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Boosting capital productivity in mining

3rd November 2023

     

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Better project management, through the implementation of two key measures, can improve a mine’s capital productivity, reports consulting, assurance, tax and transaction services firm Ernst & Young (EY) Oceania business transformation delivery leader Loretta Hudson.

A major concern for the mining and metals sectors, she notes, is capital productivity, with several internal and external risks making it difficult for large, complex projects to stay on schedule and within budget.

Hudson points out that one of the key levers a mining company can employ to enhance its capital productivity is lowering of “inputs”, and making these production factors more predictable.

Inversely, she says that “outputs” should be increased and made sustainable through earlier asset operationalisation, such as through scheduled acceleration; or through operational efficiency, such as improved equipment availability and use of processes and skills.

“Successful capital projects in mining drive enhanced capital productivity outcomes by addressing both these levers,” says Hudson, while at-risk capital projects commonly face challenges of both input inflation, such as cost and schedule variance; and compromised output performance, such as operational impacts of poor design.

While miners have less direct influence over some of these risks, she says project management is within their control, with research showing that miners who invest in the right project management capabilities and toolsets having garnered between 15% and 30% of project value.

Hudson highlights that, according to EY’s experience of supporting mining and metals companies on large, complex capital programmes around the world, six major risks are behind the productivity challenge, including project management factors; stakeholder conflict; supply chain, workforce and digital disruption; and unstable and uncertain external influences.

In terms of project management, risks come to the fore when inadequate cost and schedule estimation methodologies are applied, while stakeholder conflicts can negatively impact a project when a company fails to articulate the project’s value effectively to the economy and community or when an implicated company fails to achieve constructive relationships with partners.

Supply chain disruptions occur when they lack resilience measures; while workforce disruptions can arise in the form of difficulties finding talent and navigating the mobility challenges created by the Covid-19 pandemic.

Digital disruption affects miners’ work to integrate digital capabilities into projects and operations. Meanwhile, an unstable and uncertain external environment, with geopolitical issues, is now one of the top ten risks for miners, according to EY’s ‘Top 10 business risks and opportunities for mining and metals in 2021’ report.

Focus Areas

Further, Hudson notes that there are five key elements that miners can focus on to build a holistic approach to capital project delivery to realise synergies and efficiencies to boost productivity.

Front-end design can be used to inform scenario planning, thereby enhancing the robustness of risk-based cost and schedule estimates, as well as the performance of core project management processes across all disciplines.

“Effective scenario planning also allows miners to identify and understand the impact of potential events, enabling them to respond with agility and confidence when issues arise. This ability to act quickly and decisively can make the difference between projects, programmes and portfolios achieving high levels of capital productivity, or stalling,” she states.

Another mechanism – adequate cost and time contingency – enables miners, when deployed appropriately, to ensure investment decisions are based on the best possible information.

“Miners with more mature risk management processes ensure that the negative impacts on cost and schedule are considered equal to the upside through cost- and time-saving initiatives. “They also engage contractors within the process, transferring risk and rewards to those best placed to influence and control risks and opportunities,” says Hudson.

Further, she says the organisations with the most successful approaches encourage their teams to commit to the process by innovating around how to protect budgets and schedules, and drive true productivity across the project life cycle.

In terms of supply chain resiliency, Hudson says miners’ supply chains can be weakened through factors such as vendor concentration, low levels of safety stock, limited flexibility, and outdated contingency plans.

Relatedly, she points out that the Covid-19 pandemic added further disruption, and that going forward, the rise of national protectionism is a growing concern for mining executives.

“Ensuring business and project continuity requires a greater focus on upfront planning, including identifying critical risk scenarios and potential points of failure, then defining potential responses,” she says.

In this regard, early warning systems and digital twins can help build end-to-end supply chain resilience.

Agile corporate governance is also an avenue mining companies should pay special attention towards. In this vein, Hudson says embedding leading indicators into reporting dashboards can flag future risks as they emerge, empowering management with the insights they need to make fast, effective decisions.

Edited by Donna Slater
Features Deputy Editor and Chief Photographer

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