Incentive Misalignment in Mining

Recently, I was traveling between two mines in Western Africa. I usually like to drive myself, but, in this case, I was being driven by a local who knew the roads and routes.

After the first day of driving, we were considerably late as the drive took much longer than anticipated. Because of this unanticipated delay, I decided to ask the driver the next morning how long he thought the drive would take that day. He said he thought it would be about four hours.

Thinking quickly, I offered 100Cidi if we could arrive in fewer than four hours and thirty minutes.

I’ve rarely felt less safe than I did in the next 5 hours. We pushed too fast down bumpy roads and down the center lane through stuck traffic; all with the constant noise of a honking horn to let the world know that we were throwing too much caution to the wind.

Clearly, my incentive was misaligned to my overall goal of arriving safely and efficiently.
In mining, I think we do this all the time.

We look at how to be more efficient, improve our productivity, reduce costs, improve safety. But, do we think of the trade-offs or of the laws of unintentional consequences when we devise what we measure and report, such as our KPIs and our incentives?

I would like to share a few examples with you.

 

Safety versus Production 

Do we drive faster to move more tons? Do we push our physical limits of fatigue to keep pushing production? Do we focus on haulage at the expense of road maintenance and dust mitigation?

Clearly, we should not… well, occasionally, maybe a little bit.

Does this trade-off actually work though? Current research says no.

A good read on this is ‘Is Safe Production an Oxymoron‘ in Production and Operations Management. It turns out that you can reduce productivity when you operate in an unsafe manner.

Some potential consequences have top-line impacts, such as a mine shutdown over an incident investigation. An unsafe operation is more variable, and thus creates a bullwhip effect that impacts productivity.

 

Mining Efficiency versus Total Operational Efficiency
I’ve written a bit on this topic before. Is shovel efficiency important? Absolutely.

Is the productivity of one shovel more important than the productivity of the fleet? Well, of course not. Is the productivity of the fleet more important than the profitability of the mine? Of course not…. But, how are the two not aligned?

This can happen in a few ways, both in real time efficiencies and in future efficiencies. In many mining processes, the downstream processing is significantly more costly than the load and haul. In real-time optimizing, the load and haul might create inefficient ROM (run of mine) stockpiles before the plant creating rehandling waste.

It can also create inefficient blends into the mill, where, especially in gold, copper, or phosphates, you can have significantly higher mill than mine costs.

Finally, over time… How often have mines had the short-term efficiencies of today reduced by long term inefficiencies when pit design and sequencing, haul road width, poor bench width, or upside-down strip ratios kill the future and life of mine profitability? This is the tip of the iceberg. Clearly, there are many different areas like this in mining. The key to tackling and solving these problems isn’t easy.

First, it takes planning and cross-functional collaboration. Breaking down the silos to discuss the trade-offs and synergies to develop the right KPIs and incentives. Second, it takes alignment on the digital strategies to measure and manage the SOPs (standard operating procedures) that are functionally developed and aligned to those KPIs.

Lastly, it takes a business intelligence platform that leverages cross-functional, cross-departmental data to measure, report, and enable better management of cross-departmental KPIs.

These last two items are where Hexagon Mining’s digital strategy fits in.

With a comprehensive set of tools to enable Life of Mine analysis, Short Interval Control, fleet and mine management tools, and real-time safety monitoring, Hexagon Mining is able to align to your mine’s SOPs.

Additionally, the MineEnterprise platform enables a single source of the truth, with data sources from your block model, planning, fleet management, as well as safety tools like collision avoidance and fatigue sensors to enable those dashboards and reporting for adherence to those SOPs and measurement of those KPIs.

As always, I’m sure my passionate Hexagon colleagues would love to tell you more.

Andrew Crose

 

(Pagell, M., Johnston, D.,Veltri, A., Klassen, R., Biehl, M. (2014) ‘Is Safe Production an Oxymoron’. Production and Operations Management, 23 (7):1161-1175)

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