British Petroleum and epic failure

June 9, 2010

The Deepwater Horizon cataclysm has received the type of “flood the zone” coverage that would mortally damage any brand, but especially the brand of an oil company that had invested heavily in marketing itself as a green company.  (You Know You’re in Trouble When… an online competition to revise your logo emerges spontaneously.)

Even after discounting for the degree of difficulty involved in deep water drilling, and knowing that accidents – even terrible accidents – will happen, we remain flabbergasted that a major corporation could be so woefully unprepared for the worst-case scenario.

From the saturation coverage we found two articles worth highlighting that offer salient advice to the leaders of our own portfolio companies and all entrepreneurs regarding risk management and the dangers of success.

Professor Michael Roberto, author of Know What You Don’t Know, offers seven potential causes of the Deepwater Horizon disaster based on his research into catastrophic failures.  (You can find his book in the  Library at St. Pete.)  Two of them speak directly to (not) preparing for worst-case scenarios:

  • Organizations often overestimate how well the human and system redundancies they have in place will protect them from catastrophe.
  • People often underestimate the probability of what they perceive to be extremely low probability events.

Robert J. Samuelson echoes Professor Roberto in Duped by Success, from the June 7 Washington Post:

The post-crisis investigations will presumably fill out the story. [The precise details of the cause(s) of the failure. – ed]  But they may miss the larger question of why.

No one has yet suggested that the blowout reflected a previously unknown geological phenomenon — something in the oil formation — or a quirk of technology that no one could have anticipated. Perhaps studies will reveal one or the other. But the prevailing assumption is that this accident was preventable, meaning that human error was responsible.  There’s a cycle to our calamities or, at any rate, some of them. Success tends to breed carelessness and complacency. People take more risks because they don’t think they’re taking risks. The regulated and the regulators often react similarly because they’ve shared similar experiences. The financial crisis didn’t occur so much because regulation was absent (many major financial institutions were regulated) but because regulators didn’t grasp the dangers. They, too, were conditioned by belief in the Great Moderation and lower financial volatility.

It is human nature to celebrate success by relaxing. The challenge we face is how to acknowledge this urge without being duped by it.

On BPV’s Youtube channel:
See Professor Roberto discuss his book here, and an animation of the spill’s potential long-term effects  here.

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