Study

How Did BP’s Risk Management Lead to Failure?

We all know the damage caused so far by the explosion of BP’s Deepwater Horizon offshore oil rig in April: 11 workers killed, economic ruin across the Gulf Coast states, environmental ruin along the Gulf Coast itself. And efforts to stop the continuing undersea oil spill keep falling far short of the solution that’s desperately needed.

What went wrong? News reports have offered some insight, but early reports often contain information later proven inaccurate. Since we’re not on the inside of BP, we don’t have the benefit of accurate and complete information as to its inner workings. We can, however, use the media reports to get a sense of what happened, and learn a good deal about risk management from this horrible disaster.

Until the Deepwater Horizon went down in flames, we might have forgotten other disasters that have befallen BP. Its Texas City, Texas, refinery exploded in 2005, killing 15 workers. Its pipeline on Alaska’s North Slope ruptured in 2006, spilling 200,000 gallons of crude oil. Going back to 2003, a BP platform in the North Sea endured a violent release of pressured gas; the station avoided an explosion only by sheer luck, and BP later admitted to breaking safety laws by failing to guard against corrosion of the ruptured pipe.

Safety violations are numerous, including more than 700 at the Texas City refinery alone. Many relate to critical temperature and pressure valves, and BP’s Toledo, Ohio refinery has been cited for “willful” safety violations. Regulators have cited the company for “serious safety and production incidents” over the last two years in Prudhoe Bay, the nation’s largest oil field, and they are now investigating allegations of safety violations at the Atlantis, one of BP’s newest offshore drilling platforms in the Gulf of Mexico.

When CEO Tony Hayward took over in 2007, he admitted, “Our operations failed to meet our own standards and the requirements of the law,” and he pledged to...