Effects of Risk Management on Product and Service Quality in Oil and Gas Industry

Abstract

The oil and gas industry faces risks at the strategic, compliance and operational levels. More so than many other industries, despite the risk management that takes place, workers at almost all major oil and gas companies lose their lives each year. Whilst traditional risk management in the industry has focused on the quantitative, statistical aspects of managing injury and death rates, reputational risk and more subjective, qualitative aspects of risk have become important. This dissertation focused on reputational risk not only because of its importance, but also because it is central to the perceptions of product and service quality held by stakeholders. On this basis, the dissertation examined the effect of risk management on product and service quality in the oil and gas industry, focusing on the reputational risks of British Petroleum (BP). It asked two questions: How does risk management affect reputational risk and resultantly product and service quality in the oil and gas industry? How do integrated energy companies manage such reputational risks? Drawing on the framework by Eccles et al. (2007), the study illustrated the interconnection between the three determinants of reputational risk: the reputation-reality gap, changing beliefs and expectations, and internal coordination. In the case of BP, the promotion of a green agenda increased the companies reputation-reality gap, which led to considerable reputational damage when a number of serious accidents made it unable to maintain such a perception of product and service quality amongst its stakeholders. The dissertation highlighted how BP needed to improve its internal coordination and adjust its enterprise risk management approach, which was underpinned by a risk-taking culture, to one that was more risk-aware and risk-averse.

Chapter One – Introduction

1.1 Background

The oil and gas industry, typically referred to as the integrated energy industry, is vital to global...