|Adm. – Grad.
|2006 – 2008
The Risk Perceptions of Strategic Decisions and the Project Life Cycle: An Application of the Even Study Method to the Oil and Gas Industry
The announcement of a major investment project by a publicly traded company generally has a clear impact on the value of its stock. As demonstrated since 1973, based on hundreds of Event Studies in the field of Finance, market fluctuations associated with key events are an accurate gauge for perceived risks in a project, especially for systemic and financial feasibility or cost-benefit risk purposes. However, the literature is scarce on the key dimensions of decision-making process to manage the risk, especially throughout the life cycle projects.
Hereby, an Event Study is proposed on how publicly traded companies in the Oil & Gas industry manage the market-perceived risks linked with major exploration and drilling projects during their life cycle. We identify, for a set of companies, news related to announcements of their major investment projects in 2007. An event-study method is used to measure the perceived risks by the market, and the efficiency level of strategies applied by the companies to manage risk, and this at various life cycle stages of each project announced. In this study, Exploration & Drilling as well as Independent Oil & Gas firms in S&P500 index are investigated. A total of 64 exploration/drilling announcements and prior days (from 2006 to 2007) regarding important contingencies concerned in PM have been observed and analyzed in this research.
Based on the result of this study, three contingency factors have been identified – project objectives, project risk factors, and project operation – affecting exploration projects in oil and gas industry. The projects experiencing changes in their implementation have found to be affected more than those projects being operated regularly. Furthermore, we found that a project announcement with probability of occurring high severity of risk factors causes significant negative abnormal returns compared to projects with lower degree of complexity in terms of implementation. Finally, exploration projects with planning intents awarded more than projects with development and acquisition purposes.
Employing epistemology approach was one of the most important applications for recognizing appropriate events. Stock market behavior was studied based on positivism and postmodernism ideas to fully understand environment of financial markets for strategic decisions.
Portfolio management is provided as a solution to define project characteristics during planning phase. Furthermore, due to its vital role in describing project characteristics, project appraisal is also introduced in planning stage. At execution phase, time and budget, project requirements, and communication were addressed as significant parameters toward mitigation and control of irregularity in project implementation. Using PMBOK (Project Management Body of Knowledge) techniques and approaches have been also introduced to design, manage, and analyze project phases and characteristics. Additionally, several PM discipline criteria were proposed to be considered for strategic decisions including Project Change Management and Scope Change Management.