1999 hammond et al 1999 smith and mccardle 1997 ross

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Unformatted text preview: re presented in the academic decision theory literature for the quantification of risk and uncertainty has confused practitioners (see Section 6.3 of Chapter 6 and studies by Schuyler (1997) and Fletcher and Dromgoole (1996)). Most decision-makers report uncertainty about what each tool aims to do, the differences between techniques and are unclear about when certain tools should and should not be used (Section 6.3 of Chapter 6). Clearly then, there is a need to identify which of the decision analysis techniques and concepts presented in the academic decision theory literature, are the most appropriate for investment decision-making. The current study aims to do this by answering the first research question which was posed in Chapter 1. The focus in this chapter now turns to the motivation for the second research question proposed in Chapter 1. In exploring this question the researcher aims to ascertain which techniques companies actually use to quantify risk and uncertainty in investment appraisal and to understand how the results from the techniques are plugged into the organisational investment appraisal decision-making process. The following section draws on the academic investment decision-making literature to analyse the recent studies of current practice in investment decision-making. In doing so, it identifies the gap in the existing literature that by answering the second research question and producing a description of current practice in investment appraisal in the operators in the U.K. upstream oil and gas industry, this study aims to fill. 2.3 CURRENT PRACTICE IN INVESTMENT APPRAISAL DECISION-MAKING The fundamental concepts used in decision analysis were formulated over two hundred years ago. Yet the application of these concepts in the general business 18 sector did not become apparent until the late 1950s and early 1960s (for example, Grayson, 1960), and it has only been within the last five to ten years that it has seriously been applied to investment decision-making in practice (for example, see Section 6.3 of Chapter 6 and studies by Schuyler (1997) and Fletcher and Dromgoole (1996)). Furthermore, it is widely acknowledged that current practice in the techniques used for investment appraisal decision-making in practice in all industries trails some way behind current decision theory (for example, Atrill, 2000; Arnold and Hatzopouous, 1999; Schuyler, 1997). This has been established via empirical research which has tended to focus on whether, when and which decision analysis techniques are used by organisations (for example see studies by Arnold and Hatzopoulous, 1999; Carr and Tomkins, 1998; Schuyler, 1997; Buckley et al., 1996 Fletcher and Dromgoole, 1996; Shao and Shao, 1993; Kim et al., 1984; Stanley and Block, 1983; Wicks Kelly and Philippatos, 1982; Bavishi, 1981; Oblak and Helm, 1980; Stonehill and Nathanson, 1968). These studies have typically used survey techniques to produce statistical results indicating the percentage of organisations using decision analysis techniques (f...
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