STRATEGIC BUSINESS ANALYSIS
RISK MANAGEMENT DECISION MAKING
ENVIRONMENTAL RISK MANAGEMENT AT CHEVRON
2010ENVIRONMENTAL RISK MANAGEMENT AT CHEVRON
Chevron Corp., headquartered in San Francisco, manages a worldwide, vertically integrated value chain from the oil well to the gasoline station. Mishandling of oil atany stage of production can damage the natural environment, human health, corporate profitability or all three. But at the same time, Chevron needs to be prudent about the amount of money it spendson measures to manage these risks, and environmental programs within the firm can conflict with a longstanding tradition of decentralized management. To manage risks more efficiently, Chevronexecutives are contemplating the use of quantitative decision tools that enable operating managers to compute rough benefit-cost ratios for various alternative risk management projects. The case focuses on thepros and cons of using such tools within the context of Chevron's overall system for environmental risk management.
Regarding to the implementation of DEMA, Quantitative Environmental RiskAnalysis Decision Making Model (DEMA), is necessary to begin analyzing the risks that Chevron is worried about:
- Risk of damage to the natural environment, human health, and corporate profitabilityor all of the above.
- Environmental externalities and impact on public goods at every stage of their value chain.
- Public good, non rival (one´s consumption does not impact others) and nonexcludable (consumption cannot be restricted).
- Their value chain, from raw material extraction to the pump.
- Contingent environmental costs (cleanup costs) from past operations.
-Cleanup in the future related to current operations.
- Cost of business interruption.
- Loss of goodwill and reputation.
- Transportation of crude oil and refined products.