BP survival (AAR Deepwater Horizon) - Dec.13, 2013

After Action Review of the Deepwater Horizon

IncidentPrepared by NECB Consulting Inc.

Denisa Dobrin, Fedelia Kemembin,

Geoffrey MacLennan and Mike Burkett

MBA535 - Operations ManagementProf. Dr. Samuel Rindell

New England College of Business and Finance

Table of Contents

Introduction What happened? – Process failures Why it happened? – Case facts Business Perspectives and Metrics Balance scorecard Strategy redesign Conclusions & recommendations References

Introduction

Metrics

Why?

Methods

LeadershipManagem

ent

Goal of presentation

Analytical tools utilized

Analysis

Recommendations

Partnership with Anadarko Petroleum and MOEX USA

Planned to tap natural gas and oil beneath the sea bed

Expenses $96.2 million Estimated time of completion is 51 days Work started in October, 2009 Transocean contractor Cost and lease expense

Why it happened? - Process failures -

Negative test pressures Bladder effect problem Failure of blowout preventer

Why it happened? - Process failures -

Impact of incident

Financial

Erosion of brand reputation and public confidenceIncreased regulationsSummary of current position

What happened? - Case facts -

Business Perspectives

•Business Process Perspective•Customer Perspective•Financial Perspective•Learning/Growth perspective.

Balance scorecard - part 1 -

PerspectivesBusiness Process Perspective

Customer Perspective

Financial Perspective

Learning/Growth perspectiveMetrics

Safety

BP failed to track the progress in process safety management procedures.

Safety should come before profits.

BP fostered a culture that bypassed safety in the name of cutting costs.

Develop and monitor process safety through the proper use of leading and lagging performance indicators. Develop a safe operating culture across all levels of BP.

Accountability (Audit)

BP failed to take accountability initially, instead focusing on assigning blame to partners

Perception that BP and partners were more interested in passing off blame instead of fixing the issues.

Creates negative perception, lingering financial impact from the accident.

Develop reporting requirements for managers and executives. Weekly/monthly reporting on progress and issues.

Table 1 BP Scorecard

Perspectives Business

Process Perspective

Customer Perspective

Financial Perspective

Learning/Growth perspectiveMetrics

Managing Risk

Deepwater Horizon disaster illustrated a lack of risk anticipation. It was a significant management failure.

There was extensive damage to wildlife and plants. Ongoing economic disruption for millions of people and businesses in the affected area.

Deepwater Horizon disaster price tag will likely exceed $40 billion.

Clearly identify and assess risks of each project.Conduct periodic risk review meetings.Establish explicit risk-based cost and time reserves.

Leadership

Failure to lead efforts to ensure safety procedures were being followed throughout the organization.

Confidence shaken in executives, lack of faith in management team.

Creates negative perception, lingering financial impact from the accident.

Development and enforcement of safety procedures.Need to make safety a priority.Table 1 BP

Scorecard

Balance scorecard - part 2 -

Perspectives Business

Process Perspective

Customer Perspective

Financial Perspective

Learning/Growth perspectiveMetrics

Training/Knowledge

BP allowed partners to have inadequately trained staff work on Deepwater Horizon, leading to the accident.

Customers view organization as inept and needing to improve.

Cost savings of having inadequately trained staff now outweighed by recovery costs.

Test the staff working on critical projects to ensure proper training. Fix training flaws as they arise through testing.

Customer Service

BP focused on stating the accident was not too bad and the negative impact to BP instead of customer issues.

There was very little concern for the region given by top BP executives when the accident occurred.

Negative perception of BP’s initial handling could result in lost market share for years.

Develop customer and government feedback metrics to ensure proper communication.Public relations training and follow up.Table 1 BP

Scorecard

Balance scorecard - part 3 -

PerspectivesBusiness Process Perspective

Customer Perspective

Financial Perspective

Learning/Growth perspectiveMetrics

Compliance/Liability

BP failed to follow established regulations and processes

Perception of BP is of an unsafe non-environmentally safe company

Costs of accident far outweigh increased compliance

Establish more stringent guidelines and train all personnel on them

Financial Metrics

Cost cutting moves ended up actually costing at current time $42 billion of accident costs

Customers perceive BP as chasing profits and not caring for environment

Accident costs, reduced revenue and stock value have impacted negatively BP

Spend more money on preventative measures to reduce large expenditures due to accidents

Table 1 BP Scorecard

Balance scorecard - part 4 -

Safety Metrics and

Recommendations

• Develop and monitor process safety through the

proper use of leading and lagging performance

indicators. Develop a safe operating culture

across all levels of BP.

• Develop reporting requirements for managers

and executives.

• Weekly/monthly reporting on progress and

issues.

Accountability Metrics and Recommendations• Develop reporting requirements for managers and executives. • Weekly/monthly reporting on progress and issues.

Metrics - part 1 -

• Clearly identify and assess risks of each project.

• Conduct periodic risk review meetings.

• Establish explicit risk-based cost and time reserves.Risk Metrics

and Recommendations

• Development and enforcement of safety procedures.

• Need to make safety a priority.

Leadership Metrics and Recommendations

Metrics - part 2 -

Training Metrics and

Recommendations

• Test the staff working on critical projects to ensure proper training.

• Fix training flaws as they arise through testing.

Customer Service/Public

Relations Metrics and

Recommendations• Develop customer

and government feedback metrics to ensure proper communication.

• Public relations training and follow up.

Metrics - part 3 -

• Establish more stringent guidelines and train all personnel on them

Compliance Metrics and Recommendations

• Spend more money on preventative measures to reduce large expenditures due to accidentsFinancial

Metrics and Recommendations

Metrics - part 4 -

Transparency• Pro: Opportunity to rebuild trust• Con: Open BP open to more scrutiny • Timeframe: Immediately

Reporting Safety Metrics Quarterly• Pro: Shows Transparency• Con: Setup Costs and Resources• Timeframe: Develop Metrics within 3 months, Reporting within 6

months

Conduct rigorous risk review meetings with independent review board• Pro: Risk will be managed better• Con: Lucrative opportunities missed• Timeframe: Search for independent board immediately

Strategy redesign- part 1 -

Show Leadership with safety compliance• Pro: Develop safety as a culture from top down; Less accidents• Con: Longer project time/diminished results• Timeframe: Immediately

Develop training program for complicated projects• Pro: More knowledgeable staff• Con: Higher costs; More resources• Timeframe: 12 months to develop and implement

Adhere to government regulations• Pro: Eliminate potential fines and restrictions• Con: Likely to limit production• Timeframe: 3 to 6 months to develop plan

Increase spending for safety and compliance programs• Pro: Shows commitment to safety; better safety performance• Con: Increased costs; Restrictive in nature• Timeframe: 6 months to identify opportunities

Strategy redesign - part 2 -

Conclusions &

recommendations

 Associated Press. (2011, April 22). Gulf oil spill worsened by poor training: report. Retrieved from: http://www.cbc.ca/news/world/gulf-oil-spill-worsened-by-poor-training-report-1.1025794

BBC News. (2011, January 6). US ol spill: ‘Bad management’ led to BP disaster. Retrieved from: http://www.bbc.co.uk/news/world-us-canada-12124830

BP (n.d.) Safety. Retrieved from: http://www.bp.com/en/global/corporate/sustainability/safety/preventing-and-responding-to-accidents-and-oil-spills.html

Blackden, R. (2013, February 26). Gulf of Mexico disaster caused by ‘classic’ failure of leadership at BP. The Telegraph. Retrieved from: http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/9896230/Gulf-of-Mexico-disaster-caused-by-classic-failure-of-leadership-at-BP.html

Cleveland, C. (2013, February 22). Deepwater Horizon oil spill. Retrieved November 25, 2013, from THe Encyclopedia of Earth: http://www.eoearth.org/view/article/161185/

Eaton, C. (2013, October 13). Oil spill legal worries still haunt BP investors. Retrieved November 25, 2013, from Fuelfix: http://fuelfix.com/blog/2013/10/13/oil-spill-legal-worries-still-haunt-bp-investors/

Greater New Orleans Inc. . (2011). A Study of the Economic Impact of the Deepwater Horizon Oil Spill. New Orleans, LA: Regional Economic Alliance

Harrison, V. (2013, October 3). BP wins appeal against some Gulf claims. CNN Money. Retrieved from: http://money.cnn.com2013/10/03/news/companies/bp-court-win/

Ilacqua, C., Dr. (2012). MBA535 Operations Management, Week 4, Lecture 2 Script. Retrieved on Dec. 5th, 2013 from: https://necb.instructure.comhttps://necb.instructure.com/courses/1203530/files/43917493/download?verifier=7WIPBwes2IvUO1PmSoZJFQwj4btAxiIfvceZBPD2

References

Johnson, S. K. (2012, December 4). How an all-star team put an end to the Deepwater Horizon oil spill. Retrieved November 25, 2013, from arstechnica: http://arstechnica.com/science/2012/12/how-an-all-star-team-put-an-end-to-the-deepwater-horizon-oil-spill/

Kaplan, R.S., Mikes, A. (2011) Managing the Multiple Dimensions of Risk: Part I of a Two-Part Series. Palladium Group, Inc. Retrieved from: http://www.thepalladiumgroup.com/KnowledgeObjectRepository/KaplanOnRisk.pdf

Kroh, K. (2011). BP’s “Failure of supervision and accountability” caused the nation’s largest oil spill. Thinkprogress.org. Retrieved from: http://thinkprogress.org/climate/2011/09/15/319974/bps-failure-of-supervision-and-accountability-caused-the-nations-largest-oil-spill-2/

National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling. (2011). Deep Water; The Gulf Oil Disaster and the Future of Offshore Drilling. Washington, D.C. : National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling.

Pulsinelli, O. (2013, November 25). BP, judge trade barbs over Deepwater Horizon oil spill settlement. Retrieved November 25, 2013, from Houston Business Journal: http://www.bizjournals.com/houston/morning_call/2013/11/bp-judge-trade-barbs-over-deepwater.html

Swenson, D. (2013, February 22). Possible causes of the Deepwater Horizon explosion and BP oil spill. Retrieved November 25, 2013, from The Times-Picayune: http://www.nola.com/news/gulf-oil-spill/index.ssf/2013/02/graphic_shows_how_bps_deepwate.html

Tharoor, I. (2010, June 2). A Brief History of BP. Retrieved December 7, 2013, from TIME: http://content.time.com/time/magazine/article/0,9171,1993882,00.html

Webb, T. (2010, June 1). BP’s clumsy response to oil spill threatens to make a bad situation worse. The Guardian. Retrieved from: http://www.theguardian.com/business/2010/jun/01/bp-response-oil-spill-tony-hayward

References