reasons other than earning an income in the place visited” (Burkhart & Medlik, 1981 as cited in Lickorish & Jenkins, 1997). Saayman (2008) defines tourism as the total experience that originates from the interaction between tourists, job providers, government systems and communities in the process of providing attractions, entertainment, transport and accommodation to tourists.
Within the context of the above definitions, travelling outside the borders of the country of residence is termed international or external tourism whereas travelling within the borders is seen as domestic or internal tourism (Coltman, 1989).
The tourism industry
A definition of tourism by Jafari (1987) is mentioned which can be seen as a reference point when explaining the concept of touristhood. Jafari concludes: “tourism is the study of man away from his usual habitat, of the touristic apparatus and networks, and of the ordinary and nonordinary worlds and their dialectic relationship”. This definition emphasizes the difference between two different worlds and between two different environments; the ordinary and the nonordinary. “The ordinary comprises the mundane, profane, daily life whose procession loses strength due to its own ordained, rhythmic course; while the nonordinary is the heightened position resulting from the departure from the ordinary ranks”
Tourism is now the largest industry in the world by virtually an economic measure, including gross output, value added, employment, capital investment and tax contributions (Wheatcroft,1994)
Since travelling domestically and internationally has become easier due to ease of access, education and rising income, the past few decades have witnessed a considerable increase in the number of people leaving their place of residence, travelled specified distance and returning back home. In order to give them all the required facilities, or more precisely, services, products and amenities, miscellaneous organizations continue to exist. Leiper (1979) considers the tourist industry as consisting of all those firms, organizations and facilities which are intended to serve the specific needs and wants of tourists.
Goeldner et al(2002)have developed an integrated system model to capture the essential elements of what they call the ‘tourism phenomenon’. In addition to the regular industry sectors of tourism, such as transport and accommodation, they included government and quasi- government agencies, the built environment, the natural environment and its resources, as well as activities such as reward and stewardship.
Sectors and Sub-sectors of the Tourism Industry
(source:G.K Shaw, 2010 -A risk management model for the tourism industry in South Africa)
Providers of accommodation
-Bed & breakfast
-governmental tourism organizations
-private tourism organisations
Commercial & industrial
-Tourist trade goods manufactures
-Travel trade press
According to Australia’s new strategic plan, unlike many industry sectors, the tourism is unable to be defined simply as a group of businesses that produce particular, similar products. Rather, the ‘tourism industry’ embraces a diverse range of providers and users of a variety of goods and services, and overlaps with other sector of the economy. It can simply be interpreted in the terms of demand and supply where demand involves the needs and expectations of tourists while supply involves the organizations delivering tourism products as well as services (Peter E Murphy and Ann E Murphy, 2006)
As Jagmohan Negi (2004) rightly puts it:
The tourist industry is difficult to define because it consists of all those trades which together satisfy the needs of travelers. Every expenditure made by tourists contributes to the prosperity and development of the travel industry. Although travel means going out only for a temporary period outside the local of one’s residence, it involves a complete shake up in the equilibrium that one achieves between himself and the outside world, while living at one particular place for a long time. It involves a long chain of agencies to complete a visit worth its purpose. A tourist (holiday maker) spends his money the moment he leaves his home to go to his holiday.
This paper would be focused on the private sector tourism as it deals with most of the shareholders which are in direct contact with the tourists and creation, as well as delivery of services/products; hotels, travel agencies, resorts, retailers and passenger carriers.
The Private Sector of Tourism
Hall (1992) suggests that the period of mid 1080s which witnessed many political events brought significant changes in the tourism industry. The WTO (1994) explains this idea where it states:
As well as political change, the world has seen significant economic restructuring and general recession and downturns in traditionally strong economies. These changes have been marked by an increasing reluctance and/or inability of governments to invest in or support areas such as tourism and, â€¦
This clarification was preceded by the arguments advanced by Lowyck and Wanhill (1992) Davidson (1993), and Harrison et al. (1993)on the economies divesting themselves of state owned assets to the private sector and on privatization which were for purposes of increasing efficiency and enhancing competitiveness by making greater use of markets for resource allocation.
Many schools of thoughts argue that the private sector would be better implementer of tourism policies and can lay down long term plans that provide continuity amid situational changes. The private can implement policies while the government agencies can collaborate with one another and provide support (Robert Joseph, 2010 Cebu Daily News)
In most countries, government involvement in tourism takes places to varying degrees at different levels as per a government’s scope of powers, commitment to tourism management and available resources. All levels of government typically focus on the economic aspect of tourism and its main, dominant role in most destinations is a very strong focus on promotion (Peter.E Murphy and Ann E Murphy, 2006)
Some countries do have a tourism industry operating on public-private leadership schemes but still the private sector plays a more active role in defining the direction of tourism.
Tourism is all embracing; it involved the interaction of other components such as transportation, communication, accommodation and destination among others. Sectors cannot be singularly handled by the government as they constitute pillars of tourism development. Therefore, the private sector must, of necessity, be involved in the development and promotion of tourism in any country that intends to make tourism the mainstay of her economy. (Akpet, 2005)
The private sector normally includes accommodation companies, travel companies, restaurants and bars, retailers and others which are not owned and regulated by the government. Most of the times, these companies have to abide by certain laws and regulations proposed by their constitution but they have got their own set of rules and principles, faction of practices, own and unique management style, profit margin and budgeting and criteria for leadership.
Components of tourism private sector
The composition of tourism private sector
Primary trades/profit oriented organization Secondary trades/profit oriented organization
Hotel industry Retail shops
Food and beverage industry Financial institutions
Transport industry Suppliers of goods and
services for hoteliers,
Tourist attraction caterers and transport
figure 1: composition of private sector tourism
(source: International tourism and travel, Jagmohan Negi, 2004)
According to Leonard JJ Lickorish and Carson LL Jenkins, the primary trade/profit motivated tourism organizations are interdependent to a certain degree and propose the following explanation:
Transportation, accommodation and catering acting as the tourism hardware and tour operators/agents , tourist attractions and recreation activity fulfilling the role of software in so far as they usually provide the reason and catalyst for tourism to take place and for the use of the transport and accommodation.
The secondary organizations offer facilities and services which are sometimes not offered by primary ones; example souvenir shops, entertainment and shopping, and insurance companies.
On the other hand, Jenkins (1997) argues diversely by suggesting that there are three rather than two types of tourism private businesses. He puts it as follows:
(1) the primary trades, which are most commonly associated with tourism (e.g., transport, tour companies, travel agencies, accommodations, catering facilities and attractions); (2) the secondary trades that help support tourism, though are not exclusive to tourism (e.g., retail shopping, banks and insurance, entertainment and leisure activities, personal services); and, (3) the tertiary trades, which provide the basic infrastructure and support for tourism (e.g., food and fuel, manufacturing). The inherent challenges accompanying the variable boundaries of what comprises the tourism industry are further exacerbated when the nature of the tourism ‘product’ is also considered.
The formal Australian standard for Risk Management defines risk as “the chance of something happening that will have an impact on objectives”. It states that risk can either be positive or negative depending on situations.
Andrew Minns (2003) refers to risk as “the common combination of the probability (or likelihood) and consequences of an event (or outcome or result of exposure)”. He explains that this gives rise to the widely used concept of risk:
Risk = Probability Consequence
External and internal factors
The risks facing an organisation and its operations can result from factors both external and internal to the organisation. The diagram overleaf summarises examples of key risks in these areas and shows that some specific risks can have both external and internal drivers and therefore overlap the two areas. They can be categorized further into types of risk such as strategic, financial, operational, hazard, etc.
Types of risks
According to the Cranfield School of Management, there are different types of risk any organization could face, but the categories of risks are not rigid as parts of business may fall into more than one category due to similar attributes.(Martin Christopher et al, 2011)
Types of risks and factors affecting them
(Source: The institute of Risk Management, 2002)
In an ACCA paper of 2008, it was stated that strategic risks are those that arise from the fundamental decision that directors take concerning an organization’s objectives. Essentially, strategic risks are the risks of failing to achieve these business objectives.(Annon, 2008)
According to Marquis Codjia (2011), financial risk is a factor in all economic activities and may cause a firm to suffer losses from unfavorable price variation in securities or partner default.
He rightly puts it as ‘financial risk is the probability that a company may not have sufficient cash flows to operate, reimburse a loan or meet other financial commitment when they become due.’
As David Tattam (2011) mentions in one of his publications, operational risk is defined as ‘the risk of loss from failed or inadequate processes, people, systems or external events.’ He later argues that loss is not the only issue to be taken into consideration and redefines operational risk as ‘the risk of loss or gain arising from people, systems or external events whicn can have the potential to cause the organization to deviate from its objectives.’
Jack L.King(1998) argues that there is a fundamental problem with operational risk as there is lack of consensus on its definition. As per his explanations, operational risk must be broken down into triggers(causes) and events. Briefly, loss or gain is triggered by an event and causes are the assignable or chance causes for the event. Assignable causes are attributable to factors that can be eliminated. In contrast, chance causes are natural or random. He therefore proposes another definition for operational risk as the uncertainty of loss in the book value of the firm or organization due to the failures in the manufacturing of the firm’s goods and services.
Invention of operational risk
In his second paper on risk management, Michael Power(2003) explains that operational risk pretty much inexistent before the 1990s. By the end of the decade, books were being published, conferences were being organized and apparently new roles such as ‘operational risk manager’ were being created to the extent that there is talk of an operational risk profession.
From the works of James E Roughton and Nathan Crutch Field(2008), it can be gathered that risk management is pre-emptive rather than reactive. This approach is based on the philosophy that it is irresponsible and wasteful to wait for an accident to happen, then figuring out how to prevent it from happening again. We manage risk whenever we modify the way we do something to make our chances of success as great as possible. It is a common sense approach to balancing the risks against the benefits to be gained in a situation and then choosing the most effective course of action.
Baltzan , Philips and Hag (2009) describe risk management as a process of ongoing risk identification, analysis and developing responses to risk factors. Following the same concept, Kerzner (2001) argues that risk management is the art or practice of dealing with risk. He rightly puts it as:
Risk management includes identifying, assessing and analyzing risk issues as well as planning for the occurrence of risk, and includes developing a management system to handle risks. This system should be designed to allow for monitoring of risk s to determine how they have changed.
If not taken appropriate care of, the operational risk could have potential impacts on different aspect of an organization such as:
The health and safety of employees and customers
The business reputation, credibility and status
Public and customer confidence
Equipment and the environment
(source: adapted from Queensland Tourism, 2009)
In the tourism domain, risk management can be defined as the process whereby shareholders methodically address the risks attending to their activities with the goal of achieving sustained benefit with each activity and across the portfolio of all activities. It must be integrated into the culture of tourism private organization with an effective policy and programme led by the most senior management. It must translate the strategy into tactical and operational objectives assigning responsibility throughout the organization with each manager and employee responsible for the management of risk part of their job description.
Operational risk management
Operational risk management a simple six steps process which identifies operational hazards and takes reasonable measures to reduce risk to personnel, equipment and the mission. It is also a decision making tool that helps to systematically identify risks and benefits and determine the best courses of action for any given situation.(Anon,2000)
Operational risk management process
Step 1: Identify the hazard
A hazard is defined as any real or potential condition that can cause degradation, injury, illness, death or damage to or loss of equipment or property.
According to David Maccollum (2007), there are three different ways to methodically identify hazards.
Hazard identification by area
Hazards are grouped into common types and are identified by surveying all the different areas of an static site. This involves a precise process:
‘Get an up to date plan of worksite’. A precise picture of the work area must be provided
‘Get a chart that shows the production process or work flow’. The chart must be well explicit and updated for any changes.
‘Divide the worksite into identifiable areas and number them’. The physical layout of the working site can be divided according to certain dimensions and given a specific name code or number.
‘Ask staff in all areas to list what they consider as potential hazards in their working environment and to give reasons why these hazards can harmful.’
‘Use existing resources and data’ to review information which can be gathered for example from regulations form, code of practices, booklets and records.
Hazard identification by work analysis
This method is preferable for small independent group of people who are under minimal supervision.
‘Identify all the tasks people carry out’. The employees are asked exactly how do they perform their tasks, their course of action and then the work process is broken down into smaller components for analysis.
‘Work out the steps or stages involved in doing the task’. The steps to perform the work are reviewed and possible hazards at each steps are noted and looked at.
Using a list of possible hazards, to ask the employees what they consider could apply to each step identified and to write them down.
Use existing resources such as guidelines, records of accidents and near misses not only from within the organization but from the industry as well to make sure of identifying all hazards.
‘Use of information derived from task analysis to build up a profile of hazards and the occupations and tasks they apply to.’ A computer database can be used by giving specific codes to the hazards.
(adapted from Occupational safety & health service-A workbook, 1994)
Hazard identification by process
This approach is more thorough as it identifies the processes involved on a worksite and go through each process step by step to look for all hazards at each stage.
Make inventory of all substances and materials used in the process
List the process from where the material is delivered to the organization to where the finished goods are dispatched or services are offered.
Draw up a flow chart detailing every step pf the process
Use existing resources such as information booklets, records of accidents and near misses and reports from inspectors.
Summerise the collected information
(Adapted from Occupational safety & health service-A workbook, 1994)
Step 2: Assess the risk
Risk assessment is actually the comparison of risk elements and their impacts against some acceptability criteria. Risk assessment sometimes involves consolidation of risks into risk sets that can be jointly mitigated, combined and then used in decision making. The assessment of risk is done by applying quantitative and qualitative measures to determine the level of risk associated with specific hazards.(Anon,2000)
A risk assessment has three main functions
-to consider the chance of harm actually befalling anyone in particular circumstances and the possible consequences
-to make proper planning and take adequate preventive measures to control the risks
-to shoulder responsibilities properly concerning identification and control of hazards
Step 3: Analyse Risk Control Measures
After identifying and assessing the hazards which need to be controlled, the next process is to select options or methods to take care of the hazard. ‘The choice of an option is based on factors such as the potential severity of the harm posed by the hazard, the likelihood of injury or illness occurring and the cost of control measures.’ (Anon, 1994)
Step 4: Make control decision
The person with best decision abilities must be identified to choose the most appropriate control methods or set of strategies. It is important however to look at all options before making a decision, even though the identified hazard may already have some controls in place. Dale Stewart(2011) explains that these decisions must be made at the right time for maximum duration of effectiveness of the tools. The decision maker should be able to judge situations from required perspective and be responsible for consequences.
Step 5: Implement Risk Controls
‘Once control measure have been selected, an implementation strategy must be developed and carried out’. For implementation to be successful, it should be clear, accountability should be established and support must be provided at all levels.(Dale Stewart, 2011)
Step 6: Supervise and review
It is very important to ensure that once hazard controls are put in place, regular checks must be carried out by designated persons to ensure their effectiveness and a feedback mechanism must be followed for future maintenance and utility maximization. (Dale Stewart, 2011)
Maximize operational capabilityObjectives of operational risk management
Conserve personnel & resources
Reduce or prevent increase or
losses advance gain
evaluate and minimize evaluate and maximize
identify, control & document identify, control &document
Objectives Of Operational Risk Management
(source : FAA System Safety Handbook, Chapter 15: Operational Risk Management, 2000)
Jurgen H.M Van Grinsen (2009) explains in his publication that the setting of operational risk management objectives affects or determines the choice of the methods and tools to be used.
There are certain principles which need to be followed while implementing the operational risk management process and these are:
Accept no unnecessary risk
Make Risk Decisions at the Appropriate Level
Accept Risk When Benefits Outweigh the Costs
Integrate ORM into Planning at all Levels
(source: adapted from FAA System Safety Handbook, Chapter 15: Operational Risk Management, 2000)