The Black Swan Theory Analysis - Essay Example

Yes, it makes sense to allocate resources to prevent a black swan event. Based on what happened to BP, it could be seen that the company would have prevented the disaster by allocating reasonable financial resources for structural expansion. BP’s partner, Anadarko, points out that the company made a poor choice and unreasonable measures by allocating money to the firm but instead management of the company advanced personal issues leaving the company with structural issues. This made the company vulnerable to any disaster. Both BP’s partner Anadarko and the American oil industry agreed that BP has been at the forefront to cut the cost of the company instead of improving the company technically (Correa, n.d).

Yes, it makes sense to devote resources to contain a black swan event in case it occurs, which is clear from the BP oil spill. The spill occurred after the installation of pipes with the use of limited centralizers. From the manager’s email, it is clear that the financial allocation was insufficient. If the company had allocated more money for the procurement of more centralizers, the oil spill disaster would not have occurred. In addition, the American oil industry and the BP partner agree with the allocation of more resources for risk management. The company tried to cut costs, which is clear from the unjustifiable number of centralizers. The number of centralizers installed was six instead of the 21 recommended centralizers by the engineers (Marianne, 2010). Furthermore, there is a need for more financial resources for structural strengthening to avoid future catastrophes, the case of BP Oil Company, it would have averted black swan had it allocated $7 billion to $21 billion for safety measures like procurement of safer head pipes.

Yes, human error is different from a black swan event because it is a decision that individuals make and in the end, it causes a disaster. For example, BP oil company management decided to use six centralizers instead of the recommended 21 centralizers. This is a human error because someone made an undesirable decision. Conversely, black swan events cannot be the same as a human error because they cannot be predicted using past information or scientific approach. Yes, human error can lead to Black Swan, but considering the 2008 financial crisis, it would have been easily prevented if financial experts had taken into consideration the financial mistakes which were already visible in the year 2006 (Marianne, 2010). In the case of BP Oil Company, whereby the disaster of oil spill occurred, it is clear that human error leads to the black swan, oil spilling and causing huge environmental pollution and making the company into a financial crisis. As pointed out above the use of less number of centralizers against the recommended number is a human error that leads to a black swan.

As an executive of BP, my consideration would be redundancies wells. With a little amount of money available I will have to invest in the remaining well. The extra well will help in case another disaster occurs. Precautionary measures should also be put into consideration. For example, the company will have to install acoustic shutoff switches to prevent offshore oil spills. In addition, the insurance coverage will also be considered. This provides cover to the company in case an accident like the black swan occurs. My company will also have to consider the long-term risk. The company will recruit the best decision-makers to advise on steps to take to avoid risk. They would be advising the company on the construction and repairs of the structures in the firm. As an Executive, I would see that precautions and safety measures of the company are well taken care of financially. The disaster struck will have cost the company a lot of money to avoid the company closing down or being taken over by another company, I will have to approach the government for help to negotiate with other nations to bring down the compensation cost (Marianne, 2010).