MineRP Enabled Financial Planning & Control


Click here to listen to the podcast "MineRP Enabled Financial Planning & Control"

This podcast is a follow-up from the previous talk we had with Johan Riekert, you can listen to it here.

In this podcast, we are focusing on how MineRP enables financial planning and Control.

Follow these show notes as you listen:

Financial Budgets and forecasts

  1. Consist of two main components (1) Operating plan (2) Cost & Revenue & Cashflow estimating.

  2. The process:

  3. Break down the mine production process flow and support processes into smaller units of work until we arrive at separately defined ACTIVITIES. More detail about this in a next podcast.

  4. MineRP do the mine plan and schedule in a "per activity" level of granularity.

  5. Establish a BOR for every activity i.e. a detailed list of material (quantity), Machine hours per type of machine, labour teams, contractors’ utilities etc.

  6. Calculate the cost of individual activities with reference to the BOR quantities and the latest price or rate for each of the individual resources.

  7. The cost of individual activities is aggregate into

  8. Minor processes.

  9. Minor processes into sub processes etc. until we have aggregated the cost of saleable product post the processing plant or FOB.

  10. Stocking points to value WIP at various points in the production process. (Picture how this will tie in with value trees etc.)

  11. Cost Centres and or Responsibility Centres.

It is thus clear that we:

  • introduce a proper costing system.

  • Each activity has a unique code (F.I.C.) that MineRP allocate to it that identify the activity … the location ….... Time dimension…. Operational condition variant if applicable. MineRP

  • These codes then become the cost codes - In later podcast we will discuss how the allocation of these cost codes facilitates automated cost allocation and automated transactions.

Eliminate the idea that cost centres and cost per ton are a costing system.

==> Introduce a proper costing system.

Clarifications

  1. Different process:

  2. Core production process flow - from the face up to delivery of final saleable product - into activities

  3. Geological process to define, update and improve predictability - into activities.

  4. Support processes that support the production flow

  5. Utilities - Power - Bulk - Distribution – Reticulation

  6. Ventilation

  7. Change rooms, Lamp rooms etc.

  8. Sampling

  9. 127 derived activity

  10. Direct Overheads

  1. Activity - essential requirements.

  2. Each activity has and engineered S.O.P.

  3. Each activity has and engineered B.O.R. (Bill of Resources)

  4. B.O.R. because it includes labour, machinery, contractors, reserves utilized, utilities etc.)

  5. B.O.R. based on the engineered S.O.P.

  6. Each Activity has a definitive result / output / deliverable

  1. MineRP contribution:

  2. Provide the mine plan scenario or option in scheduled activities

  3. Beginning and start dates

  4. What, when, where.

  5. B.O.R. designed consumption of resources required & output / result / from each

  1. To make this work - goodbye excel - embrace a professional FFA (Financial Forecasting Application).

  2. Professional F.F.A. - Gardener 4th quadrant - select based on individual functional specs

  3. Updated and integrated / near real time basis. (MineRP, MM, HR, PM, ERP Tables etc)

  4. Apply the latest prices and rates and variables (prices / exchange rates / inflation rates)

  5. New standardized budget or revised forecast in near real time

  6. Why standardized - based on engineered S.O.P. Derive a STD BOR - GM reaction

  1. In the event off:

  2. Monthly Revised Forecasts ---- Safety Stoppage - SA section 54 ------ Monsoon Rain ------ Radical Prices Changes ----- even Covid-19, then

  3. Formulate - various scenario and option.

  4. Produce - Revised mining plans and schedules for each scenario and option - in activity granularity.

  5. Apply - Engineered SOP and BOR and Output per activity

  6. Link - The latest rates and coat to the consumption of resources to it

  7. Result - A standardized - Zero Based Financial Budgets or Forecast - Near Real Time.

Note please

  • We are not referring to Activity Based Costing ---- We plan and schedule all the activities that makes up the core production and support processes and cost each activity individually with reference to the engineered BOR.

  • However, we do achieve many of the benefits of ZBB and ABC while avoiding the pitfalls.

  • We are convinced that the combined effect of what we presented here will noticeably contribute to improving the Sustainable Shareholder Value of the organization.

Mckenzie - Published the finding re the success of implementing - Zero Based budgets and AB The return on Zero Based Budgeting - By Matt Fitzpatrick and Kyle Hawke link: https://mck.co/2V7I1dz

  • Eliminating wasteful / un effective expenditure - 10% to 20%.

Question from Jean - let's be practical around the Savings, why will we get this the of saving

  • Costing like in the past - at Dollar per Ton - all accumulate sins of the past.

  • Inefficiencies of the current operations hidden in the averaging of USD/T.

  • Operators budget on a just in case basis.

  • A bigger budget man I am more important.

  • Don't want to be on red carpet every month.

  • Now we intrinsically distinguish between fixed and variable cost. $/ton assumes all variable.

  • My experience is "go back - analyses the number" - 10%, 15%, 20% reduction…

  • New discipline. A variance in input cost, quantity of materials or machine hours, or people hours this week in workplace 7 ---- activity ledging.

  • It pinpoint the responsible team and person - not for punishment but for corrective action.

We are totally convinced that planning and controlling (operational and financial) in finer granularity against engineered standards, we

  • delivers more accurate, auditable forecasts at a significantly increased level of confidence.

  • achieve more competitive levels of production cost

  • Example

  • Builder 1 ---- $4000 per square meter.

  • Builder 2 ----- Submit a full QS report of labor and materials required with quotations from 3 different wholesalers of building supply

  • Accuracy --- granularity

  • Specific ----- definition

  • Eliminate broad brush averages

  • Eliminate generalization

  • Podcast 2 Outcome ~ Result 2

  • Potential savings.

  • Increased confidence.

  • Improved accuracy.

  • Near real time results

  • Facilitate multiple options

  • Improved execution discipline

  • Improved operational and financial S.I.C.

Our next podcasts will deal with the following:

  • Result 3: Enables Financial Control to become an integral component of short interval control, Role of the ERP in this

  • Result 4: Supporting the procurement supply chain with the required "demand facts" for both the strategic and the operational effectives & efficiency

  • Result 5: Variance analysis become factual - Physical activities with physical outcomes -- mirrored in financial result

  • Result 6: Financial Accounting & Reporting Transformed into an Near Real time activity.

Physical activities with defined measurable outcomes ----- mirror in financial results -------- automated transactions.

  • Not to compare to the airy fairy norms called --Best Practices --Benchmarking --Aggregated Averages

  • Design Specifications and Engineered Standards for Exact comparisons

Want to contact Johan Riekert? email him: JRiekert@Minerp.com

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