When risk management goes bad

Article in the Risk Digest on 2 July 2010, which itself was created from an article by Robert Charette available to members of Enterprise Risk Management & Governance

"According to BP PLC's 582-page 2009 spill response plan for the Gulf of Mexico, walruses along with sea otters, sea lions, and seals are among the "sensitive biological resources" that could be harmed by an oil discharge from its operations in the Gulf. The only problem is that walruses, sea otters, sea lions, and seals don't happen to live in the Gulf of Mexico, and haven't for a considerable period of time—like millions of years."

"The spill plan also lists a Japanese home shopping site as one of BP's primary providers of equipment for containing a spill, a dead professor as one of its wildlife experts to consult with in the event of spill, and other outrageous gaffes."

"BP was not alone in worrying about walruses. Chevron, ConocoPhillips, and ExxonMobil's oil discharge response plans in the Gulf of Mexico also listed those poor walruses as potential victims of a spill."

"The US government must have been worried about those walruses, too, since those in government accountable for reviewing and approving the oil companies' response plans didn't say a word about them."

The oil companies had actually outsourced the writing of their oil response plans to a consulting group. Either the organisations did not read the plans or they read them but did not pick up the errors. The latter may be more worrying because it suggest oil companies and the government lack the competence to manage risk.

"It is pretty clear that oil spill risk management wasn't taken seriously at all by BP, or by most of the other major oil companies drilling in the Gulf. In congressional hearings, oil industry officials admitted that the industry is poorly equipped to handle oil spills of any size in the Gulf, and that is why the industry tries to prevent spills from happening. The industry also viewed its oil-well blowout preventers as foolproof safety mechanisms, even though they fail regularly. However, the industry officials also admitted that less than 0.1% of corporate profits are spent on improving offshore drilling technologies, even as the risks of drilling offshore have increased significantly over the past decade."

The author suggests that in the future, whenever risk management is incompetently performed, done just to meet some requirement, isn't taken seriously, or is plain lackadaisical, it should be described by the phrase, "Jumping the Walrus."