Mining companies aim to keep costs as low as possible, to protect margins should commodity prices drop. Surprisingly, many fail to either monitor major costs or utilize available activity to drive improvement.
Poor data quality hinders the ability to identify operating inefficiencies; yet information overload has the same effect. Examples of inefficiencies, or hidden wastes include idle shovels and trucks during shift changes, or in the loading or hauling cycle, despite extensive tracking technologies. By making such unproductive activities visible, leaders can identify and action changes with astounding results. Removing one unproductive minute per shift or excess kiloliter water pumped per minute saves millions of dollars annually.
Comprehensive operation monitoring systems have been installed for mining and processing activities over recent years. These short-interval systems allow close tracking and correcting of practices throughout the sites.
As monitoring systems became more sophisticated, (along with supporting back-office systems), the capture, analysis and reporting of cost data provides great insight.
Despite this information revolution, operations management still struggle to focus their teams’ efforts to proactively cut costs. Identifying the true root cause of cost is difficult, due to the lack of an integrated operating model with production metrics and allocated activity-based costs; no analytics exist to highlight root causes and improve the potential of each outcome. Apart from notorious spreadsheets, most operations do not have a timely reporting model and tool set.
Two steps on the road to cost leadership
A top-down, restructuring of business performance metrics helps senior management focus on business outcomes and the immediate drivers of metrics, delivering results quickly shifting ownership of reporting from information technology (IT) to the business.
Another fundamental change is to include other related business practices such as relevant target-setting, ad hoc budgeting/forecasting during the operating year, and integration with performance pay mechanisms. Such a complete reporting plan lays the ground for sustainable reporting enhancements.
Once costs from one system can be tied to cost driver activities from the various other operational systems, potential areas for cost improvements become visible. Teams can now focus efforts on those “hidden” wasteful activities or delays.
A shared vision of value
KPMG has a unique approach to creating insightful reporting: a focus on the right performance outcomes; sourcing only relevant data; and creating less information but with the right insights. The methodology helps operations and executive staff define expected business outcomes, as well as the metrics that measure these outcomes, and the associated performance data.