Shellgabon

Jonathan Adams
Shell Gabon
1. 140,640,200 / (120,000*365) = 3.21 per barrel. Barrels of oil is a cost driver for some of
the activities in RDS. It will help them control costs of production and recognize which
activities are most costly.
2. Costs directly related to the services as well as indirect costs. Staff benefits and services
were calculated by using the 30% and 35% of staff salaries.
Select, install, operate, and support hardware & software:

Staff Salaries 724
Staff Benefits 253
Staff Services 217
Service Contracts 21
Licenses & Subscriptions 235
Materials & Supplies 45
Training 4
Total: 1,500
Provide SAP support:

Staff Salaries 632
Staff Benefits 221
Staff Services 190
Training 6
Total: 1,075
Provide telecommunication services:
Staff Benefits
Staff Salaries 2,242
Staff Benefits 784
Staff Services 672
Service Contracts 1,103
Licenses & Subscriptions 43
Training 446
Total: 5,420
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3. Select, install, operate, and support hardware & software:
1. Reduce time spent on installing hardware & software to under 4 hours per job.
2. Cut the cost of operating hardware and software by 5% over the next 2 fiscal years.
Provide SAP support:

1. Improve customer satisfaction with SAP support to 96% by the end of the year.
2. Provide the solution to customer problems within a 24 hour time frame on a
consistent basis.
3. Lower the amount of times repeat support requests occur to improve and track
effectiveness of problem solving.
Provide telecommunications:
1. Provide telecommunication services with 99% uptime.
2. Improve the quality of the acceptance, transmission, and delivery of communications.
4. Goods and services: 732000/43800000=0.02

IT and telecommunication: 7995000/43800000=0.18
Financial services: 3909000/43800000=0.09
Internal audits: 575000/43800000=0.01
Economic plans: 930000/43800000=0.02
Market/trade hydrocarbons: 453000/43800000=0.01
Legal services: 603000/43800000=0.01
5. Yes, I would use it to compare their production costs per barrel to competitors in the
industry. This will help them identify where they should focus on cutting costs. Some of
the benchmark costs would need to be modified in order to be compared to Shell Gabon’s
costs per barrel for each activity. The IT and telecommunications services are
comparable to the industry’s business systems data as they both currently stand.
7. Activity Assessment Recommendation

Provide goods & services Performed well Keep
Provide IT & telecommunication Performed poorly Change
Provide financial services Performed adequately Improve
Perform internal audits Performed well Keep
Prepare economic plans Performed well Keep
Market/trade hydrocarbons Performed well Keep
Provide legal services Performed well Keep
I would use the activity analysis to help identify which activities that add value to the
product and which activities do not. Using activity based management, I was able to
calculate which activities need improvement in cutting costs and which ones are being
performed well. The industry average for cost of providing IT and telecommunication
services per barrel is $0.14. Shell Gabon is $0.04 more costly than the industry average
and only $0.02 better than the worst in the industry according to the benchmarking study.
Based on this information, and the fact that this activity is by far the most costly to the
company, I would recommend changing the way IT and telecommunication services are
provided. The providence of financial services could also be improved. This is by far the
second most expensive activity when looking at cost per barrel. Using the analysis to
identify IT & telecommunication and financial services as the two activities with the most
room to improve, it is now possible to more closely identify how those activities can be
changed or improved upon. For IT & telecommunication, providing telecommunication
services was the most costly. It may be most appropriate to cut salaries in that area,
thereby also decreasing the costs of staff benefits and staff services. For providing
financial services, the cost of managing funds could potentially be reduced by improving
the quality of the hiring and training process of those employees responsible for this
business function.
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Jonathan Adams

Select, install, operate, and support hardware & software:

Provide SAP support:

Provide telecommunication services:

Provide SAP support:

4. Goods and services: 732000/43800000=0.02

7. Activity Assessment Recommendation

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