Share this article on FacebookShare this article on TwitterShare this article on LinkedinShare this article on RedditShare this article on PinterestExpert Author Christopher Laffey
For a significant time after the accident the company tried to play down the scale of the tragedy, and one could almost say that it was as slow to respond to potential disaster as it was slow to finally rectify the situation. If it is true that there are more than 50,000 drilled holes in the Gulf of Mexico, then the one in fifty thousand chance is indeed very small. Was BP just unlucky? Or is it a case of the thief being caught because of negligence this time? We all know the corporate damage that just one disaster can create for a company. Whilst we hear that the problem has now been controlled with no oil flowing into the Gulf and because of the warm currents, and that it is summer, the oil appears to have dissipated – although we know not where – there are many management lessons that corporations can learn.

Be Prepared for Both Sides of Operations

Whilst oil exploration encompasses amazing feats of digging to access oil miles underwater, they do not appear to have matched their expertise in finding solutions to filling a hole under water, stopping spills and, if there is a mess, cleaning it up rapidly. We need to consider in our businesses, if something goes wrong are we sure we have the answer to fix it before it goes wrong. Have we tested the response answer? IT is risk management which incorporates how we shall control the mistake.

Acknowledge the Error

Address the error, acknowledge it immediately and implement the solution. In BP’s case they appeared to downplay the magnitude of the disaster saying it was “relatively tiny compared to the size of the ocean”. They appeared to wait until one possible solution did not work before considering the next possible solution, so time did not appear of the essence. This may be harsh, but appear is the operative word since this is what appeared to be the case to those of us watching from afar as well as to those affected on the US coast. Managing the actual risk is as important as the apparent risk and it is only good planning that determines all the issues. These comments can just as easily apply to the financial meltdown in the USA where the analysts could only use positive numbers in their spreadsheets depicting “growth” of housing rather than insert the possible negatives if housing prices went down.

So, what are the risks?

Environmental Risk.

Very clearly the risk to the environment in this case is evident. As a consequence BP progressively lost more than 50% of its market value from May to the end of June 2010. It has recovered now to 2/3 of the value in May 2010 – still 30% down. Whilst this is a comeback, commentators suggest that it could be vulnerable to takeover once the liabilities for the spill are all accounted for – and this will not be done overnight.. The environmental impact can extend to good employees not wishing to be associated with a “careless company”, so recruitment can be an issue as well as lack of investors not wanting to be associated with what is perceived as a company that has not taken due care of the environment. And despite what may have been a good reputation which could be earned over many years, it only takes one disaster to remain in corporate and individual memories.

Reputational Risk

As Winston Churchill famously said “a lie gets halfway around the world before the truth has a chance to get its pants on” and this was long before the internet, mobile phones and social networking. It is therefore paramount that companies respond very quickly with both good and bad news, with probity. A company can lose its good, caring and responsible reputation very quickly. Suddenly its values are called into account. A mismanaged crisis is far more costly than a well-managed one – so that everything about the company is carefully scrutinised and especially behaviour regarding values and safety. Scrutiny above the norm comes into play particularly as to how and what money has been spent on – and the question as to whether the accident could have been avoided with additional spending will constantly be asked.

Income Loss is evident and self explanatory.

By yanam49

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