Need of risk management Free Essay Example

Summary

Deepwater Horizon, directed by Peter Berg, is set around the harsh and unforeseeable events that took place on 20 April 2010 in the Gulf of Mexico, Louisiana, United States. 126 members from the companies BP and Transocean, including Mike Williams [Chief Electronics Technician], Jimmy Harrell [Offshore Installation Manager] and Andrea Fleytas [Dynamic Positioning Officer] fought for the 11 unfortunate lives that were taken through these events.

BP managers, Donald Vidrine and Robert Kaluza, allowed workers to return home without conducting a cement bond log on the work completed [00:16:15].

Much to his surprise, Harrell finds out the unethical reasoning behind avoiding running the tests: to save on costs/ overheads which would (in their eyes) benefit the profitability of BP [00:21:57]. This included not maintaining or servicing the 390 machines [00:30:25] that were in desperate need of attention. Jimmy orders to perform a negative pressure test on the drill pipe after confronting the lack of risk management, strategic planning and team work [00:29:03]found in the unethical decisions made by Vidrine and Kaluza.

The tests resulted in a pressure of 1395 PSI [00:36:25] which was then followed up by a test on the kill line [00:45:10]. As the crew began to pump mud out of the system [00:47:05], it caused a large buildup in the pipes, resulting in the pipes bursting and putting many lives in danger, including Caleb, Shane, Adam and even Vidrine himself. Methane gasses began rising which caused the pipes to weaken even more so and had had a huge explosion occur [00:57:20].

The drill crew including their leader, Jason Anderson who eventually passes away, work critically in attempt to contain the explosions by closing the annular [00:52:17}.

Mike, Caleb and Jimmy portray the characteristics and principles of what a true, sound leader is by risking their own lives in attempt to not only save the exploding rig, but the lives of their fellow crew members. [01:10:02] As safety arrives, the crew is safely extracted from the environment as the rig continues to burn to shreds. [01:35:20] All what is left of the event are for harsh, unforgettable memories these Transocean members will carry within their hearts forever. ?

Risk Management& Performance Management

The main problems that centered around the leading events were merely based on the lack of Risk management [Defined as the profitability of an event-taking place and then doing proactive planning to minimize the potential negative impact on the event of the business] found by Vidrine and Kaluza. They both failed to do a proper Risk assessment on their decisions which is the first step to proactive risk management.

Identification of Risk: This step determines the risk factors by looking at the areas of uncertainty in the business in order to identify and define risks at hand. There was no methodical approach (e.g scenario planning: there are business simulations are considered to look at the possible outcomes of events and how to handle them.) from Vidrine’s side in attempt to identify the possibilities which could affect the viability (ability of something to work effectively) of the work done on the rig. This can be identified when Vidrine chooses to blame the pressure test results based on ‘faulty reading’ [00:40:30], rather than something that could cause harm and should be attended to. It can be argued that if Jimmy and Mike knew the consequences, they should have put orders in place to prevent there from being an explosion. However, it was not their responsibility to do so; BP should have done their extensive research. According to If the crew made use of Scenario planning, they could have constructed enough outcomes to ensure they were made well aware of the possible threats, and therefore could have prevented the explosion from occurring.

Description of Risk: This step ensures once risks are defined, they are then described in detail and should then be communicated to all relevant parties to ensure they understand the issue and origin of the risks. Although Mike and Jimmy were fully aware of the risks that could have taken place, Vidrine took no initiative to look into the potential risks that were laid out and simply ignored all the red flags that were mentioned. During this phase of the Risk Assessment procedure, it was important for BP to communicate their research and relevant information found before making the decision to let the workers go without performing the Cement Log Test.

Estimation of impact of risk: This step helps a business to assess the impact of each risk by looking at it from all perspectives. In order to minimize the risks, BP should have made use of the estimation tools such as pros/ cons chart, cost/ risk benefit analysis and/or even a SWOT analysis to do an Environmental Scan. Having them work with oil on the rig, fire was a big threat due to the many volatile gases and fuels that are being extracted when drilling. Choosing to ignore these fatal risks ( for example, Vidrine blamed the high pressure test results of 1395 PSI on the sensor giving a false reading [00:40:30]) implies how little risk management there was taking place as BP was in the end left with, according to $18,7 Billion worth of damages instead doing their job ensuring that the well was operated in a safe and environmentally responsible manner. All these events show how the Risk Response (This is used once the estimation matrix has been set up and businesses have a clearer idea on how to handle each risk)was never avoided (Risk avoidance: Action is taken to prevent or limit an activity that leads to a risk) [Vidrine didn’t put procedures in place to prevent the explosion from occurring], but rather accepted (Risk acceptance: No action taken to stop the risk/ limit the impact that it has on the business) the risk by continuing to pump mud out of the system. An estimation matrix would have been useful after they did the pressure tests to layout the probability (which was high) as well as the impact that it would have on BP and Transocean financially, physically and mentally (which was also high).

Although a lot of this can be blamed on human error, they had no control (Macro& Market environment) over some the external factors (for example the methane gas that arised). However, this could have been prevented if Vidrine and Kaluza repaired the gas alarm sensors. Management should have analysed the Micro environment better; namely the General Management function. Their lack of sound decisions (for example, Vidrine wanting to move onto the next location without performing a cement log test) and liaison between departments (one of the principles of sound coordination that ensures integration and coordination) led to dysfunctional(The result of people’s misconceptions, their ambitions and egos or unwillingness to compromise) instead of functional conflict(A situation where different parties deal with conflict in a manner that is healthy and they respect each other’s opinions).If functional conflict was the outcome, it would create better awareness of the risks that were risen and well as better team work would be practiced amongst the crew. One can see how well the Transocean team worked together (for example, Jason would not do anything that Vidrine told him to without the consent of Jimmy [00:45:10]). This showed that there were visual levels of management present, which is what both BP and Transocean needed to work strategically in order to improve their performance. When the explosion occurred, Mike and Jimmy who had the same risk culture (shared attitudes and practices in the business towards attending to risks) took the initiative role as sound transformational leaders in attempt to save the members unlike Vidrine who obtained no sound leadership skills such as taking initiative, guiding people or making sound decisions .

Professionalism& Ethics

As managers, Vidrine and Kaluza felt the sense of responsibility to ensure BP was running at minimal costs and maximum profits which caused their poor, unethical decision making by failing to adhere to the Code of Conduct of BP as explained in This is found in their decision to send workers home without conducting a Cement Log Test which would cost a total of $128 000, choosing to protect their own pockets and job rather than ensuring the protection of the people (the crew) and environment. In addition to failing to follow King Code 1 (Triple Bottom Line) (Recommends the standards of conduct for companies listed on the JSE, as well as state-owned businesses regarding responsibilities towards citizens in societies), Transocean had better good business practice (refers to the standards of professionalism, accountability, ethics and effective business practice that should be conducted) over the situation than what BP had.

People: This refers to all people that are affected based on what businesses do and contribute to. By ignoring the stated red flags that were risen throughout the tests that they ran, BP had put not only put the business’ reputation and financial position at risk, but the lives of their employees. All decisions a business should make should be followed up by an ethical theory. For example, BP could have used the consequence based theory to determine whether their decisions were ethical or not. This would have also helped them to determine the risks involved, motivating them to perform a risk assessment. The Utilitarian theory can also be used due to there being 126 members on the rig of the time that the explosion occurred as well as people indirectly affected such as the business’ on the beach shore, fish retailers, tourist companies and the families of those who lost a loved one.

Planet: This refers to how the environment is affected based on what businesses do and contribute to. The wide surroundings of the rig were hugely affected by the oil spills, especially that of the marine life. According to 4,9 million barrels of oil was leaked into the ocean, harming nearly 8000 different types of marine species. This only worsened because as time went on, the oil spread across different parts of the ocean, reaching the beaches of Chandeleur Islands. Bp had to pay for the violations the U.S Clean Water Act in addition to the 48 000 people they hired with the clean up of the oil spill. Having already a scarcity in fish in the sea, these actions really put other businesses on hold with their growth or profitability.

Profit: This should have been a major highlight to BP, putting so many lives at risk. The principle based theory (states the a person’s principles, values or ingrained set of rules of what is right or wrong) is a huge outline that Vidrine missed, choosing wealth over safety for the employees. If one thinks about this on a wider perspective, the oil spill caused a major turndown in the economy due to so many marine life dying, resulting in less fish quantities to sell. According to 20% of juvenile bluefin tuna were harmed Stock value decreased by 34% losing total of 96billion in value. Many businesses were affected with the actions that were taken place, losing their stability due to the loss in profits. This did not only affected businesses inside the US, but those outside who imported goods which caused a major turndown in the profits.

To prevent this, members should have whistle-blowed (exposed unethical behaviour which protects a person by law) on the safety issues that were undermined in attempt to prevent the happenings that took place. Vidrine and Kaluza should have adapted to the principles of King Code 2 such as transparency (for example, this would have altered their mindset in choosing to do the Cement Log Test rather than taking a risk by saving on costs), accountability (for example, Vidrine should have apologized when Mike and Jimmy saved his life [01:22:50] by taking responsibility – instead he portrayed his lack of professionalism such as not exercising good judgement and accepting accountability for the mistakes made.

Conclusion

Deepwater Horizon is an excellent representation of how necessary risk management is in order to make the ethical choices for a business to obtain a good reputation and to look after our workers. Without objective decisions and constructive planning being executed from all levels on management, different threats will arise like the methane gases and oil spill, giving other competitors a competitive advantage over your business. Businesses should incorporate channels of communication, which BP did not have, to ensure that all departments do not only receive the relevant information, but that they understand the tasks at hand and no job uncertainty arises. This will effectively improve the morale as well as the productivity of the business. Taking short cuts are not worth it in the long run, especially if the probability of a risk taking place is so high(CSR-communtiies). The amount BP had to pay out for the event exceeds way beyond the amount Vidrine and Kaluza tried to save on costs, resulting in them being accused of federal manslaughter. As a Grade 12 learner, Deepwater Horizon elucidates how important it is to consider situations from a bigger perspective because the actions of one’s decision can impact more people than it seems. Threats and risks affect more than what meets the eye, and is often an indication to whether something is ethical or not. Albert Camus once said, “A man without ethics is a wild beast loosed upon this world.”