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Risk Management within TUI Group
Free essay example:
BA Travel and Tourism Management
Risk Management within TUI Group
Student number: 100102570
Module Leader: Nikolaos Pappas
- Aim and Objectives………………………………..5
2.1 Risk Management overview............................6-10
2.2 Risk Management process............................10-12
2.3 TUI’s Crisis Management..............................12-15
This report is to critically evaluate and approach risk management process within TUI Group. Risk is inherent part of every industry therefore good understanding of this subject is essential in order to create successful company. This report will present a good understanding of risk management area as well as give an insight into risk management process with the use of secondary data.
According to the United Nations (2011) Risk Management means applying a systematic approach to assessing and acting on risks in order to ensure that organizational objectives are achieved. Addressing risks that are left unattended to or insufficiently addressed by existing controls and checks is primarily the responsibility of an Organization's management. It is OIOS' aim to assist United Nations programme managers in this process.
‘Since the terrorist attacks of 11 September 2001in the United States, the term ‘risk management’ has become strongly associated with psychical safety and security of travellers […] While there are many types of risk to which the tourism industry must respond, the focus of the new millennium centres on the physical safety of customers and staff’ Taylor cited in Wilks and Page (2003, p.7).
Risk can occur in several ways and is common in every industry. There is always risk associated to travel, they can be mitigate by choosing destination with lower risk perception, however it is rather rare that perception of risk is equal to risk itself. The way that media report any incidents influence the perception of risk and at the same time influence economy of the destination of incident (Cooper et al, 2008, p.296).
Other than risk management, there are disaster and crisis which should be identified in order to avoid confusion between those three different areas.
When it comes to disasters, it is The immediate effects of disaster (e.g. earth quake, hurricane, etc.) could be destruction of tourist infrastructure and superstructure. Apart from the direct effect of the disaster on the destination, it is common that places where disaster took place suffer long-term damage if travel risk-perceptions are generated (Cooper et al, 2008, p.279). Crisis, on the other hand could be defined as ‘critical event or point of decision which, if not handled in an appropriate and timely manner (or if not handled at all), may turn into a disaster or catastrophe’ Business Dictionary, 2011.
In general, risk can always occur in creating opportunities (beneficial) or threats, therefore risk management should always be considered from both perspectives. It should be continuous process and always be aimed to implement the strategy in case a threat occurs. Moreover, it is not only future risk that should be taken into consideration- risks surrounding organisation’s past and present should also be taken into account. Going further, risk management ‘must be integrated into the culture of the organisation with an effective policy and a programme led by the most senior management […] It must translate the strategy into tactical and operational objectives, assigning responsibility throughout the organisation with each manager and employee responsible for the management of risk as part of their job description’ Institute of Risk Management (2011).
- Aim and objectives
The aim of this report is to critically evaluate risk factors relating to strategic decision making process and strategic planning within risk management in Ryanair.
Objectives are to present risk management (reputational risk) of Ryanair and critically approach it with the use of secondary data as well as generate recommendations.
2.1 Risk Management overview
‘In a world of change, one constant since 1950 has been the sustained growth and resilience of tourism both as activity and an economic sector. This has been demonstrated despite the ‘shocks’ of 11 September, 2001, the dual bombings of a major Asian tourism destination – Bali, SARS and the threat of bird flu, the second Iraq war, bombings of both the London and Madrid railway systems and the 2004 Boxing Day Tsunamis’ Cooper et al (2008, p.3).
It is obvious that tourism industry is one of the significant forces in the economy of the world – in 2006 travel and tourism industry world gross domestic product was 10,3%, had a turnover of US$6.477.2 billion and supported 234 million jobs – 8.7% of total world employment (Cooper et al, 2008, p.3). Going further, events mentioned above (9/11, tsunami, etc.) present ability of the industry to adapt quickly and shows very well developed risk management throughout.
However, the development of tourism is constantly being threatened by negative events. It is not only terrorists’ strikes and natural disasters but other factors that influence tourism industry, e.g. the rise of transport and travel costs or image damage (Glaesser, 2006, p.2)
The constant growth of tourism industry (against all the crisis and threats it faces) could be explained by theory that even though they trigger progressive potentials and solidarity, crises and risks can also bring opportunities and new options.
One of the approaches to crisis and risk management consists of the following ingredients:
- A triggering event which is significant enough to challenge the existing structure or routine of the organisation
- High threat with an element of surprise or urgency and short decision time
- A turning point, when decisive change (could have positive or negative outcome)
- ‘Fluid, unstable, dynamic’ situations
(Wilks and Page, 2003, p.159)
Risk management is very complex subject and requires good analysis skills. In general, there are ten elements of operation presenting the main risk areas to the success of a business. Those are as follows:
- ‘Premises – where the firm is located, type of premises available for use, amenities, distribution routes, access for customers;
- Product – industry sector, features of product or service offered, life cycle and fashion trends, materials used in production, green issues, quality;
- Purchasing – access to supplies, storage and warehouse facilities, stock control, payment terms, cost
- People – the workers in the organization, skills, training needs, motivation and commitment, incentive packages available, employment contracts;
- Procedures – production procedures, record keeping and reporting systems, monitoring and review, use of standards, emergency procedures;
- Protection – personal protection of workers and others, property and vehicle security, insurance cover, information systems, data security;
- Processes – production processes, waste and scrap disposal, skills technology and new materials;
- Performance – targets set, monitoring, measurement tool, consistency, validity of data;
- Planning – access to relevant data, management skills, external factors and levels of control, short- and long-term planning, investment options;
- Policy – range of policies that support the strategic plans of the firm’.
(Jaynes, 2002, p.5).
If carefully planned and managed, it is likely to reduce or even control (to some level) spread of the risk, although it is impossible to eliminate all the risks. It is, however, not very relevant model, as it presents only organisation’s internal risks, without considerations of any external threats that can occur.
All in all, risk management become mainstream in the business world, its role is to find the optimal blend of risk solutions (either through financial or non-financial instruments). Risk management is to: identify, asses, quantify, treat and monitor the risks (Reuvid, 2009, p.13)
Having well planned risk management is essential in every business. Mostly because it can not only prevent any threats to the business but it can turn it into positive outcome.
On the other hand, Kajuter et al (2008, p.6) argue that not all corporations needs well developed risk management. Efficient capital markets are said to manage the risk themselves by eliminating unsystematic risk by diversification, therefore risk management on the corporate level is irrelevant and may reduce share-holder value due to its costs. It is, however, very narrow theory and there may be several factors that could emerge the need for risk management.
To identify a crisis situation, it is important to state whether corporate goals can be achieved. The initial specifications of those goals are whether business has ability to fulfil payment obligations and express minimum profit or return on investment. It is narrow definition of crisis within an organisation but it made crisis easy to identify, therefore it can be useful (Glaesser, 2006, p.13).
Crisis could be classified into five different levels. Firstly, there are potential crises, which characterise in crisis being non existent. Latent crises describe the stage when crisis has already broken out but it is not yet possible to identify it with the use of quantitative instruments available in the organisation.
Going further, acute crises take place. At this level destructive effect of the crisis is visible and company struggles to cope.
Other than that, there are natural and human-induced crises which are particularly visible and significant in tourism. In general, threats triggered by human are said to have a bigger impact on the destination than natural disasters. Good example to it, is a racial unrest in Los Angeles which had a long-term effect on tourism looses which is opposite to earthquake in San Francisco where arrivals increased in the 12 months following the earthquake.
Crises can also be classified by the tempo of its onset speed – crises with fast onset speeds are due to rapid change detected quicker than is the case with slower onset speeds (Glaesser, 2006, p.16).
It is important to highlight the difference between crisis management as a function and an institution. Crisis management as an institution applies to group of people who are in charge of crisis management activities, whereas crisis management as a function refers to ‘changes of tasks and processes when a crisis occurs’ (Glaesser, 2006, p.22).
Crisis management is very broad subject and its basics are presented in the model below:
(Glaesser, 2006, p.22).
Crisis prevention is about proactive anticipation of negative events; it is about continual occupation with the subject and is comprised of the two areas – crisis precautions and avoidance.
Crisis precautions refer to planned activities and measures for more effective crisis/risk management. It aims to lower the extent of damage (it is area of strategic nature, responsible for risk policy and preparation of crisis plans).
On the other hand, there is crisis avoidance, which is about taking measures than delay the development of crisis. It is aimed to detect crisis/threats at the early stage and estimate its significance.
Crisis coping starts with the identification of a crisis situation and is suddenly initiated. Next stage is limitation of the consequences and recovery, all management instruments should be involved when dealing with the crisis/threat and all activities should be aimed at overcoming any possible consequences of a crisis. It also consists of company learning from the past/previous situation in order to avoid or be prepared for similar threats in the future.
(Glaesser, 2006, p.23).
2.2 Risk management planning
This section of the report will identify important areas of crisis planning and to distinguish the different phases of the planning process for crises.
‘Planning describes a structuring process that defines how the decision-makers want to see a future process developing […] The fundamental aim of corporate planning is to assure the existence of the business, which is constantly threatened by the uncertainty of future events, for as long as possible’ (Glaesser, 2006, p.159).
This definition presents a basic aim of planning which is essential to ensure that business is unthreatened in case any crisis occurs. In reality risk and crisis management planning is very complex and requires a lot of input.
There are three different stages within the crisis planning; those are generic, contingency and preventive planning,
Firstly, generic planning can be distinguished. It is to determine fundamental requirements and potentials for crisis planning. Important part of generic planning is answering questions related to the organizational structure of the company.
Contingency planning requires evaluation of different options for a plan of action in case crisis occurs. In general, ‘contingency planning for anticipated events enables the organization to get a considerable head-start that essentially helps them to be more sure about their decisions in complex situations and when under the pressure’ (Glaesser, 2006, p.171). Contingency planning can often be limited by financial and human constrains as well as by restrictions of imagination, therefore it is advised to cooperate with similarly concerned entities and to constantly update and amend the basic plans of contingency planning.
Training is highly important plan of crisis planning. It is reported that the results of crisis planning are often ignored when an actual crisis occurs, it is, therefore, important to involve management that takes part in crisis planning as it lowers the chances of plans being rejected once crisis strikes. Going further, regular training in essential in order to achieve an early acceptance and internalization of the procedures of crisis plans. Two different groups should be distinguished while training. First group of people should be learned about activities that are considered exceptional tasks. Other group consists of management of the organization and is responsible for crisis management. The main aim of the training is to provide in depth introduction of a crisis plans, other than that it may result in further suggestions for the plans and help to identify an early stage of possible training.
The last stage of crisis planning is preventive planning. When a negative event is about to strike, the preventing planning is used. Depending on the speed with which the crisis is developing, different plans can be used. These plans consider the immediate and probable negative event. ‘The aim of these option plans, drawn up in the framework of preventive planning, is the formulation and preparation of actual possible solutions for overcoming the developing crisis situation’ (Glaesser, 2006, p.177). Option plans should be highly detailed in order to make it clear which pros and cons are made apparent.
2.3 TUI’s Crisis Management
As it can be read on TUI Travel PLC (2011) TUI is the world’s leading leisure travel company, which operates in 180 countries with more than 30 million customers. TUI Travel owns over 200 brands and is focused on providing customers with a wide choice of differentiated travel experience.
Their mission statement is to ‘create superior shareholder value by being the world’s leading leisure travel group providing customers with a wide choice of differentiated and flexible travel experiences to meet their changing needs’ TUI Travel PLC (2011).
Crisis Management is regular practice for most of the tour operators in order to improve general quality level of the business. In some cases it includes crisis management departments responsible exclusively for this study area. Tour operator TUI is said to be managing over 200 cases of death and 1000 difficult health cases among their customers annually.
There is a department that is run by the Manager for Crisis and Event Management in TUI and is responsible for planning and activities for emergency and crisis situations.
Moreover, the Crisis Committee is assembled in the event of crisis. If the situation requires it, then designated members of different departments (communication, sales, quality management, product management and transportation) are requested to join the committee. The crisis management activities are managed from the headquarters of TUI in Germany. In the event of crisis, affected areas/destinations are being consulted, however it is only the Crisis and Event Management department that can make final decisions.
The TUI’s crisis management is very levelled and consists of the development of contingency plans for negative events. The contingency plans are updated on regular basis and consists of the field of duties, responsibilities, information, decision procedures and rules of conduct.
Going further, TUI’s Crisis and Event Management makes sure that names, telephones and fax numbers of key employees are permanently updated. The standardised checklists for evacuation and aircraft accidents are also prepared.
TUI has the air traffic control centre (open all year round, 24 hours a day) in order to monitor and coordinate air traffic that is related to the TUI.
Other than that, TUI has a Care teams available for the time of crisis. It employs around 230 staff who, after the selection based on mental strength and organisation skills, are responsible for looking after those who were involved in an accident and their relatives (Glaesser, 2006, p.163-164).
To make all the information about crisis management clear and easy to access, TUI created the Service Handbook of TUI. It describes the activities that should be undertaken if crisis strikes and is available in all of the 1500 TUI travel guides worldwide.
One of the good examples of well-developed crisis management in TUI is their Statement of Guarantee. The group used to have various charter airlines in use and did not guarantee the engagement of one specific airline when signing a contract with customers. The right to change airlines in case of any difficulties proved better flexibility and help to avoid the cancelation of the flight. However, it caused problems when in 1996 a charter flight with TUI customers crashed and the policy of TUI raised several concerns on flying with unknown charter airlines. The TUI group quickly identify the issue and developed a Statement of Guarantee two days after the accident in which they listed all cooperating charter airlines which was useful in regaining customers’ confidence (Glaesser, 2006, p.193).
‘The Group has adopted a risk management framework that is designed to provide a formal structure through which the business will:
- Endeavour to reduce the exposure of all its businesses to risk as far as possible.
- Seek to recognise and derive the maximum benefit from any opportunities identified through risk analysis.
- Seek to achieve excellence through managing risk effectively throughout the organisation’.
TUI Travel PLC (2011)
The process of the risk’s framework in TUI Travel consists of set of tools developed to achieve an effective approach to identification, evaluation and management of risk at a business level. Active risk workshops are important part of company’s risk management and action plans are developed on regular basis. Moreover, company has nominated Risk Champions to actively support the crisis management process and is constantly updating risk reports.
Reporting and Governance part of risk management within TUI Travel consists of presenting (by Group Risk Management) risk profile to the Audit Committee for review every six months. Moreover, progress, development and any further discussions on the framework are under review by Audit Committee as well as management teams of individual sectors.
Group Audit Services (GAS) are said to play a major role in ensuring that risk management framework is run correctly. It is responsible for reviewing and testing the evaluation of reported risks in order to ensure that actions have been validated to appropriately mitigate risk as reported.
Going further, it can be read on TUI Travel PLC (2011) website that ‘certain common risks exist across the Group and therefore benefit from a Group approach to mitigation such as customer and employee health and safety, business continuity, corporate and social responsibility and incident management response. Policy and mitigation for such Groupwide risks are facilitated and supported by subject experts at the centre but responsibility for managing such risks clearly lies within business themselves’.
TUI Travel brings a very well developed risk management plan and have a wide consideration of all the aspects that influence success within this sector.
It can be proved by yet another quotation from TUI Travel PLC (2011) website, where it is stated that:
‘Due to the nature of our products and activities, customer health and safety related risks remain of paramount importance to the Group. For this reason, expertise has been consolidated in a central team to provide a greater degree of shared skills across the entire Group. The team is responsible for developing Group policy on customer and employee health and safety and for facilitating practical application of such policies at varying levels across the Group, as required by individual source markets’.
This report was to provide a reader with a good insight into risk management subject area, its tools, definitions, aims and objectives. To do that, several secondary data had been critically analysed and the result of it is this piece of work. To provide a better understanding of risk management, TUI Travel PLC group had been used as a case study (the information was taken mostly from secondary data as books and TUI’s website).
To sum up, TUI Travel PLC promotes very active, well developed risk management. Their framework is very levelled on consists of several different objectives in order to ensure that in case crisis/risk strikes the group is prepared to react quickly.
Having separate Risk Management department is thoughtful idea and creates a positive group image – which has its benefits in ensuring customers in quality of the product offered.
Being such a big, worldwide organisation, it is crucial to ensure that appropriate training and guidance is given to all the employees.
In the era of terrorism, natural disasters and economic meltdowns, every organisation is at the constant risk of losing money, customers or reputation, therefore risk management came to be a very important part of every organisation that is conscious of potential threats. It is also worth remembering that crisis does not always indicates negative result – with good risk management plan it can be easily turned into a positive outcome.
TUI Travel PLC is an excellent example of company that is fully aware of business management and presents a good way of managing company in several aspects. One negative thing that could be said about TUI’s risk management plan is that it should be promoted more widely. Understandably, most of average customers do not realise or are not interested in this part of company when deciding to buy their services, however, if this very well developed crisis management plan would be promoted more widely in the wide mass media, TUI Travel would have a very strong marketing tool in order to attract even more customers. As mentioned before, crisis in tourism industry occurs on almost everyday basis, therefore, reassuring existing and potential customers of wide set of tools that TUI operates in order to avoid or handle crisis would be an extremely appealing marketing device.
In general, TUI Travel is, as said before, good example of group that is fully aware of potential threats and ready to handle them and it can be proven by, e.g. example of how the group managed the crisis of plane crash (mentioned in section 2.3).
Cooper, C., Fletcher, J., Gilbert, D., Wanhill, S. (2008) Tourism. Principles and Practice. (4th edition) Harlow, Prentice Hall.
Glaesser, D. (2006), Crisis Management in the Tourism Industry (2nd ed.), Oxford: Butterworth-Heinemann
Institute of Risk Management (2011) [Internet] Available at: http://www.theirm.org/publications/documents/ARMS_2002_IRM.pdf [Accessed 2 March 2011]
Jaynes, J. (2002) Risk Management: 10 Principles. Oxford, Butterworth – Heinemann.
Kajuter, P., Linsley, P., Woods, M. (2008) Risk Management, Internal Control and Corporate Governance: International Perspectives. London, Cima.
Reuvid, J. (2009) Managing business risk: A practical guide to protecting your business. London, Kogan Page.
TUI Travel PLC (2011) [Internet] Available at: http://www.tuitravelplc.com [Accessed 5 March 2011]
Wilks, J., Page, S.J. (2003) Managing tourist health and safety in the new millennium. Oxford, Elsevier.
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