Mining houses face significant challenges in performance management, and budgeting, forecasting and reporting (BFR), owing 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, con- duct analytics around performance management and reduce 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,” says enterprise business intelligence, planning and consolidation software and services provider Cortell Corporate Performance Management director Greg Bogiages.
He adds that 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 are the cost of labour and the cost of electricity, which are also subject to increases and have exceeded the inflation rate over the past few years.

These factors are further complicated by the planning cycle of a mine that 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 as, in the event of an incident, production must be stopped until safe operations can be resumed.

Further, the increasing frequency of strikes within the labour force is a contributing factor, as they cause production to be halted and increase the volatility of operations.
“As a result, together, fluctuating prices, long planning cycles, stop/start production and volatile conditions equate to the fact that budgeting within the mining sector cannot be a static process,” says Bogiages.

“Budgets must be adapted in rolling forecasts, based on current information and current influencing factors, to provide the most accurate insight possible for the following 12 months.”

How it Works
Typically, BFR is conducted using manual spreadsheets. However, this method 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, says Bogiages.

Enterprise resource planning (ERP) solutions are also often used in an attempt to address these challenges; however, ERP solutions are not designed to handle this type of processing.

Owing to the volatility of the market, along with rising costs, neither of these tools is flexible enough to provide fast, reliable answers, notes Bogiages.

Solution
Therefore, mining organisations need to quickly calculate ‘what if’ scenarios to measure the effect of volatile factors in the short- and long term, he says.

Advanced, purpose-designed planning tools aimed specifically at addressing corporate performance management provide 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 forth.

Multiple scenarios can be explored quickly and easily in real time, says Bogiages.

“This agility and flexibility enable oper- ational 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 reduce 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 on these facts.

Simply implementing advanced planning tools is not an immediate solution. Change management forms a critical factor, as many budgeting processes have been in place for many years, and resistance to adopting new methods can hamper the benefits of the solution.

“It is also often necessary to align solutions to business goals, and to test processes to ensure that they add value instead of unneces- sarily cluttering and complicating the budgeting process. Many of the details in manual budgeting may not add value and detract from the accuracy of insights gained,” notes Bogiages.

Advantages
In turbulent economic times, information technology budgets are typically the first to be cut. However, technology such as planning tools can 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 [using] less time and effort is 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 in both the short and the long term,” concludes Bogiages.