Risk management; no rose colored glasses please

We are all sadly aware of the situation with the oil leak in the Gulf of Mexico.  I am certain that after the leak is plugged, the cleanup is completed, and the finger pointing is over, we’ll find out that proper risk management would have minimized the damage.  Maybe we can even learn from this although I doubt it.

I am not an oil platform expert but listening to a Chevron representative talk about their new 2600 meter deep well (that’s 1000 meter more than the one in the Gulf) east of Newfoundland I thought I was having a nightmare.  Think about what would happen if there was a leak there and it got picked up by ocean currents. 

Why would the Chevron guy say that they have thought it through, that they have a better blowout preventer (a new design by the way), that they don’t need relief wells to be drilled now, etc.? I think Chevron thinks they are better than BP.  I’m pretty sure the BP guys thought that they were better than their peers too.

Risk management and rose colored glasses do not go together.  Risk management and ego do not go together.  Brushing away a risk because of a low likelihood is not good enough; you have to have low impact too.

Looks to me like history may end up repeating itself; let’s hope not.  What do you think?  As always questions and comments are welcome.

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Comments

[Glen B Alleman]

BP has an interesting business model. They outsource everything to everybody. This makes great business sense, and really poor accountability sense.

Add to that the MMS corruption problems and you've got what we got.

I suspect Chevron does not outsource everything, at least from my previous experience with Up Stream Products Texas.

[Patrick Richard]

I’ll grant you that a business model where you subcontract everything makes for uncertain accountability at the moment a problem arises. Whether or not it contributed to the current mess I do not know.

My take is that over the long run BP will be stuck with lawsuits that may destroy the company. That alone should have made think of the magnitude of the impact they may suffer. Some people may end up in jail over this.

Note that I did not mention external stakeholders; solely on self-preservation grounds BP should have done a better risk management job. I would think that on the same grounds Chevron (and all others) should shy from making the same optimistic comments about the relative lack of risk and after the fact mitigation; doing so is irresponsible at every level.

My pharmaceutical clients do think of the impact of risk on business continuation. All it takes is one death in clinical trials to sink a product that may have cost $1.2B to develop and that does not take into account the possible contribution a blockbuster product makes to profits for years to come. Another risk considered is the regulatory environment; make too many mistakes and you end up with a consent decree and/or fines that are out of this world