The BP oil spill disaster exposed serious shortcomings in both technology and regulation, but the biggest culprit is a catastrophic failure of enterprise risk management.Most Americans presume that a multi-billion dollar energy firm of BP’s stature has the resources, technology, and skills to recover oil in a manner that is both profitable and safe for society. However, the extent of the ongoing catastrophe defies this presumption. According to Friedman:
It's hard to imagine a scenario any worse than this. An offshore oil rig explodes, killing 11 workers. The rig collapses. Oil keeps gushing from a deep-sea well, threatening the Gulf Coast, Florida Keys and perhaps even the Eastern Seaboard.Of course, even multi-billion dollar global corporations can make mistakes, and so society takes great comfort in knowing that the Federal government is diligently regulating and inspecting high-risk industries in order to protect its citizens from the deleterious effects of ecological devastation. Once again, the public apparently presumes too much.
The BP oil spill is not only a stain upon enterprise risk management as an occupation, but upon the entire US regulatory establishment as well. Let’s face it, enterprise risk management in America is a farce.
Source: Friedman, S (2010, May 31), BP Oil Spill a Stain on Risk Management, National Underwriter Property & Casualty.
5 comments:
Risk management is only taken seriously after the risk has been exposed in some horrible atrocity such as BP Oil is facing right now and America faced on 9/11 as well as other oil spills still taking its toll on the oceans.
Unfortunately, since it has not been taken seriously, there are no plans to put in place. It's seems that only after the fact the plan will develop from what they learn. Very sad!
This blog to applies the term "Enterprise Risk Management" (ERM) in such broad brush strokes, presumes facts not in evidence, and as a result; derides an important corporate discipline.
We certainly agree that there was clearly a failure of risk management (RM) at BP, though possibly only confined to the operational RM aspects, or even to that particular oil rigg - rather than a full ERM programme.
Instead of deriding ERM in general, perhaps a better approach might have been to ask whether there was (the appropriate components of) ERM in the first place . . .
Hi Aarron, thanks for your comments. Worth considering is what is a discipline in the first place. For example, I firmly believe that decision analysis and risk analysis are solid corporate disciplines that add value. However, risk management (note the distinction between analysis and management) is clearly on its ass conceptually, and must now make a stronger case for being a discipline in the first place. We must not allow risk management to be used by corporations and governments as a ruse that enables decision makers to avoid the dictates of logic while appearing to have done a decision analysis -- to do so makes risk management a cult rather than a discipline. Now would be a good time for risk management to reset and return to its grounding disciplines of decision analysis and risk analysis (with emphasis on analysis). Again, thanks for the comment.
Question to you all (please comment)...You might question the effectiveness of ERM here, but more importantly, what about an effective Disaster Recovery Plan that considers worse case scenarios? Should these not go hand in hand?
Wow, yes analysis is important and essential, can we analyze the value of profession based on the failings on one corporation. P.S. please don't list disasters we know corporations have had a recent bad run betting the odds.
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