PonderThis: Which Risk Are We Managing?

Risk Management is supposed to be about insulating your business from the conditions and occurrences that could threaten continuing operations.  I can imagine that drilling for oil in deep oceans is a serious risk management challenge- since the impact of a system failure is so high.

So the question I have is? “Which risk were the managers at BP managing?”  Given what we know about the economic pressure on the rig and the likely bets placed on questionable operational safeguards, it is a good bet that BP was managing the risk of getting by- rather than the risk of actual breakdown.

It’s easy to point fingers here, but businesses make that bet all the time.  It is always a balance of practicality and profit.  In short, leaders make bets based on the likelihood of an event vs. the consequence of its actual occurrence.  That makes it easy to take a position that a high unlikelihood trumps caution in the decision, especially in the face of strong economic and cultural pressure to go forward.

But sometimes the consequences are so high that they simply trump any attempt to balance against even the remotest chance of actual failure.  In the case of BP’s operations in the gulf, the test of leadership is not one of balancing risk, but one of integrity and courage.  Bravado and economic pressure likely led to decisions to push forward when courageous integrity would have meant saying “no”.  What would have happened if the rig manager had made a different decision?  Would he have been backed up or backed into a corner?  Would the career impact been to see his courage lauded or a lateral arabesque into an out of the way staff job in favor of someone with higher levels of testosterone poisoning?

Now we are hearing all the other oil companies decry BP’s decisions and brag about their culture of safety.  But cultures are reinforced by rewards, both formal and informal.  My bet is that while the companies’ values statements may say safety first and protect the environment at all costs, the economics down the line invariably favor the machismo of drill baby drill- get the oil out of the ground.

And after all who can blame them?  Aren’t we the ones with the unquenchable thirst for oil and stock dividends from the companies that get it?

So what risk are we all really managing here: the actual risk of a catastrophe or the risk of getting caught taking chances?

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