The paper “ The Importance of Applying Portfolio Management in an Oil Business” is affecting example of the research proposal on management. Oil, which is also called black gold, is the need of most of the industries in the world, transportation, comfort in homes, and many other areas. The dynamics of oil production and demand make it complicated and risky. With increasing energy demands, it has to maintain financial performance. The world economy and the price of oil seem to be dependent on each other. That is why the oil business needs portfolio management.
The fact is that the oil resources are scarce and it is not being replenished as much as it is being extracted. Total neglect of the environment cannot sustain the oil business in the future. Along with the risks and uncertainties, the oil companies also have to consider the damages caused in the natural environment due to the various operations involved in the oil business Another challenge in the oil business is recruitment and retention. This aspect needs to be addressed while making any policy or approach. Chapter 2- Portfolio Management of the Oil IndustryFor getting the maximum benefit from the business strategic portfolio management is needed.
It involves creating, managing, and evaluating a portfolio of strategic initiatives for getting lasting results and benefits. It should cover strategy, finance, stakeholder management, value management, benefits management, risk, quality, HSE, scope, technology, estimating, and other front end topics. Presently a complex system is in use in this industry. It must be replaced by a simulation method. A holistic approach for task scheduling and risk management is needed for maintaining and increasing the business with all the challenges.
The exchange rates and interest rates can be included in the allocation and planning of the portfolio. For leveraging the human and capital resources, a portfolio management team should be formed. The present-day uncertainty of the oil business can be minimized by experimenting and learning or trying out multiple solutions simultaneously. Project management practices should be integrated into a competitive advantage. That includes the support of software applications. Chapter 3 - Risks and Environmental Concerns of the Oil BusinessThe first step in oil production starts with field valuation and selection.
Seismic data and estimated life of the well are considered while minimizing risk. Total capital investment and operating costs are considered for NPV of the field. Different methods are used to do a risk analysis. Some are mathematical models and some are subjective. To minimize the risk the company should choose the proper focus areas for exploration and production. The effect of the financial decisions and their outcomes is less than the effect of the areas chosen. Political instability is an important factor here. Any kind of disturbance has far-reaching effects.
International policy conflicts affect the oil business’ s profitability. So both environmental concerns and political situations must be taken into consideration. To meet the gap between supply and demand, alternative sources need to be explored. There is a conspiracy among the big companies to fill it up by hiking the price. Chapter 4 – Portfolio and Risk Management in Oil BusinessEnvironment-friendly products may not prove to be cost-effective. The purchase of technology, exploration, and production should be cost-effective. Environmental economic analysis is based on benefit consideration.
For the benefit net of cost, they invest in different portfolios. Project management is concerned with the definition and delivery of a specific project. The integration of other fields assures project success at the minimum level. This leads to the application of engineering and technology in management processes. Strategy, finance, organization, technology, control, people, community, environment, process, timing, etc have a direct effect on the project. A co-ordinated approach is needed for the successful execution of the project. The project policies should be able to distinguish strategic partnerships and partnerships of convenience for oil companies.
This will ensure sustainable development. Chapter 5- The Portfolio ApproachModern Portfolio management or MPT, handles the cash surplus situations to avoid negative credit rating. There could be two types of risks in the portfolio – high-level faults and project-specific risks. The aim of MPT should be to identify the acceptable level of risk tolerance. The standard deviation of its rate of return can be used to measure the volatility of the investment. The stocks portfolio with different time horizons should be tried. Asset allocation must be judicious and efficient.
After managing and thinking about the correlation, the returns on the investment should be taken into consideration. When the risk is minimized, the portfolio is mentioned as optimal. ConclusionThis paper discusses and introduces the importance of applying Portfolio management in the oil business. This will ensure the optimum utilization of human and capital resources. these can be put in the best possible investments. Working as a team and owning responsibility is the nature of effective portfolio management. There are two approaches to portfolio management. One approach emphasizes that if your gating or Stage-Gate process is working well, the portfolio will take care of itself.
The second approach is that all projects must compete against each other. The research is proposed to be done as a case study using questionnaires and interviews. Based on the above responses, a qualitative analysis will be carried out to prove the efficiency of the portfolio management system.