From Model to Decision

Part 14, Chapter 14: Capstones and Final Assessment

The Model Serves a Decision

A reservoir model exists to support a decision: develop, appraise further, or walk away. The forecast is a distribution of value, not a single number, so the decision weighs the expected value against the chance of a loss.

From model to decisionbreak-evennet present value ->probabilityExpected NPV 0.59, probability of a loss 25%. Appraisal narrows the distribution and shrinks the red loss tail: that risk reduction is the value of information.

The Value of Information

Spending on appraisal, more wells, more data, more history, narrows the distribution. It does not change the rock; it sharpens the picture and shrinks the downside. The worth of that narrowing is the value of information.

The Final Judgment

Balancing the value of information against its cost is the judgment the whole course was built to inform. Every model, in the end, is made to choose.

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