Shell

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estimation

In the past, Shell acquired a good reputation among management wreiters for its innovative scenario-based approach to strategic planning and the management of uncertainty.

But Shell has recently been forced to make several downward corrections to its estimated reserves. As one of his last acts before getting ejected, the boss of Shell apologised "unreservedly" to the shareholders. (Interesting choice of word.)

Expecto Petroleum - What can the Directors of Shell learn from Harry Potter?

Confidence and Contingency - How can we get better at estimating?

Shell's estimation capabilities

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A paper published in 1992 used Shell to illustrate best practice in estimation.

In the 1970s, geologists at Shell were excessively confident when they predicted the presence of oil or gas. They would for example estimate a 40% chance of finding oil, but when ten such wells were actually drilled, only one or two would produce. This overconfidence cost Shell considerable time and money. Shell embarked on a training programme, which supposedly enabled the geologists to be more realistic about the accuracy of their predictions. Following this programme, when Shell geologists predicted a 40% chance of finding oil, four out of ten were successful.

Project Estimation: Confidence and Contingency

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