Effective Operational Readiness

of Large Mining Capital Projects

Avoiding value leakage in the
transition from project execution
into operations

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 Content

Introduction....................................................................................................................................3

Where does the majority of value destruction occur?.....................................................................4

Challenges facing your business during the operational readiness process.....................................6

Planning for the unexpected...........................................................................................................8

Summary.......................................................................................................................................10

Contacts........................................................................................................................................11

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Introduction

Africa, along with the rest of the world, continues to push toward significant industrialisation and infrastructure
renewal. This is driving a renewed focus on limiting the ever increasing costs that face the mining industry. The
implications of the global economic conditions on companies and their cash flows, has forced mining companies
involved in major capital projects to revisit the art of achieving or accelerating project ramp-up profiles. The
effects of a sub-par performance on a series of capital projects within a company portfolio could seriously hamper
growth targets. An area of particular focus where value leakage can be curbed is through effective operational
readiness planning and execution.

The capital project lifecycle is typified by financial decision making, technical design and rigorous construction
planning and execution. Often project teams underestimate the impact of decisions during project development
phases in terms of the practical implications on operational readiness. A significant component of the project life
cycle is ensuring the operational readiness of large projects.

The capital project lifecycle is typified by

financial decision making, technical design
and rigorous construction planning
and execution.

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Where does the majority of
value destruction occur?

In a company’s growth agenda, Green and Brownfield expansions are some of the most complex activities that
an executive team will have to manage. Many organisations will go through a process of identifying, developing,
executing and finally operationalising the project.

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It is suggested that, the transition from execution into operations is where high value leakage occurs, and in
certain case studies has destroyed in the region of 30% of the initial study value. When considering the relatively
short duration of the ramp up period in comparison to the overall project lifecycle, the handover management
phase is considered to be critical to retaining as much of the Net Present Value (NPV) of the project as planned.
The saying that projects are ‘make or break upfront’ rings true.

The importance of discipline and governance in ensuring that the operational readiness process is sufficiently
covered is what separates the effective from ineffective project outcomes (as indicated above). Without a specific
focus on operational readiness to ensure the integration of the design, construction, commissioning and ramp-up
delivery phases in a holistic and synchronised way, the risk of value destruction becomes likely.

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Challenges facing your business
during the operational
readiness process
The high degree of uncertainty that accompanies operational readiness can often be mitigated, simply by
identifying the challenges that the project can pose and the impact that these challenges could have on the
projects.

Challenges
People readiness
• Addressing skills and capacity shortages during
transition
System readiness
• Ensuring management information readiness on
day one
Legislative compliance
• Environmental and socio economic related
(licence to operate)
Services and infrastructure readiness
• Peripheral services and external infrastructure
Procurement and supply chain readiness
• Establishing new vendors, necessary
infrastructure and systems to support inbound
materials
Equipment readiness
• Ensuring the timely commissioning and
operability of new equipment
Impacts
• Ineffective services delivery
• Quality related issues
• Increased costs due to imported skills
• Poor safety performance
• Inability to produce management reports
• Limiting management effectiveness
• Late start up due to urgent applications
• Potential fines or shut downs for non compliance
• Inability to supply necessary services
• Increased costs for temporary services
• Delays due to external constraints
• Insufficient capacities
• Stoppages due to stock outs
• Material and critical part shortages
• Delayed start up
• Slower ramp up
• Inability to achieve design capacities

Understanding the challenges and their potential impact on capital projects provides an indication of the
preventative measures required in order to ensure that the project retains the maximum NPV possible. It is often
the case however, that these challenges and impacts are not accounted for or factored into the operational
planning process in the development phases, negatively affecting the return on investment.

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Planning for the unexpected
The Deloitte experience has shown that project teams have come to understand the capital project assurance
imperative, usually applying rigorous focus to the technical design and build aspects of the project. A similar
focus on operational readiness is often neglected from the outset, potentially leading to practical challenges in
achieving the anticipated return on investment.
Focus Area
Underestimating the
complexity of the
operational readiness
planning
Defining accountability and
ownership with projects
Accounting for a
‘uniqueness’ factor in each
project
Establishing team
integration
Structuring the top level
correctly
Effective Operational Readiness of Large Capital Projects 9
Business Case
Capital outlay is often considered by investment study teams to be more
complex, warranting more focus than operability. It is common only to
discover the cost implications of failing to focus on operability in the transition
or ramp-up phase of the project. Underestimating the importance of
optimising the operability phase leads to the erosion of the potential NPV of
the project.
Ensuring the highest quality of operational manager for the project has proven
to be effective in operational planning and execution. This strategy ensures
that sufficient operations readiness accountability and ownership is achieved
from the outset.
Seemingly simple, one of the key operational readiness barriers is the
experiential factor of the organisation in terms of the ‘change’ that is
being implemented. Typically, large capital expansions exhibit some level of
uniqueness, be it in operating in a new geography or the introduction of a
more efficient technology. Ensuring an extraordinary planning effort to identify
the unique elements of a project, one is able then to apply effective mitigation
processes around these elements
Integration is one of the key inhibitors of success when managed ineffectively.
Large capital expansions by their very nature exist of many stakeholders
and teams, all from different backgrounds and cultures. Integration is often
misunderstood as a ‘point in time’ activity, however projects are dynamic and
the amount of change can often be underestimated. Effective integration
requires visibility, transparency, and ongoing communication to ensure that
the plans are commonly understood and aligned to achieve a common goal.
Harmony between the readiness of the different areas (people, systems etc.)
will ensure output deliverables better than or equal to plan.
This is a key determinant of effective operational readiness, as the incorrect
structure can drive focus in the wrong areas, or miss out key components
of an integrated plan. The top level structure needs to enable both capital
efficiency as well as operability. Operations management strive for a ‘Rolls
Royce’ type operation with all the necessary bells and whistles, whilst capital
formation management focus on project returns and minimal investment. This
natural conflict needs to be managed through an effective top level structure.
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 Focus Area Business Case
One of the most challenging alignment factors
between the executive, projects and operations
teams is to agree on a suitable ramp up plan

The opportunity
for the new operation. This is where the proof
of effective integration comes to bear fruits,
or destroy value if it has been ineffective. The

for earlier ramp team is required to develop a suitable ramp up

plan, including commissioning the requirements
of the various sub systems of the operation.

up may be Establish suitable ramp up

All components of the system, both capital
formation as well as operational readiness
culminate into two areas:

missed, which plans for the project

• The actual ramp up date (equipment,

can typically
infrastructure, people and system ‘readiness’)
• How quickly the organisation can ramp up to

impact on
the optimal capacity (equipment, infrastructure,
people and system ‘reliability’).
There is a high degree of uncertainty regarding

realising system reliability and performance in ramp-up

planning, as there is no historical data to identify

significant value.
where problem areas are going to arise.

Management reporting and control are key

Establishing operational
reporting and control
enablers of operational readiness planning and
execution. The reporting needs to be dynamic
dependent on the phase of the project, as well as
the status of certain components. The challenge
arises during commissioning and ramp up, where
the operations readiness team will need to take
ownership of the operations reporting, while
standard project reporting and governance is
being phased out.

By not actively applying an operational readiness focus from the concept stages
of a project, key decisions during the capital lifecycle have the potential to be
misinterpreted or proactively managed. Left too late, it could have a direct impact
on the start-up and ramp-up profile of the project. Additionally, the opportunity for
earlier ramp up may be missed, which can typically impact on realising significant
value.

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 Summary

There is no ‘silver bullet’ solution to operational readiness planning and execution. Projects, by their very nature
exhibit unique complexity, and these should be individually considered when planning for efficient operational
readiness. Typically, Deloitte have identified that Greenfield and Brownfield expansions require different planning
strategies in order to leverage their different competencies. Essentially, operational readiness planning requires
consideration, planning and importantly, a budget from as early as the study phases of a project. An operational
readiness project plan should be created and integrated into the overall project plan.

Making the decision to integrate operational readiness planning into the project development process is the
starting point. Effective operational readiness planning will benefit your business if managed correctly, building
the NPV of the project, improving the realisable value of large capital projects and ultimately increasing
shareholder value.

Testimony
Minimising the value leakage during the commissioning and ramp-up phases of major capital projects is critical
to the project success. Operational readiness plans must be fully aligned and synchronised with the overall
project implementation plans. The designing and effective execution of operational readiness plans can secure
significantly more project value than a singular focus on effective construction plan execution. Operational
readiness plans cannot give new life to a “sick” project, but can prevent a good project from becoming “sick”.

Matie von Wielligh, Industry Expert

Operational readiness
plans cannot give
new life to a “sick”
project, but can
prevent a good
project from
becoming “sick”.

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 Contacts

Anton Torlutter
Programme Manager

Email: atorlutter@deloitte.co.za

Tel: +27 (0) 82 469 5685

Louis Kruger
Capital Projects Leader

Email: lokruger@deloitte.co.za

Tel: +27 (0) 83 388 7261

Abrie Olivier
Mining Industry Leader

Email:aolivier@deloitte.co.za

Tel: +27 (0) 82 874 6040

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