Portfolio Management in an Upstream Oil and Gas Organization

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A portfolio management process and system changes how decisions are made in an organization and builds confidence in the quality of strategic moves made by senior management. Dr. Mazen Skaf of Strategic Decisions Group shares an award-winning case study on how one energy company developed its portfolio management system, the support it required and the impact it made. This project won the first award issued by the Decision Analysis Society of the Institute for Operations Research and the Management Sciences (INFORMS). Easily transferable to other industries and organizations, the key elements highlighted within include:

  • Establish a hierarchy of decisions that includes two layers (a corporate portfolio of business units and a business unit portfolio of assets and projects) and provides scope and direction for lower decisions;
  • Develop and design the system architecture, which identifies the decisions and analyses the system will support, assesses the need for an open-loop or closed-loop decision support system, and outlines the necessary inputs and flexibility;
  • Use the system to conduct a portfolio risk analysis that compares investment opportunities and allocates resources appropriately among assets, arming managers with a systemic way to quantify the effects of a decision on their business and key value drivers requiring management’s attention;
  • Build a structure to support the system, including a core team and portfolio advisor, trained users, and joint decision-review meetings to give senior managers the opportunity to contribute to the quality of decisions early in the strategy process; and
  • Focus on the impact by incorporating the right financial measures and implementing peer reviews to ensure consistency.

An effective portfolio management system can become a core competency of any organization, changing the way different stakeholders interface, reducing time for developing and debating regional or unit-level strategies, and fostering confidence in strategic direction and decisions.