Free «Deepwater Horizon Gulf of Mexico Oil Spill of 2010» UK Essay Paper
A risk can be defined as the possibility that harm, loss, and injury may occur to a person or organizational investment. It involves future uncertainty that the expected outcome may lead to a deviation (Sadgrove, 2005). The outcome in most of the cases is uncontrollable. An occurrence of risk in an organization can cause loss and in some cases harm. Risks may arise from different sources including financial instability, strategic management, and natural disasters. Some of the common risks include liquidity risks and insurance risk among others. Risks can be aggravated by external and internal factors.
Because of various risks that may occur in a business organization, risk management is important. Risk management can be defined as the process of identifying a risk, determining the level of harm a risk can cause and determining the means and ways that will help eradicate or minimize risk and financial losses in future. A risk management strategy is aimed to look into ways of managing the uncertainties which include risk avoidance, risk transfer and reduction of the negative effects of risks. Any business organization should have a risk management plan to avoid huge losses that may be incurred. The current paper will analyze risk management strategies that can be used to reduce the negative impact of the Deepwater Horizon Gulf of Mexico oil spill which occurred in the year 2010.
The Deepwater Horizon explosion and oil spill incident took place in April 2010 in the Gulf of Mexico. The explosion occurred after natural gas blasted through the concrete which had been installed to seal the well for later use. The cores being too weak to withstand the pressure fractured, releasing the natural gas that reached the platform. The gas ignited, having killed eleven people and leaving seventeen people injured (Yin, Hayworth, & Clement, 2015). This caused the rig to capsize and sink, causing the oil to leak freely and spill into the Mexican Gulf. The volume of oil was estimated to be 1000 barrels per day. The oil gusher is said to have flown for 87 days. The total number of barrels that leaked to the Gulf was estimated to be 4,900, 000 barrels of oil while the number of barrels recovered was 800,000 barrels.
Enterprise risk management is a framework that allows management to deal with uncertainty and associated risk and enhances the building of values. It is a systematically organized process employed to identify, analyze and respond to a risk (Karkoszka, 2014). The Enterprise Risk Management is meant to provide reasonable guarantees concerning the achievement of the company's objectives.
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The Enterprise risk management framework that drives the company to attain its objectives is divided into four categories, namely strategic, operations, reporting, and compliance. In case of strategic objectives, there are high-level goals which are aligned with the mission of the enterprise. Operations entail the efficient use of resources while reporting ensures the reliability of reporting different cases that may arise within an institution. Compliance is meant to define the compliance with the laws and regulations in relation to decision making. The ISO3100 Strategic Risk Management Framework provides information on the successful implementation of risk management. The given approach will enable the risk management initiative to deliver output such as compliance with the set rules and requirements, assurance of the stakeholders regarding risk management and improved decision making.
The ISO standard contains principles, framework, and processes that are used in effective risk management. The principles establish values and philosophy of the processes. According to the ISO3100 Strategic Risk Management Framework, the risk management plan should be strategic. A strategic risk management plan could have helped the BP to establish high-level goals. The goals could be aligned with supporting their mission and ensuring a high level of safety measures. A good strategy could have identified the potential risks and defined how the risks would have been managed or their effect mitigated.
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The management plan would have ensured the compliance with the applicable laws and regulations which are a standard for every oil exploration company. This includes government regulations and their safety and loss control standards as defined by the management. This would have helped to focus on the most severe loss which is likely to occur rather than concentrating on other insignificant frequent losses.
Entity objective such as reporting and effective communication according to the ISO3100 Strategic Risk Management Framework could have helped to avoid the oil spill. Communication between different stakeholders ensures that different views expressed by the stakeholders are put into consideration when decisions are made. This would ensure that the risk management process is based on the best available information. This was not observed in the BP's case. Halliburton, the constructor had recommended the use of a liner instead of the long string casing. The recommendation was associated with potential problems related to the cement. BP through their internal design team did their modeling of the cement and arrived at the opposite conclusion. This shows that the views of the different stakeholders were not considered in the process of decision making. The BP's main aim and focus were saving the cost incurred and speed of the production without considering the long-term risks that could cause massive losses.
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The ISO3100 Strategic Risk Management Framework also offers the processes that can be used in risk management. The defined processes are risk identification, risk analysis, risk assessment and evaluation, risk mitigation, and risk monitoring. Risk identification involves understanding the source of the risk, identifying the areas that the risk will affect, different events performed and the overall potential consequences that each event could cause.
In risk analysis, the company could have identified and detected the potential risks that could have affected processes and operations including general sources of the risks, consequences and the probability of those risks occurring (Chavas, 2004). Reflection of the existing controls to the risks could also have been done to ensure that effective measures are put in place to curb these risks. BP could have analyzed the technical risks such as pore pressure gas "kicks" and the probability of the rig busting. Furthermore, the analysis of the cement lab tests and the negative pressure test that was recorded are the major risks that could have been given attention by the BP's management. The analysis could have involved the problems with the MMS regulator who gave speedy approvals and avoided certain regulations.
After analyzing the risk, risk evaluation could have been conducted whereby a review of the analysis would be done. The analysis would deal with the criteria and tolerance of risks. The best risk management methods would have been chosen and prioritized. Risk evaluation would have helped the company to make the appropriate decision on risk management. Assessment of the risk is also an important part of the risk management process, as it defines what additional measures need to be implemented. This is usually done by engaging all stakeholders through communication and consultation. The risk management process will only be successful if consultation and communication between the different stakeholders are ensured. Risk monitoring and review would then be carried out. Risk monitoring would have ensured continuous monitoring and keeping track of the existing and new risks. This could have involved the containment and clean up allocating the needed resources of personnel and equipment. This would then need a continuous update of risk management processes and safety policies in BP as an organization.
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The impact of the Deepwater Horizon was devastating. It led to the death of 11 crew members who were working in the plant and caused injuries of another 17 members. Environmental damage due to the oil spill was also extensive. Oil was found on the shore of the five Gulf States such as Alabama, Florida, Louisiana, Mississippi and Texas. This led to the death of numerous birds, fish and reptiles. Given that the spill occurred during the breeding season of pelicans, alligators, and other Gulf Coast species, there was certain likelihood that the entire generation of these species could have been lost if the level of contamination with oil would become higher (Hsing et al., 2013).
The sinking of the Deepwater Horizon led to a great economic loss. Transocean and Lloyds recorded an anticipated loss of 560 dollars. BP faced a heavy fine after a court order was issued for the payment of fines due to their negligence. The Deepwater Horizon disaster affected not only BP but also the whole oil industry. This was after a moratorium was issued by Ken Salazar who at that time was the secretary of the interior. The moratorium was aimed to allow the assessment of the safety standards required for oil drilling and the creation of strategies for dealing with oil spill disasters in case they occur. This resulted in a decline of employment opportunities.
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Based on the Deepwater Horizon incident, it is recommended that companies provide stronger initiatives to invest in risk reduction and spill containment technologies. This will ensure that financial requirements are specified and allocated to different responsibilities. The third party insurance is important, because it will increase safety monitoring and ensure that safety audits are continuous. The oversight institutions involved in offshore drilling should be strengthened. The institution will offer a third party review on safety and risk management. They will also perform an independent review of response containment plans.
In conclusion, it is very important for any business organization to ensure a consistent review of risks and guarantee that their risk management plan allows continuous review of their risk management strategy. This can be attained through continuous communication among stakeholders, which will result in good decision making.
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