Risk Management Assignment 4

Risk Management Case Study

DR STEVEN

Name: SHEKU KONNEH

BUS 519 (RISK MANAGEMENT)

Institution: STRAYER UNIVERSITY

Risk Management Case Study

Critical Success Factors

A Critical Success Factor (CSF) refers to an element or a component that is necessary for the realization of an organization's goals and objectives. When looking into the case study, it can be seen that there are CSFs that led to the risk culture at BP as follows. One, due to the challenges that were being faced by the organization, it was deemed important that the organization cuts down costs in a bid to sustain its operations while also overseeing growth. To cut down costs to drive sustainability that led to a reduction in fixed costs meaning there were not enough funds for repairs and reports. Audits had shown that there were even thin pipes and broken alarms after the explosion happened in 2005. This means that the organization did not adhere to the best and recommended standards when it comes to repair and maintenance.

Rapid acquisition of other companies also contributed to the risks that were faced by BP. The company looked forward to acquiring more companies as part of its growth but did not put into consideration the fact that the newly acquired organizations had their operational issues. For instance, after it acquired Amoco in 1999, rather than making the much-needed safety improvements, the organization cut down 25% of fixed costs in all the refineries which meant that there were no real plans for making the safety improvements.

Additionally, John Browne had put much focus on diversification of service and product delivery as part of meeting the needs of the future. The company had expanded to other areas which were seen as a significant development. However, this meant that resources for oil exploration and refining were channeled to the other establishments explaining why the company proposed a 25% cut on fixed costs for all the refinery plants. In essence, BP was pursuing bigger goals and overlooked important ones such as regular maintenance and repair which led to risks and eventual incidents realized.

Project Benefits, Organizational Readiness, and Risk Culture

As has been noted in the case study, traditional oil reserves were being phased out as the demand for petroleum grew across the globe. In response, BP had deemed it plausible for the organization to explore new places which were unexploited. Also, in a bid to access even more fields and markets, the organization acquired some major players meaning the projects were a major approach to sustainability and access to more raw materials. It can be seen that the project would have brought about major benefits to the organization especially at a time where major oil fields were being depleted across the globe.

About organizational readiness, it is imperative to note that BP did not have a clear-cut plan regarding its approach to risks despite the statistics that had been experienced by some of the companies it had acquired. It is seen that the company did not have a risk management model for assessing and mitigating risks. With failed alarms among other things, it can be seen that it was nearly impossible for the organization to respond to an emergency. More so, it had not put in place funds and resources for mitigating risks explaining why the explosion was not foreseen. The company only focused on the exploitation of the resources.

The above section highlights the risk culture of the organization. Oil exploring companies are required to have distinct efforts for identifying and mitigating risks which may have profound effects on human resources as well as infrastructure and equipment (Meredith & Mantel, 2011). There should be a risk culture where all levels of risk are assessed and measures for addressing them put in place. In most cases, this may also call for putting in place funds for responding to and mitigating risks. From the case study, it is clear that BP did not have a plan for assessing and addressing risks due to its commitment to the pursuit of reduced operational costs.

Project Risk Recommendations

Based on the issues that have been identified, three project risk recommendations can be made. First, it is imperative that BP sets a risk management team that will be mandated to assess and recommend methodologies for approaching risks. When there is a team designated to check and assess risks, it means that time work will always be done (Morecroft, 2015). Actually, due to political and social risks associated with the exploration of oil in some regions, the team should assess the equipment and a rig can be set. Also, during operations, the team should also assess the risk and make plausible and actionable recommendations.

Two, BP needs to set apart enough resources for risk management. After establishing the team, the top executives need to allocate more or enough funds that will go to risk management. As can be seen, its goal of cutting down the cost of risk management led to even bigger loses. In this respect, setting apart funds for risk management will be saving it even more money. When there is enough money, there will be enough resources including human resources for overseeing risk management.

Finally, the management, as well as the top executives, need to foster a culture that promotes best practices when it comes to risk management. In modern organizations, even workers should be equipped with knowledge and skills relating to avoidance of risks during a performance as well as modes of reporting. The risk management team will be more efficient if it can work closely with other players such as line managers and even plant managers (Rausand, 2011). There will be a bigger source of actionable information. When the three measurements are put in place, it is clear that any risks will be known promptly and measures for addressing them put in place.

Initial Categories of Risk

An analysis of the BP shows that RBS level 1 entails management risk. This refers to the risks associated with the actions and behaviors of the management. Level 2 entails operations management and resourcing. BP had failed to oversee operations management that would have ensured that any risks are being identified and addressed promptly. Additionally, due to a lack of awareness when it comes to the identification of risks, operations were not carried out in a manner that reduced the impact of the risks.

On the other hand, the management had failed to allocate enough resources for the risk management division. As reiterated above, the organization had opted for cutting down costs meaning there were not enough resources for identifying and addressing the risks. In essence, the challenges experienced by the organization were directly associated with the failure of the firm's management.

References

Meredith, J., & Mantel, S. (2011). Project Management: A Managerial Approach. New York, NY: Wiley & Sons.

Morecroft, J. (2015). Strategic modeling and business dynamics: a feedback systems approach. . New York, NY: John Wiley & Sons.

Rausand, M. (2011). Risk Assessment: Theory, Methods, and Applications. New York, NY: Wiley.