Value Management Strategic Application - Gold Mine
Introduction:
Most of the articles written on the turnaround of companies reflect a situation of initial despair and an urgent need to adapt to new rules. These interventions are painful and in many cases leave behind casualties with an understanding that we should have intervened months or years before.
Someone can provide bridging funds, have an emergency management team to restructure the organisation, and hope for the best.
The reality, however, is that when companies reach this point, there is a recovery phase of up to twenty-four months, with no real revenue stream, and the obligation of recovering the losses of the past.
Why is it that these organisations find themselves in such a dilemma? Is it complacency? Maybe it is “groupthink” in the management team that allows for an illusion of unanimity, an illusion of invulnerability, self-censorship or shared stereotypes.
When an organisation had a good run and was prosperous, the old rules of success kept on being applied even when members of the management team noted danger signs. Such typical comments as “We’ve weathered many storms, we will survive this one” ignore the real issues, and in many cases lead to the resignations of exactly those people who could have managed the organisation through a change needed to succeed in the future.
Responsible management will ask questions even when the business is doing well. They may ask the paradigm shift question: “What today is impossible for our business to do, yet if it could be done, would fundamentally change what we do?” It is therefore necessary to forecast the need for a future change before the wheels start to fall off.
The first step is to realise that traditional management skills of planning, organising, leading and controlling are no longer sufficient to deal with the modern working environment.
Management has to understand that everything has a life cycle of being productive and appropriate in current circumstances and will lose its effectiveness when new technologies, markets and trends emerge.
To move from an existing paradigm (or mind set) to a reframed, new way of doing things, a change management process must be in place to allow all stakeholders to understand the reason for the turnaround, even when the current methods are still effective.
We know that people do not like change, not even a positive change. We all know visionary people, who have the ability to imagine the future; we also know that visionary people seldom are the implementers. At the same time, the employees who are supposed to implement change do not see the reason for it, due to their lack of understanding of the future requirements.
The opportunity is with leadership and employees aligning strategies between visionary leadership and the rest of an organisation on an ongoing basis. This will allow for continuous questioning of the current paradigm of the organisation and adjust in good time, before it is too late to adjust to a new way of doing the things required to succeed.
The value methodology was applied to turn around a gold mine in South Africa with the main purpose of reducing operational costs without sacrificing safety, sustainability and employee rights.
Management also agreed to involve an independent consultant experienced in the value methodology to assist in training and in facilitating the process. Management then allocated the correct resources (people and funds) to execute the various stages of discussions and facilitated workshops and the training of employees in value management (VM) principles.
What is Value Management?
Value management (also referred to as value engineering) is a value-adding, innovative-thinking methodology that equips one with much-needed creative decision-making and group-interaction skills. Its practitioners apply techniques to improve designs, processes and productivity, whilst overcoming problems associated with people – be they engineers, accountants, sales people, customers, suppliers or anyone requiring creative solutions for difficult problems. This dynamic methodology focuses the collective wisdom of a divergent group, where the process enables them to systematically define common objectives, functionally prioritising what needs to be done and then creatively identifying how best to achieve the desired results.
The unique and paradoxical combination of functional focus and creative thought will ensure that people are equipped to manage projects successfully.
The benefits are as follows:
We obtain correct and cost effective solutions to the problems we encounter, as we ensure functional correctness before deciding on the solution to be implemented.
Through their participation in a VE study/workshop we obtain buy-in and achieve alignment of the people who have to implement and run with the solution.
By achieving results together, we develop trust between individuals. Trust is the first step to create a team environment. This will lead to high morale and increased efficiency.
Basic Principles of Value Management:
Value as expressed in value management can be defined as “the lowest cost to reliably provide the required functions or services at the desired time and place and with the essential quality”.
Value = Function / Cost
The Value Methodology integrates a convergent and a divergent process; managing information in a logical way to ensure that only the relevant data are carried forward.
By understanding the functionality of any need and its real cost drivers an scenario is established, focusing on the 20% of issues that impact on 80% of the desired outcomes.
Process Explained:
The initial change process for the mine took place within a facilitated workshop environment with the management team (horizontal representation of organisational structure), where the vision and mission of the company was reviewed and confirmed.
The purpose statement of the turnaround initiative was then created. It must be noted that the whole management team had the opportunity to be exposed to the principles of value management, and therefore to understand the process and the benefits associated with it.
To establish clear strategies to reduce operational costs by 15 percent by (a given date), without compromising sustainability of the mine.
The major strategies identified were:
1. Ensure correct ore resource management
2. Optimise power and water utilisation
3. Eliminate waste – stores and salvage
4. Align labour costs (bonus and overtime)
5. Eliminate shrinkage, theft and fraud
6. Introduce value-adding blasting
7. Ensure quality health services
8. Manage contractors and service agreements
9. Reduce equipment abuse
10. Resolve grading inconsistency of panel crew
11. Ensure optimum grind
Cascading Strategies:
It was also agreed that each of the strategies established would be “cascaded” into the organisation; responsibility would be allocated to a MANCO member to manage detailed investigations and workshops with representation from the relevant stakeholders (vertical representation of organisational structure
Since the turnaround strategy included the empowerment of employees, all the consequential workshop activities included the implementation of value management principles with the objective of creating an environment of continuous improvement initiated by all employees.
Find below an example of how some of the major strategies were cascaded into more detailed activities utilising the same process principles applied in the initial VM workshop.
From Reduce Operational Costs to Optimise Power and Water Utilisation to Optimise Maximum Demand and Reduce Fresh Water Consumption.
Conclusion:
During a six month period more than 200 people participated in over seventeen VM workshops/studies, establishing strategies and solutions that reflected in a reduction of more than $1 million (>15%) of initial operating costs per month.
Not one person was retrenched. The mine’s life was extended by allowing for cost-effective mining in less-profitable sections. All improvements were implemented by the mine’s management and its employees, thus ensuring ownership of their actions and pride in their achievements.
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