Activity-Based Management in Shell Gabon (Case Study)
1. Calculate the UOC per barrel for SG. Is a barrel of oil the cost driver for all the activities that go on within RDS? Comment on why RDS chooses to monitor costs per barrel.
The UOC per barrel for SG is $3.21. OPEX | $140,640,200 | 120,000 | barrels/day | | | 365 | days/year | Total | $140,640,200 | 43,800,000 | barrels/year | Unit Operating Cost (UOC) | $3.21 | | |
*UOC = (Total Operating Expense – Exploration – Depreciation & Depletion) / Barrels Produced
Barrels of oils produced may be a cost driver for some activities in RDS, but not all activities are driven by the production of oil. RDS has other activities that requires significant expenditures as the headquarter. The capital investment on exploration for various subsidiaries to increase or at least maintain its oil reserve size for oil production to keep per barrel cost competitive would be a large expenditure done regardless of oil production. The research and development cost for new products, new production technology, new exploration target site search and more would also be another significant cost RDS to create its competitive advantages whether the oil is produced or not.
RDS decided to monitor costs per barrel as a mean to control costs to obtain necessary funding for capital expenditures for new oil exploration and keep the real oil price per barrel below $16.71 at least the half of the time as suggested by the concerned industry reports. Also, by looking at SG’s cost structure, 80.2% of SG costs come directly from the production of oil that it would be additional reason to keep the subsidiaries’ cost low to ultimately achieve higher profits overall.
2. Compute the cost of the activities in the Provided IT and Telecommunication Services process. What items did you include or exclude from your calculations? Why?
Provide IT and Telecommunication Service | | | Select, install, operate, support hardware & software | 1,499 | | Provide SAP Support | 1,075 | |
The UOC per barrel for SG is $3.21. OPEX | $140,640,200 | 120,000 | barrels/day | | | 365 | days/year | Total | $140,640,200 | 43,800,000 | barrels/year | Unit Operating Cost (UOC) | $3.21 | | |
*UOC = (Total Operating Expense – Exploration – Depreciation & Depletion) / Barrels Produced
Barrels of oils produced may be a cost driver for some activities in RDS, but not all activities are driven by the production of oil. RDS has other activities that requires significant expenditures as the headquarter. The capital investment on exploration for various subsidiaries to increase or at least maintain its oil reserve size for oil production to keep per barrel cost competitive would be a large expenditure done regardless of oil production. The research and development cost for new products, new production technology, new exploration target site search and more would also be another significant cost RDS to create its competitive advantages whether the oil is produced or not.
RDS decided to monitor costs per barrel as a mean to control costs to obtain necessary funding for capital expenditures for new oil exploration and keep the real oil price per barrel below $16.71 at least the half of the time as suggested by the concerned industry reports. Also, by looking at SG’s cost structure, 80.2% of SG costs come directly from the production of oil that it would be additional reason to keep the subsidiaries’ cost low to ultimately achieve higher profits overall.
2. Compute the cost of the activities in the Provided IT and Telecommunication Services process. What items did you include or exclude from your calculations? Why?
Provide IT and Telecommunication Service | | | Select, install, operate, support hardware & software | 1,499 | | Provide SAP Support | 1,075 | |