Tourism Management 33 (2012) 1598e1603

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Tourism Management
journal homepage: www.elsevier.com/locate/tourman

Research note

Developing a risk management model in travel agencies activity: An empirical analysis

Maria Oroian a, *, Marinela Gheres b
a b

Dimitrie Cantemir University of Targu Mures, Bodoni Sandor 3-5, Targu Mures, Romania Babes-Bolyai University, Cluj-Napoca, Teodor Mihali 58-60, 400591, Romania

a r t i c l e i n f o
Article history: Received 3 December 2011 Accepted 20 December 2011 Keywords: Risk Risk management model Tourism Travel agencies

a b s t r a c t
This study applies a risk management model to identify risks for Romanian travel agencies. Through extrapolation, the results of this study may be useful to all intermediaries in tourism, whether in Romania or not. Risks are identied by factor analysis and categorised as being organisational, environmental, competitive, economic, political, those of infrastructure, circumstance, business deciencies and specic (local) risk. Depending on the position relative to the risk we proposed a risk management model in tabular format, where any travel agency can add, delete, or move risks from a category to another. 2011 Elsevier Ltd. All rights reserved.

This research note presents the results of an empirical analysis aimed at substantiating a model of risk management in travel agencies activity. The main sources of information and data are from the specialized literature and from empirical research on travel agencies in the city of Targu Mures (Romania). Depending on the responses received, we could select then the most important factors that a travel agency must consider to properly manage risks of their activity. The questionnaire (see Appendix 1) is concerned with the risks associated with the tourism industry and how the operators rate the identied risks in respect of intensity (impact) to their business (Shaw, 2010). A descriptive analysis was carried out on all the valid data to determine the mean intensity rating and standard deviation for the responses to all the statements in the questionnaire (see Appendix 2). Using the descriptive analysis made it possible to identify and distinguish between signicant and insignicant risks (Cooper & Schindler, 2001). The methods used for determining and assessing the risk were found to be in order actions of competitors (76.19%), marketrelated statistics, seminars, workshops, media reports (71.4%), complaints, interviewing tourists (66.6%) and economic forecasts,

* Corresponding author. Tel./fax: 40 365 401 125, 40 760 279 720 (mobile). E-mail addresses: oroianmaria@yahoo.com (M. Oroian), marinela_gheres@ yahoo.com (M. Gheres). URL: http://www.cantemir.ro 0261-5177/$ e see front matter 2011 Elsevier Ltd. All rights reserved. doi:10.1016/j.tourman.2011.12.020

group discussion (61.9%). This shows the attention that travel agencies give to the market competition, specialized publications, but not least, emphasis covers the needs of tourists. The groups discussion (brainstorming) method proved to be equally important. The initial analysis of risks using the descriptive statistics (see Appendix 2) and the frequency distribution of responses to the individual risk statements has identied a number of risk types classied as extremely low or low (with mean intensity rating between 2.06 and 2.62) e 21.56% of the risks and high or extremely high (with mean intensity rating between 3.29 and 4.38) e 39.21% of the risks. Those considered being in the category high to extremely high must be included in any risk management model that is developed for the travel agency. The high/extremely high category of risk requires more attention when identifying the causes of these risks, the evaluation and the response that is developed to minimize any negative impact of especially domestic risks or to obtain maximum benet from exploiting international risks. The factor analysis was also used to identify the risk categories that are the most important (Steyn, 2000). We have grouped the categories of risks according to the mean variables that entered into their composition as it follows: organisational risk, environment risk, competitiveness risk, economic risk, political factors, infrastructure, circumstantial risk, business insufciencies and specic (local) risk (see Appendix 3). A closer analysis of the factors revealed that although statistically correct, some of the risk statements do not fall logically to the factor to which they have been

M. Oroian, M. Gheres / Tourism Management 33 (2012) 1598e1603 Table 1 Qualitative risk analysis matrix e Level of risk.

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Table 2 The tabular model. Category/risk item Likelihood Consequence 2 3 3 2 3 2 3 Category H H H H H M M Response type Mitigation Transfer of risk Mitigation Mitigation Mitigation Mitigation Transfer of risk Response/action Accessing funds available through government or local programs Greater attention given to training staff Raise issue with government Accessing funds available through government or local programs Adaptation to the demand Changing marketing strategy Dismissal of the guilty one(s)/a better human resource management

Factor 1 - Organizational risk (Internal business risk) Lack of funding for product development A Theft in business by tourists Lack of proper nancial systems Insufcient funding for training Change of tourists needs Unable to fulll needs of tourists Theft/fraud in business by staff C C B C C E

A - Almost certain, B - Likely, C - Possible, E - Rare, H - High risk, M - Moderate risk, 2 - minor, 3 - moderate.

allocated. An example of such misallocation is the inclusion of lack of qualied staff and lack of experienced staff in Factor 7, which are infrastructure factors. A redistribution of risks into risk categories will therefore be necessary when constructing the risk management model. The factor correlation matrix for the nine factors indicates that decision makers in travel agencies should pay special attention not only to risks ranked as having the highest risk but also to risk factors in risk analysis grouped by organizational risk and business insufciencies respectively. Many of the risks in the two categories can be signicantly reduced through an adequate management. Risk management models can be constructed in various ways, for example using ow diagrams, mathematical models or simple means such as tables and spreadsheets (Gray & Larson, 2006). The model proposed as part of this research will be kept simple and will be presented in tabular format, which is easily converted into a spreadsheet. The operator of any business in the tourism industry has then the opportunity to select only those risk items that are identied for his/her business at any particular point in time.

The risk assessment matrix in Table 1 is used to classify the risks severity as insignicant (1), minor (2), moderate (3), major (4) and catastrophic (5). It is recommended for travel agencies and other agents in the tourism industry to use the risk severity matrix in Table 1 to categorize and classify the risks that have been identied. The process of quantifying the risk is subjective as it is based on the users ability to determine the probability of occurrence and the cost of the consequence (or benet) if the risk occurs. Risk management could be considered as a useful tool to minimize the negative impact or maximize the benet to the individual business, its owners and the industry as a whole (Robertson, Kean, & Moore, 2006). The tabular model (Table 2) is an example of what the nal working model for a specic business may look like. The ratings in Table 2 are arbitrarily chosen to serve as an example only and have no scientic basis. These ratings may not be applicable to all business and therefore every operator/owner of a business associated with the tourism industry must decide on the probability of occurrence and the consequence of the risk as applicable to the business and then use these values to

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categorize and classify the risk using the risk severity matrix in Table 1. The tabular model presented can be easily stored in electronic format in MS Word format for easy reviewing and updating as conditions change or new risks are identied. It is recommended that the risk management model be enhanced and made more user-friendly by transporting the data into a suitable and expert system shell, with or without learning capabilities. Appendix 1. A risk management model for the tourism industry in Romania Dear Sir/Madam, The following questionnaire is part of an extensive research study designed to investigate the risks associated with the tourism industry. Your contribution is very important to the outcome of this research. Please ll in this questionnaire carefully. All information will be treated condentially and we will be used only for academic purposes. Finally the results of the study will be made available. I am looking forward to hearing from you. Yours faithfully, xxxxxxxxxxx Instructions for completion: 1. Please answer all questions regarding your assessment of tourism risk as honestly and objectively as possible. 2. Place a tick or a cross that reects your answer most accurately in the spaces provided. 3. Where asked for comments or to specify, please keep these as briey, yet as thoroughly, as possible. 1. Please indicate which of the following you use to determine and evaluate risks in your business.

3. Please rate the following risks in your business on the intensity scale:

Physical inspection Complaints Economic forecasts Market statistics Actions of competitors Drop in turnover Group discussion (brainstorming) Interviewing tourists/visitors Seminars, workshop, media reports Working closely with government institutions Global trends Political decisions Crime stats Other (Specify)

Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

no no no no no no no no no no no no no no

(5) Extremely high risks (4) High risk (3) Moderately (2) Low risk (1) Extremely low risk 1. Stress 2. Diseases 3. Crime in general 4. Cost of transportation 5. Road safety 6. Air line safety 7. Airport safety and security 8. Currency uctuations 9. Decrease in disposable income 10. Ination 11. Interest rates 12. Lack of qualied staff 13. Lack of experienced staff 14. Aging tourist markets 15. Decreasing leisure time of tourists 16. Urbanization 17. Seasonality 18. Water pollution 19. Air pollution 20. Natural disasters 21. Fire 22. Image of the country/destination 23. Increased competition, nationally 24. Increased competition, internationally 25. Change of tourists needs 26. Insufcient funding for training 27. Lack of funding for product development 28. Carrying capacity e too many tourists/visitors 29. Insufcient marketing by local authorities 30. Wars/conicts 31. Political instability in neighboring countries 32. Terrorist activities 33. Climate change 34. Lack of proper nancial systems 35. Theft/fraud in business by staff 36. Theft in business by tourists 37. Unable to fulll needs of tourists 38. Too high prices in tourism industry 39. Technological changes e.g reservation systems, new programs 40. Legislation 41. Political instability in Romania 42. Increase in fuel cost 43. Amount of overtime worked by employees 44. Number of temporary personnel vs the total number of personnel 45. Customer complaints 46. Repeat business vs new business 47. Range of products too limited 48. Working point location (business) 49. Distance from main competitor 50. The range of products belonging to competitors 51. Prices of competitors

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3

4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

2. What are the key factors that you consider important when determining a risk?

4. What specic actions and recommendations can you suggest to ensure a proper and successful Risk Management Plan?
________________________________________________________________________________________ ________________________________________________________________________________________ _______________________________________________________________________________________________ _______________________________________________________________________________________________ __________________________________________________________________________

Physical inspection Economic forecasts Market statistics Actions of competitors Global trends Political decisions

Thank you for your co-operation.

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Appendix 2. Descriptive statistics (Arranged in high to low sequence of intensity)

Descriptive statistics Statements Increase in fuel cost Cost of transportation Image of the country/destination Decrease in disposable income Terrorist activities Air line safety Natural disasters Currency uctuations Airport safety and security Ination Seasonality Wars/conicts Road safety Political instability in neighboring countries Increased competition, nationally Change of tourists needs Lack of qualied staff Too high prices in tourism industry Lack of experienced staff Increased competition, internationally Political instability in Romania Fire Insufcient marketing by local authorities Stress Climate change Customer complaints Unable to fulll needs of tourists Decreasing leisure time of tourists Prices of competitors Air pollution Technological changes e.g reservation systems, new programs Water pollution Lack of proper nancial systems Range of products too limited Working point location (business) Lack of funding for product development Theft/fraud in business by staff The range of products belonging to competitors Legislation Insufcient funding for training Amount of overtime worked by employees Interest rates Carrying capacity e too many tourists/visitors Distance from main competitor Repeat business vs new business Theft in business by tourists Aging tourist markets Diseases Urbanization Number of temporary personnel vs the total number of personnel Crime in general Valid N (listwise) N 21 20 20 20 21 21 21 21 20 21 21 21 20 21 21 21 21 21 20 21 21 21 21 19 21 21 21 21 21 21 21 Range 2 4 2 2 3 4 3 3 4 3 4 4 4 3 3 4 4 3 4 4 4 4 4 4 4 4 4 3 3 4 4 Minimum 3 1 3 3 2 1 2 2 1 2 1 1 1 2 2 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 Maximum 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 4 4 5 5 Mean 4.38 3.90 3.85 3.80 3.76 3.67 3.67 3.67 3.60 3.57 3.52 3.52 3.50 3.48 3.43 3.43 3.33 3.33 3.30 3.29 3.24 3.24 3.14 3.11 3.05 3.05 3.00 2.95 2.95 2.86 2.86 Std. deviation .669 1.119 .813 .768 .995 1.238 1.111 1.065 1.188 .870 1.123 1.289 1.504 1.078 .811 1.028 1.317 .913 1.129 1.007 1.091 1.179 1.153 1.286 .973 1.161 1.049 .973 .973 1.195 1.153

21 20 20 21 21 21 21 21 21 21 20 20 21 20 20 20 19 20 20 18 13

4 4 4 2 3 4 3 4 3 4 3 3 3 3 3 4 3 4 3 3

1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

5 5 5 4 4 5 4 5 4 5 4 4 4 4 4 5 4 5 4 4

2.81 2.80 2.80 2.76 2.76 2.71 2.71 2.71 2.71 2.62 2.60 2.60 2.57 2.45 2.40 2.40 2.32 2.25 2.20 2.06

1.250 1.005 .894 .831 .944 1.454 1.007 1.056 1.007 1.117 1.095 .995 1.028 .945 1.188 1.142 .946 1.070 1.005 .998

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Appendix 3. Summarized factor analysis results

Risk items Factor 1 - Organizational risk (Internal business risk) Lack of funding for product development Theft in business by tourists Lack of proper nancial systems Insufcient funding for training Change of tourists needs Unable to fulll needs of tourists Theft/fraud in business by staff Factor 2 - Environmental (Nature) Water pollution Air pollution Fire Natural disasters Climate change Factor 3 - Competitiveness The range of products belonging to competitors Distance from main competitor Prices of competitors Technological changes e.g reservation systems, new programs Too high prices in tourism industry Increase in fuel cost Working point location (business) Factor 4 e Economic risk Decrease in disposable income Ination Cost of transportation Interest rates Currency uctuations Factor 5 - Political factors Political instability in neighboring countries Legislation Terrorist activities Political instability in Romania Wars/conicts Factor 6 - Infrastructure Air line safety Airport safety and security Lack of qualied staff Lack of experienced staff Road safety Factor 7 - Circumstantial risk Increased competition, internationally Increased competition, nationally Stress Decreasing leisure time of tourists Factor 8 - Business insufciencies Number of temporary personnel vs the total number of personnel Urbanization Crime in general Repeat business vs new business Amount of overtime worked by employees Image of the country/destination Range of products too limited Aging tourist markets Factor 9 - Specic (local) risk Insufcient marketing by local authorities Customer complaints Carrying capacity e too many tourists/visitors Diseases Seasonality

Factor Loading .906 .857 .710 .663 .610 .529 .403

Mean value 2.83

3.12 .963 .963 .884 .759 .359 3.08 .973 .935 .725 .639 .505 .540 .420 3.50 .916 .909 .755 .428 .349 3.34 .970 .820 .757 .719 .556 3.48 .946 .937 .884 .637 .407 3.19 .928 .845 .673 .445 2.57 .842 .750 .693 .692 .611 .566 .524 .492 2.92 .806 .464 .554 .451 .447

Ranking of factors Factor Factor Factor Factor Factor Factor Factor Factor Factor Factor 4 6 5 7 2 3 9 1 8 Economic risk Infrastructure Political factors Circumstantial risk Environmental (Nature) Competitiveness Specic (local) risk Organizational risk Business insufciencies Mean 3.50 3.48 3.34 3.19 3.12 3.08 2.92 2.83 2.57 Ranking 1 2 3 4 5 6 7 8 9

M. Oroian, M. Gheres / Tourism Management 33 (2012) 1598e1603 Factor correlation matrix Component correlation matrix Component 1 2 3 4 5 6 7 8 9 1 1.000 .173 .153 .135 .224 L.208 .139 .282 .198 2 .173 1.000 .116 .062 .120 .010 .005 .007 .147 3 .153 .116 1.000 .005 .165 .007 .097 .150 .008 4 .135 .062 .005 1.000 .067 .103 .116 .024 .026 5 .224 .120 .165 .067 1.000 .014 .010 .022 .075 6 L.208 .010 .007 .103 .014 1.000 .122 .190 .015 7 .139 .005 .097 .116 .010 .122 1.000 .275 .196 8 .282 .007 .150 .024 .022 .190 .275 1.000 .214 9

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.198 .147 .008 .026 .075 .015 .196 .214 1.000

Factor correlation matrix shows that none of the absolute values of the correlations coefcients are above 0.282, which indicates that the factors are not very closely correlated. Although correlation does not indicate causality, it does indicate the nature of the linear relationship - positive or negative. The factors with the highest correlation coefcients are bold.

Additional bibliography
Ranked correlations Factors (1:8) (7:8) (1:5) (1:6) Organizational risk/Business insufciencies Circumstantial risk/Business insufciencies Organizational risk/Political factors Organizational risk/Infrastructure Correlation coefcient .282 .275 .224 .208 Alexander, C., & Sheedy, E. (2004). The professional risk managers handbook: A comprehensive guide to current theory and best practices (1st ed.). Wilmington, DE: PRMIA Publications. Callandera, M., & Page, S. J. (2003). Managing risk in adventure tourism operations in New Zealand: a review of the legal case history and potential for litigation. Tourism Management, 24, 13e23. Dwyer, L., Edwards, D., Mistilis, N., Roman, C., & Scott, N. (2009). Destination and enterprise management for a tourism future. Tourism Management, 30(1), 63e74. Eagles, P. F. J., McCool, S. F., & Haynes, C. D. A. (2002). Sustainable tourism in protected areas. Guidelines for planning and management. Switzerland and Cambridge, UK: IUCN Gland. Evans, N., Campbell, D., & Stonehouse, G. (2003). Strategic management for travel and tourism. Oxford: ButterwortheHeinemann. Evans, N., & Elphick, S. (2005). Models of crisis management: an evaluation of their value for strategic planning in the international travel industry. International Journal of Tourism Research, 7, 135e150. Glaesser, D. (2004). Crisis management in the tourism industry. Oxford: ButterworthHeinemann. Kim, H., Kim, J., & Gu, Z. (2010). An examination of US hotel rms risk features and their determinants of systematic risk. International Journal of Tourism Research, 14(1), 28e39. Regester, M., & Larkin, J. (2002). Risk issues and crisis management: A casebook of best practice (2nd ed.). London: Kogan Page. Ryan, C. (2003). Risk acceptance in adventure tourism e paradox and context. In J. Wilks, & S. J. Page (Eds.), Managing tourist health and safety in the new millennium (pp. 55e65). Oxford: Pergamon. Ryan, C., & Page, S. (2000). Tourism management: Towards the new millenium. United Kingdom: Elsevier Science Ltd.

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