Risk Blindness at BP

In the pursuit of profit, sometimes a company becomes blind to risk.  This is most evident in the latest debacle of British Petroleum ("BP") with the oil spill in the Gulf of Mexico. While their recent offshore deepwater drilling posed great environmental risk, BP experienced the results of poor risk management onshore as well.  According to the New York Times, BP's current CEO faced similar challenges in 2007.  Here is what happened back then:

In 2007, when Mr. Hayward first took over as chief executive, BP settled a series of criminal charges, including some related to the explosion of BP's Texas City, Tex., refinery, and agreed to pay $370 million in fines. Admitting that the company's operations had failed to meet its own safety standards and requirements of the law, Mr. Hayward pledged to improve BP's risk management. Following the Deepwater Horizon explosion, Mr. Hayward conceded that the company had problems when he took over in 2007. But he said he had instituted broad changes to improve safety, including setting up a common management system with precise safety rules and training for all facilities.

Some analysts say the safety problems indicate that BP has not yet reined in the culture of risk that prevailed under Mr. Hayward's predecessor, who transformed BP from a sleepy British oil producer into one of the world's top explorers through the acquisitions of Amoco and Atlantic Richfield.

A strong culture dedicated to risk management is essential for companies who are looking to succeed in the long run. BP's current crisis is a prime example of the perils of ignoring the importance of strong risk management practices.