Respondents typically explained this trend in two

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Unformatted text preview: t draws on the interview data and the behavioural decision theory literature (summarised in Section 2.4 of Chapter 2) to gain insights into how organisations use their decision analysis tools and how the decision-makers use the results from the analysis to make decisions. From this, it is possible to suggest why there is a gap between current practice and capability in investment appraisal in the upstream. A model of current practice in investment appraisal in the upstream oil and gas industry can also be developed. This model is presented in section 6.4. 6.3 THE INVESTMENT APPRAISAL DECISION-MAKING PROCESS Confirming Schuyler’s 1997 study, the findings from the research presented in this thesis indicate that decision analysis techniques are being introduced slowly into upstream organisations. Despite the application of decision analysis techniques to the oil industry in the literature in the 1960s (Grayson, 1960), the majority of upstream representatives report that their organisations only began using them within the last five years. Respondents typically explained this trend in two ways. Firstly, several claimed that previously the computing power was insufficient to allow the use of decision analysis techniques to be automated and hence their company had decided against their implementation. Secondly, others perceived that the increasing risk and uncertainty in the operating environment, as discussed in Chapter 3, had contributed to their organisation’s recent interest in decision analysis. Most companies first use decision analysis tools on particular fields before recommending employing them company-wide on all prospects and fields. This is confirmed by the tendency for 140 organisations to publish in industry journals, such as the Journal of Petroleum Technology, accounts of using decision analysis techniques on specific cases (for example, Spencer and Morgan, 1998). The majority of the sampled companies have a cost threshold that they use to indicate those decisions to which decision analysis techniques ought to be applied. Reflecting their different attitudes to risk, in the smaller companies this value is lower than in the larger organisations. Therefore, decision analysis is used on a higher percentage of the decisions in small organisations than in larger companies. Most companies have not altered which decision analysis techniques they use or how they use them, since they first introduced the techniques. In some cases, corporate adoption of the tools was accompanied by the production of manuals, which outlined their new approach to investment appraisal, the introduction of corporate definitions of risk and uncertainty and the instigation of training programs for staff. Such organisations are reluctant to change their approach and be forced to repeat this process. This means that in some companies, even though they are aware their approach is not as sophisticated as it might be, they continue to use it: “Yes. I’m recommending changes to it. ...I’ve got an alternate system that we could go to. …The problem is that the company only went to this process, from having nothing really at all, several years ago, so they are loath to change it again. And that’s the problem. We are loc...
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