Assignment 2: Risk Management Plan
Due Week 4 and worth 240 points
Note: The assignments are a series of papers that are based on the same case, which is located in the Student Center of the course shell. The assignments are dependent upon one another.
In this assignment, you will create a risk management plan. You have a budget of $100,000 and a timeline of six (6) months for the plan. Please refer to Figure A-1, Risk Management Plan Template, from Appendix A of the Hillson and Simon text to create the plan.
Write an eight to ten (8-10) page Risk Management Plan Component paper in which you:
- Prepare the Scope and Objectives of the Risk Management Process section of the Risk Management Plan based on the facts presented in the case study.
- Determine the project size, based on the facts presented in the case study, and provide justification based on Figure 3-4, Example Project Sizing Tool (Chapter 3 of the Hillson and Simon text).
- Select the risk tools and techniques, and complete the Risk Tools and Techniques section of the Risk Management Plan for both the qualitative and quantitative aspects of the project. Provide a rationale for the selection.
- Develop the Risk Reviews and Reporting section of the Risk Management Plan based on the project size previously determined.
- Define the Probability and Impacts section of the Risk Management Plan and justify the values assigned.
- Define the Risk Thresholds section of the Risk Management Plan and justify the values assigned.
Your assignment must follow these formatting requirements:
- Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
- Include a cover page containing the title of the assignment, the student?s name, the professor?s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
The specific course learning outcomes associated with this assignment are:
- Apply the concepts of risk management in a project context to develop an appropriate risk management plan as a key element of the project management process.
- Survey the project sponsor, stakeholders, team membership and key decision influencers to develop a qualitative assessment of the project risks and apply the results to further refine the project risk management plan.
- Create a schedule of project risk reviews appropriate to the organization and risk including major, minor, and post-project threats and opportunities, including archiving the results of the project risk plan is incorporated into this schedule.
- Use technology and information resources to research issues in project risk management
- Write clearly and concisely about project risk management using proper writing mechanics.
BRITISH PETROLEUM (PLC) AND JOHN BROWNE: A CULTURE OF RISK
BEYOND PETROLEUM (A)1
In April 2007, the board of British Petroleum (BP) faced a difficult decision. A month earlier,
two independent reports (the first commissioned by BP and chaired by former American
Secretary of State James Baker; the second commissioned by the U.S. Chemical Safety and
Hazard Investigation Board) were released investigating an explosion in 2005 at a refinery in
Texas City in the United States that killed 15 people and injured more than 180. After exhaustive
investigations, the reports identified a history of poorly regulated safety measures in the plant
and risk management, the blame for which seemed to focus on the firm?s group chief executive,
Lord John Browne.
After the Baker report was released, the company attempted to mitigate the damage in its 2006
Importantly, the panel did not conclude that BP intentionally withheld resources on any safetyrelated assets or projects for budgetary or cost reasons. The panel interviewed hundreds of
employees in the course of its work and observed that it had seen no information to suggest that
anyone ? from BP?s board members to its hourly paid workers ? acted in anything other than
In fact, there had been other independent reports, one in 2004 and then again three months after
the 2007 Baker report, that were less forgiving of BP?s ?culture of safety.? The 2007 report
from the U.S. Chemical Safety and Hazard Investigation Board suggested that safety in the
company?s facilities had been compromised in favour of profits, cost savings or lack of
The Texas City disaster was caused by organizational and safety deficiencies at all levels of the
BP Corporation. Warning signs of a possible disaster were present for several years, but company
officials did not intervene effectively to prevent it.3
These reports were just the most recent of many concerns hurting the reputation and performance
of the world?s second-largest super major oil company and leading to a drop in share price from
US$70.41 on January 17, 2006, to US$63.28 on January 16, 2007.4 As well, the public release
of this information had destroyed nearly US$39 billion of market capitalization since August
2006.5 (Exhibit 1 presents a comparison of the stock performance of the world?s super-major oil
companies). During this period, the price of crude oil had risen nearly 20 per cent.6
In January 12, 2007, Browne announced that he would retire from BP. This was somewhat of a
shock to the board and the investment community because his retirement date was roughly 18
months before his mandatory retirement date7, and, in the past, he had campaigned to remain in
his post past the retirement date. Others were concerned that his successor may not yet be fully
prepared to step into the top job. What was also a shock was the announcement of the over US$50 million severance package Browne was set to receive upon retiring. Many wondered
how the board could award him such a large package after such poor performance over recent
Browne had been credited with saving and taking BP to new heights and was one of the most
respected business leaders in the United Kingdom. At the same time, however, it was clear that in
recent months the firm?s performance had suffered significantly. More and more evidence
pointed to systemic problems within BP that had been allowed to grow during his tenure,
creating the culture of risk in which the BP board now found itself reducing shareholder
confidence and risking lives and the firm?s reputation. It was up to the board to decide what to do
British Petroleum plc, (BP) was founded in 1908 as the Anglo-Persian Oil Company and was
started with a single well in a remote area of Persia after nearly eight years of searching. From
this humble beginning, in less than half a century, the firm grew to be the largest in the United
Kingdom and one of the largest in the world, employing over 100,000 people in over 100
countries.8 (Exhibit 2 presents selected financial information for the year ending 2006, and
Exhibit 3 presents the biographies of the BP board, as published in the 2006 Annual Report.)
The petroleum industry, while lucrative due to insatiable global demand, was also one that
involved enormous risks. The days of cheap, easily accessed oil appeared to be over and what
remained was often located in areas that were politically and socially unstable. Huge amounts of
capital were required to find oil, refine it and then deliver it to the many end users. Risk also
stemmed from the fact that although the timing was up for debate, no one doubted that,
eventually, either through the development of new technology to replace petroleum or through a
simple lack of product, a company that was focused only oil would go out of business. To that
end, BP tried to protect itself by attempting to stave off the loss of product by spending billions
on exploration for new reserves and on the downstream technology of refining and distribution to
control the entire value chain. At the same time, BP also tried to diversify into new energy
BP?s business was divided into three segments9: oil exploration and production; oil refining and
marketing; and gas, power and renewables.
Oil Exploration and Production
In 2007, BP was actively exploring for oil in 26 countries around the world, which over the years
had provided the firm with proven reserves of 18.5 billion barrels of oil and gas equivalents
leading to daily production of roughly four million barrels per day. BP had plans to start 24 more
major projects by 2009, which would provide additional reserves of over 3.7 billion barrels with
an additional production of 850,000 barrels per day. Oil Refining and Marketing
Oil refining and marketing took the crude oil BP pumped from the ground and turned it into
various products like gasoline, kerosene and motor oil, products which were then sold to
consumers either through the firm?s own distribution network of over 25,000 gas stations or to
other sellers. Oil refining was a technically complex and highly capital-intensive activity. In
2006, BP owned outright or was part owner of 18 refineries processing the equivalent of 2.8
million barrels a day.
Petroleum could also be refined into chemicals known as acetyls that were used in numerous
consumer products. A statement from the firm indicated the acetyls? pervasiveness:
Our acetic acid can be found in jars of pickles. Our acetyls feedstock is used to make Viagra. We
invented the purified teraphthalate acid (PTA), used in both clothes and polyethylene
terephthalate (PET) bottles for water and soft drinks (and we recycle many of those bottles into
fleece pullovers). We are proud to have a world-class PTA business. We also make paraxylene
(PX), the raw material for PTA.10
Gas, Power and Renewables
As one of the leading oil producers for most of the 20th century, BP, in more recent years, had
attempted to reposition itself. The slogan ?BP: Beyond petroleum? had been coined to present
BP as a company that was preparing for a world that was past its dependence on petroleum. In
2005, BP Alternative Energy was launched to consolidate the company?s low-carbon energy
initiatives. By 2006, BP claimed to be a world leader in power generation from solar, wind and
gas-fired power plants, with plans for additional investment and research into hydrogen power
John Browne, The Lord Browne of Madingley, became chief executive officer of BP in 1995 at
the age of 45. He was knighted in 1998 and was made a life peer in the British House of Lords in
2001. By all accounts, Browne was one of the most successful CEOs in the firm?s history,
credited with turning BP into one of the largest and most successful energy companies in the
world. Browne became known for his willingness to take risks and to pursue big deals and,
under his leadership, in 1998, the acquisition of American oil company Amoco was engineered.
The deal was worth more than US$60 billion, an amount that literally doubled the firm?s sales
and reserves. In 2003, BP created a joint venture with Russian oil giant Yukos, providing the
firm with 50 per cent access to reserves of over 44 billion barrels of oil or oil equivalent and
additional production of about 1.2 million barrels a day, at a cost of US$6.8 billion and the
associated risk of operating in the Russian business environment.11 By many accounts, Browne was a well-respected business person who, while being one of the
most powerful business executives in the United Kingdom, was also very private; little was
known about his personal life. He was reputed to be a close friend of then British Prime Minister
Along with turning the firm around, Browne was credited with setting the vision for BP as one
that would focus on life beyond petroleum. That slogan meant more than merely planning to
become an energy company rather than a petroleum company; it meant BP was a firm that cared
about the environment and the safety of its employees more than it cared about oil and profits.
Blair had appointed him to the U.K.?s Sustainable Development Commission. The commission
described itself as:
The Government?s independent watchdog on sustainable development, reporting to the Prime
Minister, the First Ministers of Scotland and Wales and the First Minister and Deputy First
Minister of Northern Ireland. Through advocacy, advice and appraisal, we help put sustainable
development at the heart of Government policy.12
The firm took great pains to provide evidence of its focus on the environment and safety in
numerous reports and websites, and it undertook investments and made contributions to
environmental groups. Codes of conduct for employees covering numerous activities ?
including safety and the environment, policies on corporate governance and statements about
social responsibility ? were all crafted under Browne?s watch. The webpage on the BP
corporate website entitled ?Responsible Operations? had links to topics like ?Health and
Safety,? ?Management and Compliance,? ?Environment,? ?Compliance and Ethics? and
A CULTURE OF RISK: THE TEXAS CITY REFINERY EXPLOSION
Having been involved in the process of refining crude oil for over 70 years, the Texas City Oil
Refinery, the third largest refinery in the United States, had long since paid for its initial
investment. The facility came to be a BP asset with the 1999 acquisition of Amoco, and although
the explosion on March 23, 2005, which killed 15 people and injured more than 180, was the
worst in company history, it was by no means the first accident at the facility.
Described as ?being held together by little more than Band-Aids and superglue? by Don Parus,
the refinery?s director,13 there had been 23 fatalities in the previous 30 years. Since 2002, when
Parus took over operations at the plant, there had also been an average of one fire a week,
ranging from 50 to 80 a year.14 Parus is quoted as wondering why his staff actually came to
work: ?killing somebody every 18 months seems to be acceptable at this site . . . why would
people take the risk, based on the risk of not going home??15
In 2004, an independent Texas consulting firm called Telos Group was contracted by the Texas
City refinery director to assess the safety culture of the plant. In its report, Telos exposed numerous pieces of evidence to suggest that safety at the refinery was being compromised as
repairs or servicing were not effectively completed in attempts to save money or when workers
simply were unable to follow the safety procedures. A report in the Financial Times mentions
?broken alarms, thinned pipe, chunks of concrete falling, bolts dropping 60 feet, and staff being
overcome with fumes?16 as well as ?numerous workers at the plant complaining of pressure
not to report injuries and safety violations.?17
The Telos report suggested that although there seemed to be a willingness on the part of the
refinery?s management team to maintain a safe working environment, desire and reality may
have been two different things. Exhibit 4 provides excerpts from the Telos Report. The
consultants concluded that there seemed to be an ingrained culture of risk at the refinery, which
would require a great deal of effort to change, and that, in the past, after an accident, efforts to
make changes started out strong but faded as management?s attention drifted back to profits and
Many still too easily see a future where it all slides back to ?the way it was before the incidents,?
and so people ?pray and hope that this will not pass? . . . we were told many stories about times
that left the distinct impression that margins could beat out safety as long as they were good
enough . . . ?here we are today and they still haven?t kept promises that make our people out
there feel safe?. . . ?Soon becomes never around here? mentioned one person in the refinery,
pointing to successive postponements; starting with fixing it ?soon (meanwhile we put a clamp
on it), which then becomes next week, which becomes next month, which becomes next
turnaround, which becomes never.?18
In apparent support of this statement, a few months after the March 2005 explosion, there were
two additional explosions causing over US$ 32 million in property damage, and then, in 2006,
another worker was killed on the job.
The 2007 U.S. Chemical Safety and Hazard Investigation Board (CSHIB) report, which
examined the explosion and BP?s safety culture in general, revealed that after the 1999
acquisition of Amoco, rather than making much-needed safety improvements, BP ordered a 25
per cent cut in fixed costs at all its refineries. The report went on to condemn the firm by
The combination of cost-cutting, production pressures and failure to invest caused a progressive
deterioration of safety at the refinery. Beginning in 2002, BP commissioned a series of audits
and studies that revealed serious safety problems at the Texas City refinery, including a lack of
necessary preventative maintenance and training. These audits and studies were shared with BP
executives in London and were provided to at least one member of the executive board. BP?s
response was too little and too late. Some additional investments were made, but they did not
address the core problems in Texas City. In 2004, BP executives challenged their refineries to
cut yet another 25 per cent from their budgets for the following year.19 These comments echoed the findings of the Baker report. This report, which BP had stated was
very supportive of their safety culture, could be interpreted differently than BP?s own
interpretation. Exhibit 5 presents excerpts from the report?s Executive Summary entitled
?Corporate Safety Culture.? Clearly there were differences of opinion between the firm and the
independent observers with respect to the depth of BP?s culture of safety. Despite the difference
of opinion, since the explosion, BP had paid out about US$2 billion in terms of compensation
payouts and lawsuits.20
With Browne?s impending resignation, there was undeniable evidence of big problems
throughout the organization with regard to safety and the firm?s reputation. As a result, BP?s
lack of public credibility affected the already-stated strategy and goals of the firm. The board
knew that changes needed to take place from the top down. The obvious question: Where to
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