We tend to make the assumption that when considering an investment opportunity, executives seek to fully understand its financial attractiveness. Likewise, we expect that politicians would be interested in some quantitative measure of the impact of an intended policy. However it is more common for decision makers to rely on an overly simple single Continue reading ‘Just give me the number’
The Big Five for Global Scenarios
According to Pierre Wack, the founding father of scenario planning at Shell, the essence of scenario development is to identify the (uncertain) underlying fundamental driving forces that will shape the future business environment of an organization. In his thinking it would be wrong to immediately zoom in on different possible outcomes of trends such as global Continue reading The Big Five for Global Scenarios
Blending ERM and Scenario Planning
Enterprise Risk Management aims to address risks that might affect the enterprise at large. The process steps involve risk identification, assessment and prioritization as well as the development of risk responses. Continue reading Blending ERM and Scenario Planning
DA and RM: Join Forces?
In the context of growing a business, but also for just running it, decision making and dealing with risk are core ingredients. In support of both dimensions more or less separate disciplines have emerged (Decision Analysis and Risk Management), each with its own Continue reading DA and RM: Join Forces?
Risk and discount rate: an unhappy marriage
Since I left my former employer Shell in 2015 I have become exposed to opportunity evaluation practices elsewhere in business. I found that everywhere the same discussion Continue reading Risk and discount rate: an unhappy marriage
Understanding project risk using DeltaLogN
The best approach for taking into account risks when economically evaluating investment opportunities is the application of probabilistic valuation. This is a more disciplined methodology than just ‘running some sensitivities’. Continue reading Understanding project risk using DeltaLogN
BP, Shell and Statoil scenario practices
The default number of scenarios that are typically presented by various organizations using scenario planning is four. This stems from the application of the so called deductive Continue reading BP, Shell and Statoil scenario practices
An innovation for decision tree probabilities
The attraction of a decision tree is that it brings together conceptual thinking about a decision problem and the quantitative evaluation of it. For the latter purpose it may be inferior to other methodologies, for example Monte Carlo simulation or analytical Continue reading An innovation for decision tree probabilities
The Shell scenarios of the 90s and what came of it
I am a big fan of look backs and after action reviews. Only in that way can we learn, reflect on how we looked at opportunities, what we were thinking at the time and whether the decisions taken made sense in the context of what we knew or could know. The objective is Continue reading The Shell scenarios of the 90s and what came of it
Scenarios, numbers and the lognormal
However interesting and generally appealing scenario thinking, as discussed in my previous article, may be, it only provides a broad, qualitative picture of the context within which one is considering a significant investment decision. But indeed, a very important Continue reading Scenarios, numbers and the lognormal