6.2. Risk Management

Risk is potential loss or harm (Canadian Tourism Commission [CTC], 2003a). This could be a financial loss, damage to property, or injury to workers or guests.

Risk management refers to the process of identifying, quantifying, and managing the risks that an organization faces. These may vary significantly depending on the type of operation and the industry undertaking the risk management process. Consequently, it is helpful to think of risk management as being a process of determining the risk exposure and then initiating action to either minimize or eliminate the risk (Enterprise Risk Management, 2004).

Why Practise Risk Management?

There are two main reasons to practise risk management: to avoid injury,  and to protect business operations from financial or physical ruin.

Keeping guests and employees safe is a moral and ethical responsibility of operators and includes avoiding emotional and physical harm. Protecting business operations includes protecting against damage to property, damage to reputation, and any financial impacts occurring from litigation (Centre for Curriculum, Transfer, and Technology [CCTT], 2003a). By practising this twofold approach, operators demonstrate that they are prioritizing the health and safety of individuals while still taking steps to protect the operational sustainability of their company.

On a larger scale, practising effective risk management can be seen as an important business skill. The Canadian Tourism Commission (2003a) suggests that risk management:

• Reduces the likelihood of an unwanted and unplanned event
• Reduces the consequences of the event
• Enhances your ability to access comprehensive and cost-effective insurance

Risk management can be undertaken at any scale. Individuals, companies, societies, communities, cities, regions, and even governments can follow the process in order to protect themselves from risks, which may range from company-specific risks, such as disruption of revenue to significant international risks, such as climate change and civil disturbances.

Some risk management initiatives are easier than others; they are required by law and enforced by government agencies. For example, companies providing public transportation (such as passenger transport in a bus) have clearly defined requirements as set out by their local motor vehicle branch in government. They are required to use appropriately licensed drivers, submit to commercial vehicle inspections, and insure their vehicles as required. Failing to adhere to these standards may result in suspension of operating privileges, fines, or even imprisonment.

However, other aspects of risk management are not regulated so extensively. This is characteristic of the majority of tourism and hospitality activities offered in Canada today. Operators offer services to the general public and self-regulate in terms of safety. If injury to a guest occurs, and that guest feels that he or she has grounds for a financial claim, that person can initiate a lawsuit against the tourism operator. If this claim is found valid in court, then the tourism operator may have to pay a large financial settlement to that claimant.

In short, tour operators must comply with applicable statutory requirements and be sure to self-monitor to determine if the standard that they are operating at is acceptable to society and their peers. Failing to do so may result in a range of consequences, including fines, suspension of operations, or a lawsuit. Clearly, risk management for tourism and hospitality is a complicated process.

Concepts of Risk

Before we examine the risk management process, let’s look at three theoretical concepts of risk: real risk, perceived risk, and inherent risk.

• Real risk is the actual statistical likelihood of an incident occurring. This is established through reviews of statistics and other relevant data, and by an analytical process and use of expertise in the field. There is little ambiguity or subjectivity in real risk (CTC, 2003a).
• Perceived risk is the perception of risk by those undertaking or evaluating something; it may vary greatly based on their level of apprehension, anxiety, or experience with the specific risk. Perceived risk can also vary greatly from the real risk of an activity; it can be higher or lower than the actual risk. Successful management of perceived risk may include operators promoting the risk of activity as high, even if, in reality, the risk is minimal. This strategy can ensure the successful delivery of an exhilarating, challenging experience while remaining safety conscious (Dowling, 1986).
• Inherent risk is the risk that must exist for the activity to occur; examples include the risk of drowning when swimming and the risk of falling during skiing. It is impossible to eliminate inherent risk from these activities because it would preclude participating in them. However, operators should take steps to minimize inherent risk; this could include, for example, providing appropriate safety equipment for guests, training staff, and informing participants of the hazards of the activity (CCTC, 2003b).

“Chapter 11. Risk Management and Legal Liability” from Introduction to Tourism and Hospitality in BC Copyright © 2015 by Don Webster is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.