By Andrew Crose
Apologies for the Lifetime movie of the week title: Had I written “Activity-Based Costing – The secret joys of tracking every penny,” I’m fairly certain you wouldn’t be reading this. Too late now. You’ve started, might as well finish.
In my early days at University, while trying to figure out what I wanted to do when I grew up, (still a puzzler) I took a handful of accounting courses. At the time they seemed really boring (hence, I’m not an accountant), many of the topics have come in quite handy since those days. Among them was activity-based costing. Wikipedia defines activity-based costing, as follows:
“A costing methodology that identifies activities in an organization and assigns the cost of each activity with resources to all products and services, according to the actual consumption by each.”
Yep, accounting is still boring.
However, it’s still a powerful force to be reckoned with, especially in a mining realm. You’ve decided to modify a road network to separate haulage fleets from light vehicles: what is the final cost? You’ve initiated a project to improve the smoothness of the roads: how will you calculate the return on investment? Sure, the return (increase in productivity) can be measured via your fleet management system, but what about that pesky investment cost? To do that properly, activity-based costing comes in really handy.
How is it done?
First, figure out your cost basis. This can be a little tricky at first. Variables costs are fairly straightforward. Those are the direct costs incurred because of the activity that would not have been incurred had you not done that activity: the fuel you used, the labor you allocated, etc. Next are your fixed costs; costs you’ve incurred whether you do this activity or not, like all that equipment you’ve got lying around. Your accountant has probably already figured that out for you, giving you a cost per engine-hour. Lastly, you’ve got your overhead cost. Wikipedia defines these succinctly as costs “which cannot be conveniently traced to or identified with any particular cost unit”; things like your safety program, your security department, even your accountant (and likely you too, if you are a supervisor). Those need to be allocated across all the activities evenly.
Taken together, they form your cost basis. Don’t worry too much about all of this, your accountant goes to sleep every night dreaming of doing this analysis. The key is loading them together in an easy way, so you can track your costs down to the specific contract or project.
HxGN MineEnterprise is that tool for you. Tracking the hours spent via either your fleet management system or our tablet-based apps, you can now easily track and report the activities of your mine at the click of a browser. Pretty cool right? Accounting is cool!? Wikipedia even informed me that the U.S. Marines use activity-based costing, and if you want to argue with a U.S. Marine, the best of luck to you.
I’d like to thank Wikipedia for making my life easier. Please donate to them when you get a chance. If you want to learn more about activity-based-costing and HxGN MineEnterprise to track your mine’s costs, we’d love to discuss this with you.
Andrew Crose, Director of Sales, EMEA
Andrew is a miner at heart and has participated in digital strategy, IoT, big data, and other technology initiatives with some of the world’s top mining houses. He is a Six Sigma Black Belt trained in process improvement on projects in the mining industry. Andrew brings more than 15 years’ experience in sales management and operations, with the last 10 years in the mining industry. He is responsible for the development, maintenance, and management of sales processes for the Operations’ product portfolio.