Case study2

AD642 Individual Assignment 2

The BP Macondo Well Case

Xavier Bogaerts

Boston University – MET College

AD642 A1 Project Management

Spring 2019

Executive Summary

The BP deepwater Horizon is one of the worst industrial catastrophes ever due to the oil rig

explosion on April 20, 2010, in the Gulf of Mexico. Eleven people died in what has become the worst

oil spill in the United States lasting 87 days with 507 million liters of oil spilled in the sea (US

Environmental Protection Agency, 2017). Multiple failing went right up to the top management of the

companies involved and multiple points at which it could have been averted. In this report we

addressed three of their major issues:

 BP’s safety culture

 BP’s risk-seeking culture

 The lack of ethics values

Issues will be identified then practical solutions to these issues will be presented. Finally,

recommendations will be made based on the pros and cons of each solution and thanks to the solution

ranking matrix.

Background

The BP deepwater Horizon is one of the worst industrial catastrophes ever due to the oil rig

explosion on April 20, 2010, in the Gulf of Mexico. Eleven people died in what has become the worst

oil spill in the United States lasting 87 days with 507 million liters of oil spilled in the sea (US

Environmental Protection Agency, 2017).

A single cause is not at the origin of the tragedy of the Macondo well. It is rather a ‘collection’ of

errors that led to the explosion and the fire of the platform. The leak was indisputably caused by

technical failures, but those –in turn - could have been avoided or at least lessened in impact and

probability if they had not had deeper organizational and systemic failures within BP. The US Federal

investigation identified the technical failures that led to the blow out, it includes: the cement failing to

seal the bottom of the well, lack of centralizers in order to center the pipe when pouring the cement,

the blowout preventer malfunction, the high pressure in the drill and the cement formula that was not

certified to function properly, etc.

However, multiple failure causes, in this author’s opinion, are traceable to project management issues,

which in turn can be linked to the top management of the companies involved and multiple points at

which it could have been averted. The three top issues that we can identify are BP’s safety culture,

BP’s risk-seeking culture and the lack of ethics values.

I will discuss three major project issues that have been identified within the “BP and the Deepwater

Horizon Disaster of 2010” that led up to the explosion and oil spill. Solutions and their pros and cons

will then be introduced along with recommendations of how the disaster could have been avoided.

Issues Identification

Issue 1

The first issue and the most important concerns BP’s safety culture. In fact, despite the fact

that BP had publicly declared its commitment for safety, BP had multiple issues with safety breaches.

In a previous accident in BP’s Texas City refinery which killed 15 persons, the investigation report

that they purposely cut back the maintenance and safety measures in order to limit costs.

Even after trying to improve personal safety, BP misunderstood that by decreasing and having a lower

personal injury rates do not mean that safety process is well implemented. According to Ingersoll C.

and al. (2012) U.S. refinery workforce believe that process safety is not a core value at BP. Meaning

that in BP the workforce is not able to perceive a clear corporate message coming from BP’s executive.

In BP’s 18 values, only one concerns health and safety, it claims: “no accidents, no harm to people,

and no harm to the environment” But nothing clear is stated concerning safety process and it has never

been a real commitment for BP. They never tried to implement new safety policies and processes, it

has been seen more as a way to communicate and articulate a “safety” message to maintain a

respectable corporate image than a real way to establish long-term change into their safety process.

Issue 2

The second issue is BP’s corporate risk management appetite which is very risk-seeking. It

has been stated that BP's culture is one that values doing as much as they can for a minimum budget.

It was expected that the Macondo well project had a budget of $96.2 billion and was scheduled to take

place in 51 days. In addition, the well started to be functional in January of 2010 and the explosion

occurred in April, so less than 3 months after the effort began.

Indeed, the project was six weeks behind schedule and $58 million over budget (National Commission

on the BP Deepwater Horizon Oil Spill and Offshore Drilling, 2011), with such time and cost

constraints we can surely imagine that decisions had been made in alacrity.

Moreover, with the technical issues that happen previously the blowout of Deep-Water Horizon, we

can affirm that with a proper risk management it would have unquestionably reduced, if not eliminated,

the probability of the blowout. In the conclusion stated in the National Commission's report (2011),

the explosive loss of the Macondo well could have been prevented. In fact, decisions made before and

during the disaster were never subject to an official risk assessment.

Furthermore, BP was conscious that they needed to provide maintenance to their machinery in order

to be in compliance. Indeed, a week before the accident, the blowout preventer (BOP) was accidentally

deteriorating (Greene-Blose, 2015). As an example, one of the censors of the control pod was not

working due to an emptied battery and the other was not working due to a defective solenoid valve

(National Commission, 2011). In fact, no one in the Deepwater horizon workforce and executive took

the necessary actions to solve this problem. According to Hillson R. & Webster M. (2005) what

characterizes risk seekers’ is that they tend to downplay threats.

One week prior to the blowout, the project team had actually failed to identify risk triggers resulting

in an extreme threat. Consequently, both the probability and impact of this risk has become more

important, it is then too late for preventive action, the risk is accepted.

Issue 3

The third issue concerns the lack of ethics in BP’s core values.. Or at least the conveyance of

those values to project team members. According to Jennings M. (2010): “BP's management

principles, business plans, and codes of ethics focused on safety and compliance, [but] something was

lost in translation between words and actions. The message in the written materials was not the

message that the employees heard or followed.

There was a long-standing cultural disconnect between outward appearances and internal behaviors.”

In fact, corporate ethics were sacrificed when it came to catch up their delay.

Moreover, Mr. Reilly, the former president of the United States environmental protection agency,

denounced "a culture of complacency" among BP corporations, resulting in "bad decisions" as they

were preparing to complete the drilling of the "Macondo" well at 1,500 meters below the sea surface.

In fact, there has been precipitation in the realization of the well because on site asset managers were

rushing in order to meet performance targets. Furthermore, they extended this practice among all

employees working on the site, so employee compensation was tied to asset performance and the

overall performance of the site. We can easily imagine how this manner to behave can impact the

project quality and push employees to question the respect of ethics.

Leadership responsibility, which is receiving more attention, has been widely discussed in the

context of large corporations that are suffering the consequences of their actions (or inaction).

Managers are often accused of acting selfishly and sacrificing the company's bottom line for their own

benefit. Already in the 1970s, Jensen and Meckling (1976) were suggested ways to counter such

behavior or to encourage managers to act in the interest of the company and the society.

In a general way, the CEO needs to enhance shareholder value, in line with the expectations of the

shareholders and, respectively, the management committee. However, what we do not know is how it

is supposed to achieve that goal, that is to say, what risks he must take. The CEO must therefore

improve the security aspect so as to minimize operational risks and limit potential liabilities. In the

case of BP, during the trial, Tony Hayward emphasized the $14 billion invested in security since his

appointment as CEO, but he was not able to say how it was spent. That’s why it is important spending

the time needed in order to investigate even the most minor failure and then implementing the

appropriate changes.

Proposed Solutions Table

Issues # - Solution # Solution

1-1 Create a company-wide initiative safety program that states clear safety

practices and standards that must be respected, with sanctions in case of

safety violation.

1-2 Training in order to educate the employee properly concerning the safety

practices to be in compliance.

2-1 Value scope by shifting from a risk-seeking company to a risk-adverse

company, this strategic change will impact positively BP company in a long-

term vision.

2-2 Establish a thorough risk management by providing a Plan Risk Management

in order to decrease the risk tolerance level, according to Greene-Blose, J.

M. (2015): “A simple cause and effect diagram (also known as a fishbone or

Ishikawa diagram), useful for identifying, assessing, and understanding the

root cause of risks (Project Management Institute, 2013, p. 236), may have

provided the necessary insight into the appropriate risk quantification and

response at BP.”

2-3 Establish thorough ERM throughout organization in order to reduce the risk

of regulatory non-compliance and allow BP to provide maintenance for their

equipment when it is needed.

3-1 Modify the policy concerning the asset federation model for meeting

performance targets in order to not sacrifice quality and ethics over budget

and time constraints.

3-2 Create a monitoring program and ethical training for all BP employees

resulting in leadership empowerment.

3-3 Implement a company-wide communication plan and encourage whistle-

blower in order to push employees to report unethical behavior.

Pros and Cons Matrix

Solution Pros Cons

1-1 Create a company-wide

initiative safety program  Impact future profit by

reducing repair costs for

major disaster

 Take time to be integrated

in every employees’

behavior

1-2 Implement safety training

and practices  Fewer workplace incidents/

employees have better

responses and behavior

 Take time to create those

kings of a training

 Very costly to establish

2-1 Shifting from a risk-seeking

company to a risk-adverse

company

 Value and quality over cost

and time constraints

 A better long-term vision

 Take time to realign

corporate strategy

 Change is difficult to adopt

2-2Build a strong risk

management  Risk quantification

 Better responses in case of

occurring

 Take time before the project

execution

2-3 Establish thorough ERM

through BP company  Limit the risk to be in non-

compliance

 Investments are made on

purpose when needed

 Can be expensive to

implement though the

company

3-1 Modify asset federation

model policy

 Limit the pressure for asset

managers to meet the

performance target

 Quality over Cost

constraints

 Less decision making for

the asset managers, limit

their actions

3-2 Create a monitoring

program and ethical training

 Improve leadership

empowerment

 Encourage good behavior

and positive management

 It is costly to create training

all over the company

 Employees can be reluctant

to change

3-3 Implement a company-wide

communication plan

 Encourages open exchange

of information and

viewpoints

 Limit unethical behavior

 Whistle-blower may be

misunderstood and seen as

oppressive

 Take time to implement

Solution Ranking Table [NOTE: NOT REQUIRED]

Solution Likelihood of

Success

Difficulty

Implementing

Solution

Score

Solution

Rank

1-1 Create a company-wide

initiative safety program

5 5 25 1

1-2 Implement safety

training and practices

4 4 16 3

2-1 Shifting from a risk-

seeking company to a risk-

adverse company

4 5 20 2

2-2 Build a strong risk

management

4 3 12 5

2-3 Establish thorough

ERM through BP company

3 5 15 4

3-1 Modify asset federation

model policy

2 2 4 6

3-2 Create a monitoring

program and ethical training

3 4 12 5

3-3 Implement a company-

wide communication plan

3 3 9 7

Recommendations

As a recommendation we can focus on the proposed solutions table and pros/cons matrix cross results.

In the solution ranking table above, we can see that the solution with the highest likelihood of success

(Create a company-wide initiative safety program) is also the most difficult challenging to achieve.

However, it will allow BP to implement an efficient and durable vision in order to provide the

necessary measures to prevent from future disaster. Moreover, if other major accidents happen in the

upcoming years, BP will not be able to recover the important monetary debt and its reputation will be

severely damaged. Furthermore, based on the solution ranking table, BP should focus, first of all, in

some solutions that have priority for the reinstate their credibility. First of all, they have to create a

company-wide initiative safety program, secondly, they need to shift from a risk-seeking company to

a risk adverse one and finally they need to implement safety practices and training for their employee.

These three solutions, if prioritized immediately can really decrease and mitigate upcoming potential

disasters.

References

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engineering. American Society for Engineering Education.

Graham, B., Reilly, W. K., Beinecke, F., Boesch, D. F., Garcia, T. D., Murray, C. A., & Ulmer, F.

(2011). The National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling. Deep

Water. The Gulf Oil Disaster and the Future of Offshore Drilling. Report to the President.

Greene-Blose, J. M. (2015). Deepwater horizon: lessons in probabilities. Paper presented at PMI®

Global Congress 2015—EMEA, London, England. Newtown Square, PA: Project Management

Institute.

Hillson, D. A., & Murray-Webster, R. (2006). Understanding risk attitude. Association for Project

Management (APM) Yearbook 2006/2007, 25-27.

Ingersoll, C., Locke, R. M., & Reavis, C. (2012). BP and the Deepwater Horizon Disaster of 2010.

MIT Sloan School of Management, Case Study.

Jennings, Marianne M. WHAT BP TEACHES US ABOUT ETHICS, RISK, AND BUSINESS

MANAGEMENT. Corporate Finance Review 15.2 (2010): 38-42. ProQuest. Web. 21 Apr. 2019.

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and

ownership structure. Journal of financial economics, 3(4), 305-360.

Julie, C., (2016). A Case Study in Engineering Ethics: The Deepwater Horizon Disaster.

A SunCam online continuing education course, Case Study. Retrieverd 4/16/2019 from:

https://s3.amazonaws.com/suncam/docs/257.pdf?1527836384

O'Connor, E. O. H. (2011). Organizational apologies: BP as a case study. Vand. L. Rev., 64, 1957.

US Environmental Protection Agency. (2017). Deepwater Horizon – BP Gulf of Mexico Oil Spill.

Retrieved 4/15/2019 from: https://www.epa.gov/enforcement/deepwater-horizon-bp-gulf-mexico-oil-

spill