AAOM Handbook

ES.00 Set Expenditure Schedule

Context

The underlying theory for the Operating Model states that process performance targets will be delivered if the Right Work is completed at the Right Time and in the Right Way. The recipe for the Right Work and Right Way is defined in the Operating Model processes for setting the Production Strategy (viz the optimum work for operating the process to achieve the Performance Targets), and Service Strategy (viz the optimum work for managing threats related to the process). Using the trigger parameters and dependencies specified as part of the Production and Service strategies, these two types of work are integrated in the Operating Master Schedule (OMS), optimising the synergies and removing potential conflicts in order to define the most effective schedule for delivering all of the work. The OMS also allows us to produce a forecast of the probable outcomes and resource demands for the process. The final step in the Operational Planning process is to define the ExPenditure Schedule (EPS) required to deliver the work in accordance with the OMS. The EPS is a costed version of the OMS. That is, the forecast cost for the Resource Types (labour, equipment, materials/spares and utilities, etc.) that will be required to implement the OMS is combined with a quantity estimate on each OMS Activity, and the frequency/timing of the Activities, to forecast the expenditure profile over time. An effective EPS will provide expenditure forecasts and records that will help drive appropriate management decisions on forecasting and committing the work and resources necessary to deliver the process Performance Targets. It is therefore important that expenditure forecasts and cost records provide an accurate, though not necessarily precise, picture of the Production and Service Work. That is, figures that are 90% to 95% accurate will probably lead to management decisions that are as effective as figures that are 99.9% precise. Consequently development of an EPS should focus on the identification and estimation of the resources and costs that are significant to the overall cost of each activity, and that are directly involved in that activity. Other resource costs could reasonably be incorporated into overhead expense categories. The preferred source for data is directly from the costing system(s) of record (usually an Enterprise Resource Planning system - ERP), 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).

© McAlear Management Consultants 2006

Operational Planning: Set Expenditure Schedule

Updated: August 2018

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