Balancing reputation risk and the ability to manage cost
Two articles in the Financial Times about BP shed light on the need to consider reputation risk when you are designing your process for managing cost. If you are too focused on limiting cost, or over-relying on a contractor, you may be more at risk than you think.
The first article talks about how the company’s apparent practice of insisting on their rights under the law to control payment of claims has resulted in further damage to their reputation – this time increasing their reputation for insensitivity to the community and the people damaged in the spill.
The second piece talks about how BP failed to provide effective oversight of their contractors. This is interesting, because it points out the risks in outsourcing functions and controls to a partner. You can outsource the process, but not the accountability. If and when there is a failure, you are not immune from the fallout.
How well does your company monitor your partner’s activities? Are you at risk (whether compliance-related risk or reputation risk) if they fail to perform to your expectations?