Valuation Models for Intelligent Strategies

Abstract

Abstract There is intrinsic value in the application of intelligent strategies. Pockets of "value" have been calculated in isolated situations. Yet the resistance to change has created a strong barrier to execution. Robust models for valuing intelligent strategies do not appear to be prominent. At the Digital Energy Conference in Houston in April, several presenters from large oil companies publicly admitted to not having a process in place to quantify the results of their efforts. This paper seeks to provide suggested models to pave the path forward. This paper will especially highlight the critical success factors for effective valuation:Valuation that supports integrated decision managementValuation that takes into account uncertaintiesValuation that clearly models risk vs. rewardValuation that speaks to the organizations multiple levels of stakeholders (Executive/ Investor, Mid-level management, Field Operators) Introduction Unlike most industries, the routine decisions we make at all levels of any given operating company carry multi-million dollar price tags. Add to this the inherent danger of our operations, and then top it off with the risks and uncertainties of outside influences. It is no wonder we run our business on KPIs, and don't make changes to proven procedures without overwhelming and convincing value propositions. Fueling the Adoption Cycle Across the globe we, as an industry, have recognized that our greatest challenge in effecting successful intelligent strategies is not the reliability of the technology solution, but in convincing ourselves to change the way we have always operated. We will admit that there is intrinsic value in these strategies, especially given the need to disperse our knowledge and resources further and further around the globe. However, resistance to change has created a strong barrier to execution. The adoption cycle generally begins with an executive decision to act followed by some sort of incentive to implement the act. In this case, the act is to undertake an intelligent strategy. But for that strategy to take hold and continue to be executed, we must have some indication that it is meeting success, hence we define a set of key performance indicators (KPIs) to measure results. Those results must then be communicated back to the executive decision makers who then provide additional incentives and continue to support the intelligent strategy that will then yield additional results. Valuation, which includes the measurement and communication of benefit, becomes the critical component to fueling the adoption cycle.