Portfolio Management FAQs

1. Can your solution handle dependencies between projects? Are constraints, implications, and relationships considered when choosing or shifting projects during optimization?
   
   
2. Is there a limit to the number of constraints or goals that can be used when optimizing?
   
   
3. Is there a limit to the number of projects you can handle?
   
   
4. What if I don’t have Merak Peep (for example, if I have Excel, Aries, or another program)? How can I get my data in efficiently?
   
   
5. When should I use each type of optimizer or solution generator in Capital Planning?
   
   
6. How do the Linear Program and Genetic Algorithm solution generators come up with portfolio alternatives?
   
   
7. How can I get data out of Capital Planning for use elsewhere?
   
   
8. How do I ensure certain projects are selected by the optimizer?
   
   
9. Can I customize my own variables? Metrics? Goals? Rules? Objectives? Charts? Optimization algorithms?
   
   
10. Are all possible portfolio solutions recalculated using Peep?
    
    
11. How do I use rig constraints to schedule my drilling program with Capital Planning?
    
    
12. How can I ensure that the incremental economics of a particular project in a Production Sharing Contract (PSC) is properly handled using Capital Planning?
    
    
13. How do the portfolios generated by the optimizers differ from one another?
    
    
14. What is the benefit of analyzing possible portfolios using the Efficient Frontier?
    
    
15. How can I capture risk and uncertainty using Capital Planning?

1. Can your solution handle dependencies between projects? Are constraints, implications, and relationships considered when choosing or shifting projects during optimization?
   Capital Planning™ strategic portfolio management software allows any critical dependency to be captured through the use of business rules. Project scheduling, limits on participation and dependent project identification are optimization criteria you can use to model the asset interdependencies found in everyday business situations. Capital Planning’s numerous optimization algorithms always honor these rules when generating portfolios, so you can be sure that every potential portfolio alternative satisfies your specific set of circumstances. Should you have a business problem requiring a unique solution, Capital Planning’s extensible architecture ensures that new business rules can quickly be modeled using a custom module.
   
   
2. Is there a limit to the number of constraints or goals that can be used when optimizing?
   The only limit is your imagination and the level of detail at which you wish to define your business strategy. To precisely model their businesses, existing clients have used in excess of 100 rules to capture the nuances unique to their operations--all without any customization.
   
   
3. Is there a limit to the number of projects you can handle?
   There is no limit. Existing clients have successfully used Capital Planning to consider several hundreds of opportunities simultaneously.
   
   
4. What if I don’t have Merak Peep (for example, if I have Excel, Aries, or another program)? How can I get my data in efficiently?
   Capital Planning works optimally with Merak Peep® economic evaluation and decline analysis software by drawing upon the secure and consistent data flow between Merak™ applications. That said, advanced data management techniques in Capital Planning also make it possible for clients to use results from custom Excel templates, thereby enabling clients with mixed data formats to manipulate data at the portfolio level in a meaningful and uniform manner. Capital Planning’s data management utility is able to systematically populate database tables with results imported from multiple Excel spreadsheets. This capability provides a measure of data consistency when used in conjunction with standardized corporate planning business practices. You can archive spreadsheet data in relational format to serve as a snapshot of your projects that you can access when needed--a process approximating the data management strengths of using Peep as your corporate economic standard.
   
   
5. When should I use each type of optimizer or solution generator in Capital Planning?
   Capital Planning offers four methods for generating portfolio alternatives. The Rank and Cut solution generator offers a very basic sorting and ranking of projects against a single economic indicator, making it suitable for solving simple business problems with very few constraints. The Linear Program solution generator uses LINDO™ and ILOG™ calculation methods and is suitable for very complex problems with multiple constraints. Due to its linear nature, however, constraints and corporate metrics must be represented in linear form (for example, so that the value for portfolio would be the sum of the values for the individual projects). The Genetic Algorithm (GA) solution generator is suitable for even more complex problems in which some of the constraints and metrics cannot be represented in linear form--meaning that the portfolio value is not additive, but rather could represent a ratio such as the common investment ratios of Rate of Return (ROR) and Profit/Investment Ratio (PIR). In many non-linear situations, a hybrid optimization technique is very effective for exploring the best portfolio alternatives. The Linear Program solution generator is used to determine the best feasible solution, and then the genetic algorithm solution generator is applied to that portfolio alternative to generate multiple improved portfolio alternatives that better satisfy non-linear objectives. Lastly, the Random Portfolio solution generator can be used to sample the solution space for comparison purposes.
   
   
6. How do the Linear Program and Genetic Algorithm solution generators come up with portfolio alternatives?
   In the case of the Linear Program solution generator, a system of equations representing the business problem is solved and both feasible and optimal solutions are generated. The GA solution generator uses an iterative approach, along with sophisticated sampling algorithms, to guide it towards a set of optimal solutions. The Genetic Algorithm solution generator requires an initial portfolio as a starting point, and thus is designed for use in conjunction with the Rank and Cut or Linear Program solution generators to yield an improved alternative.
   
   
7. How can I get data out of Capital Planning for use elsewhere?
   Different data types (time series, indicators, attributes) for multiple projects or portfolios can be exported to third party tools, such as Excel, using the chart functionality in Capital Planning. Thanks to a highly flexible and advanced architecture, Capital Planning users can also create custom programs in Visual Basic or C# to access specific portfolio or project data.
   
   
8. How do I ensure certain projects are selected by the optimizer?
   Users can force the selection of specific projects into a portfolio solution using Capital Planning’s business rules. While this means the optimal portfolio result may not be achieved, it does ensure that necessary operational constraints are obeyed when portfolios are generated.
   
   
9. Can I customize my own variables? Metrics? Goals? Rules? Objectives? Charts? Optimization algorithms?
   Yes to all of the above! Capital Planning has a very flexible and extensible architecture, allowing quick customization for client-specific rules, goals, optimizers or charts. Use Capital Planning’s custom variable editor to quickly create many common corporate time-series variables and indicators used for capital allocation decisions, such as Return on Average Capital Employed (ROACE) or Reserve Additions.
   
   
10. Are all possible portfolio solutions recalculated using Peep?
    When generating portfolio solutions, Capital Planning uses result data snapshots from Peep. If a portfolio solution recommends delaying individual projects to optimize objectives and achieve goals, the Peep result data is shifted forward in time and added to the portfolio value. However, individual project results are not recalculated as part of this process; the number of possible permutations in timing that are explored would require intensive computing power and dramatically slow down the process of generating portfolios. However, once a portfolio of interest has been identified, you can use a custom tool in Capital Planning to generate a more accurate recalculation of these projects in Peep. This ensures the working interest and start dates chosen in the portfolio solution are properly captured at the project level and provide the most accurate view of corporate value.
    
    
11. How do I use rig constraints to schedule my drilling program with Capital Planning?
    When generating portfolio solutions, you can incorporate your monthly or yearly rig constraints by adjusting your project scheduling on an annual basis to coincide with capital allocation and budgeting cycles.
    
    
12. How can I ensure that the incremental economics of a particular project in a Production Sharing Contract (PSC) is properly handled using Capital Planning?
    The incremental economics of a particular project can be modeled effectively in Peep using consolidations calculated with consistent deterministic parameters and then selected for portfolio solutions. Alternatively, you can create Peep scenarios that calculate both the base and the incremental economics within a single case. The user can then limit project selection to either the base or the base-incremental scenario in any potential portfolio.
    
    
13. How do the portfolios generated by the optimizers differ from one another?
    The portfolios generated by Merak Capital Planning strategic portfolio management software differ in three key areas:
    • Membership--a project is included, or not
    • Timing--the recommended project start date
    • Working Interest--your level of equity participation
    
    
14. What is the benefit of analyzing possible portfolios using the Efficient Frontier?
    The Efficient Frontier (EF) provides a range of the most efficient portfolios generated with the Linear Program solution generator and allows the user to better analyze trade-offs for competing metrics, such as
    • Value vs. Risk
    • Shareholder Value vs. Investment
    • Production vs. Capital
    The EF analytical method first maximizes the independent metric (typically a measure of value), then minimizes the dependent measure (typically a measure of risk) and finally, fills in the EF by minimizing the dependent (risk) metric while varying the independent (value) metric.
    
    
15. How can I capture risk and uncertainty using Capital Planning?
    Capital Planning employs a discrete scenario approach to represent potential outcomes and the probabilities of occurrence for each variable or activity within a project. Price outcomes are correlated across all projects and then a Monte Carlo simulation is used to generate distributions for each project. These individual project samples are then factored by the shifting and working interest factors to form portfolio distributions. All of these project and portfolio distributions, along with their relevant risk measures, can be viewed using Capital Planning’s extensive data mining and charting capability.
    
    All names and trademarks are the property of their respective owners.
    



Request more information about Merak Portfolio Management products and other Schlumberger innovations.