The planning fallacy in oil and gas decision-making
Matthew B. Welsh A , Nigel Rees A , Hugh Ringwood A and Stephen (Steve) H. Begg AAustralian School of Petroleum
The APPEA Journal 50(1) 389-402 https://doi.org/10.1071/AJ09023
Published: 2010
Abstract
The ‘planning fallacy’ describes the tendency of people to underestimate costs and times required for the completion of complex projects. Psychological research has demonstrated that a key component of this results from the packing/unpacking bias—where options or problems that are not specifically stated tend to be ignored by people when making estimates or assigning probabilities to events.
We have investigated this effect as it relates to oil and gas decision making, highlighted by experimental results comparing estimates of drilling times made by both student and industry participants. Specifically, participants were provided with a drilling scenario and asked to estimate the time required to drill the well—including drilling, tripping, rigging and all potential problems. In the packed condition the options were given as just stated while, in the unpacked condition the ‘all potential problems’ category was divided into a list of specific problems.
The packing effect was shown to markedly alter the time estimates made by all groups of participants—altering estimates of problem times by more than 100 hours on average. Additional analyses assessed the interactions between the packing/unpacking effect and personal traits such as optimism, tendency to procrastinate and industry experience. These findings are discussed in terms of their import for oil and gas decision makers desiring to improve prediction accuracy and, thus, economic outcomes by avoiding, or limiting, the impact of the planning fallacy.
Matthew B. Welsh has a BA(Hons) in philosophy and a BSc(Hons) and PhD in psychology, all from the University of Adelaide. He has been employed as a research fellow in the Improved Business Performance Group at the Australian School of Petroleum for the past six years, conducting research focussing on the psychological aspects of decision making and the impact that these can have on the accuracy of forecasts and thus economic outcomes. Member: SPE, Cognitive Science Society and Association for Psychological Science. matthew.welsh@adelaide.edu.au |
Nigel Rees completed his BPetEng (Hons) in geology and geophysics at the Australian School of Petroleum in 2009. He is employed as a research assistant for the Lake Eyre Basin Analogues Research Group conducting research on the geomorphology and sedimentology of large mud-dominated rivers and floodplains in the Channel Country, Central Australia. Nigel is also employed as a junior field engineer with Baker Atlas. Member: SPE, Engineers Australia and PESA. nigel.rees@student.adelaide.edu.au |
Hugh Ringwood completed his BPetEng (Hons) at the Australian School of Petroleum in 2009. He is undertaking a junior field engineer internship with Baker Hughes-Baker Atlas. Hugh is also employed as a research assistant at the University of Adelaide, Australia, as part of the Lake Eyre Basin Analogues Research Group (LEBARG). Member: SPE, PESA and Engineers Australia. hugh.ringwood@student.adelaide.edu.au |
Stephen (Steve) H. Begg has a BSc and PhD in geophysics from the University of Reading, England. He is a Professor of Petroleum Engineering and Management at the University of Adelaide, Australia, focussing on decision making under uncertainty, asset and portfolio economic evaluations, and psychological factors that impact these. Formerly, he was the director of strategic planning and decision science with Landmark Graphics. Prior to that he held a variety of senior operational engineering and geo-science roles for BP Exploration, and was a reservoir characterisation researcher and manager for BP Research. Steve has been an SPE Distinguished Lecturer and has Chaired several SPE Forums and Advanced Technology Workshops related to his areas of expertise. Member: SPE and AAPG. steve.begg@adelaide.edu.au |
