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Integrated Strategic Planning

Whittle Integrated Strategic Planning

Whittle Integrated Strategic Planning is a concept of long-term planning which considers:

  • All parts of the value chain – from the mineral resource to the market.
  • All periods – a decision of what to mine and process in one period affects the options for the other periods.
  • All stakeholders – shareholders are interested in financial returns in the form of cash flow and capital growth. However, the interests of employees, local communities, the government and the environment must be considered to earn an enduring licence to operate.

A decision made at any point in the system potentially affects the optimal decision for other parts of the system. The key is to optimise all decisions simultaneously. This calls for cross-functional collaboration across all parts of the organisation – rather than a traditional silo approach (i.e. geology, mining, processing, logistics, marketing/commercial, finance and HR). This requires the application of the Whittle Integrated Strategic Planning philosophy and methodologies, combined with sophisticated optimisation technology. Only Whittle Consulting has this unique combination.

“We should not change one part of the system without understanding the effect on the whole system. The engineering approach to difficult problems is to break them down into components and work on each part. What we need is a framework to put it all back together to achieve an integrated, holistic and complete view of the way we run our mining and mineral processing business.

Gerald Whittle, CEO, Whittle Consulting

The Whittle Optimisation Model

Mining companies invariably have detailed models for every part of the system.

Geological models, geotechnical models, mining models, plant models, metallurgical models, logistics models, commercial models and financial models usually exist – but they are all separate and are not integrated. This limits their ability to work together. In contrast, the Whittle Enterprise Optimisation model consolidates the existing knowledge and data from these disparate systems into a single integrated model.

The Whittle Enterprise Optimisation model involves using:

  • Detailed metallurgical recovery relationships (which determines revenue) and Activity Based Costing (which differentiates the mining and processing costs of various material) to construct a “Net Value” (i.e. cash margin) model of the ore body.
  • Theory of Constraints to develop a comprehensive model of the entire system, concentrating on describing the real nature of the bottlenecks. These are likely to be mass/wet-tonnes, distance, depth, volume, chemistry, hardness, abrasiveness, work index, viscosity, etc. It is seldom dry-tonnes which is the unit most commonly used to describe capacities in a mining system.
  • Optimisation software (Prober E) to identify strategies that increases the flow of Net Value through the bottlenecks in the system, to maximise the rate of cash generation.

Once a model is constructed it may be revisited at any time in the future to understand changes in the ore body, process, costs or market. This provides the ability to thoroughly consider future decisions and how they may affect overall business performance.  As your data, knowledge and experience grows over time, so too will your Whittle Enterprise Optimisation model.

“Often, over 60% of the complexity of a Whittle Enterprise Optimisation model is the downstream processing, logistics and market. This enables the  development of a mine design and plan that responds to the system it is feeding.”

John Baillie, Global Consulting Manager, Whittle Consulting

The 10 mechanisms of a Whittle Enterprise Optimisation Model

There are 10 distinct mechanisms in a Whittle Enterprise Optimisation model. As they are interrelated, they are ultimately considered simultaneously.

The Whittle Enterprise Optimisation model is tailored for each site. It determines how much capital is worth spending on each constraint, simultaneously rebalancing the pit, phase, schedule,
cut-off, blending, stockpile, processing, product mix and logistics
to suit the specifics of each mining project or operation.”

Lewis Tota, Technical Services Manager, Whittle Consulting

1. PIT/UNDERGROUND

Based on a “Net Value” view of the orebody and what waste stripping or development is required. Consider what should be in or out of the mine design to maximise value.

2. PHASES

Optimising the pushback design to provide early access to high-value material and defer waste/development costs.

3. MINE SCHEDULE

The sequence and rate of mine production, delaying waste/ development and prioritising value without compromising the future of the operation.

4. CUT-OFF

Based on “Net Value per Bottleneck Unit” not “grades”. Raising the cut-off above break-even on a dynamic basis can substantially increase economic value.

5. STOCKPILES

Deferring rather than wasting lower value material. This mechanism prioritises value, provides operational flexibility and creates commercial options.

6. BLEND

Controlling the range of certain characteristics for the plant feed or the product is a function of time and place. What are the operational or commercial penalties and rewards for hard vs soft blending limits?

7. PROCESSING

Varying plant throughput will have a significant impact on recoveries and processing costs.

8. PRODUCT
MIX & SPEC.

A range of products could be produced over time with a significant impact on recovery, transportation costs and product commercial terms.

9. LOGISTICS

Adjusting capacity to pursue margin rather than cost minimisation. More costly logistics, used under the right circumstances, can produce increased overall value.

10. CAPITAL

Capital decisions should not be made in isolation. With dozens of interrelated capital decisions, the matrix to explore can be substantial and the financial benefits significant.

Activity Based Costing (ABC) & Theory of Constraints (TOC)

New concepts for the mining industry. Any serious approach to strategic planning must incorporate advanced techniques in both the planning mechanism and the costing methodology.

Whilst many mining operators have some type of activity based costing, the introduction of Whittle Integrated Strategic Planning takes this to a new level. The application of new techniques and concepts such as Activity Based Costing combined with the Theory of Constraints creates a powerful analytical approach for decision making across all aspects of a mining operation.

Activity Based Costing (ABC)

Activity Based Costing (ABC) involves a more detailed and responsive cost model. This more accurately reflects the cause-and-effect relationship between activity costs and the cost drivers to which they are attributable.

Activity Based Costing includes:

  • Identifying the key “Activities” in the business that incur costs.
  • Identifying the appropriate “Cost Driver” for each activity. This can be a wider range of operational characteristics than just production tonnes. (e.g. depth, distance, hardness, abrasiveness, volume, density, chemistry, mining width, below water table, etc.)
  • Creating a complete model which recognises “Front Line”, “Support” and “Back Line” activities. This treats the costs of each in a logical manner to obtain the “Fully Loaded Cost” of Front Line Activities, which can be more accurately applied to operational “Cost Objects” or primary outputs of the operation.
  • Identifying the underlying “Fixed Cost” or “Period Cost” (i.e. time related) by examining the total cost of each activity at full capacity. This is compared to a lower level of activity with the “Relevant Range” of operation – whilst maintaining the ability to operate at full capacity on relatively short notice.

Judgement must be applied to develop a cost model with the appropriate level of detail to serve the purpose (i.e. Strategic Planning, not Cost Management) without becoming too cumbersome to be useful.

Theory of Constraints (TOC)

Theory of Constraints (TOC) views any manageable system as being limited in achieving its goals by a very small number of constraints. Theory of Constraints recognises that processes and organisations are vulnerable to their weakest link, which can adversely affect the performance of the entire operation.

Whittle Consulting utilises Theory of Constraints in a strategic context to:

  • Identify the primary and secondary bottlenecks to cash flow (the goal) within the system and what their true characteristics are (seldom defined by tonnage).
  • Optimise the performance of these bottlenecks by aligning the operating policy of the entire system to the characteristics of the bottlenecks.
  • Subordinate everything else because increasing activity levels in non-bottleneck parts of the system is either a waste of time or is actually destructive.
  • Elevate the bottleneck performance until it is no longer a bottleneck.
  • Once successful – start again!
  • Continue until the ultimate bottleneck is where it should be in a design sense. This will be the most capital intensive part of the system or the market itself.

“It is no exaggeration to say that the Enterprise Optimisation techniques, namely the integration of activity based costing and theory of constraints, constitute the most significant innovations that I have seen in almost 30 years of experience in the mining industry.”

Peter Knights, Professor of Mining, Queensland University

Cost Drivers  / Constraint Units

The combination of Activity Based Costing and Theory of Constraints has specific and profound implications for all aspects of
strategic mine planning.

The process involves constructing a “Net Value per Bottleneck Unit” of the ore body. The objective is to maximise the cash flow through the bottlenecks in the system.