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Avoid the steps to value loss

When it comes to large greenfield projects in mining, a project’s net present value (NPV) can erode if the mining company fails to mitigate multiple risks. These risks include unexpected changes in construction schedules, depletion of subcontractors’ working capital and damage to key equipment during delivery. Equally troublesome, project owners may have difficulty getting government permits or hiring qualified production personnel. Once exploration starts, they may find that the initial geological data they gathered for the greenfield site is inaccurate.
Avoid the steps to value loss Avoid the steps to value loss Avoid the steps to value loss Avoid the steps to value loss Avoid the steps to value loss

Dmitry Golovinski, Ilia Malinovsky, Michail Kurusiov,Ilya Sadardinov and Andrii Trach*

Left unmanaged, such risks can cause serious problems such as budget overruns and delays (see figure 1, below). In addition to that, our experience with clients shows that as much as 30% of a greenfield project's value can be lost during the hand-off from the construction stage to the operations stage.

This hand-off is a pivotal moment in a project's life, characterised by extreme ambiguity. Managers must make many crucial decisions under immense time pressure, often without an obvious ‘right' decision. A wrong move could set the stage for lost value, if the plant's actual business performance doesn't meet projections owing to, for example, inaccurate ramp-up preparation.

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A better way: operations readiness

It doesn't have to be this way—if miners set up an operations readiness (OR) programme.

OR is responsible for covering work streams essential for starting up operations at a greenfield project and ensuring that the project delivers the intended value. It helps make certain that the project not only meets budget constraints and construction deadlines but also achieves desired production levels on time. In particular, it focuses attention on activities vital to transitioning the site's facilities, plants and assets to an operating business that meets the mining company's goals.

Mining companies that excel at operations readiness can boost the odds that greenfield projects generate value for a diverse array of stakeholders. Consider these examples:

Stakeholder group

How they benefit

Investors

NPV rises thanks to faster production start and ramp-up

 

Ongoing revenues are higher because of properly commissioned equipment and capable operations teams

 

Operating costs stay under control

Employees

High safety standards during construction, start-up and operations minimise workplace accidents and injuries

 

High-quality on-site services (camp, canteen, medical) ensure comfort

 

Well-planned site logistics enable employees to work at and travel easily to and from job sites

Contractors

Smooth flow of information and quick decision making help contractors avoid downtime and achieve cost efficiency

 

Well-defined interfaces between multiple parties ensure clarity of responsibilities and scope of work

 

Customers Customers can trust stated start-of-sales dates

 

Product quality meets expectations

How operations readiness works

How does an operations readiness programme fulfil its mission? OR is built on three pillars: an operations readiness team, the right plans, and process and governance. 

The OR team

The operations readiness team's core mission is to develop the new asset through the project lifecycle stages—from set-up to commissioning and ramp-up. As the project moves forward, the team is right-sized as needed, depending on what's happening at each stage in the lifecycle. Some team members may eventually be transitioned to roles in operations. 

We recommend designating a dedicated senior manager fully responsible for the OR, including building the OR team. This person reports to the CEO and construction project director.

OR plans

The OR team defines the core streams to be covered by operations readiness—such as commissioning, permits, production streams, core support functions and other functions, and builds plans for managing each stream (see figure 2, below). The plans should also indicate the managers responsible for those tasks, along with relevant budgets and deadlines. Milestones in each stream are interlinked with each other and between streams.

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OR process and governance

OR process and governance includes the building of working groups to manage the work streams outlined above. These groups comprise managers from relevant functions as well as assigned members of the operations readiness team. Most working groups comprise 10-15 participants.

Standardised reporting, forms, a ‘war room' or even tablet-based tracking apps are essential for tracking progress on OR plans - especially as the future operations team grows. 

BCG project experience shows that these dedicated cross-functional working groups are vital for establishing horizontal links inside the organisation, identifying risks to work streams and crafting strategies for mitigating the risks.

Working groups tackle crucial questions for each work stream they're responsible for. The table below shows examples:

Work stream

Questions explored (selected examples, list not exhaustive)

Mine

Is purchased equipment arriving on time? Do we have enough to handle initial operations?

 

What should the organisational structure and key policies of the mine's operations be?

Processing plant

What lab tests should be done regarding ore-treatment modes? Should we try production in a pilot plant?

 

How should the joint planning process for the mine and processing plant work?

Asset management

How should we structure service contracts for mining equipment?

 

What's our strategy for equipment maintenance? 

HR

When should we hire the required personnel? What sources will we use?

 

What kinds of training will personnel need, and how will we provide it?

IT and automation 

How should we design our IT ecosystem?

 

Which IT systems do we need for launch and commissioning? Which are our top priorities for early implementation?

Outsourcing

Which vendors should we use and what scope of work will they handle?

 

What level of service quality do we need from them on non-core activities?

Procurement and incoming logistics

How will we gather data on procurement demand across the different parts of the project?

 

Which procurement items are top priority?

Health, safety and environment

What HSE standards must we meet?

 

Which HSE requirements should other work streams be aware of?

Commissioning and permits

How might we optimise our commissioning plan around the construction schedule?

 

What inputs to the construction plan should come from the commissioning plan?

 

How can we ensure timely collection of required documentation and filing of permits?

Best practices for operations readiness

Drawing from our experience, we offer the following suggestions for achieving operations readiness smoothly and on time:

• Clearly define the scope and responsibilities of the operations readiness team. 

• Build an OR plan that reflects realistic desired outcomes.

• Manage the interfaces between project engineering, construction and commissioning teams.

• Recruit people with a proven track record for your operations readiness team, especially those responsible for commissioning.

• Foster a data-driven analytical approach to decision-making and document key decisions, spelling out pros and cons for each option.

• Consider all risks identified by outside experts or internal employees, even if their probability of occurring seems low, and identify potential corrective measures.

• Establish a mechanism for quickly escalating issues, so decisions can be made quickly.

• Create visual representations of core elements of operations readiness (plans, approaches, risks, solutions) to foster a shared understanding of these across the organisation.

Our project experience shows that companies that set up an operations readiness programme early (at least 18 months before the production start date) stand the best chance of smoothly managing the hand-off from site planning to full operation. They therefore are best positioned to preserve or even increase the value of the project, leading it to earlier and smoother launch and ramp-up.

*Dmitry Golovinski is a principal at The Boston Consulting Group (Golovinski.Dmitry@bcg.com); Ilia Malinovsky is a principal at the firm (Malinovsky.Ilia@bcg.com); Michail Kurusiov is a project leader (Michail.Kurusiov@bcg.com);  Ilya Sadardinov is a project leader (Sadardinov.Ilya@bcg.com); and  Andrii Trach is a consultant (Trach.Andrii@bcg.com)

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