Brunei
Society of Petroleum Engineers (SPE) Evening
Distinguished
Lecture Series:
“Would You Know a Good Decision if You Saw One?” by Mr. Reidar B Bratvold
Date: 10th March 2004
Venue: Orchid Garden Hotel
ABSTRACT
The Oil and Gas
business revolves around making decisions, often decisions of a complex nature,
whose consequences are not immediately obvious and which are required be made
with incomplete information and with less time than needed.
Decision-makers at every level, in every part of the oil & gas value
chain, are confronted with information overload and an increasingly complex and
volatile business environment. Add
to this the failure of many decisions to return the value expected of them, and
a strong argument can be made that the old-fashioned value metrics and ways of
making decisions – depending on intuition, common sense, and specialized
expertise – are simply no longer sufficient, if they ever were.
Decades of research on
the psychological aspects of judgment and decision-making show that traditional
ways of decision-making, combined with a tendency to substantially underestimate
the role of chance, leads to an amazing overconfidence in people’s perception
of their ability to make good decisions and control their outcomes. Luck is
often mistaken for skill. Unfortunately, intuition and repetition, combined with
a few well-remembered good outcomes, are unreliable teachers at best.
Overconfidence is a deeply rooted characteristic and not only do most people
tend to hold overly favorable views of their abilities, but, sadly, those most
in need of improvement are the least likely to recognize it! Overconfidence also manifests itself in the ability of
decisions-makers and, in particular, experts to assess the magnitudes of risks
and uncertainties.
Many people believe that
good decision outcomes necessary imply good decision-making and, vice-versa,
that poor outcomes necessarily signals poor or incompetent decision-making. But
this ignores the role of chance. Furthermore,
as most organizations reward (or penalize) people based on the outcomes
rather than the process behind the decision-making, people tend to
be outcome-focused. “Results are what matter.” Clearly, good outcomes are
desirable. However, when there is uncertainty, the best hope for a good outcome
is a good process where decision-makers focus on what’s under their control
and recognize what is not.
Formal, quantitative
methods have been developed to aid the analysis of decisions where the outcome
is uncertain (e.g. expected monetary value, decision trees, utility theory) but
these require that decision-makers are entirely rational and that they, or their
organizations, are perfect information processors.
Our heads are just not wired for uncertainty. Years of behavioral
research on judgment and decision-making have unearthed a variety of cognitive
limitations in dealing with uncertainty. This lecture will explore what it means
in practice “to be rational”, identify some common traps of
“irrationality” and show how a cognitive perspective can offer practical
suggestions on how to improve decision-making and thus lead to improved
individual and corporate performance.
BIOGRAPHY
REIDAR
B BRATVOLD is a Professor of Petroleum Engineering and Management at the
University of Adelaide specializing in decision-making under high uncertainty
and the application of leading-edge decision technologies to real-world
problems. Before joining The University of Adelaide, Reidar spent many years in
executive management positions in the E&P and computer industry. He also
serves as CEO of DecisionsDecisions, Inc., offering consulting and training for
the upstream E&P industry in various aspects of decision-making under high
uncertainty.
Twice invited to serve
as an SPE Distinguished Lecturer, he is a frequent speaker at industry
conferences and events, and has published numerous papers on topics such as
investment modeling, decision-making, stochastic reservoir modeling, fuzzy
logic, high-performance computing and reservoir management.
Reidar holds a PhD in
Petroleum Engineering and an MS in Mathematics - both from Stanford University,
an MS in Petroleum Engineering from the University of Tulsa, a BSc from Rogaland
University (Norway) as well as extensive executive education from INSEAD
(International Executive Program), Stanford’s Graduate School of Business and
MIT’s Sloan School of Management.
Pictures from the evening
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