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Value driver modelling with Archimedes FACX for optimising mining company operations
Ilya Golubinskiy, PwC Russia 9 February 2011
PwC Russia
Value driver modelling can help a mining company’s management to address a whole range of important issues
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Recently, mining companies’ costs have gone up significantly and many companies in the sector have had to face the challenge of how to cut their costs efficiently.
Mining company executives most frequently must address the following issues:
• How to enhance the accuracy of planning?
• What is the most effective way of incorporating market price fluctuations into the planning and budgeting process?
• How to quickly and efficiently assess the economic effect of new initiatives?
• What underlying principles should govern supply chain optimisation initiatives, from production to transporting finished goods?
Archimedes FACX is a tool for efficiently building and managing value driver models
A value driver model (VDM) can help identify solutions to these and many other challenges
PwC Russia
What we are offering with Archimedes FACX
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Pit-to-Port – full coverage of the entire value chain
• A value driver model aligns costs and work at all stages of the value chain, from the production site to the finished product dispatch point (“pit-to-port”), enabling a mining company to monitor its component costs per each tonne of finished product.
Dynamically tuned tool
A tool that been successfully used by market leaders
• The model’s dynamic nature also allows the company to test the sensitivity of its overall financial results to specific factors as well as assess capital initiatives.
• Value driver models have been successfully implemented and are being actively used at such companies as BHP Nickel West, Newcrest Gold and Xstrata Coal.
• Among recent projects, a value driver model is now being developed for all of Xstrata’s coal assets in Queensland, Australia.
PwC
Archimedes FACX provides the flexibility you need to align operating data with financial results
Key areas where an Archimedes FACX-based value driver model can be used:
• Developing an economic business model
• Aiding company management in identifying links between specific value drivers
• Achieving greater efficiency in the strategic planning process through the use of more accurate data reflecting the company’s potential status
• Assessing the economic impact of new initiatives
• Obtaining a rapid response to the question: “Where’s the money?”
• Enhancing the effectiveness of KPI systems
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PwC
Our approach makes it possible to integrate all process stages within the overall mining process in one model
PwC
Depending on management requirements, separate divisions can access only those modules that describe specific operational “sections”
Module with data on “production” and “refining” sections only
Module with data necessary for the logistics group
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PwC Russia
We have developed value driver models for companies working with diverse types of raw materials and using various production approaches
Resource Opencut
mining
Underground
mining
Refining and
upgrading Rail logistics
Port
logistics
Coal
Copper
Nickel
Gold
Iron
Slide 7
PwC Russia
Our approach
Slide 8
PwC Russia
Our approach to implementing a VDM tool
Project preparation and data gathering
Creating a value driver tree
1 2
Developing the model in
Archimedes
FACX
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Testing the model
Adapting the model at the
client company
4 5
Sta
ge
s
De
liv
er
ab
les
• Holding instructional meetings
• Setting goals and objectives
• Interviewing key employees
• Distributing requests for information on ongoing operations
• Developing training materials and delivering workshops for key employees who will use the model on a regular basis
• Preparing and delivering a workshop with company management to present all of the new model’s advantages and opportunities
• Completing the model with actual model data
• Testing the logic and output data
• Testing the model with future key system users
• Joint workshop to coordinate logic and accuracy of final model data
• Making any necessary changes in the model
• Creating the value driver model in accordance with data received at previous stages
• Aligning cost items with operating processes Aligning the principles for coordinating specific items with company employees
• Collecting and consolidating data in the form of a value driver tree
• Designing required templates for final model data
• Coordinating a high-level value driver model
• Making any necessary changes in the model
Archimedes FACX
• Requests for information distributed among heads of functional units
• Instructional meetings held; employees informed of project goals and objectives
• Complete list of the company’s production assets
• Map of the company’s operating processes
• Productivity levels and restrictions determined for production sections, reflecting geological and technological specifics
• Initial version of the mathematical model of operations built
• Model tests using actual data completed, and necessary changes made
• Value driver model in Archimedes FACX built
• Training materials prepared; employees trained to use the model
• Workshops with company management held; management fully informed about model capacity
Go
als
Slide 9
PwC
Principles of VDM development: collecting and analysing data on current assets
• During an analysis of the company’s operations, a list is generated of assets and processes that directly affect the company’s financial results
• High level of automation when building the model - Archimedes FACX features libraries of mining assets and operating processes which can be used at a mining enterprise
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PwC
Principles of VDM development: factoring in opportunities and restrictions
• To ensure the accuracy of the model, it is important to determine the capacities of all production assets which impact the key production cycle and are a source of significant costs
• Any interdependencies or restrictions should be taken into account to correctly reflect the company’s capabilities
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Truck fleet
Operating 19,414 hours
Maintenance 5,557 hours
Speed 400 bcm / hour
Dragline
Operating 6,711 hours
Maintenance 1,579 hours
Speed 3,750 bcm / hour
PwC
Principles of VDM development: aligning transactions with financial results
• Aligning the trial balance with cost sources
• Analysing cost types and aligning cost allocation by groups of fixed and variable costs
• Aligning variable costs with cost factors by type of activity
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PwC
Principles of VDM development: data consolidation in Archimedes FACX • The company’s value driver model is based on detailed information obtained at previous stages
• A specialised tool accelerating the process is used to create this model
• A mandatory project element will be training in Archimedes FACX operations for employees who will use the tool in the future
• Apart from using the current version of the model, company employees will be trained how to update the model for its permanent upgrade in the future (change in performance of each section, introduction of new equipment or a whole area)
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PwC
Benefits of Archimedes FACX
• Creating a value driver model from scratch can be a time-consuming process and, thus, expensive
• At the same time, however, except for significant differences between opencut and underground mining, processes using in mining operations are relatively standardised
• PwC has developed its own Archimedes FACX tool, based on Microsoft Excel and featuring an
extensive database with potential processes and mining enterprise assets
• As a result, model implementation takes less time and, thus, costs less. Also, the tool’s user-friendly interface helps company employees make any necessary changes
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PwC Russia
Applying a VDM in practice
Slide 15
PwC Russia
An Archimedes FACX-based VDM can help identify key cost drivers and monitor their impact on the entire value chain
The model will help you to consolidate and align operating and financial data
Difference between
current data and modelled
scenario are shown in
absolute and percentage
terms
Negative impact is marked red,
while positive impact is marked green
Double click to unfold the next
level of detail in each area
Slide 16
PwC
Determining cost reduction opportunities
• Understanding key operating cost factors and their impact on final results
• Ranking operating factors with the highest cost reduction potential
• Determining the most material indicators for quantitative assessments of cost-cutting initiatives
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PwC
Example of setting priority areas for cost-cutting
Decreasing $ / ROM t
Increasing
production
Improvement
Opportunity
Impact of a 10% change in the value of each factor on production volume and cost
Impact on production volume and cost of a 10% change in each driver
PwC
Building a VDM at the EBIT level if required
-1.00% -0.75% -0.50% -0.25% 0.00% 0.25% 0.50% 0.75% 1.00%
Время простоя длинных забоев
Операционные задержки длинных забоев
Задержки в техобслуживании конвейеров
Время замены длинного забоя
Development unit cut rate
Незапланированное время углеобогатительной установки
Время простоя разработки
EBIT impact of +5% change to driver
EBIT impact of -5% change to driver
Impact on EBIT of -5% change in value driver
Impact on EBIT of +5% change in value driver
Longwall idle time
Change (%) in EBIT Efficiency factors
Longwall operating delays
Conveyor maintenance delays
Longwall change-out time
CPP unsheduled time
Development idle time
Development unit cut rate
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PwC
Scenario analysis
• Conducting a multi-scenario cause-and-effect analysis (using the “what if” method)
and monitoring the impact on various factors
• Detailed analysis of deviations to identify the actual reasons for changes that had an impact on production cost and volume
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PwC
Benchmarking
• Archimedes FACX can help you benchmark your operations against both intra-company assets and industry leaders
• PwC has assembled and extensive library of performance indicators in the mining sector, which can be utilised by software users for benchmarking purposes
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0
20
40
60
80
100
120
140
0 2 4 6 8 10
$ / D
evelo
pm
en
t m
etr
e
Million tonnes per annum
Benchmark
Mine
Company
Archimedes FACX is a tool for optimising the operational performance of mining enterprises using a value driver model
This presentation has been prepared for general guidance on matters of interest only, and
does not constitute professional advice. No action should be taken based on information in this
document without prior discussions with professional consultants. No representation or
warranty (express or implied) is given as to the accuracy or completeness of the information
contained in this publication, and, to the extent permitted by law, PwC Australia, its members,
employees and agents accept no liability, and disclaim all responsibility, for the consequences
of you or anyone else acting, or refraining to act, in reliance on the information contained in this
publication or for any decision based on it.
© 2011 PwC Australia. All rights reserved. In this document, "PwC" refers to PwC Australia
being a member firm of PricewaterhouseCoopers International Limited. Each member firm is a
separate legal entity.
Ilya Golubinskiy Manager Advisory Consulting
Tel.: +7 (495) 967 6094
