7 - Corporate Funding Requests, Fixed Budgets, and Cost Balancing

Abstract

In any major oil company, there are numerous potential projects that desire funds. Some of the requests are field specific, while others are championed as of more general utility. Usually, each request needs to be accompanied by a quantitative cost analysis to the corporation if the project is to go ahead, but it is also usually the case that the gains of the project are described in rather vague terms without any quantitative estimates. Because not all the funding requests arrive for evaluation at the same time, it is difficult to intercompare the requests. It is also essential to ensure that the sum of all requests for funds in a given funding period does not exceed the total budget for that period. The difficulty here is that because funding requests arrive roughly steadily with time, there is no way of knowing if a highly worthwhile request is going to arrive in the later part of the budget period. In some situations, a fraction of the budget is retained in the off chance that such a highly worthwhile project does arrive. The problem is that if such a project is not forthcoming, then there is a fraction of the budget left that could have been spent on other projects, perhaps of lesser worth but still of value to the corporation.