We recently participated in conferences, held by IQPC, on Portfolio Optimisation and Risk Assessment in the Oil & Gas and Pharmaceuticals industries. Our conclusions are summarised below.
For a discussion on how this may apply to your own business situation, please telephone Ian Lang on +44 (0) 1428 722938 or John Davies on 07803 392479 or Simon Atkinson on 01252 891683.
Garbage In ... Garbage Out - Good quality inputs are essential.
Our
take on this:
Assessments
of exploratory wells or candidate molecules must be consistently applied and
transparent across projects, and preferably subjected to peer review.
Consistency can be achieved using Assistum tools to display the issues, document the judgements, and test the conclusions.
Sophisticated mathematical techniques were described: Real Options, Monte Carlo Simulation, Decision Trees, Efficient Frontiers and Utility Theory.
But if the underlying assumptions are poor or inconsistent, the analysis is worthless. "Inconsistent valuations are worse than none". There is a need to justify and document assumptions.
Hard and Soft issues - Qualitative methods are also required
Managing investment decisions under uncertainty is essentially a subjective process, particularly in the early stages when there is little hard evidence as in oil and gas exploration or pharmaceutical Discovery and early Phase 1 development.
The qualitative judgements can be critical, for example, assessing political stability for oil access or platform richness for a discovery project.
Our
take on this:
An
effective approach must embrace quantitative and qualitative methods. It is
tempting but fatal to implicitly assign a value zero to unquantifiable factors.
Assistum tools enable a combination of quantitative and qualitative measures.
Communication - High quality conversations are more important than the numbers
One should avoid getting carried away with precision when the quality of the inputs do not justify it. It is more important to have meaningful discussions of the key issues.
There was extensive use of visualisation techniques: Charts showed market risk v commercial risk or market attraction v product strength at the project level; and potential value v probability of success at the portfolio level.
Our
take on this:
It
is essential to be able to communicate the project and portfolio issues to
management for decision-making. Otherwise they simply rubber-stamp the analysts'
recommendations on trust. Hardly added value!
Assistum uses visualisation and conversational techniques to communicate complex issues and stimulate high quality discussions.
Learning and review - This appears to be a neglected topic
The oil and gas industry seems more advanced at "after project reviews" to pick up "lessons learned" and share best practice than the pharmaceutical industry.
Difficulties in motivating staff to do a review for future re-use or to learn from others' past experience are important barriers to learning. However, the high turnout at both the conferences, and the cross-fertilisation between oil and gas and pharmaceuticals were good signs of learning in action.
Our
take on this:
To
encourage learning, it must be easy both to record and to access
new insights and best practice in portfolio optimisation and risk assessment.
Assistum technology gives you this capability.
Some examples:
BP demo IS security demo Oil Well planner Pharmaceutical risk
