The Painful Lessons from BP’s Decisions!
We know now that poor decisions lead up to BP’s Deepwater Horizon disaster. Why am I not surprised? BP admitted to a “fundamental mistake” by continuing when there was a warning sign of a “very large abnormality”. Despite the warning from that test, they decided to remove the heavy mud that provides pressure to prevent gas from seeping into the well and rising to the surface. Reportedly, company executives and top drill hands on the drilling rig argued for hours about how to proceed before a BP official made the decision to remove the heavy drilling fluid from the well and replace it with lighter weight seawater that was unable to prevent gas from surging to the surface and exploding.
BP and its contractors also made poor design and construction decisions. The well was designed with tight tolerances, using a 7-inch casing around an 8-1/2 inch hole. Some of the centralizers, designed to prevent voids in cement, were missing because somebody delivered the wrong ones, so BP decided to use only six instead of 20. BP chose the lower cost, but riskier, of two alternatives for the casing, so if the cement around the casing pipe did not seal properly, gases could leak all the way to the wellhead, where only a single seal would serve as a barrier. Using a different type of casing would have provided two barriers. I don’t intend to suggest that every decision must be ultra conservative, but you must consider the cumulative impact of related decisions that influence the same risk. If you cut costs in one place, you should be more cautious deciding on the safeguards – or at least be more cautious deciding to proceed when there are large abnormalities indicated around that risk.
Unfortunately we’ve seen this problem of drastic consequences of bad business decisions before, recently with Toyota and the financial industry prior to the great economic collapse. And this phenomena isn’t just recent. The litany of bad business decisions continues back in history with disasters such as the Challenger and enormous financial losses such as the AOL and Time Warner merger. I study decision making, and inevitably all major problems stem from bad decisions. Period. No exceptions.
The reaction here will be the same: more regulation, procedures, approvals, and policies. Why? Because people and companies simply can’t make good decisions? Sure there are some companies that make great decisions – such as Apple – but the frequency and consequences of bad decisions is becoming extraordinary. We can’t eliminate the need to perform that puts all companies and executives under pressure to make critical decisions. We can’t create more mountains of legislation to prevent companies and individuals from making poor decisions. If you look at the mountains of regulations to prevent companies and people from making bad decisions, they already are enormous.
The cause is actually so clear that it’s overlooked. People, including managers and executives, and companies are never trained on how to make decisions. It’s not taught in high school or college. It’s not taught in management training sessions. The are not qualifying tests on decision making skills before someone becomes a executive or a key decision maker on a deep water drilling rig. I guess that everyone is expected to be born with decision making skills or learn from their mistakes – but some of these mistakes are very costly! Resources for help in making better decisions are available by visiting DecideBetter.com.