A decision-making process must address projects with high ambiguity and high uncertainty, which describes most oil and gas projects today. (Images courtesy of Decision Strategies Inc.)

IDM is an alternative decision-making process for high-impact economic decisions that leads to higher quality decisions in less time than the traditional approach.

The Advocacy Approach (AA) is traditionally used to make decisions in the oil and gas industry. Unfortunately, AA has inherent limitations. It fails to produce multiple viable alternatives for early consideration and has limited means to properly identify and address risk. AA typically relies on an advocate who champions a proposed solution.

AA leads to project teams converging too quickly on a solution, with team members aligning with the advocate rather than the underlying project goals. This approach can mean the lack of full implementation (when a decision is finally made) because key implementation stakeholders have not been included in the process and don’t understand what actions should be prioritized to begin implementation.

To resolve these problems, a decision-making process must employ both “hard” skills (rigorous analytical and financial processes and tools to address uncertainty and risk) and “soft” skills (leadership and change management processes that address ambiguity and clarify underlying objectives).

IDM is a collaborative, stage-gated approach to decision making that incorporates both hard and soft skills. The five phases of IDM are:
1. Discovery;
2. Framing;
3. Evaluation and agreement;
4. Alternative selection; and
5. Value realization.

IDM promotes successful implementation of quality decisions, which ultimately leads to faster realization of value. It also provides the means to quantify and mitigate risk and helps address one of the most crucial issues facing the industry: the impending retirement of its most experienced professionals.
IDM at work

In one case, partner operators were developing an offshore project, alias name Concept, adjacent to an exploration opportunity, alias name M-9. A synergistic opportunity existed to create an efficient development plan for both Concept and M-9, maximizing the combined investment and potential for profit while minimizing downside risk.

Though many unknowns existed, strong opposing positions quickly emerged for potential solutions. Some said a massive production facility (minimum Class 3) was required. Others thought the exploration prospects were a long shot and believed the answer was minimal production capabilities.

How IDM changes the game

IDM provides alignment and agreement among the decision maker (DM), key stakeholders, and evaluation team during all phases of the process.
In AA, the evaluation team typically has limited and unstructured dialog with the DM during the process until it is ready to present the recommendation, which is typically a single option requiring a go/no-go decision.

Under these circumstances, the DM and other key implementation stakeholders have no detailed knowledge of the team’s assumptions, the validity of those assumptions, or options that were considered and eliminated. This unstructured process often results in an endless evaluation loop that ultimately delays decisions.

Reviewing decisions

With IDM, a decision review board (DRB) meets with the project evaluation team and key implementation stakeholders at each phase of the process — the team does not move to the next phase until the DRB is satisfied that due diligence has been done in the current phase and everyone is aligned regarding the next steps and critical variables.
All key stakeholders engage in conversation before there is a position to advocate. IDM changes the conversation completely — from advocating a predisposed position to collaboratively identifying and agreeing upon objectives, then deriving the best alternative. Decisions are not go/no-go.

A common first reaction to IDM is, “We don’t have time to do all that.” The truth is that IDM takes less time than AA and is more reliable. Studies show that applying IDM reduces the time to decision by an average of 30%.

In the case example, understanding what the relationships and tradeoffs were between the cost of the facilities, the capacity tradeoffs, and potential value creation were critical in making the best decision. Once the relationship was defined (“What do we prioritize?”), the decision process could be pursued much more effectively.

IDM enables identification, evaluation, and quantification of specific risks for each alternative. A tornado chart displays bands of value ranges for each of the key variables for a specific alternative. Each alternative has a unique tornado chart with key variables determined from initial deterministic analysis.

The tornado chart shows how key variables can be skewed and which have the biggest potential impact on the expected value of each alternative. Often, after seeing tornado charts, team members determine they had been focusing on the wrong variables and working to mitigate risks or quantify uncertainties that actually don’t have much impact on the expected value of the alternative.

The tornado allows teams to apportion scarce resources of time, capital, and people to the elements that will have the highest impact for the project.

Identifying alternatives

IDM also provides distinct alternatives and the ability to see related pitfalls and possibilities. Monte Carlo simulation of the inputs or decision tree analysis provides a range of expected values, an “s-curve” for each alternative. The s-curves for all of the options are displayed together for easy comparison. This risk-based comparison provides the insights needed to make smart choices or even create a new, more valuable “hybrid” strategy.

Using tornado charts with expected value curves allows DMs to see which variables are contributing to the negative end of a curve. This information allows the team to understand and mitigate risks. This analysis also allows the development of hybrid solutions, which results in new and better alternatives than those initially proposed.

In this case study, the resulting hybrid strategy was to plan for optimum capacity based on financial return and not maximum throughput. In this case, the optimum financial case was about 80% of the maximum throughput, which meant the facilities would be used efficiently while meeting long-term financial goals. For this case, a stand-alone development option was selected, a floating, production, storage, and offloading (FPSO) vessel with a tieback from the production facility for the smaller M-9 prospect.

Working the plan

IDM not only helps the decision-making process, but it provides the basis for an improved implementation plan.

In phases 2, 3 and 4, alternatives are proposed and discussed. As a group moves through the process and options are eliminated, more analysis and planning for the remaining options take place. Evaluation using the charts described above allows teams to identify specific risks and mitigation plans. Detailed analysis and planning provide the basis for an implementation plan. Because key implementation stakeholders have been involved throughout the process, they know what they need to do and why.

Getting more with less

In AA, DMs rely in part on the advocacy of experienced professionals, but with many experienced professionals reaching retirement, how will organizations cope with major oilfield decisions in the future?

IDM helps to mitigate the impact of the impending experience drain because it does not rely on the advocacy of an individual, but on a rigorous, repeatable process. The process enables less-experienced professionals to participate in analysis and decision-making and to learn without jeopardizing the quality of the decisions being made.

The key success factor for any major decision process is to assure DMs and key stakeholders that an unbiased, rigorous process has been used to quickly evaluate a wide range of potential options, plan for major risks, and create contingencies for major uncertainties. A decision-making process that also significantly contributes to an implementation plan increases project value.

A decision can be made based on the gut feel of the parties involved if there is no decision-making process in place. With the magnitude of today’s decisions in the oil and gas industry, gut feel is a big risk to take in the game.