MINING companies need to focus on getting their internal "wiring" right to prevent cost blow-outs and poor returns from future start-up projects, explains Skipp Williamson of Partners in Performance.

The resources boom and rising commodities prices have been good for companies' bottom lines, but they have also helped mask rising labour costs and static mine productivity rates.

Even more worrying, a recent report by BIS Shrapnel on engineering construction in Australia warned that cost pressures and shortages of labour and materials are only going to get worse going forward.

In this environment, companies with new projects in the pipeline will face greater challenges than ever before to prevent blow-outs in development costs and timing delays.

Under-delivery in the first year of a project alone can easily destroy 30% or more of a venture's net present value.

In the rush to get minerals out the gate, companies frequently under-invest in people and systems.

Hundreds of millions of dollars can be poured into the detailed planning and governance on the capital side of a project, but if there is insufficient money and attention focused on planning and execution on the operational side, the start-up is doomed to under-deliver in the early years.

This lack of attention causes lower output, quality issues, cost overruns and an inability to rectify performance over the rest of the project's life.

The problem is that many managers instinctively try to cut back on costs to rein in a ballooning budget.

Plans to implement organisational systems and processes or "wiring" are shelved because managers think there will be time to address these issues after the commissioning phase is complete and the operation has stabilised.

However, if they're not embedded into the project's operating system right at the beginning, they simply cause bigger headaches and are even more difficult to fix in the long run.

A common mistake is the adoption of an organisational structure that doesn't match the project's needs at the beginning of its life.

If start-ups are staffed with the same organisational structure and resources as the predicted "stable state" organisation, then there are never enough hands on deck to deal with technical issues and hiccups with reporting systems.

Managers end up lurching from one crisis to another, trying to fire fight their way out of situations where they don't have enough data, time and resources to get on top of problems.

If a start-up site doesn't have enough resources or clear accountabilities to drive maintenance, protocols and daily routines, then plant and maintenance crews are likely to spend most of their time racing from one major breakdown to the next.

Often this leads to an increase in contract maintainers to cope with the mounting workload.

As a result, costs spiral further out of control. Plus, the risk of more site accidents or serious workplace injuries is unfortunately likely to rise.

There is no doubt that mining companies are under significant pressure to turn the key on important projects. However, "from the gut" decision making will not be easily forgiven in the future.

It can only result in haphazard business management, which can have dire consequences for a company's culture, how its people behave and how the business will ultimately perform.

In the tougher forecast operating environment, companies must invest time in "hard wiring" their operations upfront so they can consistently meet ramp-up revenue figures and position their projects for long-term success.

Skipp Williamson is managing director of operational improvement firm Partners in Performance.

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