Operational Cost Reduction

Open Cast Mining

Singapore
February 24, 2012
1 © 2012 Deloitte Touche Tohmatsu India Private Limited
The Value Driver Model
Fundamental of Value Driver Model for Operation Costs

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First Lever

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Second Lever

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Third Lever

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Estimating Benefits

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Prioritising Levers

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Fundamental Cycle

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The Operational Excellence
Process
 Methodology for Operational Excellence

Opportunity
Benefit
Identification & Business Blueprint & Execution/
Quantification & Sustainability
Problem Implementation Plan Implementation
Business Plan
Definition

The Process Key differentiator

An iterative process for continuous improvement  Ties this Program outcomes to day-to-
across all operations areas to: day performance measurement of mining
 Create a common view of the business and executives
major opportunity areas linked to improving  Company-wide, cross-departmental
operational KPIs initiative (ignores organisational silos)
 Improve performance through process,  Opportunities based on facts and
people and technology changes expressed in terms of mining outcomes
 Drive cultural change, empower high  Recognise the role and value of external
performers and ensure sustainability of the resources given the priorities of
Program operational staff
 Ensure a continued focus on measurement

11 © 2012 Deloitte Touche Tohmatsu India Private Limited

Identification & Prioritization of Opportunities for Operational Cost Reduction

Step 4:
Step 1: Step 3: Step 5:
Develop
Validate Value Stream Step 2: Identify Broad Identify Specific
Detailed
and Develop High Quantify
StepHigh
2: Issue and Issue and
Value Tree and
Level Qualitative Level Quantify
Value Tree
High Opportunity Opportunity
Constraints for
Value Tree Level Value Tree Areas Areas
Key Areas

Steps 3-5 are iterative

• Map the value • Categorise drivers • Determine impact of • Identify and model • Quantify BCM and
stream (operational variables, broad process areas operational drivers for EBIT value of
external variables) on financial focus areas potential
• Agree objectives and outcomes improvements based
starting hypotheses • Identify fundamental • Identify range of on data and
parameters • Agree focus areas values assumptions in the
• Assemble and review for detailed value key variables can take model
financial & operational • Model relationships tree (based on
information between drivers financial/operational • Structure and level for • Identify specific
impact) detailed modelling to processes/initiatives
• Agree structure of • Build high level tree in be governed by nature that can deliver
tree Excel, with of the issue at hand high impact
quantitative
• Develop and agree improvement
relationships
high level qualitative
value tree • Finalise data request

• Prepare data request

A value driver model facilitates the clear quantification of the benefits associated
with proposed improvement initiatives, supporting better informed decision-making.

12 © 2012 Deloitte Touche Tohmatsu India Private Limited

Workshop Case – Application
of the Model
This part of session will present the Project X Overburden Removal VDM and
explain how it works by refering to key concepts and case study examples

Objectives of this session Questions

1. Introduce value driver model and value 1. Value Driver Models: what are they and
driver tree definitions and concepts what can/can’t they do?
2. Provide an overview of the structure, 2. Value Driver Trees: what are they and how
content and scope of the Project X OB are they typically structured?
Removal VDM
3. Run simple case study examples to 3. Project X OB Removal VDM: scope of
demonstrate basic functionality analysis, structure and limitations, simple
case study examples

Out of Scope

• Deep dive into specific areas of Project X

operation

• Detailed explanation of macros and

formulae that support the model

14 Project X’s Overburden Removal Value Driver Model © 2011 Deloitte Touche Tohmatsu
The purpose of the Project X Overburden Removal VDM is to provide a tool for
understanding the value impact of operational factors

Purpose of the Project X Overburden VDM Benefits of the Model

1. Establish direct link between overburden operations and  Support modelling of Project Deliverance
Project X throughput (BCM) and financial performance benefits over time
(EBIT)
 Facilitate decision making around
2. Improve understanding of capacity constraints relating to improvement projects pipeline
Project X overburden removal
 Highlight interdependencies and capacity
3. Enable comparison between historical performance data constraints (e.g. fleet size, dump capacity,
and hypothetical scenarios for Project X overburden operating time)
removal

4. Conduct sensitivity analysis to identify variables most

Limitations of the Model
impacting financial performance (EBIT)
 Scope limited to Project X: does not cover
5. Facilitate analysis of Project Deliverance benefits and Project X Region
decision making on project prioritisation
 Scope limited to overburden: does not
consider end-to-end value chain

 Scope has not been extended to drill and

blast

15 Project X’s Overburden Removal Value Driver Model © 2011 Deloitte Touche Tohmatsu
The aim of a value driver modelling project is to build a useful and easily
maintained tool to understand the financial impact of operational factors

Objectives of value driver modelling... ...leading to the following benefits

1. Quantify linkage between financial Generation of insight
results and operational metrics • Use tree structure to identify drivers of operational
improvement and facilitate insight and decision making
• Facilitate data-driven evaluation of
operational improvements, supporting to • Ensure level of detail is sufficient to identify/evaluate issues,
improved decision-making but not too complex to impair usability
• Start (and continue) with an aim in mind – e.g. what are the
• Identify priority areas where improvements implications for Project X EBIT/OB removal?
could yield greatest value for Project X
Involvement of management
• Ensure the model is a true reflection of how the business is
actually run (call out assumptions made)
2. Assess and understand nature of
capacity constraints, for example: • Generate buy-in to model’s validity and application

• Physical site design Easy to use, maintain and extend

• Excel-based approach
• Equipment/plant availability
• Intuitive structure
• Fleet capacity utilisation • Clear links to data sources where appropriate
• Combination of automation with ability to extend/update in
the future

16 Project X’s Overburden Removal Value Driver Model © 2011 Deloitte Touche Tohmatsu
The development of a fully validated value stream and value driver tree are the first
steps towards quantifying the value of potential improvements

Step 1: Step 3: Step 4: Step 5:

Validate Value Stream Step 2: Identify Broad Develop Detailed Identify Specific
and Develop High Level Quantify
Step High
2: Issue and Value Tree and Issue and
Qualitative LevelQuantify
Value TreeHigh Opportunity Constraints for Opportunity
Value Tree Level Value Tree Areas Key Areas Areas

Steps 3-5 are iterative

• Map the value stream • Categorise drivers • Determine impact of • Identify and model • Quantify BCM and EBIT
(operational variables, broad process areas operational drivers for value of potential
• Agree objectives and external variables) on financial outcomes focus areas improvements based on
starting hypotheses data and assumptions
• Identify fundamental • Agree focus areas for • Identify range of values in the model
• Assemble and review parameters detailed value tree key variables can take
financial & operational (based on • Identify specific
information • Model relationships financial/operational • Structure and level for processes/initiatives
between drivers impact) detailed modelling to be that can deliver
• Agree structure of tree governed by nature of high impact
• Build high level tree in the issue at hand
• Develop and agree high improvement
Excel, with quantitative
level qualitative value relationships
tree
• Finalise data request
• Prepare data request

A value driver model facilitates the clear quantification of the benefits associated with
proposed improvement initiatives, supporting better informed decision-making.

17 Project X’s Overburden Removal Value Driver Model © 2011 Deloitte Touche Tohmatsu
The Value Driver Model reflects the specific overburden removal chain at Project X,
including the choice of hauling to the Dump or via the IPCC

Project X OB Removal VDM: Value Chain Components

Inputs
Drill & Blast • Historical data, Jan 2010 – Apr 2011
• IPCC data, Jan 2010 – Apr 2011
Constraints
• Limited to overburden removal value chain; does
Dig Units
not cover end-to-end coal production value chain
• Reliance on overburden throughput data to
estimate coal production figures and net EBIT
impact
Trucks • Data not broken down by value chain process steps
(e.g. clearing, drill and blast etc)
Financials
Dump IPCC
• Life of Mine financial model, 2011 (LOM 2011)
Outputs (Deliverables)
• Overburden removal by equipment is constrained by the preceding
• Value driver tree
equipment along the removal chain
• Control worksheet
• A capacity constraint on a type of equipment means that total
overburden removal cannot be increased without increasing the • Capacity analysis
amount of overburden moved by that piece of equipment • Sensitivity analysis
• Trucks can either deliver overburden to the dump or the IPCC, with
flows adjusted by different scenarios in the model

18 Project X’s Overburden Removal Value Driver Model © 2011 Deloitte Touche Tohmatsu
 Using data provided by Project X, the model delivers four key outputs aimed at
evaluating the financial impact of operational improvements

Key Data Sheets Key Model Outputs

1. Control Sheet
High
level
Key Levers

2. Capacity Chart
Capacity Value Driver Sensitivity
Data Tree Data Data

3. Value Driver Tree

Key Process Pages
Revenue and
Cost Data
Drill and
Dig Truck IPCC
Blast

4. Sensitivity Analysis
Source Data LOM Data
(MinVu, Ampla)
Granular

19 Project X’s Overburden Removal Value Driver Model © 2011 Deloitte Touche Tohmatsu
The Key Levers page is designed to enable rapid ‘what if’ calculations, without the
need for detailed manual adjustment to core process sheets

1. What is the lever I want to change? 2. What is the impact on mine performance?

• Ability to adjust specific ‘key levers’ on a single page • Impact of key lever change displayed on Control sheet
• Avoids need to manually adjust variables on multiple • Ability to adjust other key modelling parameters, such as
different sheets to reach an answer time period and truck allocations

20 Project X’s Overburden Removal Value Driver Model © 2011 Deloitte Touche Tohmatsu
The model’s process pages (e.g. Dig, Truck, IPCC) follow a common structure, with
individual fleet data feeding through to a total column

Project X Overburden Removal VDM: Structure of Key Process Pages

Total Fleet 1 Fleet 2 Fleet 3

(e.g. Trucks) (e.g. Truck 789) (e.g. Truck 830) (e.g. Truck 930)

Throughput

Modelled throughput

Performance

Modelled performance

Time

Modelled time (based on modelled throughput)

Financial metrics
Data from Source Data sheet

21 Project X’s Overburden Removal Value Driver Model © 2011 Deloitte Touche Tohmatsu
Contacts
Contacts

Dipesh Dipu
Director | Consulting | Mining
Main: +91 (0) 40 4031 2000
Direct: +91 (0) 98495 53404
Email : ddipu@deloitte.com

Deloitte Touche Tohmatsu India Pvt. Ltd.

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