British Petroleum Oil and Gas Company - Project Failure - Case Study Example

THE BP DEEPWATER HORIZON PROJECT FAILURE Name Institution Course No Date Introduction In many organizations across the globe, projects are taken to solve problems, satisfy needs, comply with the legal requirements or exploit opportunities. Some of these projects achieve their intentions while some do not. According to Abbasi et al. (2010), project failure refers to the inability of the project to achieve the desired outcomes. A project is considered successful if it delivers to cost, quality and time. Project failure results from both organizational and external factors. Overall, some of the reasons that cause the failure of projects are; gaps in communication, poor management practices, the lack of clear project objectives and the lack of visibility of all projects. This paper discusses the causes and lessons learnt from project failure using the Deepwater Horizon Project of the British Petroleum Oil and Gas Company. Organizational and Project Overview The British Petroleum Oil and Gas Company is one off the largest oil and gas producers in the world. Founded in 1909, the firm serves as the Anglo-Persian oil and Gas Company with its headquarters situated in London. The firm operates in more than 80 countries across the globe with an employee population exceeding 80, 000. It is the sixth largest oil and gas company in the world by production and the fifth largest by annual revenue. The company engages in the assessment, production, refining and distribution of hydrocarbon products. The largest division of the company is situated in the United States of America and operates under the name BP America. BP America is the second largest oil and Gas Company in the United States with over 22,000 service stations and a daily average sale of 5.9 million barrels. According to the Reeves, Locke, and Ingersoll (2012), the British Petroleum acquired federal lease from the American government for the Mississippi Canyon 252 located in Venice, Louisiana for over $34 million. The organization was highly confident in the seismic data of the region and the presence of oil, causing it to implement a $100 million project of drilling at the Macondo Well. To facilitate the drilling process, BP hired Transocean to provide the crew and oil drilling rig to drill the well. Consequently, the drilling of the Macondo Well for oil began in 2009 using the Transocean Marina’s semisubmersible oil rig. However, the drilling process was affected by the adverse impacts of the Hurricane Ida, causing the process to be discontinued. In February 2010, BP commenced the drilling of the well using the Transocean’s Deepwater Horizon rig. According to an investigation done by the British Petroleum in 2010, the Deepwater Horizon rig, which was leased at $500,000 dollars a day by Transocean had a wide range of maintenance issues. A safety audit conducted by the organization revealed that the rig has approximately 390 repairs that would take 3500 hours of labor to fix. These issues caused an increase in the project budget. Initially, BP estimate that drilling and extraction of oil from the Macondo Well would take 51 days and cost approximately $100 million. However, by April 2010, the rig was on its 80th day of use, far exceeding the initial budget. However, despite all these concerns, the organization continued with the project because it was confident of the oil deposits in the well. The Problem In April 2010, an explosion occurred at the Macondo Well in the Gulf of Mexico, the project in that was initiated by BP. The explosion caused massive oil spill, considered to be the worst in the modern world history. During the incident, 11 workers at the site died while several others were injured. The fire resulting from the accident caused smoke clouds at a radius of 30 miles away from the well while a radius of 5 miles of the rig was adversely affected by the oil spill. The result was the loss of aquatic life. After several attempts to reduce the effects of the explosion and the oil spill, the British Petroleum finally managed to stop the flow of oil in July 2010. Abbasi et al (2014) argue that although BP managed to stop the flow of oil three months after the accident, a lot of damage had been done. According to the authors, by the time the crisis was stopped, 4.9 million barrels of oil had spilled into the ocean, causing disruption of the marine ecosystem. Moreover, the writers estimate a daily leakage of 210, 000 gallons of hydro chemical into the ocean on a daily basis, hence disrupting the sea food supply in the United States. Although several attempts were made by both the British Petroleum Oil and Gas Company and the United States federal government to save the situation, the environmental effects of the explosion and the spill were far reaching and are still affecting the environment. Reasons for Project Failure Following the Macondo Well disaster and its adverse impacts such as the loss of lives and environmental degradation, several investigators got interested in the project management issues that might have resulted in the crisis. One of the factors that were identified to have contributed to the project failure is poor risk management. Project risk management is defined as the range of policies taken by organizations undertaking projects to optimize investments and reduce possibilities of failure (PMI 2013). Effective project risk management aims at identifying the possible risks associated with a project and mitigating them before they occur. The BP project on the Macondo well exhibited poor risk management strategies. First, an audit of the Deepwater Horizon rig leased to the company by Transocean revealed that the device was malfunctioned since it had several repairs that were both time and money consuming. However, BP confident of the oil deposits in the region, still used the device despite the risks involved. Additionally, the organization did not conduct thorough testing of the device to understand the risks involved in using it to extract oil from the deep water. As it later emerged, the Deepwater Horizon rig was an exploratory device rather than an extraction device. Further, the project’s risk management failed to address the geographical considerations such as the seismic activities in the region, leading to the oil spill and ultimate project failure. Another factor that contributed to the failure of the BP Macondo Well project was poor management. The management of a project is essential in determining its success or failure. Effective management of projects involves the clear understanding of the scope of a given project and putting the necessary measures in place to achieve the desired outcome. According to Reavis, Locke and Ingersoll (2012), one of the management issue that resulted in the failure of the BP Deepwater Horizon Project at the Macondo well was poor decision making. After realization that the Deepwater Horizon rig was an exploratory device, there was the need for the project to be closed before finding a tool for extraction. However, the closure of the Macondo well did not take place due to the involvement of many stakeholders in the decision making process, hence the disaster. Although BP was the prime decision maker, many other companies were involved. Moreover, many of the BP decision makers on the Deepwater Horizon had been in their positions for a short time before the disaster struck because of the organization’s management culture. Apart from the decision-making process, the organization’s cost-cutting culture also contributed significantly to the failure of the project. At the time of the project, the company was headed by Tony Heyward, a competent CEO who aimed at cutting costs as a way of improving the performance of the organization. This culture of cost cutting spilled over to the BP Deepwater Project at the Macondo Well. According to the Guardian (2013), a court hearing involving the BP oil spill case revealed that the management failure of the company contributed significantly to the failure of the Deepwater Horizon project. The writer further reveals that the organization had an operating management system that was the cornerstone of the organization’s safety practices. However, the OMS was not applied in the Deepwater Horizon Project to reduce project costs, leading to ultimate project failure. The poor training of the workers also contributed significantly to the Macondo Well explosion and the ultimate failure of the BP Deepwater Horizon project in the United States. Gritz (2011) argues that in cases of project failure, it is important to investigate the employees of an organization because people run projects, thus cause project failures. The writer further notes that the major reasons why projects fail are the inexperience and inadequate training of the employees. In the case of BP, the lack of training of the employees caused by the organization’s cost cutting culture resulted in the failure of the employees to understand their roles and responsibilities in the project. For a complex project like the BP Deepwater Project to be successful, there is the need for the project managers, the rig operators and all other employees involved to undergo thorough training to enable them to have in-depth knowledge of the project and its requirements. Provision of adequate training helps in reducing the occurrence of mistakes that may cause project failure. Lessons Learnt The failure of the BP Deepwater Project in the Macondo well in 2010 provided important lessons to project managers and project management teams alike. First is the need for adequate leadership when dealing with new projects (Gill 2010). The failure of the project acted as an eye opener to the project managers on the vital role of leadership in project success. The BP oil spill was considered a leadership issue which highlighted three major areas namely; the lack of effective planning, poor communication, and personal integrity. Secondly, the BP Deepwater Horizon project failure pinpointed employee training as an important aspect of the success of organizational projects. From the project failure investigation, it was evident that the negative impacts of the project would be reduced if the employees were adequately trained. The other lessons that were learnt from the BP project failure were; the need to develop fast response in project areas in cases of crisis, ensuring that quality standards are fulfilled in the course of projects, the need for organizations to develop cultures where employees fully understand their roles and responsibilities and the employment of adequate numbers of experts to work with skilled employees in high-risk projects. Conclusion With reference to the above discussion, it is evident that project failures result mainly from organizational factors such as the lack of adequate training, gaps in communication, leadership issues and risk management issues. These issues led to increased budget estimates for projects. Where disaster strikes like the Deepwater Horizon project, companies incur extra costs compensating the affected families and cleaning up the environment. It is, therefore, important for the organizations undertaking projects to follow the right steps to project management to avoid failure. References Abbasi, N, Wajid, I, Iqbal, Z &Zafar, F. (2014). Project Failures: Case Studies and Suggestions. International Journal of Computer Applications. Vol 86, No 6. British Petroleum. (2010). Deepwater Horizon Accident Investigation Report. Accessed from http://www.bp.com/content/dam/bp/pdf/sustainability/issue-reports/Deepwater_Horizon_Accident_Investigation_Report_Executive_summary.pdf. 14th April 2017. Gill, C. (2010). Five Leadership Lessons from the BP Oil Spill. Harvard Business Review. Gritz, D. (2011). Project Failures: What BP Disaster can teach us About Management. Computer Aid Incorporation. Reavis, C, Locke, R.M &Ingersoll, C. (2012). BP and the Deepwater Horizon Disaster of 2010. MIT Sloan Management. The Guardian. (2013). Deepwater Oil Spill, a classic failure of BP management, court hears. Accessed from https://www.theguardian.com/environment/2013/feb/26/deepwater-oil-spill-trial-bp-failure. 14th April 2017. Read More