First, a science lesson.
We’ve heard that oil and water don’t mix. Why not?
From the Argonne National Laboratory: Water molecules have strong bonds with one another, called “hydrogen bonds.” This consists of an extraordinarily strong attraction that the hydrogens of one H2O have for oxygens of nearby H2O molecules. Oil molecules also have very strong bonds with one another, but not hydrogen bonds. Oil molecules are bonded to one another by what are called “London forces,” or sometimes”dispersion forces.” This is a little harder to explain in simple terms, but basically the large oil molecules tend to clump together because of these forces. However, an oil molecule does not hydrogen bond with a water molecule, and an oil molecule’s dispersion attraction to a water molecule is weak compared to the oil-oil attraction. So, the water stays separate from the oil, giving rise to the old chemistry saying “like dissolves like.”
Now, why the science lesson? We think about the Gulf oil spill, and if water and oil don’t mix, what’s the problem? Well, the problem is that the oil is carried by the water to sensitive shoreline ecosystems, causing significant and possibly long-lasting damage.
We blogged back on 22-May regarding Kevin Costner’s investment in Ocean Therapy – a special fleet of boats equipped with high-powered centrifuges that can very effectively separate out the oil and the water from the Gulf oil spill. We covered this in the context of responding to the threat of the spill with a workaround. Project managers have a lot to learn from the Gulf spill in terms of identifying, preparing for, responding to, and knowing the secondary and residual risks of their projects.
From today’s news we find that BP has finally decided to buy these boats and use them to help remove the oil.
We hope that this solution will provide some movement towards removing the oil from the water (as opposed to using dispersants – which have their own secondary risks). We also continue to hope, of course, that the oil leak is properly capped, and that real risk treatment- like always drilling a relief well - are used in the future. Always drilling a relief well, you ask, isn’t that expensive?
Sure it is.
But ask BP about the damage to their stock value, their image, their very survivability. Ask the residents and fisherman and others who rely on the Gulf’s fragile ecosystem. We think the P x I (Probability x Impact) equation yields a risk factor (or risk score) that is high enough to justify that type of investment. And as a project manager, keep these things in mind as you analyze risk.
Drilling turns to grilling
You see that man? That’s Tony Hayward, CEO of BP.
Does he look happy? No, he’s not happy.
Does he look comfortable? I don’t think so.
He’s being grilled by the US Congress.
One of the reasons? He – or his company – or perhaps his whole industry – doesn’t seem to understand a simple equation which most project managers know by heart.
RF = P * I
Risk Factor is the product of Probability and Impact.
In any uncertain situation, you should be able to determine how much effort is required to spend in responding to a risk (a threat in this case) by understanding the Risk Factor (some call it Risk Score).
In this case, the probability may be very, very low. But the impact is so astronomically high, that the product – the Risk Factor demands a huge risk treatment or response.
The impact in this case is a combination of very tangible things, like a $20B escrow fund, some mildly tangible things, like the health of one of the world’s most delicate ecosystems and the livelihood of hundreds of thousands of people, and the intangibles, such as the reputation of a multinational corporation which has just spent oodles (our own very technical financial word) of dollars to make their image a very green and friendly one. How’s that working out for you, BP?
So – in that equation, I think we can all agree that no matter how low “P” is, “I” is very, very, high. So the Risk Factor is going to be worth considering.
And yet.
And yet…
Just before the explosion of the Deepwater Horizon rig, BP sent home a crew from Schlumberger who was going to do a cement bond log. What is that, you ask? It’s a “representation of the integrity of the cement job, especially whether the cement is adhering solidly to the outside of the casing. The log is typically obtained from one of a variety of sonic-type tools. The newer versions, called cement evaluation logs, along with their processing software, can give detailed, 360-degree representations of the integrity of the cement job.” Seems like a good thing to do – and good assurance that your bond will hold. Right? The cost of this would have been $128,000. This is only one of five decisions being raised at what can only be called the grilling of Tony Hayward. The questions, coming from Republicans and Democrats, from oil states, and states that grow corn, all seem to be going after the companies acknowledgment of the Risk Factor equation above.
There is one point in the dialogue where Hayward seems to recognize the equation – however fleetingly:
“It gets to that point, though, that you have to question every assumption, especially when your entire company and its solvency are on the line.”
…and that equation leaves out the 11 dead, the ecological damage and the fact that the Gulf provides a livelihood for so many people as well as food for the world.
So what’s our point?
Keep the equation handy. Keep it in mind.
Don’t be so fast to save $128,000 when on the other side of the equation there is a tangible $20B, and an even greater list of intangible damages to consider. Your numbers may be lower (hopefully on both sides of the equation) but you will face this same choice. Think of that picture above. Do you want to have to wear that expression?
You can track the actual questioning here.