R&D project appraisal at the Gas Research Institute: Part II

The Project Appraisal Methodology (PAM) was originally developed in 1975 and first run at the Gas Research Institute (GRI) in 1978 to help upper management select portfolios of research and development (R&D) projects to fund. Since that time, GRI has had 132 successful project commercializations and has achieved a success rate of 30% or over twice the documented industry average. GRI attributes its success to several decison making principles founded in management science. PAM is the cornerstone of GRI’s R&D decision making process. In particular, GRI’s projects are generating benefits for natural gas consumers and suppliers (savings plus sales increases) of $7-15 billion per year on an annual investiment of about $1.6 billion and netting almost a 7 to 1 annual rate of return on their investment. Just in 1985-1989 these new technologies contributed to a savings of $70 billion ($78 billion, NPV, 1990$s) in the wellhead price of natural gas in the USA. Additionally, the application of management science at GRI has led to increases in available natural gas supplies (valued at $10-35 billion), a corresponding reduction in dependence on imports, major environmental and safety benefits, and vital changes in the position of the gas industry in the home heating, commercial cooking, and numerous other markets. An abstract of Part I can be found in IAOR 53421.