Strategic Modelling and Business Dynamics: A Feedback Systems Approach

8.3. A Closer Look at the Stakeholders and Their Investment Decision Making

To uncover the feedback structure of the oil industry the modeller led a discussion of the investment decision making of each main producer group. The same formulation principles introduced in Chapter 7 apply once again, including the Baker criterion, fit to industry practice, robustness and recognition of bounded rationality. For example, what do executives in commercial oil companies know and pay attention to as they make their upstream investment decisions? What information really matters to OPEC oil ministers as they agree quotas and set production targets? Which organisational, social and political factors shape and filter the signals used by different producer groups and their leaders to justify investment and production decisions? The diagrams that follow are similar to the flip-chart drawings from team meetings in which all these questions, and more, were thoroughly explored. Two versions of the model are described that differ only in their assumptions about the available pool of commercial reserves and development cost per barrel. The first version of the model reflects conditions in 1988, during the Soviet era, when the oil market excluded communist areas. The second version reflects conditions in 1995 when Russian oil was trading in the world market. A selection of equation formulations is included in the description that follows. Full documentation of the equation formulations can be found ...