This picture of current practice can then be compared

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Unformatted text preview: ysis tools they use for decision-making. The chapter concludes by developing a model of current practice in investment appraisal in the upstream. If there is a gap between current practice and capability, this model will allow possible reasons for its existence to be explored. 6.2 THE USE OF DECISION ANALYSIS BY ORGANISATIONS Drawing on the research interviews, this section establishes first the extent to which companies are aware of and second, the amount to which they use each of the 128 techniques identified in Chapter 5. This picture of current practice can then be compared with the 9-step approach presented in figure 5.12 of Section 5.7 in Chapter 5 that represented current capability. • The concepts of decision tree analysis and EMV Awareness in the industry of the concepts of EMV and decision tree analysis is high and, in all but one of the companies interviewed, their use in investment appraisal decision-making is commonplace. Confirming the literature that was reviewed in Section 5.2 of Chapter 5, the value of a decision tree is appreciated almost universally in the upstream. Most of the companies have been using decision trees for some time and find the tool useful. Several respondents believe that decision trees are more effective in organisational investment decision-making than techniques such as Monte Carlo simulation because they encourage the explicit consideration of all the potential outcomes of a decision. This, interviewees feel, is especially valuable when an investment decision is particularly complex. Some organisations have software packages to assist with structuring and presenting their decision trees. The most commonly used package is Decision Tree™ (produced by Merak). The majority, however, are of the opinion that it is easier to draw decision trees by hand: “…and then they say, “Can you put this decision tree into a drawing program? And you go, “Eh?” Because it asks for your hierarchies, sub-hierarchies or whatever. And with our decision tree program there’s an awful lot of language.” (C) None of the companies reported using influence diagrams to structure their decision trees. Pearson-Tukey approximations are not employed by any of the companies in decision tree analysis. Decision trees tend to be used for all the investment decisions throughout the life of an asset (see figure 5.1 and Section 5.2 of Chapter 5 outlines these decisions). However, in most organisations decision trees are not presented to, or used by, the main board. This is issue receives further attention in section 6.3. Recognising the folly of reliance on only one decision-making criterion (Atrill, 2000) and echoing earlier observations by Schuyler (1997) and others (Arnold and Hatzopoulous, 1999; Carr and Tomkins, 1998; Schuyler, 1997; Buckley et al., 1996 129 Fletcher and Dromgoole, 1996; Shao and Shao, 1993; Kim, Farragher and Crick, 1984; Stanley and Block, 1983; Wicks Kelly and Philippatos, 1982; Bavishi, 1981; Oblak and Helm, 1980 and St...
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