Environmental Risk Management At Chevron Corporation Harvard Case Solution & Analysis

Answer # 1

Environmental Risks

The chances of a potential damage, either directly to the living creatures or indirectly to the surroundings in which they exist by any activity performed by an individual or organization. The organization can damage the environment through its production waste, emissions, exhaustive usage of resources, effluents and many other means. Ignoring such factors that are affecting the environment adversely or are likely to do potential damage to it will definitely destroy the goodwill of the firm and ruins its reputation in the industry.

Environmental Risks Faced by Chevron

Chevron, being a major oil company that exists internationally, has to deal with a lot of operational risks every day. There can be negative impacts on the health and safety of their employees, the natural environment, the resources they use and their financial performance due to a single mistake of mishandling the oil while in production. The cost of corrective measures taken to rectify a mistake like this is very huge and will also damage the brand name even after controlling the damages.

The working conditions of Chevron will have massive impacts on the health and safety of its employees. Exploration of oil and gas is a very risky operation which require a certain level of safety measures to be put in place. If the working hours of the workforce are too long will affect the health of the employees negatively. Moreover, there should be proper standardization of processes to ensure that the safety of employees is not at stake during production. Failing to do so will lead to an increased number of accidents and catastrophes which will have very bad results for the company.

The spillage or leakage of oil or gas at any stage of production might be very dangerous for both the company as well as the environment and creatures around it. Clearly, it would be a waste of natural resources, but will also pose a harmful threat for the living creatures around the affected area. This waste would result in a lower production that will ultimately lead to less revenues and decrease the profitability of the whole. The costs of cleanup for such a mistake are very high that will also reduce the profit levels of the company.

The environmental risks have quantitative as well as qualitative effects on the company. The government can imply additional charges or fines on the company, restrict some of its operations and also ban a company for damaging the environment. The other stakeholders might also get offended by any such carelessness and take actions that might be against the interest of the company. Moreover, it will also be against the goal of Chevron to protect people and environment.

Answer # 2

Management of Environmental Risks

The environmental risks should not be managed as per the financial risks. The reason being that the results of managing the financial risk can be measured in quantitative terms as per the cost benefit analysis. The decision making process of management of other risks is backed by the objective of lowering the cost incurred by the company. The cost of risk management measure taken should be less than the cost of risk itself. The cost of a financial risk can be justified on these grounds and will be acceptable by the shareholders.

Whereas, in case of environmental risk, the objective of the company is to reduce the chance of the occurrence of the potential risk. In cases where the company cannot escape the occurrence of the risk, it takes advance measures to reduce the impact of the risk so that the losses or the cost pertaining to the effects of the risk can be minimized. Normally the effects of this type of risk cannot be measured in terms of money, so it becomes difficult to compare the cost incurred and benefit earned in it.Environmental Risk Management At Chevron Corporation Case Solution

Sometimes, the cost incurred on environmental risks are based on ethical considerations more than required by the policy of the company or the state requirement. This brings a sense of the fact that it is an unnecessary expense spend by the company. But ultimately it does have positive results on the financial performance of the company indirectly. It is hard to justify an environmental cost to the management and might also worsen the financial performance of a particular function undertaking it..................

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