ON THE METHODOLOGY FOR CALCULATING SAVINGS FROM THE IMPLEMENTATION OF ORGANIZATIONAL AND TECHNICAL MEASURES IN GEOLOGICAL EXPLORATION OPERATIONS

P. I. STEPANOV

(Presented by the scientific seminar of the Department of Exploration Technology)

In order to fulfill the economic task in building a communist society in our country, it is necessary, first of all, to prepare in a timely manner the mineral-resource base for rapidly developing heavy industry. In preparing the mineral-resource base, workers of the geological service must systematically increase the economic efficiency of geological exploration operations. One way of increasing efficiency is to reduce the cost of the work performed.

Production geological organizations annually receive an assignment to reduce costs, in accordance with which a plan is developed for reducing the cost of the geological exploration operations scheduled for execution. The basis for drawing up the cost-reduction plan consists of organizational and technical measures developed with the aim of increasing labor productivity and reducing the costs of geological exploration production, and also aimed at the fulfillment and overfulfillment of other indicators of the production plan. The organizational and technical measures developed must be realistic and specific both with respect to the expected economic efficiency and with respect to the responsible executors for implementation and the workplaces where they are to be introduced. In the plan for reducing the cost of geological exploration operations, the planned savings for each cost element must correspond to the effectiveness that is intended to be obtained from the implementation of each organizational and technical measure separately. When these conditions are met, the plan for reducing the cost of geological exploration operations has a mobilizing and organizing character.

Meanwhile, a study of the procedure for developing the cost-reduction plan and organizational and technical measures in certain geological exploration parties of the West Siberian, Krasnoyarsk, and East Kazakhstan geological administrations shows that the conditions indicated above are not always fulfilled. In a number of geological exploration parties, organizational and technical measures are not drawn up at all; and if they are drawn up, they contain major methodological errors. In the organizational and technical measures developed for further increasing productivity and reducing costs, as a rule, there is no calculation of the expected savings from putting each measure into production. In this case the cost-reduction plan is drawn up either on the basis of reporting data

for reducing production costs in past years, or on the basis of the personal experience of the plan’s compilers. In a number of parties there are more or less correctly drawn-up organizational and technical measures and a plan for reducing the cost of geological exploration work. However, very often there is no mutual linkage between them, expressed in the fact that the amount of savings by cost elements provided for in the cost-reduction plan does not correspond to the savings expected to be obtained from the introduction of the corresponding organizational and technical measures.

These shortcomings, in our opinion, arise because due attention is very often not paid to these questions, and also because some managers, engineering and technical personnel, and employees of planning-and-economic departments and labor-and-wages departments do not know the methodology for calculating the economic effect from putting into production each separate organizational and technical measure, as well as rationalization and invention proposals.

Especially large errors are made when calculating savings from putting into production organizational and technical measures that make it possible to raise labor productivity. Even in the geological periodical press, erroneous recommendations are encountered on this question. Thus, for example, I. E. Mints, in the article “On the Methodology for Analyzing the Economic Activity of Geological Exploration Organizations,” published in the journal Exploration and Protection of the Subsurface Resources of the USSR [2], considers that the amount of reduction or increase (rise in cost) of drilling work is in proportional dependence on the productivity of well drilling. Thus, he recommends determining the rise in the cost of drilling work when the cyclic rate is not fulfilled by multiplying the indicator characterizing the deviation in the required number of rig-shifts as a result of the change in the actual drilling rate compared with the planned rate by the shift cost of one rig-shift. In the example analyzed by Mints, the deviation in the required number of rig-shifts caused by nonfulfillment of the planned cyclic rate amounted to 271 rig-shifts, which, at a cost of 1 rig-shift of 50.0 rubles, led to an increase in the cost of drilling work by \(271 \times 50.0 = 1355\) rubles.

Such a procedure for calculation is incorrect. Indeed, why, let us say, should there be losses in costs whose amount depends not on the time required to carry out the planned volume of well drilling, but on the number of linear meters of the well drilled? For example, the amount of wages paid to the drilling crew at piece rates will depend entirely on the number of meters drilled, and not on the crew’s working time. The same situation is observed for expenditures on materials, etc.

To calculate savings from the introduction of organizational and technical measures, as well as rationalization and invention proposals, one should use the methodology that is widely applied in the practice of industrial enterprises and used in the production of geological exploration work [1, 3].

The calculation of savings is made for each cost element constituting the cost of geological exploration work; moreover, savings from putting into production the organizational and technical measures planned by a party, expedition, or territorial geological administration are always calculated from the estimated cost of some type of work. When calculating savings from the introduction of rationalization and invention proposals, very often it is not normative data that are taken into account, but the level actually achieved at the workplace where this proposal is to be introduced, as will be discussed in more detail below.

For most cost elements, the savings from the implementation of organizational and technical measures are calculated quite simply and present no difficulties. For example, to calculate savings in expenditures on cast-iron drilling shot, it is enough to know how many kilograms of it are saved when a given measure is introduced and the price of 1 kg of shot; or, another example, savings in the wages of workers of a drilling crew, when its size is reduced, are calculated by multiplying the hourly wage rate by the number of working hours of the released worker in the planned period, etc.

It is somewhat more difficult to calculate the savings from introducing into geological exploration production measures that increase labor productivity. In order to calculate the savings from introducing into production organizational and technical measures that increase labor productivity, all expenditures that make up the cost of the work are divided into conditionally fixed and conditionally variable. Conditionally fixed costs are those costs whose amount depends on the time (duration) of the work. During this period, conditionally fixed costs, as a rule, remain constant. Conditionally variable costs are those costs whose amount depends on the volume of work performed.

The savings from introducing into geological exploration production organizational and technical measures that increase labor productivity are calculated on the basis of conditionally fixed costs.

Conditionally fixed costs, as a rule, include:

a) wages (with increments and additional payments) of engineering and technical personnel of the main production;

b) wages of workers of the main production and of production-auxiliary shops who are on a time-rate system of remuneration;

c) depreciation;

d) wear of low-value and rapidly wearing items and accessories, in the part dependent on the time of use;

e) costs of production transport in the part of its operation that depends on the time required to carry out transportation, and not on the volume of work performed (for example, standby transport);

f) overhead expenses, with the exception of: 1) expenses for additional wages in the part of vacation pay to workers who are on a piece-rate system of remuneration; 2) social insurance contributions for this same category of workers; 3) deductions for the maintenance of higher-level organizations; and 4) other deductions (deductions for normative-research work, for economic research, for the expert review of designs and estimates, and for financing design and experimental work on the creation and mastery of new equipment).

The conditionally fixed part of overhead expenses may be taken as follows: when the overhead-expense rate is 16.5—12.0%; when it is 17.0—12.4%; when it is 17.8—12.7%.

In those cases where the increase in labor productivity is achieved not by increasing the intensity of use of fixed assets, the services of the enterprise’s own production-auxiliary shops and expenditures on electric power and fuels and lubricants will be treated as conditionally fixed expenses. Indeed, if the intensity of wear of fixed assets is not increased, then the expenses, say, for repairs will be the same as before the introduction of organizational and technical measures that increase labor productivity.

Savings in conditionally fixed costs are calculated as follows. First, the question is decided as to which costs are included

as conditionally fixed and then, having determined their amount in the cost of the work performed and knowing the magnitude of the increase in labor productivity, the savings are calculated by the formula

\[ E = T - \frac{T \cdot 100}{P} \ \text{rubles}, \]

where \(E\) is the saving on conditionally fixed costs, rubles;
\(T\) is the amount of conditionally fixed costs in the cost of geological exploration work, rubles;
\(P\) is the amount of the increase in labor productivity, %.

The reduction in cost is calculated by the formula

\[ O = \frac{E}{C} \cdot 100\%, \]

where \(O\) is the reduction in the cost of geological exploration work, %;
\(E\) is the saving on conditionally fixed costs, rubles;
\(C\) is the estimated cost of the work, rubles.

Savings in the wages of workers who are on a piece-rate system of remuneration, when organizational and technical measures are introduced, are calculated when, simultaneously with their introduction, it is envisaged to increase the existing output norms for work paid according to piece rates. Output norms are increased in cases where, upon the introduction of organizational and technical measures, the labor expenditures of a worker or of a work crew for performing a unit of geological exploration work are significantly reduced.

It should be borne in mind that, when rationalization and invention proposals are introduced, the output norms for geological exploration work performed by the authors of the proposals are not changed for six months, counting from the day of introduction, and for work performed by workers who facilitate the introduction of this proposal—for three months.

Savings in the wages of workers paid according to piece rates, when planned organizational and technical measures are introduced, are determined from the amount of wages calculated according to the estimate. When rationalization and invention proposals are introduced, savings in the wages of piece-rate workers are determined as the difference between the rates per unit of work that were in effect before the introduction of the proposal and the rates introduced after its implementation.

When calculating savings in materials and electric power obtained from the introduction of rationalization and invention proposals, the following provisions should be used. If the actual consumption before introduction of the proposal is greater than the approved norms, then the saving is calculated from the approved norm of consumption of materials and electric power per unit of geological exploration work. If the actual consumption of materials and electric power is less than the approved norms, then the saving is calculated from the actual consumption. Savings in electric power are calculated only when an electric meter has been installed at the workplace.

A correctly calculated economic efficiency that is expected to be obtained from the introduction into geological exploration production of each individual organizational and technical measure will make it possible to draw up, in a qualified manner, a plan for reducing the cost of the work planned for performance. A cost-reduction plan compiled in this way, being concrete and realistically feasible, will have great mobilizing significance in the matter of systematic

reduction of costs in carrying out the work, which will ultimately make it possible to increase the overall economic efficiency of all geological exploration work connected with preparing the mineral-resource base for the industry of our Motherland.

References

1. Golov A. P. Planning Organizational and Technical Measures at Enterprises. Gosplanizdat, 1961.

2. Mints I. E. On the methodology of analyzing the economic activity of geological exploration organizations. Journal Razvedka i okhrana nedr [Exploration and Protection of Mineral Resources], No. 8, 1961.

3. Instruction for Calculating Savings from the Introduction of Inventions and Rationalization Proposals, approved by the Committee for Inventions and Discoveries under the Council of Ministers of the USSR on December 22, 1959.