Why Use Decision Analysis? Because It Works!

Why use decision analysis? George Kirkland, vice chairman at Chevron and in charge of the company’s oil & gas exploration and development strategy, is very clear. “Decision analysis is part of how Chevron does business for a simple but powerful reason: it works,” he says in a short video that outlines how decision analysis is used in Chevron and the value it creates.

“Decision analysis helps us decide not only if we want to move a project forward, but how to get the project done,” continues Kirkland. It is a scalable process used at all levels of the organisation.

Decision analysis has been at the core of decision making for the Gorgon gas project in Western Australia, where Chevron and its partners are investing $37 billion. It is an example of decision quality with complexities in the preferences dimension and the need to balance energy demands with environmental impact.

My own experience...

...is best illustrated by the portfolio management work at SmithKline Beecham in the mid-1990s. By adopting a consistent, credible and transparent process for valuing all the products in Phase II and later clinical trials, in the first year we added $2.6 billion in value, an increase of 20% on the value of the portfolio without intervention. $2.0 billion came about simply by allocating the existing budget more wisely. The additional $0.6 billion came from persuading the senior management to expand the R&D budget—with an R&D productivity of $10 extra value for every $1 expended, it was silly not to—despite intense pressure to cut costs.

In the second year, repeating the process added a further $0.5 billion or so. Considering that most of the big decisions had been made the year previously, this is impressive. The fairness introduced by the process prompted a wave of creativity within the R&D group at SB and lots of new ideas for bread-and-butter add-on projects (new formulations, second or third indications, etc) were brought forward for consideration. Having more, and better, alternatives added value.

Has anyone else any stand-out examples of decision analysis adding value? And adding it year after year?