Sunday, March 27, 2011

Stakeholder Management: Learned Lessons from BP Oil Spill

In the last post of earned-value.com (http://www.earned-value.com/2011/03/john-nashs-theory-applied-to-project.html), I have suggested that behavior of stakeholders explains the failure of a big number of projects and I have explained this from the perspective of Nash's Theory. I have decided to show an example in order to support that thesis in this post. The story of the Deepwater Horizon Oil Spill is well known by the majority of people. Let me use it.

There were at least three important stakeholders involved in this project: the BP administration, the employees of BP and Society at large. After the oil spill, it is clear to each one that the disaster could have been avoided and that the result wasn't good business for anybody. What have we painfully learned about stakeholder management and Nash's equilibrium?.

The project failed. The risk management was poor, the contingency plans were outdated and the costs have been enormous for everybody. The administration of BP tried to take on more that they should have, with a big risk of earning less than they could have. From the perspective of the employees of BP, I'm sure that many of them were victims but in certain ways they were victims of ambition and obedience of a few. There is no excuse to be part of a project team that is putting Society in that kind of risk. From the perspective of Society, BP has been feeding the monster of oil consumption. Society has been trying to take on more than they should, with a big risk of earning less than they could.

If the manager of this project had decided to invest more efforts in risk management, BP would have invested more money in mitigation and contingency plans. If the BP administration had focused on the long term earnings, they would not have risked so many lives and the ecosystem. Furthermore, they would have earned more money than they finally did. If Society had developed alternative energy sources, we could have avoided the extraction of oil from deepwater.
Learned Lesson: Each project has an equilibrium between stakeholders. If a stakeholder wants to break the deal and breaks it unilaterally, he/she will risk earning less than he/she would earn without breaking the deal.

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