Case Study – Activity – Based Management in Shell Gabon

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Case Study – Activity – Based Management in Shell Gabon
Case Requirements
1. SG TOTAL UOC per barrel = $140,640,200/(120,000 barrels/day * 365 days/year) = $3.21/barrel Barrels of oil produced is a cost driver for some of the activities in RDS, but not all are driven by production of oil. UOC = Total Operating Expense (OPEX) excluding exploration, depreciation, and depletion therefore there are other activities like exploration, new capital equipment for exploration, research and development, depreciation on equipment, and depletion are costing money whether you are making oil or not. RDS is monitoring costs per barrel and SG assembled the CLT team to learn how to control costs in order to get funding for off shore oil exploration and keep the oil price below $16.71 per barrel in order to stay competitive according to an industry report. SG assembled the CLT team because headquarters mandated that investment and development funds would be allocated only to those subsidiaries that demonstrated a serious commitment to cost management and they need this backing in order to stay competitive and in business. 2. The costs of the activities in the Provide IT and Telecommunications Services process are below. This is an edited part of Table 5 that is shown in entirety in question #4 that I generated for that question. Provide IT and Telecommunications Services| |

Select, install, operate, support hardware and software| $ 1,499,000 | Provide SAP support| $ 1,074,000 |
Provide Telecommunications| $ 5,421,000 |
Total| $ 7,995,000 |

The items included in these calculations are the direct costs from Table 3 and the indirect (allocated) costs from Table 4. The first 3 columns of numbers from these graphs correspond to the Table 5 question marks that we are looking for. Included in these calculations are the staff benefits which are 35% of the staff salaries and the staff services which are 30% of the staff salaries. Staff services represent the costs of running communities in isolated areas; these costs vary depending on the specific location. They include providing housing, cafeteria, security, gardening, health care, transportation, schooling, and all other amenities needed for a remote oil pumping station to function. Not included in these calculations are the exploration, depreciation, and depletion of SG since these numbers are not parts of the UOC. 3. There are a number of performance measures that could be used to evaluate if these activities are being performed well. The first thing I would do is accurately track the actual staff benefits and staff services and compare them to the estimated percentages of staff salaries that are being used to appropriate costs to each activity. This will tell you whether the activities are efficient in their usage and which activities are using more of the resources than others. I feel this is the most important performance measure to trace since staff salaries/benefits/services are the biggest portion of costs for Business Management. Some other performance measures that can be used include quality of job done, efficient use of time, and can go to very minute measures such as customer satisfaction (internal and external) for each activity and subactivities. One thing to keep in mind is that whatever performance measures are generated to evaluate performance of the activities have to make sure that the benefits outweigh the cost of evaluating especially now since SG is trying to cut costs. 4. Below are the UOC per barrel for each process and activity in the rightmost column assuming 120,000 barrels per day @ 365 days/year. Table 5| | | Cost for Business Management Processes for 2000| | |

| | |
Activities Performed| Cost | UOC|
Provide Goods and Services|  |  |
Select Vendors| $ 120,000 | $ 0.003 |
Purchase Goods and Services| $ 257,000 | $ 0.006 | Warehouse...
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