Safety Performance vs Production Costs

Are these two forces at loggerhead?

The Wall Street Journal just published an article on June 29, 2010 on this thorny topic. This generally pro-business newspaper wrote a scathing expose on how cost cuttings at BP have affected its safety performance.

The paper cites an internal BP investigation that a small oil spill from a BP oil platform in 2008 was caused by a “defective pipeline pump that BP had put off repairing” in the “context of a tight cost budget.” The budget was “underestimated” resulting in “conflicting directions/demands.” Management decided that the problem with the pumps “was not in itself a cause for safety or environmental concern.” The repair was deferred until the following budget year.

The Journal reports that “after a six-month inspection of the Texas City refinery last year, OSHA hit BP with an $87 million fine, the biggest in the agency’s history. About $57 million of  what OSHA describes as failure to abate hazards similar to those that caused the 2005 explosion which killed 15 people.”

It is also reported in the Journal that senior management at BP “focused on meeting performance targets, which determined bonuses for top managers and low-level workers alike.”

According to a former BP health and safety manager who was quoted in the Journal, workers had “high incentive to find shortcuts and take risks.”

The CEO of BP also spoke of “slaying two dragons at once; safety lapses that led to major accidents, including a deadly 205 Texas refinery explosions; and bloated costs that left BP lagging” Shell and Exxon Mobil.

After the small BP spill in 2008, BP’s internal report “warned of lax safety oversight and tight budgets.” As reported in the Journal, the BP report went on to conclude: “A key question to ask, especially with apparently minor and disconnected defects, is ‘what’s the worst thing that could happen?'”

I think we all know the answer to that.


3 responses to “Safety Performance vs Production Costs

  1. Norman. It is interesting that only a few moments before reading your blog there was a news story on TV discussing the need for more regulation. This may be true. But since companies are suffocated with regulations already it seems that ramping up the existing programs would make more sense. Ramping up could include adding extra personnel to conduct and review JSA’s, Observations, Near Misses and the like. Companies should also be forced to hire third party safety professionals to oversee all safety processes. They would in turn report their findings to agencies like OSHA, EPA, DOT, etc. Violations or short cuts would raise a red flag and the agency would investigate.

  2. Lyndon, what you have suggested (ramping up, requiring extra staff and third party audits) sounds awfully like “more regulations”. And I am not disagreeing with you there. I do disagree that companies are “suffocated” with regulations. The Wall Street folks who took risky bets that lead to the near global financial collapse were not suffocating from too much regulations at all. Their multi-million dollar bonuses may be suffocating them – but not the regulations. If a company is going to spend billions of dollars drilling for oil a mile deep underwater, it should not complain about regulations. It’d better set aside a few dollars to comply with regulations.

    It is funny to hear those so-called libertarians rant and rave about environmental regulations. They have no idea that without those horrible regulations, they would have toxic wastes on their front lawn and their drinking water would not be safe to drink. Without building codes (regulations), their houses would collapse in a gust of wind.

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