Ranking of opportunities
Big house
Little house
Pig sty
Barn
Old english chlidren's verse
When the values of opportunities are exact numbers, i.e. without uncertainty attached, ranking to plan your actions becomes quite easy. In reality, the opportunities to be ranked have uncertain values, expressed in, e.g. expectation curves.
The uncertainty forces us to make a choice amongst parameters of the expectation curve and economic factors, assuming that we wish to optimize profit. Here is a list with pros and cons of a "hierarchical" set of parameters or criterions, because each time more relevant elements are included.
| Criterion | Pros | Cons |
|---|---|---|
| POS | Playing sure, profits fast | Missing the speculative "Bonanza" plays |
| Unrisked Mean Volume | Better chance to find the largest reserves first. | Risk of run of dry holes that may use up the budget |
| Expectation (without applying an economic cutoff) | Hitting two birds with one stone: Both volume and chance | Suboptimal, because including uneconomic reserve expectations |
| Expectation after cutoff | Better than before, but differences in costs not accounted for | Two prospects with same expectation after cutoff may have vastly different costs of exploration and production |
| EMV, Expected Monetary Value | The exploration costs are accounted for | What about the cost per barrel produced? |
| IE, Investment Efficiency | Optimal from both geological and economic point of view | Like all of above, you need to have a portfolio of opportunities and the freedom to act on your ranking. |
A graphical tool to present a ranking is a graph of POS versus MSV. Both scales are logarithmic: Pos % on the vertical axis and the MSV on the horizontal axis. Because of the logarithmic scales, lines of equal expectation (= POS X MSV) can be drawn on the graph as straight lines sloping down from the POS scale to the MSV scale. The following example shows a set of gas exploration prospects from the dutch North Sea.
If it is difficult to obtain the numbers required for the above ranking parameters, it is sometimes useful to try a
pairwise comparison" scheme. Especially if a rather large number of opportunities, each with several criteria have to ranked, this procedure may be better than a simpler subjective ranking.
The author used this method to rank research opportunities, which are notoriously difficult to evaluate in terms of chamces of success and impact of the results, if any, on the cashflow of the company. There was no possibility to test whether this approach was successful, but it helped to clarify for all involved what is important or not for the decision making. I used a similar scheme for comparison of a set of sedimentary basins, each with some 10 geological criteria.
Ranking by Pairwise Comparison