27 Sep 2010

BP spill shows why risk management crucial - strategist

10:04 am on 27 September 2010

A leading international management strategist says the BP oil spill in the Gulf of Mexico offers a lesson to firms that underestimate the importance of managing risk.

Harvard professor Robert Kaplan co-developed the Kaplan-Norton Balanced Scorecard management system, which links a company's current actions to its long-term goals.

The system is used by more than half of Fortune 500 companies in the United States, and is one of its adherents in New Zealand.

Professor Kaplan says managing risk has become extremely important, and it's not being done well as BP has found to its cost.

He says the company did not identify and try to mitigate the risk it had decided to take on, and did not train employees on what to do quickly if a risk event occurred.

In contrast, he says, linking long term goals and operations led Volkswagen to turn around its loss-making Brazilian operation, making it one of the company's most profitable units.

Professor Kaplan says the global financial crisis, and the Icelandic volcano that disrupted air travel earlier this year, has firms thinking about ways to cope with events outside their control.