Analysis of Business Needs and Requirements

This report is about Avoca Resources Limited, the leading producer of gold in Australia, and its challenges in the global market due to rising cost competitiveness. The report includes a SMART problem statement, stakeholder analysis, root-cause analysis, and current capabilities analysis. The report also suggests solutions to the problem.

Analysis of Business Needs and
Requirements
Student Name: Student ID:
Subject Name: Business Analysis Subject ID: IAB204
Date Due: Professor Name:
Page | 1

Executive Summary
Gold industry’s leading producer is in Australia Avoca Resources Limited. Based in
Perth, the Company is responsible for producing high quality gold. Recently emerging gold
producers from Asia, especially China has led to rise in fierce competition.Cost competitiveness
challenge has led to downfall in market share in the international market for the company. This
project encompasses stakeholder analysis and root cause definition of the problem for arriving at
suitable solution to the project problem.
Page | 2

Table of Contents
Executive Summary.........................................................................................................................2
Table of Figures...............................................................................................................................3
1.0 Introduction................................................................................................................................4
2.0 Needs Assessment................................................................................................................4
2.1 Problem Statement:................................................................................................................4
2.2 Stakeholder Analysis:.......................................................................................................6
2.3 Root-Cause Analysis:........................................................................................................8
2.4 Current Capabilities Analysis:........................................................................................10
2.5 Capability Gaps:..................................................................................................................12
3.0 Requirements Elicitation....................................................................................................13
4.0 Requirements Analysis............................................................................................................13
5.0 Conclusion...............................................................................................................................14
6.0 Reference Lists........................................................................................................................15
7.0 Appendix..................................................................................................................................16
7.1 Appendix 1: Australia’s gold production and share of global production...........................16
7.2 Appendix 2: Global production Shares................................................................................16
7.3 Appendix 3: Mine Production Winners and Losers............................................................17
7.4 Appendix 4: Cost Comparison for Major Gold Producers..................................................18
7.5 Appendix 5: Cost Escalation in Australian Gold Mining Industry......................................18
Page | 3

1.0 Introduction
Mining sector in Australia has been experiencing tough challenges from globalization.
Australia has leading mineral resources in the world but its rival manufactures in Asia as China
is transforming market prices of global commodities. Strong urge for minerals helped maintain
strong demands for various minerals but China, which consumes most of the world’s metal base
is primary importer from Australia as well. Avoca Resources Limited (AVO) an Australian
based gold miner from Perth is experiencing significant number of challenges most important
being cost challenge. Among other concerning areas of the company were the core sustainability
issues such as shortage of energy, pattern of chemical consumption, environmental pollution and
scarcity of water. The policies framed by the government also deterred the revenue proportion
because of taxation and workplace legislation policies. The problem resembles with that of
inaccessible areas of Canada. Further tribulations were impatient nature of industry, ever
increasing labor union power. It has to be noted that the growth of communication means in
western part of Australia due to gold mining activities. This was an eye opener as well as
adaptive approach for the company. But on the positive side, the market trends reflected positive
changes in returns for all the stakeholders. Some of the solutions were identified, as increasing
the proportion of contactors who would deal with labor and immigration problems, inclusion of
non-resident people in the labor force and restructuring the working hours to shifting schedules.
The usage of modern information technology has helped in big way. The assessment of
pollutants, like mercury vapor inside gold mines has helped in creating awareness and early alert
systems in the mines. Early earth quake signaling, water source search machines, and increased
satellite help by real time images of land characteristics have helped the industry. These cues
were noted by the company.
Page | 4

2.0 Needs Assessment
2.1 Problem Statement:
In business analysis case it is most important to identify need of the business by defining
its current problem statement. Evaluating needs and challenges according to SMART objectives
allows better definition of the problem1. SMART is an abbreviated form for specific, measurable,
attainable, relevant and time based. Avoca Resources Limited (AVO) in the year 2011 merged
with Anatolia Minerals Development to form Alacer Gold. The company remains one of the
most profitable mining companies in Australia but is facing challenges from rising cost
competitiveness.
Specific Emerging gold producing nations in Latin America,
Asia and Africa have lower costs compared to
producers in Australia.
Measurable Cost inflation has risen significantly in the past
decade between 2005 and 2011 with rising in 18%.
Attainable Drivers of cost include increased cost of
equipment, energy cost, transport and consumables.
Gold industry’s international cost competitiveness
1DianneDredgeand Tazim Jamal,‘Mobilities on the Gold Coast, Australia: Implications for
destination governance and sustainable tourism.’ 21(4) (2013) Journal of Sustainable Tourism
557-579.
Page | 5

has to be attained.
Relevant Gold industry’s cost non-competitiveness has
affected exports of the company, which in turn
negatively affects Australian dollar.
Time Based Cost has increased between the periods of 2005 to
2011.
2.2 Stakeholder Analysis:
When a problem is analyzed, its impacts also have to be critically analyzed to understand
affected parties. Impact on stakeholders is critical to understand, as internal stakeholders are
considered to be the most affected. Along with internal stakeholders, in this case external
stakeholders will also be impacted2. The RACI model of stakeholder analysis, can detail
information regarding sponsors that are responsible for the project, those who improve project
outcomes and those perform need assessment. Avoca group’s Chairman is Robert Reynolds and
CEO is Rohan Williams. The Company being listed in the stock exchange has other shareholders
as well that take part actively in the interests of the Company. With analysis of internal and
external stakeholders of the Company a brief analysis, it can be understood stakeholders that are
Responsible, Accountable, Consulting and Information. Below is a stakeholder power and
interests matrix that depicts impacts generated on various stakeholders.
2Anna LundJepsen and PernilleEskerod,‘Stakeholder analysis in projects: Challenges in using
current guidelines in the real world.’ 27(4) (2009)International journal of project management
335-343.
Page | 6

Figure 1: Stakeholder Analysis
Internal Stakeholders:A-Accountable- Directors, Chairman, CEO and other member of the
Board of the Company approved the need assessment for the business case. Shareholders of the
Company are the most affected due to falling prices of their shares. They need to be kept
satisfied such that they do not sell out their shares as it will hamper the company further.
R-Responsible-Senior level Employees are responsible for performing the need assessment
for the current project. They have assessed need of the Company for performing costs analysis
such that overall costs can be lowered. Employees and staffs form an integral part of the
Company need to be continuously encouraged and influenced. Their continued commitment will
allow accomplishment of higher targets for the Company.
External Stakeholders:I-Inform-Government need to be informed regarding the end results
of the need assessment. Apart from the Government, publication made in the Company magazine
Annual Reports will highlight possible impacts of the report. Government constitutes the most
important external stakeholder, who has relatively high interests in the Company. As the
Page | 7

Company is a major exporter of gold in the region, government derives significant taxes and
export earnings from it.
C-Consult- Persons that need to be consulted in case of the current problems and
opportunities is external management consultant agency. An external capable management
agency will be consulted for the purpose of analysing the case and also for suggesting suitable
solutions for the problem.
2.3 Root-Cause Analysis:
Escalation of labor, energy, transport and other consumable costs has led to non-
competitiveness of gold produced across Australia. A root cause analysis of the problem will
allow benefitting the entire scope3. In root-cause analysis, steps that are involved are used to
arrive at the challenge or issue facing the organization easily.
o Identification of the Problem: The leading problem facing the Company is
increased costs. Increased cost of production of raw gold has diverted various
clients of the Company to other Companies in Asian countries.
o Defining of the Problem: The core problem lies in heightened global economic
instability, breaking down of the Bretton-Woods exchange rate system,
inflationary pressures and oil shocks that led to viewing gold as more stable form
of investment. This led to sharp increase in nominal prices of gold from US$35 an
ounce to more than US$600 an ounce. Moreover, adoption of carbon-in-pulp
3JessicaGeerling, Meir Chernofsky, and Stephen D. Pratt,‘Root cause analysis.’ 78(6) (2014)ASA
Newsletter 46-49.
Page | 8

technology led to rise in production of Australian gold industry sharply. Appendix
1. Gold production is distributed to not more than 15% attributed to any country.
Australia’s Avoca being a matured gold mining unit experienced sharp fall in gold
market share due to highly competitive global markets. Appendix 2. Australian
gold producing companies, amongst which Avoca being the largest gold producer,
lost out sharply. Appendix 3.
o Understanding the Problem: Cost incurred by Avoca had risen significantly in
the last decade including total cash costs as mining expenses, administrative costs,
royalties, refining charges and so on. Production costs including cash cost,
depreciation, reclamation and amortization costs. This in totality reflects declining
marginal costs of gold that includes indirect costs, overheads with capital
expenditure.
Figure 2: Root Cause Analysis
Page | 9

o Identifying the root cause: Rise in cost can be attributed to a global phenomenon with
South Africa largest producer in gold also experiencing rising costs. Costs in Australian
gold mining industry had risen to 15% to 20% higher, rising from US$89 per ounce to
US$176 per ounce in 2011 alone.
o Corrective Actions: Lack of discovery of new sites, not maintaining large scale output
levels, energy costs and other costs has led to price escalation. Avoca need to operate at a
cost effective system especially in areas of transport and labor costs in order to deal with
price escalations.
o Monitoring the System: Cost monitoring systems that can help control costs can allow
the company to produce its gold at costs competitive rates. Allowing major processes to
take place in machineries rather than by use of labor can further enhance cost
effectiveness.
2.4 Current Capabilities Analysis:
A challenge or issue analysis needs to include relevant evaluation of current capabilities. A
comprehensive SWOT analysis helps review strength, weaknesses, opportunity and threats4. A
SWOT Goals and Objective helps document business analysis in a more detailed manner.
o Strength
4J.Müller and H. E. Frimmel,‘Numerical analysis of historic gold production cycles and
implications for future sub-cycles.’ 4(1) (2010)The Open Geology Journal 29-34.
Page | 10

 Large market share in Australia (approx. 45%)
 Major exporter from Australia to other nations (approx. 40%)
 High capability Infrastructure and equipment
o Weaknesses
 Rising labor costs
 Lack of new opportunity in expand mining sites
 Rising energy costs
o Opportunity
 Lowering cost overheads
 Connecting with more number of clients
o Threats
 Lower costs in Asian countries
 Competitiveness amongst global companies
Strengths encompass current capabilities, which when analysed further can reveal root
cause in a detailed manner as given below.
Problems/ Current Limitations Root Cause (s) New Capability/Features
Rising Costs
Labor costs rising  Hire laborers from
Indigenous
 Train labor in-house
 Keep contractual
laborers
Energy costs Rising  Deploy sustainable
energy resources
 install solar panels for
long term benefits
Overhead Cost Rising  Install monitoring of
Page | 11

overhead costs
 Reduce them as much
as possible
Declining market share
Market share in Australia
Declining
 Market products to
more places by market
penetration strategy
 Make tie-ups with
companies that can
provide efficient
supply chains
Declining market share in
international markets
 Expand to more
number of markets
internationally
 Produce a low
concentration of the
product for gaining
higher market share
2.5 Capability Gaps:
Current gaps existing in the capabilities need to be evaluated and
filled. Filling up of current gaps in organizational capabilities has to be
attained for overcoming the current crisis situation.
Problems/ Current
Limitations
Root Cause (s) New Capability/Features Project Deliverables to
Fill Gaps
Rising Costs
Labor costs rising  Hire laborers
from Indigenous
 Train labor in-
house
 Keep contractual
laborers
 Set new
training for
hiring laborers
 Directly hire
laborers for the
company
Energy costs Rising  Deploy
sustainable
energy resources
 Install solar
 Make fixed
investment for
installation of
solar panels
Page | 12

panels for long
term benefits
Overhead Cost Rising  Install monitoring
of overhead costs
 Reduce them as
much as possible
 Appoint cost
manager to
keep track of
investments
Declining market
share
Market share in
Australia Declining
 Market products
to more places by
market
penetration
strategy
 Make tie-ups with
companies that
can provide
efficient supply
chains
 Appoint
marketers and
promotional
techniques for
customer
acquisitions
Declining market
share in international
markets
 Expand to more
number of
markets
internationally
 Produce a low
concentration of
the product for
gaining higher
market share
 Acquire more
number of
international
customers
through online
promotion of
the company.
3.0 Requirements Elicitation
Requirement elicitation has been obtained from data gathering done by employees and senior
management. Data collection has been undertaken from annual reports, company magazine that
published data and internet sources5. Lowered sales volumes and declining market share is
mostly indicated from company’s balance sheet that depicts lowered export earnings or declining
earning in foreign currency. Rising costs are being shown in manufacturing account and profit
and loss account for the business.
5Gavin MMudd, ‘The environmental sustainability of mining in Australia: key mega-trends and
looming constraints.’ 35(2) (2010)Resources Policy 98-115.
Page | 13

4.0 Requirements Analysis
The data that has been collected from has to be analyzed as per
requirement of the situation statement. Stakeholder analysis has revealed
details regarding requirement needs. Each stakeholder has separate need.
However, in-depth requirement analysis reveals that shareholder’s need
maximization of their wealth whereas employees and staffs need
sustainability of the organization. Management consultants will provide ways
out of the current situation; hence they also have vested interests in the
business. Government earns high amounts of taxes and foreign exchange
from exports. Therefore, growth and development needs of the business are
of utmost importance. This can only be achieved in case there is a control
over costs in the company.
5.0 Conclusion
Analysis of the cost challenge experienced at Avoca reveals that it needs to lower its
costs for gaining competitiveness. Cost competitiveness can allows significant profitability and
increasing of market share for the company. A stakeholder analysis with root cause problem
detailing has revealed capabilities for overcoming challenges and establishing core competency.
Page | 14

6.0 Reference Lists
Dredge, Dianne, and Tazim Jamal,‘Mobilities on the Gold Coast, Australia: Implications for
destination governance and sustainable tourism.’ 21(4) (2013) Journal of Sustainable
Tourism557-579.
Geerling, Jessica, Meir Chernofsky, and Stephen D. Pratt,‘Root cause analysis.’ 78(6)
(2014)ASA Newsletter 46-49.
Jepsen, Anna Lund, and PernilleEskerod,‘Stakeholder analysis in projects: Challenges in using
current guidelines in the real world.’ 27(4) (2009)International journal of project management
335-343.
Mudd, Gavin M,‘The environmental sustainability of mining in Australia: key mega-trends and
looming constraints.’ 35(2) (2010)Resources Policy 98-115.
Müller, J., and H. E. Frimmel,‘Numerical analysis of historic gold production cycles and
implications for future sub-cycles.’ 4(1) (2010)The Open Geology Journal 29-34.
Page | 15

7.0 Appendix
7.1 Appendix 1: Australia’s gold production and share of global production
Figure 3 : Australia's Gold Production and Share in Global Production
Source: Bureau of Resources and Energy Economics (BREE)
Page | 16

7.2 Appendix 2: Global production Shares
Figure 4: Global Production Share
Source: Thomson Reuters GFMS
7.3 Appendix 3: Mine Production Winners and Losers
Page | 17

Figure 5: Mine Production Winners and Losers
Source: Thomson Reuters GFMS
7.4 Appendix 4: Cost Comparison for Major Gold Producers
Page | 18

Figure 6: Cost Comparison for Major Gold Producers
Source: Thomson Reuters GFMS
7.5 Appendix 5: Cost Escalation in Australian Gold Mining Industry
Figure 7: Cost Escalation in Australian Gold Mining Industry
Source: Thomson Reuters GFMS
Page | 19