order to select the best options for growth across five business
units of an Indonesian energy company, Anand Veeraraghavan used a
stochastic optimization model (built using Crystal Ball’s Optquest)
that accounted for 25 key uncertainties and linkages across the
Anand worked on a growth case for an Indonesian energy company over
the summer. The company had five business units—each with multiple
growth options. The goal was to select the growth options that would
maximize the NPV of combined business.
Selecting the growth options presented a unique challenge - the
growth options were interlinked across business units. For example,
pursuing an aggressive expansion strategy in the geothermal business
would create goodwill with the government (since developing
geothermal is a key mandate of the government). This goodwill could
potentially help the company win a contract extension with an oil &
gas field. The reverse was true as well.
The solution was a two-step process. The first step was the define
linkages across all business units. Two linkages were defined -
handshakes (representing goodwill) and petrotechs (skilled resources
that were hard to find in the industry). For each growth option,
the number of petrotechs and handshakes required and/or produced was
defined. This served as a basis to link the various growth options.
The second step was to maximize the NPV by optimizing the linkages.
Since the NPV from each growth option was a distribution,
CrystalBall's OptQuest was chosen instead of Excel Solver to find
the optimal solution.