Environmental risk management is a key concern at Chevron Corporation. Like other major oil companies, Chevron faces risk in its daily operations, including of damage to the natural environment, human health, corporate profitability, or all three. At the same time, Chevron must be practical regarding the amount of money spent on measures to manage these risks.
Within Chevron there is a need to understand the true costs of environmental incidents and the effect of investments on the likelihood and scale of such incidents. Effective risk management could reduce overall costs and protect or enhance the Chevron brand name and reputation. Currently, the company has several tools in place to manage environmental risk, for example Policy 530, management evaluation and promotion systems tied to environmental performance, insurance and emergency response programs.
The Chevron Research and Technology Company (CRTC) sought to extend the available tools for risk management within Chevron and the final product of these efforts was DEMA (for Decision Making): a quantitative prioritization tool that could help any manager determine, on a cost-benefit analytical basis, which projects should be carried out before others.
Regarding the question on whether or not DEMA should be implemented company-wide; there are arguments for and against. The analysis below will provide an overview of the arguments for and against, in order to reach a conclusion about the most advisable decision.
On the one hand there may be discussion about the validity of the conversion factors of DEMA and thus the system’s analytical capability. Monetary expressions for the benefits of risk reduction proposals may be controversial, with conversion factors being to some extent subjective, and thus less useful. Even if such conversion factors are useful, there is a...