RMI2302 FINAL EXAM STUDY GUIDE STUDY FOR TEST Topic 8 Overview of Risk Overview of Risk for Corporations o Lots of ways categories of looking at risk at the organization level o Why categorize Expertise risk management techniques reports to stakeholders Categories may not be mutually exclusive some risks may appear in multiple categories o Business risk Deviations in profitability Can be caused by many things prices regulation competition etc Very broad category many will define as risk caused by operational hazard financial or strategic risks o Operational Risk Focus of BP case and Analytics readings Potential losses from internal sources Fraud Manufacturing processes Mismanagement Employee mistakes o Hazard Risk o Financial Risk o Strategic Risks Very traditional risk management stuff Typically used in insurance industry to describe potential losses that only have a down side pure risks e g fire auto accident tornado earthquake etc Potential variation due to financial causes Losses due to exchange rate investment losses credit risks liquidity risks etc Potential losses variation from poor business decisions Product mix Supplier choice Financing options Many decisions fall under strategy if any of them are wrong faulty strategic risk I often lump reputational risk under strategic risk but is often a separate classification o Plenty of other categories Legal risks Liability risks IT risks Etc All have an impact on business somehow some way Topic 8 BP Putting Profits Before Safety Case Study about BP and 2 safety issues in 2005 2006 Overriding Themes of Case o Corporate Strategy o Public Relations o Corporate Culture o Workplace Safety o Process Management Two Specific Incidents o March 25 2005 Explosion at Texas City refinery leaving 15 dead and 170 injured Oil Spill at Prudhue Bay Alaska Alaskan North Slope o March 2006 o Jan 2007 CEO Browne Resigns Background Information o BP formed in 1998 Merger of British Petroleum AMOCO Top 5 Global Oil Co o British Petroleum at the time was already Over 100 years old o Browne became CEO in 1995 and emphasized Rebranding Environmentally friendly oil company Health Safety Environmental HSE performance Growth through M A Green Company Climate Change talk in 2002 Alternative Fuels Solar o Public Relations Perspective Increase in brand value Many lauded BP s approach Some critics greenwashing How can an oil company be green o Corporate Strategy Perspective Growth through M A Do more with less Cost cutting Cost conscious What effect does Corporate Strategy have on Corporate Culture Workplace Safety Process Management The First Event on March 23 2005 o Explosion Texas City Refinery 15 dead 170 injured 1 700 lawsuits Was Safety First o OSHA 21 3M fine by OSHA 300 willful violations of OSHA rules o US Chemical Safety Hazard Investigation Board CSB BP endangered workers to cut costs 23 accidents in 30 years 8 severe incidents in 10 years leading up to explosion Lack of safety leadership inadequate resources for safety independent panel to review safety we may not have broken laws but broke our values Baker report not finished until Jan 2007 o BP response The Second Event During March 2006 o Leak discovered in Prudhoe Bay Alaska Largest US oilfield Alaska North Slope 267K gallons largest spill in this oilfield Comparison Exxon Valdez approx 30M gallons Comparison Deepwater Horizon 210M gallons o Leak caused by corroded pipe BP response shut down oil fields 8 drop in US oil production 16 of 22 miles of pipe needed to be replaced Was Safety First Pipeline and Hazardous Materials Safety Administration o Claimed that BP had an ineffective leak detection system o Pipeline had several defects internal corrosion o BP used a different inspection system UT technology vs pipeline inspection gauges PIG January 12 2007 o Browne announces that he will step down as CEO in July 2007 4 days before Baker report released o Widely recognized as one of Great Britain s top businessmen o Financial Legacy M A rebranding 5X increase in profits and market cap 2 5X increase in share price The Baker Report January 16 2007 o Critical of BP s approach to process safety o Failed to give process safety the same emphasis as other initiatives including environmental and other safety initiatives o Should have paid more attention to previous incidents chemical releases fires o Refineries did not get the same importance as exploration o Decentralized management and entrepreneurial culture delegated substantial discretion to plant managers without outlining expectations regarding process safety responsibility or accountability o Communication lacking o Contract vs union workforce problems o instances of lack of operating discipline toleration of serious deviations from safe operating practices and complacency o Not restricted to BP leadership top down management system knowledge and expertise culture 10 recommendations 1 Process safety 2 Process safety 3 Process safety 4 Process safety 5 Clearly define expectations and accountability for process safety 6 Support for line management 7 8 Process safety 9 Board monitoring 10 Industry Leader Leading and lagging performance measures for process safety auditing Integrity was questioned BP Follow Up to Baker Report One year worst refinery accident worst oil spill BP Stands for bloated profits bad pipelines Failed to communicate what was important Cost safety or environment Did org structure allow it to do what is necessary 2010 Deepwater Horizon Oil Spill Cause cost cutting What can we take from this case o Overriding themes Corporate Strategy Public Relations Corporate Culture Workplace Safety Process Management Toxic gas release at Texas City refinery that lasts 40 days sold in 2013 o What about risk reward What is the upside of cost cutting Efficiency Employees that think What is the upside of having an entrepreneurial corporate culture What is the upside of decentralized management Gives managers freedom to experiment How important is reputation Very Important Said to be the most important Asset Topic 8 Risky Business How Data Analytics Can Help Big Data o We create so much data today how can organizations use it Data mining Buying trends Targeted marketing o Mitigate risky business practices employee fraud operational risk black swans Most Risk Management o Use past data to predict future risks o risk landscape is changing so fast that historic data is no longer a good predictor for tomorrow o Article is presented as a Q A Business risk
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