Risk Management Case Study: BP

The term ‘risk’ implies a possible negative or uncertain outcome of an event or situation caused by nature or human activities where insufficient knowledge was available to predict or prevent such outcomes. What is Risk Management? Risk Management is defined as the forecasting and evaluation of financial risks together with the identification of procedures to avoid or minimize their impact. (Anon., 2017)

For my assignment I will be focusing on Deepwater Horizon which was a catastrophic event as a result of poor risk management in the organisation BP (British Petroleum).

On the 20th of April 2010 an explosion on the Deepwater Horizon Macondo drill platform killed 11 people, 17 seriously injured and started the largest oil spill in the history

The Dutch pilot-psychologist Sidney Dekker, one of the pioneers in studying large technological breakdowns, has written that the true cause of most disasters is not so much the initial accident “but the failure to identify the accident early in its birth.” An investigation that was carried out found that the employees on the rig had ignored early warnings of a problem and therefore missed the chance to prevent a catastrophic blowout. This may have been a consequence of whistleblowing being discouraged. A whistle-blower suit is currently pending by a BP employee alleging that he was fired for trying to maintain compliance records. (Houck, 2010) BP had become too complacent. 7 months before the blowout the Deepwater Horizon rig had drilled the world’s deepest well at 35,055 feet. The Deepwater rig had one 7 years without a single accident serious enough to halt operations. (Meigs, 2016) The same techniques and equipment that worked in shallow hydrocarbon formation seemed to function fine at greater depths and

These incidents should have made a massive impact on the companies Risk Management and the decisions they made. BP had a sufficient amount of historical loss data to predict these events and what may cause them. When talking about the risk of an oil spill or blowout BP downplayed these events massively. They did not consider the worst possible outcome, instead the MMS averaged the mean past spill to determine what lay ahead. (Houck, 2010) If BP did not consider the worst possible case, they would not plan for it to occur or create procedures if these events were to happen. If an oil spill were to occur the maximum spill would only release 1,500 barrels per day and that the oil rig was too far from the shores to produce “measurable coastal