Oil Spill: A Study in Oversight Failure and Poor Risk Management

Today, BP is reporting that its riser insertion tube tool is now carrying about 2,000 barrels of oil a day from the leaking subsea well to a containment ship on the surface.

Finally, it seems that some progress is being made to quell this horrific disaster. (To get a sense of just how large the oil spill is now, check out this website, where you can superimpose the slick on a map of your city or state.)

As Steve Banker points out in his post last week at Logistics Viewpoints, supply chain managers often bemoan increasing regulation and overly stringent oversight. But, the oil spill in the Gulf of Mexico appears to be shaping up to be a classic case where a failure of government oversight has significantly increased supply chain risks.

Indeed, earlier today, Interior Secretary Ken Salazar conceded that the government failed to hold the oil industry accountable and ensure safety in offshore oil drilling.

Of course, it's clear that the incident is also a colossal risk management failure for BP, as well. Whether or not the entire Deepwater Horizon disaster could have been prevented remains to be seen. But, it's certainly not too early to say that BP's disaster prevention processes and contingency planning appear to have been inadequate, at best.

Yesterday's post about the disturbing trend towards situational values made the case that we and our supply chains are interconnected and perhaps most importantly, interdependent like never before. Combine lack of proper oversight with insufficient risk management and the result can be catastrophic. Based on the environmental havoc currently being unleashed along the Gulf coast, it seems that we are going to be reminded of that simple lesson for a long time to come.

TAGS: Finance
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