“The Million Dollar Risk: How One Company’s Failure to Assess the Likelihood and Impact of Risks Led to a Costly Mistake”

Memarzadeh Ali
3 min readDec 23, 2022
https://flic.kr/p/nHziCD

As a business owner, I know firsthand the importance of identifying and mitigating potential risks in order to protect and grow my business. However, not everyone gets it right — and the consequences can be costly. In this article, we will explore the importance of assessing the likelihood and potential impact of risks and provide a real-life example of a company that failed to do so, leading to a costly mistake.

  • Identify the potential hazards.

The first step in assessing the likelihood and potential impact of risks is to identify the potential hazards. This involves identifying the potential sources of risk, such as changes in the market, technological advancements, and regulatory changes. By identifying the potential hazards, you can better understand the risks that your business is exposed to.

One company that failed to do this was BP, when they decided to drill for oil in the Deepwater Horizon in the Gulf of Mexico in 2010. BP failed to properly identify the potential hazards of drilling in such a deep and risky environment, leading to the worst oil spill in U.S. history. The disaster resulted in billions of dollars in cleanup costs and fines, as well as significant damage to the company’s reputation.

  • Evaluate the likelihood of the risk occurring.

Once you have identified the potential hazards, the next step is to evaluate the likelihood of the risk occurring. This involves considering factors such as the likelihood of the hazard occurring, the likelihood of the hazard impacting your business, and the likelihood of the impact being severe. By evaluating the likelihood of the risk occurring, you can better understand the level of risk that your business is exposed to.

BP failed to do this as well, as they underestimated the likelihood of a disaster occurring and did not have proper safeguards in place to prevent it. This ultimately led to the devastating consequences of the Deepwater Horizon disaster.

  • Determine the potential impact of the risk.

After evaluating the likelihood of the risk occurring, the next step is to determine the potential impact of the risk. This involves considering the potential financial, operational, and reputational impact of the risk on your business. By determining the potential impact of the risk, you can better understand the potential consequences of the risk and make informed decisions about how to mitigate it.

BP failed to do this as well, as they did not fully consider the potential impact of a disaster on their business and the environment. The consequences of this failure were devastating, with billions of dollars in cleanup costs and fines, as well as significant damage to the company’s reputation.

  • Prioritize risks based on likelihood and impact.

Once you have assessed the likelihood and potential impact of risks, the next step is to prioritize them based on their likelihood and impact. This will help you to focus on the risks that pose the greatest threat to your business and allocate resources accordingly.

In conclusion, assessing the likelihood and potential impact of risks is essential for effectively managing risk in your business. By identifying the potential hazards, evaluating the likelihood of the risk occurring, and determining the potential impact of the risk, you can make informed decisions about how to mitigate risk and protect your business. The BP Deepwater Horizon disaster is a prime example of what can happen when a company fails to do this — and it is a cautionary tale for all business owners. Don’t let risk be a blind spot in your business — take the time to assess and manage it effectively.

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Memarzadeh Ali

Always on the lookout for new knowledge and experiences. Sharing my discoveries and thoughts on all kinds of topics on my Twitter feed. @Arnaultmemarza1