(Published in Business Mirror under Mirror Image column, June 23, 2010)
Sixty thousand barrels of oil a day, according to US government estimates, are being spilled into the ocean as a result of the Gulf of Mexico oil leak, which started in April. According to senior officials, this is the worst environmental disaster the US has ever faced, and there is no end in sight until relief wells come into operation, probably in August.
British Petroleum, which operates the leaking oil well, said the disaster has already cost it $2 billion. The number of claimants, standing at 64,000, is still growing as the oil continues to spew from the broken wellhead. The damage to the environment will entail huge amounts to repair.
In the investigation of the US House of Representatives, BP’s CEO was accused of being oblivious to the risks of his company’s deep-water operations; he said he was “deeply sorry” for the catastrophic Gulf coast oil spill.
A closer look at the root cause reveals a combination of misjudgment and faulty facilities. A BBC report said a rig worker claimed a leak was found even weeks before the accident in one of two control pods directing the flow of hydraulic fluid. Both BP and the operator of the rig were informed, he said.
As the report went, instead of shutting down the entire rig to carry out the necessary repairs, BP just closed the defective unit. This meant it was relied entirely on the other control pod to cope with the problem, which at the time some workers were already describing as “a nightmare well”.
Was the BP CEO utterly unmindful of the risks associated with deep-water operations? Wasn’t he in control of the situation and unable to assess the uncertainties? Were the rig workers and supervisors oblivious of the imminent disaster but just shrugged it off as something under control?
Accidents like oil spills during production are mainly due to human mistakes, as well as equipment failure. Human errors happen when one ignores uncertainty and assumes predictability. It’s always tempting for decision-makers to just believe that their own ability and actions can overcome the effects of uncertainties.
When making decisions, it is supremely important to take full account of uncertainty. One model, put forward by Makridakis, Hogart and Gaba in their book Dance with Chance, is to use the three A’s—first Accept, second Assess, and third Augment the uncertainty of the situation.
Accepting that uncertainties are beyond one’s control is the first step. This entails not sitting back and waiting, but taking a realistic view of uncertainties, but a concerned view that accidents are not within our control.
It’s surprising that despite numerous oil spills and accidents in the past, executives of oil firms still take the relaxed view that everything is under control.
This brings the need to assess the situation—understanding the information at hand. This means assessing what relevant information is needed to make a decision and understanding the potential impact of that decision.
Instead of shutting down the entire rig to carry out the necessary repairs, BP just closed the defective control pod, which meant relying completely on another defective control pod. This decision failed to assess the potential dangers of continuing operations with a defective control pod.
Last is to augment. It’s unfortunate that many people fail to augment and end up having to deal with surprising consequences. Augmenting is the most important step in dealing with uncertainties as this entails actions that mitigate risks through disaster planning and preparedness.
Equipment and facilities enhancements and modifications, and advancement in new technology will be needed to minimize the risk of such deep-water oil leaks. Building a culture of tighter safety might have prevented the disaster. Tighter regulations, as well, are needed to augment the safety measures of oil companies.
It seems that BP executives failed to augment the uncertainties they’re facing, and instead continued to operate on defective facilities. This is how disasters happen.
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“Mirror Image” is a rotating column featuring writers from the DLSU Professional Schools Inc.
Reynaldo C. Lugtu Jr. teaches management and marketing courses in the MBA Program of De La Salle University Graduate School of Business. He may be e-mailed at rlugtu2002@yahoo.com, or visit his blog at http://rlugtu.blogspot.com.
Sixty thousand barrels of oil a day, according to US government estimates, are being spilled into the ocean as a result of the Gulf of Mexico oil leak, which started in April. According to senior officials, this is the worst environmental disaster the US has ever faced, and there is no end in sight until relief wells come into operation, probably in August.
British Petroleum, which operates the leaking oil well, said the disaster has already cost it $2 billion. The number of claimants, standing at 64,000, is still growing as the oil continues to spew from the broken wellhead. The damage to the environment will entail huge amounts to repair.
In the investigation of the US House of Representatives, BP’s CEO was accused of being oblivious to the risks of his company’s deep-water operations; he said he was “deeply sorry” for the catastrophic Gulf coast oil spill.
A closer look at the root cause reveals a combination of misjudgment and faulty facilities. A BBC report said a rig worker claimed a leak was found even weeks before the accident in one of two control pods directing the flow of hydraulic fluid. Both BP and the operator of the rig were informed, he said.
As the report went, instead of shutting down the entire rig to carry out the necessary repairs, BP just closed the defective unit. This meant it was relied entirely on the other control pod to cope with the problem, which at the time some workers were already describing as “a nightmare well”.
Was the BP CEO utterly unmindful of the risks associated with deep-water operations? Wasn’t he in control of the situation and unable to assess the uncertainties? Were the rig workers and supervisors oblivious of the imminent disaster but just shrugged it off as something under control?
Accidents like oil spills during production are mainly due to human mistakes, as well as equipment failure. Human errors happen when one ignores uncertainty and assumes predictability. It’s always tempting for decision-makers to just believe that their own ability and actions can overcome the effects of uncertainties.
When making decisions, it is supremely important to take full account of uncertainty. One model, put forward by Makridakis, Hogart and Gaba in their book Dance with Chance, is to use the three A’s—first Accept, second Assess, and third Augment the uncertainty of the situation.
Accepting that uncertainties are beyond one’s control is the first step. This entails not sitting back and waiting, but taking a realistic view of uncertainties, but a concerned view that accidents are not within our control.
It’s surprising that despite numerous oil spills and accidents in the past, executives of oil firms still take the relaxed view that everything is under control.
This brings the need to assess the situation—understanding the information at hand. This means assessing what relevant information is needed to make a decision and understanding the potential impact of that decision.
Instead of shutting down the entire rig to carry out the necessary repairs, BP just closed the defective control pod, which meant relying completely on another defective control pod. This decision failed to assess the potential dangers of continuing operations with a defective control pod.
Last is to augment. It’s unfortunate that many people fail to augment and end up having to deal with surprising consequences. Augmenting is the most important step in dealing with uncertainties as this entails actions that mitigate risks through disaster planning and preparedness.
Equipment and facilities enhancements and modifications, and advancement in new technology will be needed to minimize the risk of such deep-water oil leaks. Building a culture of tighter safety might have prevented the disaster. Tighter regulations, as well, are needed to augment the safety measures of oil companies.
It seems that BP executives failed to augment the uncertainties they’re facing, and instead continued to operate on defective facilities. This is how disasters happen.
---------------------------
“Mirror Image” is a rotating column featuring writers from the DLSU Professional Schools Inc.
Reynaldo C. Lugtu Jr. teaches management and marketing courses in the MBA Program of De La Salle University Graduate School of Business. He may be e-mailed at rlugtu2002@yahoo.com, or visit his blog at http://rlugtu.blogspot.com.
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