“Where was the risk management?” asked PRIMA’s outgoing president, Ron Hayes.

Mr. Hayes, who lives and works as risk manager for the Calcasieu Parish School Board in Louisiana, has a lot to lose from this disaster. He spoke to me about it a few days ago at the Public Risk Management Association annual conference in Orlando, Fla. 

Visibly upset by what is happening, and could happen to his state, he said that while he is aware that BP has a risk manager, he wondered how this could have come to pass. “We’re required to ID risks and have a plan in our school system. How was this allowed to happen?” After all, he said, a risk manager’s job is to identify risks–no matter the size.

The ramifications of the spill are huge, he said, not only for himself, but for his entire state and the region. From the governor on down, he added, Louisiana residents are angry. And with hurricane season looming, thoughts are on the possibilities a tropical depression could bring. Homes flooded with sea water and mud is a bad enough scenario. Mixing crude oil in with that water would be a nightmare. One underwriter told me that oil in a home or building would mean a tear-down rather than a renovation. Imagine the impact this could have on coastal real estate as well.

Mr. Hayes talked about the stench in some areas—of oil and dead animals and rotting vegetation wafting inland—and this is only the beginning. This huge plume is growing every day and could travel up the East Coast, according to reports.

Other risk managers I’ve talked to here are also puzzled. One risk manager told me he didn’t think this spill was getting the attention the Exxon Valdese in Alaska did. “But wait until it starts staining the sandy white beaches up the East Coast,” he said. “It’ll get attention then.” 

BP is being criticized for paying out shareholder dividends and airing a national TV ad touting its environmental efforts.

I’ve seen the ad, portraying BP pulling out the stops to arrest the flow, clean up wetlands and save wildlife—and vowing to do everything possible to take care of the mess.

 Meanwhile, Tony Hayward, BP’s executive director and group chief executive, declared he wants this all behind him so he can “get on with his life.” Tell that to the people who lost their lives in the blast, the fisherman without a livelihood and the coastal business owners. And tell it to the shore birds and animals losing their habitat and their lives.

For more on the BP oil spill:

http://www.property-casualty.com/News/2010/6/Pages/Ambac-Commutes-Remaining-CDO-Obligations-Future-Uncertain.aspx

In a complex industry such as oil exploration, there can be no margin for error. And if there is a failure, there had better be a very good—tested—contingency plan in place to take care of it.

This was not the case with the BP oil spill, to say the least. It’s a huge disaster on every level. The failings and oversights are everywhere.

It appears that risk management and contingency planning were non existent here. Risk management, it seems exists for appearances—for the government and shareholders, basically. Because these companies are so concerned with cutting costs and making a profit, real risk management isn’t being employed.

In fact, I’d bet these companies spend way more on lobbying against government intervention than on their risk management programs or on planning for such emergencies. These are the same people who now want the government to clean up the mess when they can’t fix it.

And speaking of the government, where was the oversight in all this?

What came out after the recent coal mining disaster was that the mine was allowed to continue operations, despite myriad safety violations and citations. Why the mine was even allowed to operate is a mystery. A mining risk management expert I spoke to explained that the government policy is to shut down any mine that doesn’t rectify serious violations. He was shocked at the long list of open violations and that nothing had been done to correct them. You can read the article at http://www.property-casualty.com/News/2010/4/Pages/Mining-Disaster-Raises-Safety-Concerns.aspx?k=mining+disaster

I checked out the Web site of MPA—the Marine Preservation Association. This organization was formed as a result of the Oil Pollution Act of 1990, for the sole purpose of addressing problems caused by oil spills on water.

Among its members are BP, Chevron, ExxonMobil, CITGO, ConocoPhillips and Shell.

According to the site, www.mpaz.org, “anyone involved in the transportation, distribution or receipt of petroleum products on water must establish an approved plan that—should they cause a significant oil spill—responds to the ‘maximum extent practicable.’ Such a response must be immediate, comprehensive and safe.”

The site continues that the “key word here is ‘immediate.’ Because during an oil spill response, time is of the essence. That is precisely why MPA created—and entirely funds—the Marine Spill Response Corporation.”

MSRC, the site said, is “the most comprehensive, dedicated standby oil spill response program in the U.S.”

I think you get the picture here. It all sounds great, but rings hollow, especially now. In fact, when I clicked on the “In the News” tab at the site, all that was there were two 2006 links to articles about how MSRC had come through to help oil companies after the Gulf Coast hurricanes.

When I tried to do a search for “risk management” on the site, I got the “couldn’t be found” message. This is all a sad commentary, especially in light of executives testifying before a Senate panel in Washington yesterday. Lamar McKay, chairman of BP American; Steven Newman, president of Transocean Limited; and Tom Probert, president of Halliburton each pointed fingers at the other operations, defending their own.

Why am I questioning the value of risk management to these companies? Because the believed-to-be-unlikely “black swan” events have been happening almost bi-weekly. And these are giant fiascos—causing financial ruin to the economy, deaths in both the coal mine disaster and the oil rig catastrophe and an environmental calamity that worsens every day.

In all of these instances risk management, the very thing that could prevent such disasters, appears to be an afterthought.

Is risk management being practiced in name only, where it is most critically needed? Is it being practiced when it’s convenient to these organizations and why isn’t it given more consideration?

Enterprise risk management is an obvious solution to assessing and preventing such disasters, but it appears this discipline has a very long way to go, at least with these mega-corporations that seem to be above the law.

According to media reports, solutions to the sort of disaster that’s unraveling right now off the Louisiana coast were never even tried. Nobody knew if the giant box lowered to stop up the well a few days ago would work at all—they were surprised when ice crystals formed, preventing its success.

This are sad days. Unfortunately, I believe risk managers may have a bigger battle ahead of them than anyone might have imagined.

A political cartoon by Matt Davies in today’s newspaper said it all. Labeled “Offshore Drilling Technologies,” two side-by-side drawings depicted, on the left with the caption “extraction,” a detailed oil rig. On the right with the caption “cleanup” was a simple roll of paper towels. Check out the cartoon at http://davies.lohudblogs.com/files/2010/05/0511davies1.jpg