Environmental Risk Management at Chevron Corporation Harvard Case Solution & Analysis

Environmental Risk Management at Chevron Corporation Case Study Solution

DEMA Capture Risks

The environment and safety guidelines have been implemented by the Chevron Research and Technology Center through developing the DEMA, (a decision making tool) in discussion with the executives tends to manage downstream as well as upstream operations.  The DEMA provides assistance to the managers to prioritize the projects for the executing them and it also helps managers in undertaking the cost benefit analysis.

Often, it is not true of the advantages that the cost required for managing the environmental risk projects can be assessed in dollar values or monetary values. For instance; in case the benefit comes as a low probability of the adverse or unfavorable events, it is not clear that by how much it would be reduced by the environmental spending. The extent of damage is reduced in other investment because of the unfavorable event, but the qualification of the damage is challenging.

Regardless of the difficulty in answering such queries, DEMA assist manages in setting priorities for managing the environmental risk. Essentially, the DEMA uses spreadsheet technique. It tends to use various valuations tables and inputs sheets for the purpose of converting inputs into the dollar values.

The managers are entitled to fill the input sheet for each risk reduction proposal with the information such as initial project capital cost, life of project or the length of time during which the benefits would be yielded by project and the event’s description such as business interruptions, injuries and fire. The input most likely compare modified and current scenarios.

Significantly, the information is used by managers from the qualitative risk ranking metrics that tends to be incorporated in the prior risk management process phase. The managers also expect the likelihood of the unfavorable event more accurately as well as more precisely and the degree of the damage so that the previous qualitative assessments would be supplemented. Unexpectedly, Chevron Corporation had successfully found DEMA effective tool for quantifying the cost related to the risk management proposals. The company has attempted to quantify the benefits through expecting the total dollar impact of adverse event and deducting the incurred cost.

Recommendations to Keller about DEMA

After taking into consideration the evaluation and feasibility of DEMA along with its benefits, it is recommended that Keller should implement the decision making tool DEMA company wide due to the fact that the tool would help the managers to decide which projects should be taken forts in order to reduce the risk.

In addition to this, it has been used by the managers at refinery for the purpose of increasing the returns on investment in management of the environmental risk. Not only this, it has allowed refinery to generate millions dollar worth of risk reduction advantages without any additional cost.

Implementing DEMA company wide would yield various financial and non-financial benefits to the company as a whole through facilitating discussion about the environmental damage and prospects of the accidents as well as about the relative significance and probabilities of the different sort of issues or problems. Notably, it would help the management of company in determining the efficient allocation of risk management resources, the use of which would allow the company to increase the overall efficiency of investment made in the risk management. Furthermore, the company would realize the similar level of savings in relation to the total expense or total assets throughout the organization. DEMA would maximize the profit margins by comparing the expected values of the projects.

Shortly speaking, Keller should implement the DEMA to efficiently deal with the environment risk management and allocating risk management resources in efficient manner, hence increasing the efficiency of the risk management investment. It would enhance the viability and sustainability of the project.

Conclusion

To sum up, it is to conclude that the management of the company should align with business vision with the commitment of environment risk management. Keller should implement the DEMA as it would most likely help the management of company in determining the efficient allocation of risk management resources, the use of which would allow the company to increase the overall efficiency of investment made in the risk management and the company would realize the similar level of savings in relation to the total expense or total assets throughout the organization.

Also, it would allowed refinery to generate millions dollar worth of risk reduction advantages without any additional cost. Moreover, it would be facilitating discussion about the environmental damage and prospects of the accidents as well as about the relative significance and probabilities of the different sort of issues or problems within an organization.

Exhibit A

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