British Petroleum Strategic Risk Management

The A-Team | Jordan | Henry | Anson | Jessica | Emma | Lillian | Nicole

Agenda
What is a strategic risk?
What are the four categories of risks?
What risks were involved with British
Petroleum?
How are theses risks classified?
How did they impact British Petroleums
reputation?
What is strategic risk?
Introduction Four Risks Case Study Assessment Impact
Strategic risk is an unexpected event or set of conditions that
significantly reduces the ability of managers to implement their
intended business strategy

Failure to properly address the risk will result in significant costs of:
Severely tarnished reputation resulting in losses of customer
quality

Costs of investigating and accounting for a loss

Delays or abandonment of production

There are four categories of risk which affect all businesses



What are the four risks?
Introduction Four Risks Case Study Assessment Impact
The four risks are:

1. Operations risk

2. Competitive risk

3. Asset impairment risk

4. Franchise risk
What are the four risks?
Introduction Four Risks Case Study Assessment Impact
The four risks are:

1. Operations risk

2. Competitive risk

3. Asset impairment risk

4. Franchise risk
Operations Risk
Introduction Four Risks Case Study Assessment Impact
Operations Risk:

Occurs during a breakdown of core operation,
manufacturing or processing capability
Can become a strategic risk if a core process fails.

e.g. a food manufacturing company would have an
operating risk if a machine failed but would become a
strategic risk too if a toxic substance was mixed into food
Competitive Risk
Introduction Four Risks Case Study Assessment Impact
Competitive Risk

Occurs when there is a change in the competitive
environment that adversely affects the business
ability to create value and differentiate its products.


e.g. the invention of iPods and MP3 that replaced
cassette players
What are the four risks?
Introduction Four Risks Case Study Assessment Impact
The four risks are:

1. Operations risk

2. Competitive risk

3. Asset impairment risk

4. Franchise risk
Asset Impairment Risk
Introduction Four Risks Case Study Assessment Impact
Asset Impairment Risk

Occurs when an asset is impaired, meaning losing its
ability to gain access to future economic benefits
Can become a strategic risk if it obstructs an
implementation of a strategy
Has 3 types
1. Financial Impairment
2. Impairment of intellectual property rights
3. Physical impairment

Franchise Risk
Introduction Four Risks Case Study Assessment Impact
Franchise Risk

Occurs as a consequence of the other risks explained
before
Occurs when the a problem obstructs the viability of
the entire enterprise
It can cause customers to lose confidence in the
company as a whole and therefore not buy any of
their products

Case Study
Introduction Four Risks Case Study Assessment Impact
Blood, Oil, Money

British Petroleums 2010 Oil Spill
What risks affected BP?
Introduction Four Risks Case Study Assessment Impact
1. Natural hazards

2. Human fallibilities

3. Poor maintenance of equipment

4. Internal risk management
What categorises are these risk?
Introduction Four Risks Case Study Assessment Impact
1. Natural hazards

2. Human fallibilities

3. Poor maintenance of equipment

4. Internal risk management
Natural Hazards
Introduction Four Risks Case Study Assessment Impact
Deepwater Horizon was drilling in a dangerously high
pressure zone relative to the norm

These conditions contributed to a much more difficult
environment to drill in

This is an OPERATION risk
Human fallibilities
Management was overlooking the complaints from
workers concerning some of the equipment which
were faulty and indicating unsafe behaviours

This is OPERATION risk
Introduction Four Risks Case Study Assessment Impact
What risks affected BP?
1. Natural hazards

2. Human fallibilities

3. Poor maintenance of equipment

4. Internal risk management
Introduction Four Risks Case Study Assessment Impact
Poor maintenance of equipment
The units that were being used at Deepwater Horizon
had not been fully inspected since the completion of
the rig in 2000

The blowout preventer was leaking hydraulic fluids
and had a dead battery. One of its control parts were
also not functioning

This is OPERATION risk
Introduction Four Risks Case Study Assessment Impact
Internal risk management
Opted for a cheaper well design, with fewer barriers
between the reservoir and the rig

Disregarded the advice of its subcontractor,
Halliburton, which advised that the well needed more
parts to keep the central pipe steady and ensure a
good cement job

This is OPERATION risk
Introduction Four Risks Case Study Assessment Impact
How did this impact BPs reputation?
Their desire for profit over safety led to bad
reputation

They got banned from drilling from the gulf
indefinitely

Criticism of BPs lack of non-financial regard
Incapable of human emotion
Introduction Four Risks Case Study Assessment Impact