British Petroleum (BP) Management of Risk

British Petroleum (BP) Management of Risk
In a document published by IRM, AIRMIC and ALARM, risk was defined as "the combination of the probability of an event and its consequences" Mendeley Edited Citation{dce6899a-0d16-40b9-82c9-db1ff5a2e350} Prev{(AIRM,IRM,ALARM 2002)}(AIRM, IRM, and ALARM 2002:4). These consequences may constitute opportunities or benefits, losses, damages and threats to success. Risk can be the result of the decisions and actions from the previous implementation of plans of the organization. Risk management is recognized in both the negative and positive perspectives. It is the process where the organization handles certain risks that can give benefits to the company.
Risk management is a part of the organization strategy which should be continuously developed. It should constitute all the risks to the organizations for its past, present and future activities.
Risk Description
The table below shows the description and assessment of specified risks:
Name of Risks

Descriptions

1 Scope of Risk

Qualitative description of the events, their size, type, number and dependencies

2 Nature of Risk

strategic, operational, financial, knowledge or compliance

3 Stakeholder

Stakeholders and their expectation

4 Quantification of Risk

Significance and Probability

5 Risk Tolerance/Appetite

Loss potential and financial impact of risk
Value at risk
Probability and size of potential losses/gains
Objective(s) for control of the risk and desired level of
performance

6 Risk Treatment & Control Mechanism

Primary means by which the risk is currently managed
Levels of confidence in existing control
Identification of protocols for monitoring and review

7 Potential Action for Improvement

Recommendations to reduce risk

8 Strategy and Policy Development

Strategy and Policy Development

The specific designation of risks is important to ensure the proper identification of risks and the proper assessment and solution for the identified risks to prevent any mistakes and losses.
External and Internal Factors
The figure 1 below shows the 2 factors that arise from the operation of the organization. It shows the example risks that a company has to face. These risks are not only related to natural hazards, instead, it is multifaceted and can involve financial, strategic, and operational factors. The diagram also shows that these risks can be addressed in different ways and the methods can either be internally or externally driven.
Figure 1: Examples of the Drivers of Key Risks (AIRM, IRM, ALARM 2002:3)
British Petroleum Deepwater Horizon Oil
BP is one of the biggest oil industries worldwide. The business is about gasoline, industrial and motor lubricants, petrochemicals, solar power, energy, fuels, retail services and others. Its former name is Anglo-Persian Oil Company or APOC that services 6 continents which are North and South America, Asia, Europe, Australia and Africa. London, United Kingdom is their base office where they oversee their business interest. The BP brands consist of AM/PM that provides for the food, drinks and snacks for their customers. The BP also stands for Beyond Petroleum because they not only produce quality energy, they are also the company behind other names like Wild Bean Café (which offers pastries, coffees and sandwiches), Castrol (an automobile lubricant), Aral (a brand of petrol) and Arco (a brand for retail gasoline).
Explosion and Oil spill
On the night of April 10, 2010 an explosion has occurred on the Deepwater Horizon in the Gulf of Mexico Mendeley Citation{c50cfd42-05bc-46df-b018-8314c00649f7} Prev{(BP 2010)}(BP 2010). According to the company, "the accident involved a loss of control over the pressure in the well`s blowout preventer, a specialized valve designed to maintain consistent conditions" Mendeley Citation{c50cfd42-05bc-46df-b018-8314c00649f7} Prev{(BP 2010)}(BP 2010). The accident spilled a huge amount of oil in the Gulf of Mexico, and nearby Ocean, and is now considered as one of the worst oil spills in history Mendeley Citation{0294f5e3-4d5b-4782-b264-94b542a02be9} Prev{(BBC 2011)}(BBC 2011). It has caused the lives of eleven people.
The company had incurred a big loss because they spent billions in the clean-up of the affected waterways they had to take responsibility for the welfare of the people who died, as well as those whose livelihoods were affected by the oil spill. The company reported that a majority of the oil reached Lousiana, Mississippi, Alabama and Florida Mendeley Citation{c50cfd42-05bc-46df-b018-8314c00649f7} Prev{(BP 2010)}(BP 2010). The incident incurred expenses for almost six months, wherein the company was only able to seal the oil well in September. The company reports on their website: "As of December 2010, we have spent $17.7 billion for our response activities" Mendeley Citation{c50cfd42-05bc-46df-b018-8314c00649f7} Prev{(BP 2010)}(BP 2010) - an amount which could`ve been used in expanding the company`s research and development as well as their operations.
Risk and Management Response
Organization leaders know that risk always exist in any kind of business. However, in the case of BP, the management did not take the right approach in preventing risk exposure. The company could not cite plans they hope to implement in case of another leak in their oil wells. In their press release, BP said "[w]e are committed to understanding the causes, impacts, and implications of the Deepwater Horizon accident and to learn and act on lessons from it" Mendeley Edited Citation{c50cfd42-05bc-46df-b018-8314c00649f7} Prev{(BP 2010)}(2010). While this is a good realization, one must realize that the incident did not only cause loses for the company, as a matter of fact, its long term effects to the environment and the surrounding communities are innumerable.
Risk management requires the analysis of risk as well as its costs and probabilities. In the case of an oil company, it is important to know information such as "geologic risks associated with the existence of an adequate oil reservoir, the existence of the oil source rock, the generation and the tim...