Executive Summary

This report presents the major issues of concern in risk management based on a case study of the BP Oil Spill in the Gulf of Mexico. The Oil spill affected both the environment and human. The Gulf of Mexico is a territory valuable territory due to its great variety of marine life (Black, Devine & Griffin, 2015). Economically, the Gulf is valuable due to the rich reserve of natural gas and oil. This report seeks to give an overview of the events and key facts surrounding the event, Identify the major risk management issues identified in the case and identify the major lessons learned from this case.

The BP Oil Spill in the Gulf of Mexico is considerably the largest in the history of United States. The oil spill started on 20 April 2010. A blast that ruptured the deep-water horizon was the cause of the spill. Experts concluded that the oil continued to flow to the marshes, estuaries and beaches of Alabama, Mississippi, and Louisiana.

The BP Company failed in assessing all the possible scenarios and the possible consequences of the scenarios. Government inquiries revealed failures such as inadequate good control measures, poor risk management practices, and early changes in decision-making, failure in effectively responding to critical indicators and inadequate emergency response facilities.

Some of the lessons learned from this case are that companies should assess the possible risks regularly and work to avert them. The BP Company had ignored the early signs of the risk and faced the consequences.  In addition, companies should have a risk management plans in place to avoid confusion as with BP. The failure of BP to have a risk management plan led to confusion and untimely changes of decision-making. Such an international crisis required a control plan, which the company did not have.

Introduction and Aims

The Gulf of Mexico is a valuable territory due to its great variety of marine life. Economically, the Gulf is valuable due to the rich reserve of natural gas and oil. The region includes Louisiana, Alabama, Texas, West Florida and Mississippi. A high population living in these areas depends on the Gulf for employment and survival (National Oceanic services, 2011). Commercial anglers in this region generate millions in revenue. There are also over 4000 offshore rigs for drilling oil and gas in the region. This portrays the economic capacity of the region.

The BP oil spill off the Gulf in the year 2010 had its effects on the area. Research and scientific literature have widely discussed this issue with the assessment of specific effects. An explosion caused by a surge of natural gas caused the Oil spill. This occurred in a Horizon rig owned by Transocean Company and leased by the BP Company. Once released, the natural gas traveled up to the platform and ignited thereby killing eleven workers and injuring seventeen more workers. The rig sank and ruptured the riser. The oil thus began to discharge to the Gulf and according to the U.S government estimates at the time, 60,000 barrels leaked per day (Pallard, 2016). This spill is the worst oil spill in the history of the United States. This kind of an accident requires the assessment of whether through risk management practices, such as incident is preventable.

The principal aims of this paper include:

• Giving an overview of the events and key facts surrounding the event
• Identifying the major risk management issues identified in the case
• Identifying the major lessons learned from this case

The paper is significant in the identification and the assessment of the risk management issues presented by the oil spill in the Gulf of Mexico. The way in which the BP Company handled the issue presents some teachings into the management of a crisis.  Though the oil and natural gas drilling are normally, automated, human error is also prone to happening. Human beings control the machinery. In addition, the deep-water horizon also has a history of oil spillages and fires that occur regularly (Pallard, 2016). Working in environments prone to hurricanes is also a risk factor that requires assessment. With all these factors considered, the paper aims to explain the risk management practices that by companies should consider avoiding the negative consequences such as what happened in the Gulf of Mexico.

Case study

In the history of the United States, the BP Oil Spill in the Gulf of Mexico is considerably the largest. The oil spill started on 20 April 2010. A blast that ruptured the deep-water horizon was the cause of the spill (Pallard, 2016).  There were many victims of the disaster including eleven workers killed in the explosion and seventeen others injured.

The wellhead was capped in July, and it is estimated that 4.9 million of barrels were of oil were released into the Gulf of Mexico thus affecting marine life and other economic activities. Experts concluded that the oil continued to flow to the marshes, estuaries and beaches of Alabama, Mississippi, and Louisiana. The United States government considers the Gulf incident as a natural occurrence due to its magnitude.  The spilling oil was visible on the surface of the water and thus evaporated into the air contaminating the environment.  The spill affected not only the marine life but also the wildlife and human life.

Major Risk Management Issues Illustrated By the Case

There are several risk management issues presented by the BP oil spill in the Gulf of Mexico in 2010. One of the major issues is the fact that it took many days to stop the spill. Though there were prevention measures in place to manage the spill, they also backfired. The Blowout preventer, which is a failsafe mechanism, was in place to the channel through which the oil was drawn. However, it the fail-safe malfunctioned. In May 2010, efforts to place a containment dome over the affected area were unsuccessful due to an ice matrix formed by a reaction of cold water and natural gas (Pallard, 2016). All this time, many barrels of oil were released into the water and eventually to the environment.

This incident has raised many questions into the governance of the BP organization. Governance and management may be two different things but in this case, the board of directors has to take responsibility in governing and managing risks (Pezier, 2002). This is because; the incident created a financial crisis and affected the reputation of the company. The organization had poor risk management practices in place (Christoffersen, 2012). Government inquiries revealed failures such as inadequate good control measures, poor risk management practices, and untimely changes in decision-making, failure in effectively responding to critical indicators and inadequate emergency response facilities.

The risk management cycle has several stages including Identification, Quantifying, and assessing, treating, Monitoring and risk context (Pezier, 2002). These stages are related, and if well followed, any negative consequences in the sphere of human activity are avoidable.  In the case of BP, the behavior of the organization leaders is irresponsible. Though the company was considerably responsible for the environmental and economic disaster, the top management preferably the CEO demonstrated some failures in leadership.  The Bp management failed to respond to the incident in the speed it required.

The company failed in assessing all the possible scenarios and the possible consequences of these scenarios. In addition, the company failed to identify the financial repercussions of the negative consequences of such as incident. This was a problem with the governance of the organization. This explains why the disaster lasted for so long. It is clear that the organization did not have a crisis plan.

A report released by the Joint investigation team of the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) revealed that though a contractor installed the defective cap, the installation process decision made by BP was the cause of the failure (Pallard, 2016). The investigation also found that BP ignored early indication of a problem in the testing stage thus missing an opportunity to identify a risk and prevent it from happening.

The process of identifying risks is an unending process, which should be in place always. Had the management of BP identified the risk earlier, they would have been able to follow the risk management process and avert the risk. However, the organization ignored the early signs of a problem, and eventually the incident occurred.

Conclusion

Pollution due to an oil spill can lead to devastating consequences. The BP oil spill in the Gulf of Mexico affected not only the marine life but also the human beings who depended on the Gulf for survival. Fishermen in the region generate millions of dollars in revenue. There are also many drilling rigs, which has employed many people. Such as incident as the BP incident can lead to the loss of many jobs as well as the death of marine life. In addition, the evaporation of oil to the environment degraded the environment affecting the wildlife.

This case presents several lessons. One of the lessons is that companies should assess the possible risks regularly and work to avert them (Pezier, 2002). The BP Company had ignored the early signs of the risk and faced the consequences.  Another lesson is that companies should have a risk management plans in place to avoid confusion as with BP. The failure of BP to have a risk management plan led to confusion and untimely changes of decision-making. Such an international crisis required a control plan, which the company did not have.

References

Black, N., Devine, C., & Griffin, D. (2015, April 20). 5 years after the Gulf oil spill: What we know. Retrieved August 25, 2016, from http://edition.cnn.com/2015/04/14/us/gulf-oil-spill-unknowns/

Christoffersen, P. F. (2012). Elements of financial risk management. Academic Press.

Pallard, R. (2016, September 05). Deepwater Horizon oil spill of 2010. Retrieved August 25, 2016, from https://www.britannica.com/event/Deepwater-Horizon-oil-spill-of-2010

Pezier, J. (2002). Operational risk management (No. icma-dp2002-21). Henley Business School, Reading University.

National Oceanic services. (2011, August 3). Highlighting the Economic and Ecological Value of the Gulf of Mexico Coast. Retrieved August 25, 2016, from http://oceanservice.noaa.gov/news/weeklynews/aug11/gomex.html

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