Root Causes of the Disaster Involving Leadership

Can you please write a one page memo from the information below as if you were writing to the CEO?

Memo

Root Causes of the Disaster Involving Leadership
Much of the poor decision making and hiccups leading up to the disaster were a product of poor leadership. We’ve identified three root causes that could have contributed to the development of this massive failure. First, when you became CEO of BP, you stated that you wanted to “focus like a laser on safety issues,” yet your actions and decisions said otherwise. Second, your performance targets and compensation based pay created a hostile situation for all employees involved. Lastly, since the project was highly matrixed with so many players involved, communication and mutual trust were major failures.
To change the culture of the company, you must actively demonstrate that you believe in and operate by the values that you are portraying. When you joined BP, your goal was to halt growth and production targets and focus heavily on safety. Despite stating this, you spoke publicly about your desire to transform the culture of BP to be less risk averse. These statements display clear contradiction. To have strong organizational safety principles means to actively pursue the least hazardous process of completing a task or project. Reducing risk aversion could mean allowing for more volatile processes, perhaps because they come at a lower cost. If you were serious about creating and sustaining a culture revolving around safety, you would have encouraged employees to document the company’s best practice processes and continuously try to improve safety and efficiency of these processes. Also, BP’s “Group Values” clearly lacked emphasis on safety, given that only one of 18 of these values encompassed health and safety. Further, your “Brand Values” had no mention of safety. New employees who are reading these documents to get an idea of the culture and values of the company are not going to feel an emphasis on working safely.
To continue, paying on-site employees commission based on performance seems counterintuitive at such a high-risk job. Commission based employees have little incentive to share best practices on risk management because they want to retain their high value and mitigate their risk of being replaced. In turn, safety suffers because employees are not sharing insight, there is no organizational knowledge gained, and best practices are not documented or improved upon. Also, since compensation was tied to overall performance of the site, managers had incentive to try to reduce cost, likely settling for higher risk options (for instance in the case of the centralizers). Again, paying these employees based on performance clearly contradicts your statement of focusing on safety. Employees won’t be encouraged to focus on safety if they don’t see it directly impacting the project’s bottom line.
Lastly, given the highly matrixed environment due to the amount of companies and employees involved, effective communication and mutual trust were essential. These were two failures that could have contributed to the Deepwater Horizon disaster. For instance, the decision to stick with six centralizers was a clear breakdown of communication. Halliburton’s model testing revealed that 21 centralizers would significantly lower the risk of failure. BP’s confirmation bias lead them to conclude that the test was inherently flawed, and hesitated purchasing any more centralizers due to the cost and schedule impact. After finally being convinced to purchase more centralizers to reduce risk, BP purchased lower cost, high risk “slip-on” centralizers, which were not used anyway. If there was clear communication and a mutual trust in the partnership between BP and Halliburton, BP would have took the precaution based on the model testing, and potentially averted the crisis. The cancellation of the cement bond log is another example of the lack of trust. Despite Gagliano’s warnings of potential channeling, BP went on without the cement bond log (a test that was even more necessary given that you chose to only employ 6 centralizers). BP chose to ignore the advice of a key player in the project to save a few thousand dollars.
To summarize, three potential root causes of the failure involving leadership include failure to align goals of safety with actions and decisions, paying employees based on performance, and breakdown of communication and trust between key players. Rather than focusing on cutting costs and improving the bottom line, BP should have been getting clear on these three failures.
BP’s Liability for the Disaster
According to the facts presented in the case, if we were judges, we would say BP is 75% liable for the Deepwater Horizon Disaster. There were three major decisions, all made by BP, that contributed to the tragedy. The first decision was determining what well casing to use to secure the well hole safely. The second choice made by BP was only to use six centralizers rather than the 21 centralizers that was recommended by the OptiCem model. The third decision made by the BP managers was not to run the test called “cement bond log.” All three of these significant decisions made by BP can be traced back to one single theme, trying to reduce capital expenditures and earn profits in any way possible, even if it increases risk and jeopardizes safety.
The first decision was to choose between a steel tube called a “liner” or a “long string casing” to secure the well hole. The liner is a steel tube that hangs from a liner hanger on the bottom of the casing already in the well, and then the workers insert another steel liner tube called a “tieback” on top of the liner hanger. The “liner” provides four barriers of protection but takes longer to install. The “long string casing” involves running a single string of steel casing from the seafloor all the way to the bottom of the well. This choice only provides two barriers of protection and is quicker to install. By choosing the “long string casing,” it saved BP time and money (over $7 million). However, BP knew about the possible risks using the string casing but decided it was the best economical choice for the company. The decision was influenced by BP trying to reduce capital expenses in any way possible.
The second decision made by BP was to use only six centralizers rather than 21. Centralizers help keep the pipe centered and assists with the proper gas flow. The OptiCem model was used to help determine how many centralizers were recommended to use to reduce gas flow. BP planned to use only six, but the model concluded that the risk for gas flow problems was quite significant and 21 centralizers should be used. However, BP’s engineer department ignored the possible dangers of just using six centralizers. They felt it would be a waste of time to acquire more centralizers and decided only to use six. BP once again neglected safety and risks to reduce capital expenses.
The most neglectful decision made by BP was not to run a test called “cement bond log.” The “cement bond log” checks the integrity of the cement after it is pumped into the well. “A 2007 study by the MMS found that cementing was the single most significant factor in 18 of 39 well blowouts in the Gulf of Mexico over a 14-year period.” BP had workers from a company called Schlumberger on the rig ready to perform the test. If BP decided to run the test, it would have cost them around $181,000, but BP chose not to run the test even with warnings of potential channeling. By not running the test, it saved BP about $117,000 and about six to 12 hours of labor. BP’s decision focused on cost-saving rather than the possible risks of not running the test.
All three of these critical decisions that were made by BP had one thing in common, ignoring possible risks to reduce costs. BP deliberately ignored multiple warnings and cautions that were given to them throughout the process of closing down the well. The inexperienced decision makers were making the wrong decisions. Five out of the 12 supervisors in charge of the operations and engineering had a total of approximately ten months experience between them. The inexperience leads to inaccurate forecasting and bad planning. BP estimated that the well would only take 51 days and cost roughly $96 million. On the day of the disaster, it was on day number 80 and $55 million over the planned budget. The outcome of incorrect forecasting and failed planning resulted in BP reducing their capital expenses by being negligent and careless of the risks and safety of their employees and other companies on the rig.
The other 25% liability of the disaster would fall under Transocean and Halliburton. Both of these companies were on the rig and were involved in some of the decisions that were made. Transocean owned the oil rig, and their employees performed most of the work. They could have stopped working on the rig and made sure that BP was following all proper procedures and recommendations. Halliburton was a cementing contractor that was hired to run model simulations and cement lab tests. Halliburton was the company that insisted BP on using 21 centralizers. However, Halliburton knew that BP decided only to use six and no one tried to postpone or put a stop work order on the cement job.
Bad Leadership
An example of bad leadership in the case of the Deepwater Horizon oil rig was that of the drilling engineers. The simulation model OptiCem concluded that by only using six centralizers as planned, the risk for gas flow problems would be quite significant. The model concluded that at least 21 centralizers would be needed to significantly lower this risk. One engineer, Brian Morel, replied to these concerns with the following email:
“We have six centralizers, we can run them in a row, spread out, or any combinations of
the two. It’s a vertical hole so hopefully the pipe stays centralized due to gravity. As far as changes, it’s too late to get any more product to the rig, our only options is to rearrange placement of these centralizers.”
A glaring concern within this email is “it’s a vertical hole so hopefully the pipe stays centralized due to gravity.” Not only does Morel believe that additional centralizers are unnecessary, he also believes that the pipe will be able to stabilize itself, despite contradicting reports from the OptiCem model. The other drilling engineer, Brett Cocales, further reiterated his lack of concern by emailing him back:
“Even if the hole is perfectly straight, a straight piece of pipe even in tension will not
seek perfect center of the hole unless it has something to centralize it.
But, who cares, it’s done, end of story, will probably be fine and we’ll get a good cement job. I would rather have to squeeze than get stuck above the WH.”
Both of these men had the knowledge and experience to know that they should have trusted the model and the results it produced. Cocales even knew that the pipe would not be able to straighten itself alone with gravity and would need something to centralize it. With the combined expertise of these drilling engineers, all 21 centralizers should have been in place to help reduce the severe risk of gas flow problems. Instead, they chose to save time and money rather than improve upon the safety of the rig and all the employees working on it.
The origin and development of this type of gross negligence is simple: a long history of cost cutting measures within British Petroleum. As a newly private company in the late 80s and early 90s, BP was nearing bankruptcy. As a result, the company took dramatic measures to cut costs. These techniques proved to be successful, and BP started to improve. The CEO who took control of BP in May 2007, Tony Hayward, further cut costs by reducing headcount in both managerial and lower staff positions. Furthermore, four levels of management were cut. Hayward also desired to transform the culture of BP to one that was less risk averse. “He believed that too many people were making too many decisions leading to extreme cautiousness. ‘Assurance is killing us,’ he told U.S. staff in September of 2007.” Cost cutting measures had proven to be successful in the past, and the new CEO of BP was set on taking it even further than the company had before.
The Deepwater Horizon rig was estimated to require more than 3,600 hours of maintenance and cost BP $500,000 per day to lease from Transocean. Contractor fees were roughly the same amount. It would take approximately 51 days to drill the Macondo well at a cost of about $96 million. By its 80th day on site, the rig had far exceeded the original budget. The rig also faced numerous software issues that would need to be fixed, further straining the budget. Following the decades-long tradition of slashing costs, BP management on the rig used shortcuts to complete jobs. For instance, the task of circulating mud through the well should have taken them around 6-12 hours and was completed in under 30 minutes. Tasks were done quickly and improperly in order to avoid the mounting costs of labor and material. If given options, the one that would require less time would be chosen over the safest option. Thus, leadership and leaders followed the company’s history of cost cutting tactics.
A huge shift in culture would need to take place in order to actually correct the problems at BP, which run through and thrive in each level of management within the company. If I was an employee at BP during the Macondo well and Deepwater Horizon project, I would continuously raise my concerns for the shortcuts and harmful safety tactics that were occuring. As noted in the article, experts who brought forth their options and raised concerns for pipe stability and safety were overruled or told that their models were likely inaccurate. If I would continuously ignored by management, I would no longer be able to work for a company that valued cost-reduction and expediency over caution and the safety of their employees. I would likely report BP to the Bureau of Ocean Energy Management, Regulation, and Enforcement, and bring forth data and evidence that would substantiate my claims against BP. Hopefully by bringing attention to the shortcuts performed by BP, action would be taken by government agencies, which would forcefully bring these practices to an end.