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The Definitive Agreement

February 13, 2012

NorthStar entered into a legally binding agreement with Valley Corp. The Definitive Agreement.

Fresh out of college with a First in one of the new engineering disciplines, Alex was keen to face the challenges posed in systems development. It was the mid 80s and the country was awash with confidence and money. Money which needed to be invested. The lure of the North Sea oil fields was irresistible and so NorthStar bought a stake in a concession comprising several part blocks. Once the oil would start to flow, Opex would be low and Abandonment costs a distant irrelevance. 

CapEx was the main problem. An Oil Rig is a big beast. Alex, who had travelled much after graduating, wondered if he would ever get to see one. (BTW – He never did.) Whether NorthStar needed additional capital to survive or not was not clear to Alex. It did not matter. Suffice to say that Valley Corp provided NorthStar with a Facility. The repayment of which largely depended on the price of a barrel of oil, now and in the future; never mind that pesky trio of taxes – CT and PRT and Royalty.

Eoin ran the financial affairs of NorthStar. As appearances went, Eoin reminded Alex of Trigger, especially the Trigger in that blue suit, stood at the bar. Eoin was reputed to be a big fan of Covent Garden (the Opera House, that is), a subject in which Alex had no interest whatsoever at the time.

It was through the NorthStar project that Alex met his mentor. Together, his Mentor, Senior and Alex delivered a computer program which modelled Eoin’s working interpretation of the Definitive Agreement. It was not perfect, there were a few teething problems but soon Eoin signed it off. Job Done! To celebrate, all four went for a celebratory lunch in one of those posh wine bars. This was the occasion that Alex learned that there was “only one way” to have a steak cooked. That only way was Medium-Rare.

Somehow, although in the sales-driven company that Alex worked for it was not hard to deduce how, Valley Corp got wind of the good work that Alex & Co had done for NorthStar. The Board of Valley Corp wanted Marcus to demonstrate unequivocally that their investment in those part blocks was sound. This meant a proper computer modelling program, not a mere VisiCalc spread-sheet, run on a mainframe computer. Surely this could be delivered quickly by the team who already done it. Right?!

Management convinced themselves that Alex was capable of delivering the solution with no help from his Senior and not much more from his Mentor. This was the first but thankfully only mistake. After his initial meeting with Marcus et al.,  Alex reported back to his Mentor informing him that he (Alex) had no idea what Marcus was on about! After examining the “Business Requirement” document (prepared by Rocky), it became clear to Alex’s Mentor that Marcus had a different but equally interesting interpretation of that Damn Agreement. Except that the document was Rocky’s interpretation of Marcus’s own definition of the DA. Not Good.

A few more meetings later, it became clear that Rocky was struggling with the detail. Things were becoming decidedly fraught. Then Alex and his Mentor discovered Gemma. Cool, calm and collected, Gemma also worked for Marcus but, unlike Rocky, Gemma was on the same wavelength as Marcus. Arguably, she was the only person who was. At which point Alex (supported by his Mentor) made the suggestion that saved the project.

It was proposed, discussed and agreed that Marcus and Alex would meet at 07:30 every day for an hour – that’s all Alex was allowed – and that Marcus would take Alex through a Worked Example of the DA. Later in the day, Alex and Gemma would pore over what had been discussed earlier; and Gemma was permitted to seek clarification on the odd detail from Marcus. So that by the next meeting everybody (especially Alex) was on the same page.

And so Alex came to learn the basics of Facilities. He came to understand what was meant by Drawdowns, Repayments (of Capital as well as Interest), Opening and Closing Balances. He could see the importance of fluctuations in the price of a barrel of oil. And, he was somewhat surprised to discover just how much was to be “lost” through those pesky taxes, especially Royalty.

Once the W/E was completed, it took Alex just one more day to complete the computer modelling program. Much to everybody’s amazement.  This assignment taught Alex a few lessons:-

The best Business Analyst is the person whose “Day Job” is actually running the business in some way or another;

A Worked Example is an essential artefact in the process of specifying the Business Requirement; and

A computer program does not take a long time to code and test if one has a thorough Worked Example from the outset.

In particular, it is essential for the Developer to have actually written the W/E himself. In that way, the Developer acquires a sound understanding of the requirement and this helps him to achieve that most difficult of tasks – translating the business requirement into a detailed technical design. 

As soon as the computer program was complete, Marcus asked Alex to run a number of “Scenarios”. This turned out to be a relatively short exercise. It seemed to Alex that Marcus was most pleased with the outcome of the Scenarios. And then, Marcus lost interest in the project altogether. All further communication was via Gemma and then only to “tidy-up” the documentation. Alex was never to see Marcus (or even Eoin) again.

Sometime later, rumour had it, both parties agreed to end the Definitive Agreement. Alex was not told which party had sought the termination. It could have been either NorthStar or Valley Corp. Presumably, one of them had realised that they would be better off without it. Not sure.

Alex was convinced (rightly or wrongly) that Marcus had long since determined that the investment was not sound. He did not need a computer modelling program, especially one which needed to be run on an expensive timesharing mainframe computer. Being able to run lots of different scenarios at the press of a button certainly helped though. And it was definitely needed (using persuasive graphical material) to convince the Board.

Alex was convinced that Marcus had arrived at his conclusion by simply using mental arithmetic supported by some calculations on the back of a fag packet.

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