British Petroleum Firm’s Risk Management Plan

Introduction

The case study A Culture of Risk Beyond Petroleum discusses the factors that can harm the company’s reputation and image, even if the company is one of the world’s leading organizations. After the explosion in one of British Petroleum refineries in Texas in 2005, the company has suffered significant losses, both in financial and social terms. The case analysis shows that a risk management plan is a required step for BP to restore its image and operations among all the stakeholders. The purpose of this paper is to propose a risk management project aimed to improve the company’s safety and its’ perception by the employees, shareholders, and customers.

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Project Description and Objectives

The background for the effective risk management plan can be withdrawn from the case study. The report by James Baker, which was interpreted in a supportive way by BP itself, leads to the need for a change in terms of process safety requirements in the refineries (Bryant & Hunter, 2019). Baker mentions that BP operates according to the goal “no accidents, no harm to people,” which suggests that the firm contributes many efforts and resources in preventing potential risks and incidents (Bryant & Hunter, 2019). However, the report also points out the absence of common process safety culture within British Petroleum refineries in the US. Baker’s observations, in combination with the findings from Telos’s report that discusses maintenance underinvestment and lack of management’s commitment to safety, it is evident that there is a room for improvement (Bryant & Hunter, 2019). Consequently, dramatic events of 2005 in Texas’s refinery, along with all of the weak sides of safety control and leadership, layout the foundation for the implementation of the plan.

The purpose of the risk management project is to ensure that the safety regulations for the company are at the highest level because it is one of the significant aspects for the employees within this industry. Besides, the case notes that BP significantly cut its fixed costs among the refineries, but after the explosion in Texas, the company has paid around $2 billion in compensations and lawsuits (Bryant & Hunter, 2019). According to Cagliano, Grimaldi, and Rafele (2014), “the pressure for increasing quality while reducing time and costs places particular emphasis on managing risk in projects” (p. 232). Thus, another purpose is to emphasize the need for primary investment in safety that can save human and financial losses in the future. It is also essential to set out clear objectives of the plan, which would cover all the relative points of its realization. The list below represents the primary objectives of the risk management proposal.

  • To ensure the safety of the employees working under different circumstances in different divisions in various refineries.
  • To reform the current leadership of the company in a way that will emphasize the commitment to process safety, to a safe environment for the stakeholders, and to rational self-assessment.
  • To establish a common process safety culture among BP’s refineries on the territory of the United States.
  • To establish a safety risk department that will respond to the inquiries connected to the safety issues, will efficiently deliver those issues to the management, and will take necessary actions to solve emerging problems.
  • To restore the image of British Petroleum in the eyes of the stakeholders effectively and honestly.
  • To outsource the evaluations and control of the safety requirements and its complete fulfillment: the external party should provide independent judgment on the real situation in the working environment throughout the process.
  • To implement the activities of the risk management plan within six months.
  • To involve all of the organization’s levels in the plan’s implementation to increase the awareness and knowledge about safety issues among all of the employees, starting from the maintenance person to the company’s chairman.
  • To make a cost-effectiveness analysis to determine financial requirements for the plan’s sustainability.
  • To establish an enlightenment division that will be responsible for the delivery of the changes to the employees, customers, and shareholders.
  • To perform examinations and unplanned checks within the refineries every half year after the plan’s implementation.

Those objectives underline the importance of the risk management project and what it strives to achieve within the estimated period. With professionals’ help and positive vision and aspiration for development, it is possible to fulfill the purpose of the plan. Careful integration of the procedures and items aimed to achieve the established goals will improve the company’s performance and create a positive and trusted image, making the firm attractive for the potential professionals and shareholders.

As far as the budget for the risk management plan is $100,000, it is essential to determine the size of the project with the help of the project sizing tool. The list below presents each criterion’s value, and the total score will assist in estimating the scope of the project.

  • Strategic importance: a major contribution to business objectives (8);
  • Commercial/contractual complexity: minor deviation from existing commercial practices (4);
  • External constraints and dependencies: some external influence on elements of the project (4);
  • Requirement stability: clear, fully defined, agreed objectives (2);
  • Technical complexity: enhancement of existing product and service (4);
  • Market sector regulatory characteristics: the standard regulatory framework (4);
  • Project value: project value less than $250,000 (2);
  • Project duration: 6 months duration (4);
  • Project resources: large project team including external contractors (8);
  • Post-project liabilities: acceptable exposure (4).

Aims, Scope, and Objectives of Risk Process

The primary aims of the risk management project for British Petroleum include the plan’s objectives. It is essential for the company to restore its’ image and to create positive attitudes from the sides of the stakeholders. Besides, another aim is to conduct thorough stakeholders’ analysis during the project’s initiation stage. According to Hillson and Simon (2014), it is necessary to analyze the three significant features of those, who will be influenced by the risk management implementation, which are attitude, power, and interest in the project. Consequently, identifying and dividing the stakeholders according to the level of those factors will provide a clearer picture of the potential plan’s impact and scope. Also, the estimated period of the project’s implementation into the organization is six months, and the estimated financial cost is $100,000. The overall criteria score, determined in the section above, is 44, which implies that the project scope is medium and requires a standard Active Threat and Opportunity Management (ATOM) risk management process.

Risk Tools & Techniques

It is helpful to identify the risk estimation and risk identification to determine which tool will be the best for a particular situation (Moraru, Babut, & Cioca, 2014). In the case of British Petroleum, one can argue that the risk of injuries and human costs is largely applicable to the firm’s operations and business success. Also, the risk of equipment malfunctions imposes a threat to the organization’s activities and performance. Thus, business impact and cost-benefit analyses and the Delphi technique can be useful tools for the risk and safety management in BP.

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The project’s objectives include the external party’s opinion, experts in the safety management area, which will help to come up with necessary implementations and to evaluate the process and its results. Delphi technique implicates an active involvement of the experts, who will analyze the information and will provide a group response on the required changes and improvements (Habibi, Sarafrazi, & Izadyar, 2014). The use of the Delphi technique will help to conduct the qualitative analysis of the plan, which will give the perspective on the scope of the project as well. Moreover, including such tools as brainstorming, probability-impact evaluation, and the analysis of costs and benefits for the project will provide a broader view of the project, possible implications, and desired goals.

Risk reviews and reporting

A significant aspect for each risk management project I careful post-realization analysis and evaluation. For the risk management plan for BP, it would be crucial to conduct an assessment and issue the reports made by the external parties after the project’s implementation. The external company should provide an independent judgment of the improvements and their efficiency. Also, the enlightenment department must provide the information to the stakeholders concerning the intention to bring change, its process, and its results. Constant reporting every six months is recommended for the company to make sure that the plan is working in a beneficial to the company way and to avoid problematic issues in the future.

P-I matrix (Project’s probability & impacts)

Probability
Very low Low Medium High Very high
Impact Very high Explosions Workers’ injuries
High Management’s change Increased fixed costs
Medium Technology’s malfunctions Small injuries
Low
Very low

The matrix above identifies the risky events that have a chance of happening, and that can have an impact on the British Petroleum operations, position in the market, and image. Explosions, like the one in Texas in 2005, have a low probability, but the effect on the organization that they might cause is extremely high because they involve possible human losses. Technology and equipment glitches are also not likely to happen, and the influence they can have on the organization involves mostly productivity and additional costs that will have a medium impact on BP. The same distribution within the matrix logic was used for other possible threats. The orange color in the matrix represents the risks that are medium-high, the yellow color portrays medium risks, while the green color shows low-medium dangers for the company. One should note that despite the lack of safety management and the negative impact of the absence of consistent process safety regulations, BP does not possess high risks.

Risk thresholds

It is essential to determine which values play significant roles for the project and estimate beyond which of them the company cannot go. According to Lam (2014), “sensitivity limits ensure that potential economic losses do not exceed management’s threshold level” (p. 46). Thus, the company has a budget of $100,000, which implies that I cannot spend more on the risk management project implementation. In such a way, one can say that the threshold for financial expenditures for the plan is $100,000. Still, it is also essential to observe the issue of the share prices on British Petroleum. The case indicates a significant decrease in the share price for around $7 from 2006 to 2007 (Bryant & Hunter, 2019). Consequently, it is possible to say that the threshold for the company in terms of share price after the risk and safety management process is $$63. The share price should not go down after the changes’ implementation than it was before the project.

In conclusion, the risk management plan should go through precise initiation, planning, and execution stages under the management’s and external parties’ control. Responsibilities division, the assessment of risks, and their possible implications are required for the project. From the case study, it is evident that British Petroleum is in the position of management’s change and needs to restore the company’s image. A thorough risk management project will help to establish common process safety regulations and will make the company’s representation more positive.

References

Bryant, M. J., and Hunter, T. (2019). British Petroleum (PLC) and John Browne: A culture of risk beyond petroleum (A). BUS 519: Project Risk Management, 13-26.

Cagliano, A. C., Grimaldi, S., & Rafele, C. (2015). Choosing project risk management techniques. A theoretical framework. Journal of Risk Research, 18(2), 232-248.

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Habibi, A., Sarafrazi, A., & Izadyar, S. (2014). Delphi technique theoretical framework in qualitative research. The International Journal of Engineering and Science, 3(4), 8-13.

Hillson, D., & Simon, P. (2014). Practical project risk management. The ATOM methodology (2nd ed.). Tysons Corner, VA: Management Concepts.

Lam, J. (2014). Enterprise risk management: from incentives to controls (2nd ed.). Hoboken, NJ: Wiley.

Moraru, R. I., Babuț, G. B., & Cioca, L. I. (2014). Rationale and criteria development for risk assessment tool selection in work environments. Environmental Engineering & Management Journal, 13(6). ISSN 1582-9296.

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