By Greg Bogiages, Director at Cortell Corporate Performance Management
Mining organisations are typically fraught with challenges when it comes to performance management, as well as budgeting, forecasting and reporting (BFR), due to the complex and volatile nature of many of the elements within these functions. However, the value of being able to turn this information into business insight, conduct analytics around performance management, and minimise the risk of error in BFR cannot be denied. Advanced planning tools and technology can assist organisations in the mining sector to more quickly and accurately conduct budgeting, implement rolling forecasts, enhance reporting and gain a better understanding of corporate performance across the board.
The BFR process of mining organisations is subject to a number of challenges, including constant fluctuations in the price of commodities, which will in turn have an effect on the accuracy of budgeting. Added to this is the cost of labour and the cost of electricity, which are also subject to increases and, in fact, have exceeded the inflation rate over the past few years. These factors are further complicated by the fact that the planning cycle of a mine is done over the life of a mine, which may be anywhere between 10 and 30 years. Health and safety requirements also add pressure to BFR, since in the event of an incident, production must be stopped until safe operations can be resumed. The increasing frequency of strikes within the labour force is also a contributing factor, as they cause production to be halted and add further volatility to operations.
Fluctuating prices, long planning cycles, stop/start production and volatile conditions all equate to the fact that budgeting within the mining sector cannot be a static process. Budgets must be adapted in rolling forecasts, based on current information and current influencing factors, to provide the most accurate insight possible for the next 12 months.
Typically, BFR is conducted using manual spreadsheets. However, this is a time and labour-intensive exercise which is not only prone to error, but also becomes cumbersome and cannot deliver the required scenario planning in short enough timeframes for the information to be useful in decision-making. Enterprise Resource Planning (ERP) solutions are also often used in an attempt to address these challenges, however ERP solutions were not designed to handle this type of processing. Because of the volatility of the market, along with rising costs, neither of these tools are flexible enough to provide fast, reliable answers.
Mining organisations need to quickly calculate ‘what if’ scenarios in order to measure the effect of volatile factors in both the short and long term. Advanced, purpose-designed planning tools that are aimed specifically at addressing corporate performance management provide best-of-breed solutions to enable these types of calculations to be made quickly and accurately. Using these tools, mining organisations can develop plans, budgets and forecasts faster and more efficiently.
Advanced scenario-planning enables the required ‘what if’ scenarios to be created, compared and evaluated in a matter of minutes, improving flexibility and accuracy. For example, users can run the scenario ‘what if the electricity price increases by 16% each year for the next five years’ and determine the impact of this on costing and future results, or ‘what if the labour force goes on strike for three weeks’, ‘what if the commodity price decreases by 25% a month’ and so on. Multiple scenarios can be explored quickly and easily in real-time. This agility and flexibility enables both operational and financial planning to be conducted in real-time, so that resources and future business performance can be anticipated and factored into calculations. Added to this, driver-based plans and models can be used to create planning models that accurately reflect the business, using reliable numbers and calculations that eliminate spreadsheet errors.
Planning tools enable mining organisations to streamline the budgeting process and conduct rolling forecasts quickly, so that the impact of changing factors can be easily determined and action taken based upon these facts. However, simply implementing advanced planning tools is not a silver bullet solution. Change management forms a critical factor, as many budgeting processes have been in place for many years, and resistance to adopting new methodology can cripple the benefits of the solution. It is also often necessary to align solutions to business goals, and to examine processes to ensure that they add value instead of cluttering and complicating the budgeting process unnecessarily. Many of the details within manual budgeting may not add value and detract from the accuracy of insights gained.
In turbulent economic times, IT budgets are typically the first to be cut. However, technology such as planning tools can in fact improve efficiency, which will have a positive impact on the bottom line and the investment will pay for itself many times over. When it comes to financial systems, implementing tools to provide better insight with less time and effort are vital in delivering the necessary agility and flexibility to weather economic crisis. Taking the complexity out of performance management and BFR, and providing accurate information for fact-based decisions, will streamline operations for a more profitable business both in the short and long term.