AAOM Handbook

ES.01 Is Resource and Cost Data Available?

Context

As a business, most of the expenditure we incur is related to completing some work necessary to produce an outcome (or at least should be). Therefore, the key to effective forecasting and management of costs is the understanding and forecasting of the work and the resources required to complete it, and the management of cost commitments against that forecast. These key outcomes are achieved in an Operating Model implementation using the Operating Master Schedule (OMS) - define the work, the Expenditure Schedule (EPS) - define the resources and cost, and the Work Approval process - understand and approve cost commitments. To be an effective guide to expenditure an EPS requires resource cost data that is realistic. The preferred source for this data is directly from the costing system(s) of record, as this provides data based on actual expenditure records. Whilst this data is obviously historical, if used appropriately it can still provide a sound guide to estimates of future costs. The significant sources of volatility (special cause events) in cost forecasts over time are; • variability in the workload over time (e.g. mining volumes or maintenance over the life cycle of an asset), and • volatility in resource pricing (wide swings over relatively short time periods), where that resource pricing has a very dominant place in the cost of an activity (e.g. diesel fuel in mining). Note that the cost of most resources is not the major source of volatility in cost forecasts, because of either small and gradual price changes or because they do not have a dominant position in the cost of the activity. The major source of volatility is more often the variability in the workload - hence the importance of a credible OMS to the delivery of a credible expenditure forecast. Ideally the data from the financial system is recorded and presented in a way that matches the way we identify and control the work that delivers the outcomes and incurs the expenditure. This typically entails the location of the work (mine/bench, or plant/equipment, etc.), the outcome of the work (e.g. drill/blast/load, refurbish/replace component, etc.) and the accountability for the Activities in the OMS/EPS. In an Enterprise Resource Planning (ERP) system this information can typically be located in either costing system records and/or work management systems records (work orders). The work management system records are the most likely to provide useful cost estimates and actual values for Activities that are managed as a series of distinct events dispersed over time. This would typically cover Service work Activities such as maintenance of plant and equipment, but may also include the elements of the mining Production work cycle (drilling, blasting, loading, hauling, etc.) if these are managed through a work management system. Provided that the work management system and OMS/EPS each adequately specify the location (mine bench/block or equipment), plus the work description/type and accountable position, it should be possible to produce a report from the work management system that will allow the Resource Types,

© McAlear Management Consultants 2006

Operational Planning: Set Expenditure Schedule

Updated: August 2018

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