IDM is a scalable process that improves the quality of decisions and accelerates decisions and realization of value. (Images courtesy of DSM)

Operators and service companies are beginning to embrace an alternative decision-making process for high-impact economic decisions, the Integrated Decision Management (IDM) process.

In this second article of a three-part series, the IDM process is illustrated using a case study to show how IDM improves the quality of decisions, and helps accelerate the speed with which they are made as well as the realization of value.

In one application, using IDM allowed clear objectives to be delineated. It created partner alignment that resulted in determining a production facility alternative that eliminated one to potentially three years from front end engineering and design (FEED). This saved US $300 to $400 million in capital expenses (capex).

Recapping the game

The traditional decision-making approach used in our industry, the Advocacy Approach (AA), has inherent limitations that can unnecessarily handicap decision makers, negatively impacting the quality of decisions. These limits often include the lack of a consistent process, few viable alternatives, and limited means to properly address, qualify, and quantify related risks for each of the proposed alternatives. These limits often leave teams thinking they have simply been dealt a bad hand and typically result in converging too quickly on a solution, in part because project teams can be overwhelmed by the analysis required to compare complex alternatives and associated risks.
IDM addresses the shortcomings of the AA by providing a process and tools for teams to logically and methodically perform complex analyses and derive the “best” solution — an actionable alternative that supports the organization’s ultimate objectives. IDM also typically accelerates decision-making, which ultimately accelerates realization of project value.

IDM at work

This case study illustrates the process and how it helps teams make better decisions.
Partner operators were developing an offshore project, with the alias name Concept, adjacent to an exploration opportunity, alias name M-9, which was next to a development project owned by another company. A synergistic opportunity existed to create a development plan for both Concept and M-9, maximizing the combined investment and potential for profit. The development project was in the early stages and had many unknowns, chief among them sizing of the production facility. The exploration prospect was a complete unknown.

Though many unknowns existed, strong opposing positions quickly emerged for potential solutions. Some said the exploration prospect would come in huge, so a massive production facility (minimum Class 3) would be required. Others thought the exploration prospect was a long shot and that minimal production capabilities were the answer. Part of the disagreement was in the lack of clear and consistent objectives.

Applying IMD

Because IDM is a scalable process, it can be used at all levels of an organization to help make consistently high-quality decisions. It is a collaborative stage-gated approach with five phases:
1. Discovery;
2. Framing;
3. Evaluation and agreement;
4. Alternative selection; and
5. Value realization.

In the Discovery phase, the team creates a shared understanding among all stakeholders and identifies key project objectives, which will define the true scope of the project and uncover ambiguities, points of potential conflict, and tradeoffs. In creating a shared understanding, the stakeholders must agree on the strategic question — a one- or two-sentence description that clarifies the opportunity or problem to be examined.

In this case, the strategic question is: “How do we test and develop the combined project area such that we maximize value and contribute to regional competitive advantage?”

With the strategic question in mind, the team develops an objectives hierarchy. An objectives hierarchy explicitly states all objectives that a successful project should meet, organized from high-level general objectives to increasingly detailed subordinate or related objectives that are required to meet the higher level objectives.
For the case study, the highest-level objective is to understand and maximize value. The project has a fixed value. Clearly stating objectives allows partners to discuss specific concessions or tradeoffs so that each partner can achieve what it requires for success.

In the Framing phase, the team learns to understand the decision context (the larger business issues and the setting and their relevance to and potential impact for the decision being considered) and creates unique alternatives to answering the strategic question and meeting the objectives defined in the Discovery phase.

Two key tools used early in this phase are the decision hierarchy, used to understand which decisions are open and which decisions are closed, and the alternatives table (Figure 2), which outlines the various choices open to the team and facilitates the creation of strategies to be tested in the Evaluation phase.

In the case study, the team developed a variety of development alternatives that included various tieback and stand-alone scenarios. The team also constructed a decision tree to illustrate the strategies with the various facility types and scenarios between the development field and exploration prospect.

In the Evaluation phase, the decision tree is populated with probabilities and outcomes associated with the various strategies developed in the Framing phase. The strategies and insights from this phase are presented in a meeting with the decision makers to gain alignment and test for thoroughness before proceeding to the next phase.
During the Evaluation and Agreement phase, the team uses a combination of evaluation and modeling techniques including:
• Deterministic models to analyze alternatives developed in the Framing phase;
• Sensitivity analyses to define high-impact variables;
• Decision trees to lay out possible scenarios and assess the probability of each; and
• Probabilistic models to understand risk versus reward by creating a full picture of probable outcomes.

The output of the evaluation compares multiple strategic alternatives in a single graph and provides a full profile of risk and upside potential for each alternative as a basis for discussing risk tolerance in light of the possible outcomes.

The team consults subject matter experts to gain insights into the range of values and associated probabilities of various events. This information is used in the evaluation model to calculate key measures like net present value or return on investment.

In the case study analysis, the largest Class 5 floating production, storage and offloading (FPSO) vessel was determined to be ineffective in providing extra value and was eliminated as an option almost immediately. The analysis focused on the efficiency of the remaining four classes of facilities. Analysis determined that 80% of the time, the Class 2 FPSO met the needs of the project, meeting both the upside potential and providing downside protection (Figure 3).

As insights are gained, the strategies are refined and finally compared to the objectives hierarchy to ensure the alternatives support the objectives. At this stage, the team can communicate clearly to the decision makers about the necessary tradeoffs and the associated risks and outcomes of the various alternative strategies.

In most cases, a hybrid alternative is developed using current insights from this phase and two other tools — value of information and value of control. These tools use a series of “What if?” questions and evaluations that allow the decision maker to understand the value of knowing or controlling certain future uncertainties or risks and in turn which strategy to choose given their objectives, values, and risk tolerance.

For the case study, these tools were used to evaluate the viability of using existing production facilities instead of building new. Analysis revealed that the time delay involved in using existing facilities would not be beneficial to the project.

The goal of the Alternative Selection phase is to take the selected alternative and make it actionable. Tasks include understanding the organizational impact, developing an integration timeline and milestones, developing a change/decision plan, creating a strategy communication document, and allocating appropriate resources.

In the case study, initially a minimum Class 3 facility appeared to be necessary, but IDM revealed that Class 2 was a better solution, saving an estimated $300 to $400 million in capex. The overwhelming results of the analysis provided confidence to make the decision, eliminating an estimated 1.5 to 3 years from the front-end engineering and design.

The last phase, Value Realization involves implementing the strategy, change management plan, and other components while keeping the value levers created in Phase 3 and Phase 4 open. The Value Realization phase will be the subject of the final article in this series.