Operational effectiveness refined: The key to maximising nett present value

Steve Burks

MAC Consulting has created a suite of focused capabilities that facilitate an approach aimed at assisting minerals companies to upgrade their strategic- and business-planning processes both for operations and projects. This can be done for individual sites or for complete regional portfolios.

Since Burks joined MAC Consulting in May 2014, several consulting assignments for international mining companies have enabled portions of this operational effectiveness concept to be tested with very positive results. The overall process has been discussed and upgraded with input from representatives of a number of MAC Consulting's key clients. The diagram below indicates the main principles to be applied. MAC Consulting works closely in support of Whittle Consulting of Melbourne Australia and its affiliates such as Inani Mining Optimisation (a joint venture between Whittle Consulting and VBKom) in this region to prepare strategic Enterprise Optimisation (EO) studies for clients.

Most enterprises strive to maximise nett present value (NPV) - the sum of discounted cash flows - over the entire value chain through the whole of the planned life of the operation. Unfortunately, most optimisation study techniques do not include implementation of the recommendations - recommendations that take into account genuine operational limitations and opportunities after a detailed assessment of the conceptual EO recommendations by technical consultants and the client's teams.

It is for this reason that MAC Consulting has developed an enhanced offering, Operational Effectiveness, in which its own experience and expertise of short- to medium-term business improvement plans are applied at the same client's operations or projects to improve the strategic optimisation recommendations. The business improvement investigation process sometimes reveals flaws in the initial strategic identification of potential NPV uplifts, but can also identify opportunities to increase production or recovery, or perhaps to reduce costs or consumption of critical items in various elements of the production value chain. Changing limits in the system bottleneck will result in a better potential long-term outcome.

The strategic component of the overall operational effectiveness offering frequently identifies potential NPV improvements in the range 5% to 35%. The tactical or business improvement element confirms which of these improvements may be realised in practice, reduces the risk that the EO recommendations may not be operable and sometimes also identifies potential to improve the EO results even further.

Both of the planning elements of operational effectiveness require the owner's team to initiate and maintain some fairly radical changes in operating philosophies in order to achieve the benefits. It is essential that people at all levels in the operation or project team understand the reasons for the proposed changes, agree that they make sense, and can use them to develop and implement a plan to deliver the potential improvements. The third, and possibly most important, element of MAC Consulting's programme is, therefore, to provide fundamental transition support to the client to achieve organisational change and leadership in operating practices.

MAC Consulting generally suggests a phased approach to operational effectiveness contracts. An initial detailed assessment of the business may identify that a full Enterprise Optimisation exercise is needed, or that a less-sophisticated approach using selected elements of EO may be more appropriate, or that only the business improvement elements are required. This initial review will, therefore, determine the logical approach for Phase Two, the planning or 'Design' phase of the contract.

Once the design phase of the work is completed it is possible to determine which elements of the plan should be implemented and how this can best be done. In some case the client may have all of the necessary skills and expertise to implement the plans itself, in other cases differing degrees of support, coaching or even leadership may be required from the MAC Consulting team.

In all phases, change management support will be essential and there are likely to be feedback loops to enable earlier portions of the intervention to be improved as the team learns more during the process. MAC Consulting sees this as being an integrated effort that requires close collaboration with the client's management and project teams and the operations groups at each site. The insights of the client's personnel and their buy-in to implement the recommendations are critical to the success of the operational effectiveness concept.

Phases Two and Three of the approach outlined in the diagram may sometimes be of short duration, but in other instances could require several years of sustained effort by the client with external consulting support. This is completely aligned with MAC Consulting's preferred collaborative approach with clients, which has been tested over many years with success for leading blue chip mining companies in South Africa.