Risk Management of British Petroleum - Essay Example

?Running Head: BP & Risk Management BP & Risk Management [Institute’s Table of Contents Table of Contents 2 EXECUTIVE SUMMARY 3PART A 4 Introduction 4 Risk Management 4 Background of BP & Deepwater Horizon Disaster 5 Risk Management, Identification, & Assessment 6 Risk Control & Containment Strategies 9 Response 10 PART B 11 Observations & Lessons 11 Recommendations 12 REFERENCES 15 EXECUTIVE SUMMARY The report is an attempt to identify and analyze different aspects of Risk Management in the context of British Petroleum and Deepwater Horizon Disaster that inclined huge number of experts towards risk management policies and approaches of business organizations and institutions around the globe. The report includes discussion on approaches and policies of British Petroleum and its response to the disaster along with personal observations and recommendations that will enable the organization to mitigate possibility of any such disaster in the future. PART A Introduction Where the world is growing and enhancing at a phenomenal pace, new, modern and contemporary technologies have emerged and growing rapidly in every field of life, which has transformed the ways of living as an outcome. This has also affected the world of commerce and has allowed the businesses to move ahead in a new direction. Investments and returns are the key aspects for a businessperson when setting up the business. However, a business always accompanies innumerable risk factors with it, whether it is the competitor threat, emerging new prospects in the industry, variations in the economic conditions, changing values of the goods or services or the fluctuations in foreign currencies. Risk is the probability or the possibility that a particular step or decision gives an adverse conclusion or makes a loss (Great Britain, pp.1, 2007). More or less, risk is a factor that all businesses enterprise carries; however, the extent and scope of risk varies from business to business. In the old times, when the businesses were involved in more of manual activities, risk was one of the factors that were at a high level. However, nowadays, the risk factors involved in the business can easily come under measurement through the advancement of technologies and processes. Risk Management A course of action that determines, button down, breakdown, investigate, and either acquire and acknowledge or alleviate risk or ambiguities when making a decision or while investing comes under reference of Risk Management. The aftereffects or the chain reaction may lead to huge losses if the organizations do not carry out the process of risk management in a commensurate way. One of the major examples that prove the importance of risk management is the Financial Crisis that happened in the year 2008. Through the process of risk management, the intensity of risk coupled with the business and its functions can come under measurement, and course of actions can undertake to eradicate or play down the risks. The businesses execute the process of risk management in order to spot the circumstances, conditions, or actions that may lead to adversity so that preventive measures can come under implementation in order to lessen the risks involved to overcome the consequences that may result in the catastrophe. The determination of risks through a systematic, planned, and apparent approach provides a business to evaluate, quantify, and give high importance to the risks so that adapted and pertinent steps can come under accomplishment to diminish them (Crouhy, Galai, Mark, pp. 37-54, 2006). The organizations’ prime goal and vision is to generate revenue, make profits for themselves and other stakeholder, augment their worth in the market, and create a good will. Therefore, one cannot neglect the fact that risk management is of utmost importance for any organization. In order for a business to flourish and prosper, risk management is one of the essential and elementary aspects and functions that a business should consider and undergo. Risk management is the process that can make a visible difference on the outcome of the business, as risks are a key component that comes with every business. As risks, do not come with prior notification, therefore, it becomes vital for any business or organization to pay attention and observe the factors that may cause a risk to them. Risk management involves detections and determination of all the risks that may affect the outcome. If this aspect comes under ignorance on part of the management, companies may face huge losses that would lead to bankruptcy; hence, a detailed study must come under execution (Haslett, pp. 73-125, 2010). Background of BP & Deepwater Horizon Disaster British Petroleum (BP) started as a local oil company and eventually emerged into an international enterprise. In today’s time, BP comes under consideration as one of the renowned, widespread, and most successful oil and gas companies. One of its major and huge projects with the name of ‘Deepwater Horizon’ was setup on the Gulf of Mexico (Miller, Vandome, McBrewster, pp. 15-97, 2010). The BP Deepwater Horizon oil spill and explosion happened on the April 20, 2010 (Miller, Vandome, McBrewster, pp. 15-97, 2010) that comes under evidence as one of the most catastrophic disasters the world has experienced. The major victims of this incident were the marine creatures as the oil destroyed their habitat immensely. Because of the failure to control the gas pressure in the well, the well’s blowout preventer stopped working that lead to a massive explosion. After several hours of naked fire, the rig submerged into the sea. As an outcome of it, the seepage of oil from the well occurred, this leakage happened for three consecutive months after which the well opening was sealed. This incident caused a loss of many human lives, marine creatures, wildlife habitats, tourism, and fishing industry and environment as a whole, and millions of barrels of oil spilled into the Gulf (Miller, Vandome, McBrewster, pp. 15-97, 2010). Risk Management, Identification, & Assessment Deepwater Horizon involved many risk factors, for which British Petroleum formed a team of specialist including actuarial scientists, geologists, risk managers, engineers, and many others to identify the possible risks involved in the project. In setting up a project for oil extraction from under the seabed, one of the major risks that came under identification was environmental oscillations as catastrophe like hurricanes and sea storms are common in the region where the project came under installation (Scholastics, pp. 4-15, 2010). Another risk involved was the flammability of crude oil that came under extraction as even a little mishap could cause big explosions. Moreover, building of wells also involved high risk. Undesirable and unfavorable happenings during drilling of oil, taking out, and transporting oil to the offshore wells were also the possible encountered risks that came under identification as part of risk management (Corn, pp. 9-12, 2010). Equipments may fail during drilling adding on to the possible risks. After the identification of the risk, a plan came under design to start the project and the work performed was according to the plan. However, after the accident, it came under limelight that few minute details went overlooked and did not come under observation by the team of experts. The flaw was in the plan of construction of the well that caused the failure of the project. Another important aspect that was the source of collapse was the malfunctioning of the blowout preventer, which was originally responsible for protecting the well. Conversely, due to the failure of the blowout preventer the well got unsecured, resulted in seepage of gas and oil putting the oilrig on fire. It has also stated by the investigators in their reports that British Petroleum molded some of the procedures that were not safe in order to put in less money and save time. As an outcome, undesirable faults became a part of the project (King, pp. 3-10, 2010). Oil spills often result in disastrous and drastic impacts on environmental, economical, and social facets. When considering the ecological damage, it comes to the focus that countless marine species of animals, plants and corals experienced the effects of this disaster. The main victims of the disaster include “whales, dolphins, turtles, beach mice, birds, fish, corals, and many others” (King, pp. 3-10, 2010). Due to the loss of control of the gas pressure in the well, the gas escaped in to the water, which leads to decrease in the oxygen amount, and produce toxic and poisonous substances that caused harm to the marine life. It came into an observation by the marine scientists that the chemicals used to curb the adverse effects as part of response program has broken down oil molecules into simpler fragments that was consumed by the marine creatures causing their deaths. Even if they managed to survive and eaten by human beings, it caused food related problems such as food poisoning. Oil spills dramatically increase the levels of cancer causing elements and complex organic compounds in the Gulf posing immense threat to human community through the consumption of the marine animals and other organisms. By the consumption of carcinogenic elements, humans come under high risk of developing cancer and other types of tumors. Even after a huge loss to the living things and its ecology, it has come under studies that due to the physical factors of the Gulf such as its water temperature have reduced the overall effects. Lack of oxygen and high concentration of poisonous hydrocarbons in the Gulf were the prime reasons of the spoilage. British Petroleum spent billions of dollars for the rehabilitation of the natives and even those people who helped the authorities in cleaning up oil (Corn, pp. 9-12, 2010). The calamity left a chronic effect on the fishing industry. The spread of oil to the fishing, shrimping and crabbing banks raised a concern to the food authorities, as it was a danger to human life to consume seafood containing oil remains, petroleum by-products, and the chemicals that came under use to break down the oil molecules. The high demand sea creatures had undergone the process of testing to check the levels of toxic compounds, the results depicted that high level of contaminants in the marine animals were present. Due to this reason, a ban came under imposition on fishing, shrimping and crabbing. As an outcome of it, huge number of people associated with these activities became jobless and fishing industry faced massive loss by historic proportion. A ban came under removal when the tests showed decreased levels of toxic compounds in marine creatures, which was beneath the acceptable level set by the food officials (Hagerty, pp. 30, 2010). Risk Control & Containment Strategies The oil spill also embraced tourism into its effects. The people hesitated to visit the Gulf beaches as tourist because of the devastating effects on the environment, yet hotels and resorts housed people who came there with a purpose of assisting in the work for recovery of oil spill. Due to the oil spill, the tourism related business saw a decline, as a result promotional activities came under launching by the government to make people aware of the beaches that were not hit by the disaster and were safe to visit. British Petroleum financed many of the promotional activities. These programs initiated by the authorities included the advertisements to convince people about the safe beaches, discounted rates and other incentives came under offer by the hotel managements. In addition, hotels that were on the effected beaches, provided return and refund facilities to customers (Juhasz, pp. 143-280, 2011). Deepwater Horizon disaster gave rise to several health enormities amongst the people living in coastal regions and those people who got themselves involved in the cleaning up job. Reported cases of dizziness, vomiting, headaches, nausea, and chest pains became frequent amongst the people. Even some people came under observation to suffer from mental illnesses and nervous tension. The compounds used to combat the oil levels in the sea reacted with crude oil to form a product that was further posing threat to human life and the environment. A fraction of poisonous product formed evaporates into the air above the sea and enters the water cycle, which after condensation, precipitated in the form of rain worsening the situation. The texture of rain was greasy as observed by the people. This poisonous substance also moved towards the land in the form of sea breeze, which when inhaled by the natives caused illnesses. This issue came under response by the officials in the form of medical assessments of the people. Furthermore, they also engaged themselves in the regular health monitoring of the natives to make sure they are free from the toxic elements (McCoy, Salerno, pp. 43-65, 2010). Response British Petroleum made many long-term and short-term efforts to overcome the consequences of the disaster, although some of the initial efforts failed, yet they continued to curb the effects. The initial efforts included the steps to seal the well opening from where the oil was gushing out. The final attempt to close the well opening came under accomplishment by sucking the oil out of the well and dumping it with the cement to halt the oil seepage (Alexander, pp. 1-8, 2011). The process of risk management (Alexander, pp. 1-8, 2011) is of vital, imperative importance for any organization as this process makes sure that all the potential and possible risks comes under identification, and the company understands it. In order to avert the organization from the impact of loss, the organization must undergo risk management as it ensures that the company builds, adopts and execute an effectual and efficient plan(s) (Alexander, pp. 1-8, 2011). Policies, approach, and tactics are the factors that make up a risk management practice that comes under implementation to overcome the threats present in the surrounding. In this context, one of the most devastating and shocking calamity encountered in the history of U.S. is Deepwater Horizon oil spill. This episode harmed not only British Petroleum’s employees; rather it left a chronic effect on the natives, tourists, environment, economic activities, and marine creatures. It took a very long time by British Petroleum to overcome the effects of the happening of the oil spill. This disaster gives a lesson that big oils and gas companies performing the job of extraction of fossil fuels should not compromise the safety and security of human beings, environment, and other living creations for the sake of making profit in less time. These companies should undergo the risk management in order to avoid any mishap, which could take the face of chronic tragedy. PART B Observations & Lessons While looking at the past trends, it can come under observation that the oil spill disasters have occurred many times and Deepwater Horizon oil spill in the Gulf of Mexico is one of them. This devastating incident made a huge loss to many lives and industries. However, British Petroleum should learn from its mistakes for future projects and should not forget the failure. With regard to their failure, BP should study and focus more deeply on the measures to prevent the oil spillage as Oil Spill Risk Assessment (OSRA) comes under consideration as one of the fundamental approaches when setting up an oil-drilling project. With the implementation of this approach, BP would be able to identify the area’s features and oil pollution. With the help of high technological systems, the probabilities of oil spill risks can come under measurement, which will help BP is defining its strategies further (Cheremisinoff & Davletshin, pp.419-428, 2010). The socioeconomic and environmental factors are of utmost importance and it should come under protection to the fullest, hence, BP should not situate their projects on those sites that are near the coastal regions, where a big population breathe as it creates more danger and the natives are more likely to come under affection from the oil spill. In addition, they should also plant their projects away from the places where economic activities such as fishing come in view so that in case of any unfortunate happening, the loss to the socio-economic sector is minimal. This would also be beneficial for BP management, as they then have to pay less amount of money for the response and rescue work (Ramseur, pp. 3-20, 2011). When setting up an oil-drilling project, BP should use effective and efficient machineries and equipments along with a full-proof plan where BP must study all the minute details thoroughly and move the plan exactly as it should be. Furthermore, they should also make a backup plan that can come under use in case if the planning creates any problem during the building of the project (Lehner, Deans, pp.56-125, 2010). Recommendations When listing down the risks associated to any project, British Petroleum must also determine the consequence and likelihood to occur of each of the known risk. This would lead to have the backup plans whenever required (NC-BP, pp.51-100, 2011). According to the sources, it came into conclusion that British Petroleum compromised on the quality and safety of the project in order to save the time and money, therefore, BP should avoid such attitudes that may lead to huge losses like those that they faced in deepwater horizon (Freudenburg, Gramling, pp. 48, 171-190, 2011). In order to avoid such circumstances in future, British Petroleum can have a set of training programs for the key personnel so that they can become capable of detecting the minute faults (if any) during the project planning and execution, and suggests and apply the solutions for them. Training programs may include teaching of drilling procedures, proficiency programs, guiding on well controlling techniques and engineering certification programs. They should also carry out technical inspections for the checking and testing of pressure of the gases in the well, and safety of the equipments used. In addition, they should carry out a proper auditing of all the materials such as cement for wells, metals used for the machineries, and processes involved in the project (Cavnar, pp. 46-62, 2010). As the main cause of the destruction was the blowout preventer, therefore, British Petroleum must involve deep technical knowledge in designing and maintaining the blowout preventer that plays a crucial role in halting the oil flow from the well. If BP contacts third parties for any of their equipment designing, they should monitor and review the services provided by them in order to avoid the hazardous consequences. As British Petroleum management was over confident on their action plans and did not prepared them for the crisis management due to which they took a long time to recover the disaster adding on to the overall effects. Therefore, they should train their staff for the crisis management in case of the occurrence of the disaster so that they can react promptly in case of any accident and cut on the long term effects (Bly, pp. 181-188, 2011). Another important aspect that can come under consideration is duration for which the workers are at the work site. If the working hours get longer than the normal working hours with proper breaks and rests, they tend to exhaust and their work efficiency decreases eventually that may lead to ignorance on the part of the workers. Any small mistake made by them even unconsciously can lead to bigger damage (Eccleston, pp. 222-240, 2011). Since, deepwater horizon was a huge project and several technical aspects came under involvement, therefore, British Petroleum should not deal with only a single third party and collaborate with multiple corporations or stakeholders so that different experts can concentrate in their domains. In addition, British Petroleum should also act as a bridge between all the third parties so that they can coordinate and communicate in an effective way because the clear information would help in making better decisions (Diermeier, pp. 80-110, 2011). The companies alone are not responsible, as the oil drilling projects’ safety is also the responsibility of the government and coastal authorities of the country, therefore, they should carry out surprise inspections on timely basis so that the loopholes can come under identification and risk factor of the occurrence of accident decreases. CONCLUSION Concisely, the report included discussion of different aspects of risk management along with its analysis in the context of British Petroleum and its risk management policies at the time of Deepwater Horizon Disaster. The report identified different BP approaches in response to the disaster and its assessment enabled the researcher to come up with personal observations and identified lessons from the case study followed by recommendations for the British Petroleum and similar organizations to avoid similar disasters in the future. 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