations etc) Depending on the specific nature or type of risk under deliberation it may also be necessary to investigate certain variables related to the risk event such as: - spatial distribution (the area that a hazard may impact, extent and scope); - temporal distribution (warning time, frequency, likelihood, time of day/week/year/season, duration); - intensity (how big, fast, powerful); and, - manageability (what can be done about it/mitigation/associated costs). Risk Elements An element at risk is something that is valued within/by the business 37 Risk Management Training for Tourism or © COPYRIGHT STCRC which is associated with the source of risk. community This includes people, property, public perception or the environment
  38. 38. Risk Management for Small Tourism Businesses Perceptions or opinions on the elements at risk in any business and its environment can vary from stakeholder to stakeholder. In identifying potential risk impacts and implications it is important to investigate and examine all available perspectives. From a small tourism business perspective significant elements may include personnel/clientele, critical infrastructure, services or facilities, and reputation. Vulnerability Assessment A vulnerability assessment identifies current measures or controls that have been implemented to mitigate any risk event and associated impacts. As a scoping exercise it assists to determine the chance of being affected by a particular hazard, existing capabilities, and provides an understanding the current capacity to recover from resulting adversity. This should consider risks that may by endemic to the business and impacts from external events. Risk Statements The collective aim of the risk identification process is the generation of credible and realistic risk statements which describe risk events relative to the business context. A risk statement reveals the interaction between an identified risk source and the elements at risk. Example: Source of Risk Risk Event Elements at Risk Environment Direct impact of > Category Staff, Clients, Plant, 3 tropical cyclone Destination/Environment (Natural Hazard Exposure) Human behaviour Customer slips on stairs of Client (may also impact on business business insurance and legal (OH&S) policies) Although not all risk variables can be controlled, early identification provides the opportunity to appreciate and manage any potential impacts. Risk Management Training for Tourism 38 © COPYRIGHT STCRC
  39. 39. Risk Management for Small Tourism Businesses Risk Identification – Sample Template (adapted from Queensland Government: 2005) Source of Risk Risk Event/ Statement (How can a risk arise?) (What can happen - event that may impact on the desired objectives?) Human behaviour Health/medical Psychological/Emotional Association Technology and technical issues Economic Occupational health and safety/Regulations Legal (Liability) Product/Professional/Public Political Property and equipment Safety/Security Environmental/Physical Financial/market/competitio n Natural events Risk Management Training for Tourism 39 © COPYRIGHT STCRC
  40. 40. Risk Management for Small Tourism Businesses SESSION THREE RISK ASSESSMENT AND TREATMENT Assessing the Risks Conducting a Risk Assessment Step 3. Analyse the Risks Information Gathering Review of Current Control Measures Likelihood of Occurrence Consequences of Occurrence Calculating the Level of Risk Step 4. Evaluate the Risks The Evaluation Process Tolerable and Unacceptable Risks Prioritising for Risk Treatment Activity FOUR – Developing a Risk Register Implementation Step 5. Treat the Risks Risk Treatment Options Assessing and Developing Treatment Options Developing a Risk Treatment Schedule/ Action Plan Implementation The Risk Management Plan Monitoring and Review Risk Management Training for Tourism 40 © COPYRIGHT STCRC
  41. 41. Risk Management for Small Tourism Businesses RISK ASSESSMENT AND TREATMENT ASSESSING THE RISKS Conducting a Risk Assessment Risk assessment is the central component of risk management. This endeavour requires that each identified risk event is analysed and evaluated in relation to likelihood (frequency or probability) and consequence (the impacts). Reviewing any control measures that may be in place, this process helps to systematically separate minor acceptable risks from the major risks that must be managed. Methods used for risk assessment vary in rigour and sophistication. The most suitable or appropriate type depends on a variety of factors including the nature of the risk, the information available, and accessible resources. Regardless of the method adopted, effective risk assessment relies on sound judgement, common sense and the application of valid and logical techniques. To assist in common understanding and management accountability the approach used should be clearly documented throughout. Risk assessment essentially guides the business decisions on the most appropriate and cost effective way of dealing with an identified risk. Within a formal risk management process it is conducted in two stages: - risk analysis - risk evaluation Figure 5. illustrates the process of risk analysis, risk evaluation and subsequent decision making towards effective risk treatment. Risk Management Training for Tourism 41 © COPYRIGHT STCRC
  42. 42. Risk Management for Small Tourism Businesses Figure 5. Risk assessment as a guide to treatment decisions (Adapted from AS/NZS 4360) RISK ANALYSIS Establishes likelihood and consequences of a risk event RISK EVALUATION Deliberates calculated level of risk Communicate RISK Consult TOLERABLE/ NOT Document ACCEPTABLE Monitor ACCEPTABLE RISK Review TREAT RISK Decides most appropriate and cost effective treatment method Risk Management Training for Tourism 42 © COPYRIGHT STCRC
  43. 43. Risk Management for Small Tourism Businesses STEP 3. ANALYSE THE RISKS Effective analysis of each identifiable risk comprises of several elements: information gathering; review of current control measures; likelihood of occurrence; consequence of occurrence; and, calculating the level of risk Information gathering To make an accurate assessment of either likelihood or consequences requires detailed information and appreciation of the potential risk event. Relevant data sources can include published literature from industry associations, insurers, government authorities and the internet. Additional information may be accessible from company records, manager experience and appropriate industry expertise. Critically appraised on criteria such as accuracy, validity, applicability, relevance and currency (is it up to date?), all available information should be considered. Review of current control measures A control measure is an existing process, policy, device, practice or other action that acts to minimise negative risk or enhance positive opportunities Having previously identified existing controls and capabilities for each risk event, it is necessary to review these to evaluate effectiveness. Current control measures may reduce the overall degree of risk; however, there may still be sufficient risk remaining which needs to be managed. For example, a business’s control measures for customer property theft may include the provision of personal safety deposit boxes and public security cameras. There is still a risk remaining that the customer may lose items or have unsecured items stolen. If the incidence remains particularly high, this can have direct implications on corporate responsibility, customer satisfaction and reputation. Likelihood of occurrence Using the best accessible information sources and an appreciation of the current control measures, likelihood of occurrence represents a judgement of probability and/or frequency of the specified risk event. Approaches used to determine such likelihood can vary however in a small business environment it may be based on a simple scale describing the frequency of occurrence (to or within the business) over a term outlined by the risk management plan (e.g., five years). Risk Management Training for Tourism 43 © COPYRIGHT STCRC
  44. 44. Risk Management for Small Tourism Businesses Example of a likelihood scale: Likelihood of the risk event occurring to or within the business in the next five years: Designation Likelihood Low the risk event is not expected to occur. Medium the risk event might occur High the risk event is more than likely (or expected) to occur Consequences of occurrence Similar to a likelihood estimate, the potential consequences to the business must also be calculated. Consequences can take many forms including personal injury, financial loss, legal action, business disruption and/or physical and environmental damage. When assessing the consequences of a risk event, all forms of loss should be considered. Example of a consequence scale: Consequence of the risk event occurring to or within the business in the next five years (specifically relating to business profitability and viability): Designation Consequence Minor the risk event will have little or no influence on business profitability and will not threaten business viability Moderate the risk event will reduce business profitability and/or weaken business viability Severe the risk event will eliminate business profitability and/or make the business non-viable Calculating the level of risk Using scales appropriate to the business and risk context, the level of risk reflects the intersection between the likelihood and the consequence ratings. Example of matrix diagram to calculate level of risk: Consequences Minor Moderate Severe Likelihood 6 5 4 Low (minor) (low) (moderate) 5 3 2 Medium (low) (considerable) (high) 4 2 1 High (moderate) (high) (extreme) Risk Management Training for Tourism 44 © COPYRIGHT STCRC
  45. 45. Risk Management for Small Tourism Businesses With the calculated risk level expressed as a either a descriptor or number, such analysis can assist to determine the importance of further action. For example: Level Designation Level of Action Required 1 Extreme Immediate action required 2 High urgent action required 3 Considerable high priority action required 4 Moderate low priority action required 5 Low non urgent action required 6 Minor routine action required Any documentation that details the method of analysis for each business risk should also explain (or refer to) the basis and rational for the likelihood and consequence judgements. Risk Management Training for Tourism 45 © COPYRIGHT STCRC
  46. 46. Risk Management for Small Tourism Businesses Risk Analysis – Sample Template (adapted from Queensland Government: 2005) Risk Event (identified risk) Information source (relevant data sources regarding the risk event) Existing control measures Likelihood of risk occurring (low, medium, high) Justification of Likelihood (based on what information?) Consequences of risk event (minor, moderate, major) Justification of Consequences (based on what information?) Level of Risk (minor, low, moderate, considerable, high, extreme) Risk Management Training for Tourism 46 © COPYRIGHT STCRC
  47. 47. Risk Management for Small Tourism Businesses STEP 4. EVALUATE THE RISKS Based on the outcomes of risk analysis, risk evaluation assists to make the necessary decisions about which risks need treatment; and, the treatment priority. As the final stage of risk assessment, such evaluation considers the calculated risk level against the risk criteria generated in Step 1. Establish the Context (refer page XX). This process determines whether the risk is acceptable within the defined business context. Given that each risk should now be better understood, it may be necessary to review the initial criteria or thresholds to check their continued relevance. The Evaluation Process Even with the best available information, analysis and guiding criteria, risk evaluation remains a value judgement that requires familiarity with the business context. Significant factors to consider include the overall importance of the activity to the business, the degree of active control over the risk, both potential and actual losses associated with the risk, and the relative opportunities the risk presents. Though it is important to remain as objective as possible, such decisions should involve stakeholder communication and consultation. The evaluation process will probably reveal that not all risks indicate clear negative consequences. Expanding or developing a new niche market may be considered a commercial risk yet successful treatment options can actually enhance the range of positive opportunities. Similarly, while a degree of property damage can increase insurance premiums it may also permit structural improvement and equipment upgrades. Effective evaluation requires balancing the costs, benefits and opportunities against potential adverse consequences/losses. Cost Benefits Analysis In the typical business environment findings of the risk assessment process may be presented as quantifiable cost/benefits estimates or in similar financial terms. Resource allocation or treatment is generally not warranted if the cost of implementing control measure outweighs any expected loss. Alternatively if the calculated risk is less than the potential opportunities represented by the risk even the activity requires further consideration. Tolerable and Unacceptable Risks At its simplest, risk evaluation results in two lists or tables representing the following information: - a rationale of risks and associated costs that are considered tolerable to the business, and, - risks which require some form of active intervention or treatment. Each list or table should indicate the calculated risk level for further monitoring and review. Risk Management Training for Tourism 47 © COPYRIGHT STCRC
  48. 48. Risk Management for Small Tourism Businesses Prioritising for Risk Treatment As no business has limitless resources, risk evaluation should assign the priority or urgency of any further risk management action. Such prioritisation is generally derived from contrasting the level of calculated risk with the business’s key objectives and criteria. The outcome constitutes a practical guide that ranks the businesses precedence for developing and implementing risk treatment measures. Risk Management Training for Tourism 48 © COPYRIGHT STCRC
  49. 49. Risk Management for Small Tourism Businesses Risk Evaluation Form – Sample Template ACCEPTABLE RISKS: UNACCEPTABLE RISKS: Risk Event Level of Reason for acceptance (identified risk) Calculated (specific rationale) Risk Risk Event Level of Priority/Action Order Risk Management Training for Tourism 49 © COPYRIGHT STCRC
  50. 50. Risk Management for Small Tourism Businesses (identified risk) Calculated (rank or list from highest to Risk lowest) Risk Management Training for Tourism 50 © COPYRIGHT STCRC
  51. 51. Risk Management for Small Tourism Businesses  Activity FOUR - Developing a Risk Register Objective: To develop familiarity with the practice of risk assessment and documenting the risk management process. Consistent with a logical and systematic approach to risk management it is important to clearly document the results of any risk identification, analysis and evaluation processes. The outcome of these steps are often summarised in a risk management plan using a risk register. While the format and content can vary, a basic risk register will record: - a description of each risk identified (source/cause and impacts) - an outline of existing controls - likelihood - consequence - level of risk - priority/action order Task: In small workgroups (3-4), select three generic risk events prepared in Activity 1. Using the sample risk register, transfer the details of both the identified risks and common control measures. With these details and your groups combined industry experience and knowledge as the only available information, estimate the likelihood and consequences of these events to calculate the level of risk for a “typical” small tourism business (use the scales and matrix provided - page 37). Document these results in the risk register. Assuming that cost vs. benefits is the only significant risk criteria, evaluate whether such risks are acceptable, and prioritise. Complete these details in the risk register. Final group findings will be shared and discussed with other workshop participants. Risk Management Training for Tourism 51 © COPYRIGHT STCRC
  52. 52. Risk Management for Small Tourism Businesses Notes: ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ Risk Management Training for Tourism 52 © COPYRIGHT STCRC
  53. 53. Risk Management for Small Tourism Businesses Risk Register – Sample Template Risk Event Existing Control Likelihood Consequence Level of Risk Priority/ (identified risk) (control measures/mitigation strategy) Action Order Risk Management Training for Tourism 53 © COPYRIGHT STCRC
  54. 54. Risk Management for Small Tourism Businesses IMPLEMENTATION STEP FIVE: Treat the Risks The primary purpose of treating risks is to reduce the likelihood and consequences of any risk event considered unacceptable within the business context. Based on a known operational environment of restricted resources, finance, latitude and time, it is necessary to choose, prioritise and implement the most appropriate mix of risk treatments. As the last formal step in the risk management cycle this involves: identifying and assessing options; developing and implementing treatment plans; and analysing and evaluating residual risk In planning to treat any risk, care should be taken to ensure that the risks to others are not inadvertently increased. Risk Treatment Options To address any risk there are a variety of options available: - avoid the risk - control/change/reduce the risk - transfer/share the risk - accept/tolerate/retain the risk Risk Avoidance: An informed decision to discontinue, not proceed with a planned activity, or choosing an alternative way to achieve the objectives Risk Control: The provision of policies, standards, and procedures, to eliminate, avoid or minimise adverse risks facing the business (reducing the likelihood/consequences of the risk). This may involve a variety of structural measures and changes, however is predominantly achieved through practical operational and managerial solutions. Specific strategies to reduce the likelihood of risk include; quality assurance, training, supervising, testing, inspection/audit and process controls, and preventative maintenance. Reducing risk consequences may entail; planning for contingencies, minimising exposure to sources of risk, putting physical barriers in place and activity relocation. Risk Management Training for Tourism 54 © COPYRIGHT STCRC
  55. 55. Risk Management for Small Tourism Businesses Risk Transfer/Sharing: Shifting/sharing the responsibility or burden for loss to another party through legislation, subcontracting, outsourcing, partnerships, insurance, or other means. While this is a common business practice it should be premised on a platform of mutual consent and awareness of responsibility and capacity. Although many businesses rely heavily on insurance, particular care should be taken in understanding the scope of any policy and obligations. Insurance rarely covers all types of loss (eg loss of reputation and/or customer satisfaction) and often involves specific compliance standards and waivers. Risk Retention: Intentionally or unintentionally retaining the responsibility for loss within the business. This generally occurs when a risk can not be avoided, controlled and/or transferred, or relates to a risk that has not been clearly identified. Risks that are retained by any business should be monitored and reviewed to determine how to cover costs in the event of associated losses. Common practice involves the establishment of emergency/contingency funds to cover such potential losses. Assessing and developing treatment options Selection of the best or most appropriate mix of risk treatment options for any business should be conducted on the basis of cost/benefits, effectiveness and sustainability. A variety of legislation and Standards already exist to guide and assist in the development of some specific strategies, yet each option must be reviewed for suitability. Such decision making requires a comprehensive understanding and review of the business context, objectives and the root causes of the risk event (how and why it arises). Considering the established risk criteria this process requires an informed judgement that further deliberates issues of: - equity – fair distribution of risks and benefits - timing – when/how soon the treatment benefits may be realized - leverage – will treatment lead to benefits in other areas - cost – how cost effective (direct/indirect/tangible/intangible) - administrative efficiency – is it easy to implement within the businesses current operating structure - resource requirements - continuity of effects- continuous/short term /sustainability - stakeholder acceptability - socio-economic/environmental impacts - compatibility with business objectives, legal duty, social/corporate obligations Risk Management Training for Tourism 55 © COPYRIGHT STCRC
  56. 56. Risk Management for Small Tourism Businesses Treatment options and selected strategies should be realistic and feasible. Ideal proposals may not be possible and may result in tradeoffs or a combination of the most appropriate approaches. To rationalize such choices to relevant stakeholders there needs to be a clear indication that the range of benefits justifies the cost of implementing the treatment. Residual Risk Consistent with risks that are considered acceptable or retained by the business, risk treatment can not eliminate every conceivable risk or consequence. Residual risk refers to the level of risk remaining once treatment options have been implemented. While it is important to consistently monitor and review such risk levels many business develop specific contingency or crisis plans to minimise any associated impacts (elaborated in Session 4). Developing a Risk Treatment Schedule/Action Plan A risk treatment plan details how the selected treatment options will be implemented, maintained and reviewed. While format and design may vary, for each unacceptable risk event it should clearly communicate: - the nature of the risk event (source and elements at risk) - treatment approach/strategy and justification (based on the risk priority, likelihood, consequences and level) - performance measures/indicators - responsibilities, resources and timeframes Implementation Implementation and integration of a risk treatment plan relies on commitment and familiarity with the business operating structure and practices. It is common practice to get signed managerial approval on any treatment plan before changing or initiating any new strategies. Where risk is inherent in established or routine behaviours it may also be necessary to stimulate changes in personnel attitudes and motivation. While stakeholder communication and consultation throughout the risk management process may have increased general risk awareness and understanding, treatment strategies still need to appear logical and practical. The business risk management coordinator or team needs to ensure that all relevant details are documented within a risk management plan and that identified treatment strategies are realised, on time and within budget. Risk Management Training for Tourism 56 © COPYRIGHT STCRC
  57. 57. Risk Management for Small Tourism Businesses Risk Treatment Plan – Sample Template (adapted from Queensland Government 2005) Risk event/statement (what can happen) Source of Risk (how can the risk arise) Priority (priority relative to other risks) Likelihood (low, medium ,high) Consequences (minor, moderate, major) Level of Risk (minor, low, moderate, considerable, high, extreme) Risk Treatment (specific strategy or approach to avoid/control/transfer/retain risk) Responsibility (who will implement, monitor, review) Resources required (human, physical, financial/budget resources to implement) Performance measure (indicators/audit of efficacy, reliability and availability) Timetable (when treatment approach will be implemented/reviewed/revised) Risk Management Training for Tourism 57 © COPYRIGHT STCRC
  58. 58. Risk Management for Small Tourism Businesses THE RISK MANAGEMENT PLAN In following a formalised risk management process as outlined, it is possible to develop a logical and practical risk management plan for any small tourism business. The level of documentation generated will reflect the complexity of the business and associated risk activities and issues. To facilitate communication, accountability and transparency an effective risk management plan should at least contain: - A General Risk Management Policy/Statement - A Risk Management Responsibility Statement - A Communications Plan - A Risk Register - A Risk Treatment Action Plan/Schedule Consistently, all documentation must be clearly marked with the date created, author, and scheduled review date. Although considered an integral developmental and awareness exercise, good risk management does not end with the production of a paper based risk management plan. Effective risk management is a continuous process that should become part of a businesses culture and practice. It needs to be adequately rationalised and accepted by all key stakeholders. Experience consistently demonstrates that one of the primary causes of plan failure (or the non-implementation of a plan) is that the objectives, intent, and details of the plan are poorly understood. Monitoring and Review Regardless of the level of detail or intent, it is unlikely that any initial risk management plan will be perfect or enduring. It is essential to constantly monitor and evaluate the risks, environmental context and significant factors. Practical risk management integrates a schedule to regularly review the nature and scope of identified problems and the associated level of risk. Reflecting a continuous process or cycle of risk management this further encourages a review the business context, identifies new risks, reviews existing risks and any associated problems/constraints, evaluates risk levels, and determines related risk treatment options. Practice, experience and actual loss will gradually necessitate changes in any plan and provide information on alternative approaches to the risk faced by the business. While risk management demands a degree of flexibility and adaptability, a constant and formalised approach ensures that the process remains both comprehensive and systematic. Risk Management Training for Tourism 58 © COPYRIGHT STCRC
  59. 59. Risk Management for Small Tourism Businesses SESSION FOUR CRISIS MANAGEMENT Crisis Management Planning Defining Crisis Understanding Crisis Management Crisis Management for Tourism Business Continuity Resource Identification The Four “Rs” of Crisis Management – A Practical Approach Crisis Communications (Containment) and Reporting Recovery and Marketing Developing a Crisis Management Plan for Small Tourism Business Activity Five – Proactive Crisis Management Planning Risk Management Training for Tourism 59 © COPYRIGHT STCRC
  60. 60. Risk Management for Small Tourism Businesses CRISIS MANAGEMENT CRISIS MANAGEMENT PLANNING Defining Crisis A crisis is any situation that has the potential to affect long-term confidence in an organisation or a product, or which may interfere with its ability to continue operating normally. While risk management is essentially about anticipating and minimising risks to the business, crises occur when an unforeseen or unavoidable event does occur. It is an abnormal threat that may result from the direct impact of an emergency or disaster or be self-induced due to poor safety conditions, limited capacity or even bad publicity. Consequences of crisis may be short, medium or long term and affect individuals, a solitary business, a community, a regional area and even entire nations. Depending on the scale and visibility of the incident, it may also precipitate significant stakeholder, public and/or media uncertainty. Regardless of the source, the initial crisis period is typically rapid onset, high pressure and demands urgent consideration. In management terms a crisis is often described as a “turning-point” where good practice and decision-making can influence a positive outcome, and, where limited attention or poorly conceived reactions generally have negative consequences. Understanding crisis management Crisis management is the overall coordination of an organization's response to a crisis, in an effective, timely manner, with the goal of avoiding or minimizing damage to the organization's profitability, reputation, or ability to operate. Given the number and variety of risks to tourism enterprise, it is impossible to eliminate every risk factor. Many external situations such as natural hazards, terrorist threats and civil unrest are beyond direct business or industry control. Alternatively as a consequence of the risk assessment and treatment process there may have been residual risks. While effective risk management strategies may have implemented structural changes to limit physical damage, or institutional procedures to improve public relations and security, some crises are inevitable. Crisis management planning assists businesses to be better prepared for uncertainty. Risk Management Training for Tourism 60 © COPYRIGHT STCRC

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