Methodology:-
Before deciding whether Chevron should implement their new analytical process “Decision Making (DEMA)” across the organization we decided to check whether DEMA will align with the company policies.
In 1997, Chevron spent around 2.1% of its revenues and 9% of the total cost to their environmental risk strategy. In the same year, Chevron’s major competitors Exxon and Mobil spent 1.1% and 0.9% of their revenue respectively on environment risk strategy. This was due to Chevron positioning itself both publicly and internally as a company that was responsible steward of natural environment. Furthermore, we analyzed their Internal and External Risk Management tools and compared them with the Quantitative Risk Management tool (DEMA).
Internal Risk Management:-
Traditionally, risk management decision making at Chevron was more judgmental than analytical. Their risk management across the organization relied on managerial judgment which followed Policy 530. There were ten key elements which were part of Policy 530 such as compliance assurance, community awareness and outreach, energy and resource conservation etc. All these elements were to be implemented through adherence to the managerial practices.
Incentive compensation was one of the major savings plan used by 98% of the employees within Chevron but it was largely based on profitability of the corporation and not majorly linked to the attainment of safety or environmental objectives. But senior management was required to review the overall environmental performance. There were no penalty in place but if the senior manager did not adhere to the environmental goals they could lose their jobs.
External Risk Management:- Chevron followed a general corporate strategy of self-insuring only up to a certain limit. But the amount of deductible varied in different areas of the organizations. Unlike their