Risk management in an uncertain world: From operations to strategy - benefits and challenges

Abstract

The oil and gas industries face several long-term challenges: On the one hand, demand and pricing are likely to be constrained by the impact of alternative/renewable energy supplies and by environmental considerations. On the other, the increased technological challenges associated with more complex processes to discover and extract oil will increase cost and risk.
The future success of the sector will be closely linked to its ability to attract investment. This will more than ever depend on robust project selection, efficient project management, and sophisticated portfolio optimisation. The success of individual companies will partly depend on their ability to generate a deep understanding of project economics, and to use this understanding to create more robust decision-making processes, and to improve outcomes in negotiations with private sector partners and governments.
In this article, we highlight the key benefits and challenges in using risk and uncertainty techniques to support decisions relating to project evaluation, selection and portfolio optimisation. We note that over recent decades, the industry has made great strides in its approach to assessing and managing safety and operational risks: Regulations and guidelines have generally continued to be improved and adapted, and organisational processes have been developed to identify, mitigate and manage a wide range of operational risks, even as sometimes this has been in response to disasters. However, we argue that analogous approaches for decision-support are generally not yet adequately embedded within organisational processes and cultures, and that they are not implemented in a systematic manner. We emphasise the benefits in doing so, whilst also highlighting some key challenges. We argue that top-down leadership is essential in order
to succeed and to embed the appropriate “risk culture” within an organisation.
Whilst noting that the key challenges are of an organisational and cultural nature, we also briefly mention some technical tools that are typically required, such as simulation techniques.
We conclude by noting that the issues highlighted here are similar in Vietnam to those in many other geographies around the world, even as the extent of implementation varies. In order to maintain a competitive advantage for Vietnam, it is important to enhance industry culture, capabilities and decision-making processes without undue delay.