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services > QG and strategic mine planning
 What is Strategic Planning?
There is a lot of talk about strategic planning these days but not too much in the way of definition. What does it all mean? A quick review of various dictionary definitions shows that the word ‘strategy’ has a fairly nebulous meaning. In some definitions it is heavily tied up with military terminology and discussions of opposing forces and enemies. How can the Resource Industry use the same term in a meaningful way?
Concepts
1. It’s impossible to have a strategy without having a goal.
A strategy is all about delivering some objective or goal. Trying to have a strategy without a goal is like going on a trip without a destination in mind. It might be fun, you might see interesting things and meet interesting people, equally you might not. Everything pretty much happens by accident.
2. Strategy is about higher goals.
If you have a goal to produce 10,000 tonnes of ore, do you need a strategy to achieve that goal? It all depends. If you routinely produce around 10,000 tonnes of ore then arguably you don’t need a specific strategy to achieve that objective. If, however, you routinely produce 100 tonnes then taking a strategic approach will go a long way towards helping you achieve the goal.
Strategic planning is designed to deliver the higher goals of an organisation. That is, goals relating directly to the raison d’etre. What is the value generating proposition for the business?
3. Strategic Activity Has High Leverage.
When can management intervention add the most value to a business? Studies of management behaviour have shown that many managers spend their time involved in low leverage activities, focusing on day-to-day operational results. While it is critical to ensure the day-to-day business delivers the expected results, this is not the area that has the greatest potential to materially improve organisational results.
Strategic activities such as identifying and ranking capital investment opportunities, finding new ways to combine existing operations to produce more viable product or developing an objective view of risks and ways to minimise risk, are all high margin actions.
Getting the right balance between strategic and tactical management is essential for operational success.
Options and Uncertainty
Uncertainty is a key factor in strategic planning. As we take a more strategy view of an organisation, the accuracy of our understanding of all the parameters that drive the business decreases. In the past this has been seen as a major disadvantage of strategic planning approaches. In the face of uncertainty, it can be difficult to change from the existing (proven) approach.
Contemporary practice uses the uncertainty associated with strategic and long term views as an advantage. If the certainty of a result is lower, there are more opportunities to have a different outcome. If there can be a different outcome, we need to identify those that are an improvement on current practice and seek to realise them. At the same time we can use those outcomes with a poorer result as risk mitigation tools. The more options we can identify, the greater the opportunity to steer the business towards a high value outcome.
Options create value. To identify options, you need to understand the basic inputs into the business system. There is no point in creating and options or scenarios that are based on fantasy. The skill is in separating fact from fiction from belief. What aspects of the business can be altered and what is unalterable? Take for example a scenario where the average head grade of your operation is 20% higher than currently realised. What would be the impact on the operation and how could this best be exploited? Is this a valid scenario? After all the Orebody is the Orebody right?
In fact we do have some control over the grade of material sent to the concentrator. There are levers such as dilution and mining loss that relate directly to the mining approach. We can alter the cut off grade and stockpiling strategy, we can manipulate the production sequence and schedule. We may be able to find higher grade reserves in proximity to the existing operation. Each one of these options has a potential benefit and an associated cost. By evaluating the various options and combination of options we may be able to find an approach that is higher value or lower risk. Evaluating the various options available is relatively low cost compared to major capital investments.
Planning for the Future
Strategic planning is more than long term planning. A long term (or life of asset) plan is one component of a strategic plan. A strategic plan must incorporate all the critical aspects of an operation. In particular, it is essential to understand the differences involved in the option or scenario when compared to the current operation. Thus, a strategic plan may need to consider:
• legislative and permitting environment
• environmental and compliance factors
• human resource issues
• capital and other resource constraints
Many of these issues require specialist attention and the more time available before critical decision are required the better. A well formed strategic plan is a multi-disciplinary effort.
Implementing a Strategic Plan
Strategic planning should be incorporated into the annual planning cycle of a business. In an ideal implementation, the strategic plan drives all other plans and all other plans are subordinate to the strategic plan. This is recognition of the high leverage a strategic plan has compared to shorter term plans.
The hierarchy is best described in the following diagram:
The Strategic Plan is derived directly from the business goals and objectives. At each step, the plan is further refined to deliver the desired outcome. It is important that this top-down approach is adopted. If the strategic plan does not drive all other plans then the long-term and strategic objectives may well be foregone in the interest of short-term expediency. Thus, the strategic result is never delivered and we are back to taking a trip without having a destination in mind. We just might meet those interesting people along the way but then again we may not.
Synergies
One of the most important aspects of strategic planning is to ensure the planners are not artificially constrained. The planning team needs to be able to look across organisational boundaries and even externally. Consider the potential synergies and efficiencies available if fleet planning is spread across multiple operations. The peaks and troughs of equipment requirements at a single operation can be smoothed across other similar operations, or alternately capital investment approaches can be optimised to improve returns on capital.
The recognition of business synergies is of vital importance. Can a waste product be turned into a by-product? If we change the development sequence for multiple operations, can we improve the total cash flow and investment profile? If we mix two material types through the one treatment facility can we increase the ore reserve due to improved metallurgical performance characteristics? Can we work with a customer (or supplier) to increase margins or change penalty set points?
The strategic planning process should evaluate as broad a range of options as practical. Indeed, strategic planning never stops. It should be an on going process.
How QG can help
QG has experience and expertise in strategic planning for multiple commodities and multiple operations. Our Principal Consultants have worked in vertically integrated organisation where the quality of combined product supplied from multiple operations is critical to business results. We also have experience in sequencing and scheduling multiple operations under differing capital and resource environments, identifying those scenarios that provide the best result and the most common path forward.
QG believes a structured approach is required for strategic planning. Given that the arena of strategic planning is one of high uncertainty and multiple scenarios, structured questioning and analysis is required to prevent the entire process from decaying into chaos. Our structured approach is based on the phased identification of options and advancement of options through a sequence of increasingly precise milestones. The business and operating environment for each option are well documented and critical success factors identified. Where appropriate, the points of commonality and difference between various options are identified. This allows our clients to recognise opportunities and decide preferred options secure in the knowledge that if the business environment changes an alternate plan can be quickly revised and implemented.
One of QG’s advantages in the realm of strategic planning is our understanding of risk, especially resource risk. QG’s personnel bring a unique perspective into the strategic planning field. We can build resource risk models that directly feed into strategic planning studies thereby capturing and quantifying on of the most critical input factors - the potential resource variability.
Our familiarity and experience in dealing with uncertainty is reflected in QG’s ability to develop scenarios and options.
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Scott Jackson (left), Scott Dunham (centre), and John Vann (right) are the Directors of Quantitative Group
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