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Risk management in the tourism and hospitality industry plays a pivotal role in today’s dynamic world. It helps to analyze the risks that may occur any time and suggest the cost effective strategies to sustain the competitive advantages for the organizations (UIB, 2013). Risk management in the tourism and hospitality industry takes into consideration not only the identifiable uncertainty factors but also considers natural disasters as risks, including earthquakes and flood among others, which have the potential to destroy tourism places and thereby, obstruct growth of the industry. Simultaneously, technological, political and biological disasters have also imposed negative impacts on the tourism and hospitality industry in the recent era causing fluctuations and unrests within the social contexts. It is thus believed that with the proper utilization of risk management tools, the tourism organizations can identify, analyze, evaluate and manage the uncertainties efficiently (Ural, 2016). To sustain the competitive pressure on the market further, it is also essential for the tourism organizations to conduct frequent investigations of the risk factors. Using Lubbe’s Holiday System Models and similar other frameworks can prove effective in this context to plan and implement ideas to remain competitive in the market over the long run (Nair, 2013). In accordance, the discussion in the following sections of this study will aim to identify and analyze the risk dimensions commonly observed in the tourism industry, which includes legal, ethical and sustainability features of the sector.
Legal Dimensions of Risk Management
The legal dimension in risk management refers to the procedure to identify and control the risks concerning legal factors in the business environment (UCI, 2017). Risk management initiatives do not only emphasize reducing risks, but is also concerned about reinforcing risk management tools that help the companies to forecast and eradicate possibilities for any legal hazard. In the present context, risk management is perceived as the primary facet of the modern companies. For instance, the results revealed through the McKinsey 2011 survey emphasized that 44% of the company board practices normal traditional analysis and approval methods for the management strategies while 14% tends to implement innovative strategic approaches. These 14% of the companies have also depicted a better understanding of the risks that the company might have to face after the implication of the strategy. However, half of the board members of the organization were of the view that the information given by the management was not enough to understand the risk of the company in depth (OECD, 2014. This particular finding implies that in the present era, the board members of the company are considering risk management as their primary responsibility, although not without acknowledging the need for sufficient information on the issue of concern. Contextually, risk management of a company is related with both financial and non-financial matters. In the case of financial institution, they usually focus on the financial risks of liquidity, credit and market risks. However, in case of the non-financial dimension of risk management, is the issue can be witnessed as related to the environment, IT, health and safety, market risks and credit among others. Therefore, to cope with these issues, an appropriate risk governance law needs to be implemented that would in turn help to retain efficiency at large (OECD, 2014).
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In case of the tourism and hospitality sectors, it has recently been argued that adopting ethical considerations is not sufficient for the accomplishment of competitive advantages. Companies, in this regard, needs to follow the laws and regulations introduced by the government for best quality services to their customers assuring the highest degree of transparency in the process. Correspondingly, tourism and hospitality sectors entail strict legal aspects to protect the tourists and the guests from uncertain risks. The law of tourism and hospitality can accordingly be associated to travel, food and lodging industries. To be noted in this regard, the hospitality and tourism laws fundamentally include real estates, anti-trust organizations, contracts, and torts among others. Legal regulations play an important in the context of hospitality industries, principally because many accidents have been recent recorded to have taken place in terms of food illness, plan crashes and terrorist attacks among others, owing to which the protection of the public government has emerged as a crucial concern in the hospitality laws (HG.org, 2017). Legal dimension of the risk management also covers different hotels, businesses and restaurants. A prominent example in the field is the “truth in menu” law. This law describes that customers can believe in the menu of the restaurants with regards to the information presented prior to their decision to purchase the services. It also implies that on finding possible gap in the served menu and the one illustrated, the customers have the right to claim on the restaurant, which in turn ensures protection of the customers’ interests in the services sector (HG.org, 2017).
Ethical Dimensions of Risk Management
Risk management is a major approach to protect the participators, clients and employers from ethical dilemmas and the consequent results of moral fallacies. Moral risks that related to the ecological and social problems, such as corruption, working condition, discrimination and employees management are commonly referred as ethical issues witnessed by the business. The alignment between risk management and ethical theory is a moral worth for the organization. By adopting risk management tools and techniques, organizations can hence reduce ethical issues it witnesses with regards to the working condition and employee management at common instances (Luetge & Jauernig, 2013). In the case of tourism industry, ethical issues can be segregated into four primary areas, namely workplace, supply chain, customers and local community. In the last decade, for reducing these issues, companies had taken important steps, such as integrating the human rights policies into the company policies. Illustratively, in the last year, Marriott International hotel had modified its business policies and launched ethics awareness plans (The Guardian, 2017).
Managing ethics risk in the hospitality industry has always been a challenging task for the professionals. They need to balance honesty, diversity issues, good services, integrity and fairness with challenging values. Therefore, ethics issues in the hospitality sectors have a potential to destroy the company image (Stevens, 2011). Ethics are also perceived as a major concern in the tourism industry, owing to its capability to influence the tourists. Besides, To maintain the customer satisfaction level thus, the tourism industry needs to consider almost all the risks that might create a negative impact on the organization and its reputation at large. Therefore, to identify and control such type of ethical issues, hospitality and tourism organizations entail to utilize the risk management tools (Lovelock & Lovelock, 2013). Correspondingly, to protect the tourists and businesses, the government has also developed the code of ethics for the tourism industry. These codes provide guidelines that suffice the specific moral ethics standards in turn (Polyxeni & Ourania, 2008).
Sustainability Dimensions of Risk Management
Risk management and sustainability are strongly correlated to each other, which helped in reducing the degree of uncertainty prevailing in the business. Sustainability is in this context referred as the procedure through which an individual produces and integrates balance between the competing purposes within environmental, social and economic factors. Similarly, organizational risks are also related with the environmental, economic and social factors, wherein sustainability attributes and risks are considered as mutual in nature. To sustain the business for long term, organizations need to facilitate value to employees, shareholders and the community at large. In the case of hospitality industry, sustainability issues can be related to the factors of climate change, deforestation and water as well as air pollution among others. The managers of the hospitality industry therefore need to consider these issues to sustain in the future. Correspondingly, sustainability in the risk management technique is not only concerned with increase in the level of cost saving but also indicates an increase in the economic benefits, such as customers’ loyalty, brand value and employee retention among others (Gardetti & Torres, 2015).
Moreover, evaluation of the strategic performance, operational, environmental, economic and social performances of the company is deemed important for suitability in the business. Therefore, for its sustainable development, the hospitality industry entails highly skilled relevant stakeholders. Similarly, managers need to do constantly monitor the process and evaluate as well as implement the required changes whenever necessary. Hospitality managers also need to maintain a high customer satisfaction level and ensure that they can deliver the required experience to their guests. The environmental sustainability and risk management strategies can be accordingly related to natural disasters. Therefore, to sustain the natural disasters, organizations need to identify the strategies that might reduce their risks in the tourism destinations (Ural, 2015).
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In the present dynamic world, to sustain and gain the intended competitive advantages, organizations need to develop their understanding with regards to the importance of risk management in developing the strategy at large. By utilizing risk management strategies effectively, any organization can identify the risks that occur in their business process, anytime and anywhere. While concerning the hospitality and tourism industry further, it can be observed as fundamentally depended on the customers’ satisfaction level and loyalty. Therefore, to sustain the value of the company, managers and employees need to understand the value of risk management. Based on the discussion thus, it can be stated that risk management is fundamentally a three dimensional concept that engulfs legal, ethic and sustainability variables, emphasizing the social, economic, operational and environmental factors among others. Overall, the study explained that the adoption of risk management, hospitality organizations can facilitate best services to the customers. In return, they can effectively sustain business for a long-term.
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