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

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
driver tree definitions and concepts
2. Provide an overview of the structure,
content and scope of the Project X OB
Removal VDM
3. Run simple case study examples to
demonstrate basic functionality
1. Value Driver Models: what are they and
what can/can’t they do?
2. Value Driver Trees: what are they and how
are they typically structured?
3. Project X OB Removal VDM: scope of
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
1. Establish direct link between overburden operations and
Project X throughput (BCM) and financial performance
(EBIT)
2. Improve understanding of capacity constraints relating to
Project X overburden removal
3. Enable comparison between historical performance data
and hypothetical scenarios for Project X overburden
removal
4. Conduct sensitivity analysis to identify variables most
impacting financial performance (EBIT)
5. Facilitate analysis of Project Deliverance benefits and
decision making on project prioritisation
15 Project X’s Overburden Removal Value Driver Model
Benefits of the Model
 Support modelling of Project Deliverance
benefits over time
 Facilitate decision making around
improvement projects pipeline
 Highlight interdependencies and capacity
constraints (e.g. fleet size, dump capacity,
operating time)
Limitations of the Model
 Scope limited to Project X: does not cover
Project X Region
 Scope limited to overburden: does not
consider end-to-end value chain
 Scope has not been extended to drill and
blast
© 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...
1. Quantify linkage between financial
results and operational metrics
• Facilitate data-driven evaluation of
operational improvements, supporting to
improved decision-making
• Identify priority areas where improvements
could yield greatest value for Project X
2. Assess and understand nature of
capacity constraints, for example:
• Physical site design
• Equipment/plant availability
• Fleet capacity utilisation
16 Project X’s Overburden Removal Value Driver Model
...leading to the following benefits
Generation of insight
• Use tree structure to identify drivers of operational
improvement and facilitate insight and decision making
• Ensure level of detail is sufficient to identify/evaluate issues,
but not too complex to impair usability
• Start (and continue) with an aim in mind – e.g. what are the
implications for Project X EBIT/OB removal?
Involvement of management
• Ensure the model is a true reflection of how the business is
actually run (call out assumptions made)
• Generate buy-in to model’s validity and application
Easy to use, maintain and extend
• Excel-based approach
• Intuitive structure
• Clear links to data sources where appropriate
• Combination of automation with ability to extend/update in
the future
© 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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