Organizations, Strategic Risk Management and Resilience

The Impact of COVID-19 on Tourism

Patrizia Gazzola, Enrica Pavione, Ilaria Pessina

• Publisher: Routledge
• Year: 2022
• ISBN:
  9781000626605
• Edition: 1
• Topic: Betriebswirtschaft
• Subtopic: Unternehmensstrategie

Organizations, Strategic Risk Management and Resilience: The Impact of COVID-19 on Tourism aims to identify, analyse and underline the importance of having a conceptual framework designed to develop and improve the risk management and resilience for organizations, particularly during times of crisis. In the aftermath of COVID-19, it is of paramount importance to predict the trajectory of change in consumer behaviour to help managers identify the basis of a resilience strategy to ideally respond to the current situation. In particular, the book focuses on the analysis and description of the Italian tourism sector, giving a report on how the tourism sector reacted to COVID-19, underlining the importance to adopt a resilient approach relevant for evaluating the effective impact of the pandemic dynamics and to provide support tools for decision-makers to be prepared for the unexpected and to be able to follow a smart adaptation. The book shows the latest state of knowledge on the topic and will be of interest to students at an advanced level, academics and reflective practitioners in the fields of strategic and risk management and the business of tourism.

1 Risk and Resilience Management in Turbulent Times

DOI: 10.4324/9781003268963-2

1.1 Definition of risk

The word “risk” is common and widely used today in connection with personal situations like health, investments, insurance, etc.; the collective social situations like the economy and safety of the country, etc.; and, company situations like corporate governance, business models, strategy, etc.¹ Nevertheless, while risk is well known and has developed to a certain degree of maturity, there is still no broad consensus on the meaning of this term; therefore, depending on the context, there are many accepted definitions of risk in use.²

In their Guide to Risk Statements, the Treasury Board of Canada suggests that “Risk refers to the uncertainty that surrounds future events and outcomes. It is the expression of the likelihood and impact of an event with the potential to influence the achievement of an organization’s objectives”.³ The distinction between the event and the impact (positive or negative) is very important. We can consider the event as a situation that can influence the possibility of an organization reaching its objectives, while the impact is the potential effect of an event. A different definition of risk identifies it as the possibility of a deviation from expectations that could create damages. In this case, risk is the possibility of an event that moves away from the trajectory; this deviation is highlighted only when the loss has occurred.⁴ To most people, risk is viewed as having a negative connotation. Quite surprisingly, some national standard-setting bodies, such as the International Organization for Standardization (ISO) ISO/IEC 27005:2008, also use a negative definition of risk.⁵

According to Heldman, most of us often ignore the other side of the picture and, thus, tend to think of risk in terms of negative consequences. However, while risks are potential events that cause threats to projects, there are also potential opportunities embedded in risk.⁶ As Hillson clearly identifies, there are two options regarding the definition of “risk”.⁷ First, risk is an umbrella term which consists of two varieties—risk with positive effects is known as opportunity, while risk with negative effects is known as threat. Second, the word “uncertainty” is a holistic term that can express the negative sense of risk as threat or the positive sense of risk as opportunity. The first option seems to be the current trend that is widely accepted by many practitioners and researchers of risk management.⁸

While there are several different definitions of risk, they seem to agree in terms of identifying two main characteristics of risk: first, it is connected with uncertainty; second, it has consequences. The connection between objective and risk is very important. By considering this link, the process of risk management can be used to identify risks, assess their significance and determine appropriate responses.⁹ This link is also important for understanding attitudes toward risk because risks are driven by the objectives of the individual, the group or the organization in relation to the importance of the risk.

As Hillson suggests, it doesn’t matter how the term “risk” is classified since the decision consists of both opportunities and threats that are equally important elements in terms of influencing project success.¹⁰ Thus, both need to be managed proactively and effectively through risk management in order to prevent harm to a business.

1.1.1 Classification of risk

Risks can be classified in several ways depending on the impacts that the risk has on the internal and external environment of the company.

According to Harland, risks can be divided into the following types:¹¹

• – Strategic risk affects business strategy implementation, and it refers to the risk that usually arises due to a series of events or conditions that are unexpected, where the event can reduce the ability of a manager to apply his ideas or strategies.
• – Operational risk is linked to the productivity of the company and to making products and services available in the pre-established quantity and quality. This risk is caused by a malfunction or failure of the production process or another internal management process caused by system failures or human errors. This is one of the most common causes when compared with other types of risk.¹²
• – Supply risk can adversely influence the inward flow of the different kinds of resources that enable operations to take place.
• – Risk of hazard refers to a number of factors that can cause potential harm or adverse effects to an organization. It is crucial to identify the sources of risk that exist in a company and take the right steps to respond to them.
• – Customer risk is linked to the risk that the quality of a product will not satisfy the customer, which can cause the company to lose its marketshare.
• – Competitive risk arises from changes in a firm’s external environment and from the firm’s ability to create innovation and beat the competition.
• – Reputation risk is the risk of a reduction in the company’s profits or capital resulting from the loss of stakeholder trust due to a negative image of the company.
• – Financial risk is connected to changes in the financial markets. It’s a risk that is generally experienced by investors and arises as a result of issuers’ shares and bonds that cannot afford to pay dividends or interest or loan principal and interest.
• – Fiscal risk arises through changes in taxation.
• – Regulatory risk arises from changes in regulations, such as environmental legislation.
• – Legal risk is connected to disputes with actions deriving from various subjects such as customers, suppliers, state, employees, etc.¹³

1.2 Literature review of risk management

The ISO 31000 defines the risk management (RM) process as one that “involves the systematic application of policies, procedures and practices to the activities of communicating and consulting, establishing the context and assessing, treating, monitoring, reviewing, recording and reporting risk”.¹⁴ The first step of RM is to identify, evaluate and prioritize risks, which should be followed by an efficient use of the resources to minimize, monitor and control the likelihood and impact of negative events or to maximize the realization of positive events.¹⁵

Risk management requires analysing and responding to risks to ensure that an organization’s objectives are achieved. The type and complexity of the organization should determine the level of RM required. However, risk management is being developed and adopted in several fields, including environmental studies, public safety, healthcare and enterprise management.¹⁶ Facing the current world, with all its uncertainties, is not easy. Thus, the manager must use RMs to conduct normal decision-making activities in order to obtain a successful risk-taking approach.¹⁷ These approaches, and their respective terms and definitions, have developed over recent years.

Bernoulli proposed one of the first definitions of risk. He used the geometric mean to measure and minimize risk by considering it across a set of independent events.¹⁸ In his idea, the measurement of the risk is made by combining three variables: the probability of the occurrence of the “risky” event, the number of times the risky event is repeated in a delimited period, and the extent of the consequences (magnitude) that the event generates.

For Chapman, the definition of risk management is to facilitate better business and project results by providing insight, knowledge, and a superior decision-making capability.¹⁹ Subsequently, the managerial literature has composed a definition of risk that includes both the positive and negative consequences of an event that can influence the achievement of a company’s strategic, operational, and financial objectives.²⁰

Due to the complexity and magnitude of the risks that companies have, the researchers consider a double classification of risks: pure or static risk and speculative or dynamic risk. The first risk is a negative-only risk that causes damage without, simultaneously, providing an opportunity for earnings.²¹ Normally, this is caused by accidental events and is unexpected. The second risk goes in two different directions: it could be positive and create earning opportunities or negative and create damages. Entrepreneurial risk is of this type.

Another definition of RM is connected with the process of planning, organizing, directing, and controlling resources with the aim of achieving stated objectives when unexpectedly positive or negative events are possible.²² Since risky events can be caused by both internal (infrastructure, business models, human resources, processes, and technology) and external factors (economic, environmental, social, cultural, political aspects), risk management is the process that aims to protect the company’s assets and reduce or eliminate possible losses due to unexpected events thanks to the use of tools such as prevention, forecasting, insurance, etc.²³

Though many authors have previously described risk only as being negative, some see certain types of risk as potential opportunities.²⁴

In their PMBOK guide – a guide to the Project Management Body of Knowledge – the Project Management Institute (PMI) defines RM as the process that integrates risks into planning and management control with the aim of minimizing the probability that negative events will occur and maximizing the probability that positive events will occur.²⁵

According to the Association for Project Management (APM), RM is “a process whereby decisions are made to accept known or assessed risks and/or the implementation of actions to reduce the consequences or probability of occurrence”.²⁶

Based on these explanations, we can identify risk management as a process with the main objective of identifying both the risks and opportunities that a project or business faces in its early stages and, then, taking action according to the appropriate response strategy in order to mitigate or utilize risks for the success of the business.

In their research, Mohammed and Knapkova found a positive relationship between risk management and performance. According to their findings, RM enables companies to stabilize their economic performance. By managing its risks well, a company can increase its chances of achieving its objectives, including financial ones, and reducing the risk of problems related to the reduction of profitability. In this way, the company will be protected and the whole industry and national economic system will benefit from it. Business failures also enthral other companies and therefore also the entire economic system is also negatively affected.²⁷ RM can be used not only to reduce negative effects but also to obtain the maximum positive results that are available in a risky situation.²⁸

Andersen argues that the ongoing information of all management and other employees is an essential activity for managing risks. The information process must be reliable and occur in real time in order to be useful for making decisions. Among the strategic objectives, the main ones are to defend the company from possible risks, take action before a linked event occurs, and balance the risk with the opportunities that are connected to the risks. Good managers keep in mind that the information process is fundamental, but they must also keep costs under control. Therefore, they must mediate between minimizing risks and keeping the firm’s returns high.²⁹

In risk evaluation, a key role is played by risk attitude ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Introduction
• 1 Risk and Resilience Management in Turbulent Times
• 2 Resilience Management during the Pandemic Outbreak of COVID-19
• 3 The Impact of COVID-19 on the Italian Tourism Sector
• 4 Analysis of Consumer’s Attitudes to a Range of Tourism Activities and Destinations in the Light of COVID-19 Crisis
• Conclusion
• Index