W13_AI_Offshore Regasification Project Economical Evaluation – Part 3

 
  1. Problem Definition

The previous chapter, economical evaluation offshore regasification facilities project has been calculated by using Interest Rate Return (IRR) and External Rate Return (ERR), henceforth this chapter the feasibility project will be analyze by using Payback Period Method. The result of economical evaluation modelling is providing useful information for Board of Direction as evaluation substance to get the best decision.

  1. Identify the Possible Alternative

The calculation still using 2 (two) business scheme, as follow:

  • Owning

Company purchase newbuilt offshore regasification facility at shipyard or to shipowner

  • Leasing

Company leasing the offshore regasification facility to ship management or shipowner

The assumption for offshore regasification capacity is 100 MMSCFD.

 

  1. Development of The Outcome for Alternative

Refer to Sullivan 16th edition chapter 5, there is 3 (three) alternative method to determine feasibility of the project, as follow:

  • IRR (Interest Rate of Return) Method – Part 1
  • ERR (External Rate of Return) Method – Part 2
  • Payback Period Method – Part 3

Payback period method has been used as a measure of liquidity project, this method shows how fast an investment can be recovered. Low value payback period is considered desirable.

  1. Selection Criteria
  • Owning

The assumption for this calculation, as follow:

Table 1. Assumption

According to the assumption above, the model calculation by using discount factor as follow:

Table 2. Owning Scheme Cash Flow

Here is the cash flow of the owning scheme project profile, as follow:

Picture 1. Discounted Payback Period

  • Leasing

The assumption for this calculation, as follow:

Table 3. Assumption

According to the assumption above, the model calculation by using discount factor as follow:

Table 4. Leasing Scheme Cash Flow

Here is the cash flow of the leasing scheme project profile, as follow:

Picture 2. Project Net Cash Flow

 

  1. Analysis & Comparison of Alternative
  • Owning Scheme

Based on Payback Period Method, using owning scheme in 11 years the investment can be recovered.

  • Leasing Scheme

Based on Payback Period Method, using owning scheme in 14 years the investment can be recovered.

 

  1. Selection of the Preferred Alternative

Based on the calculation of both business scheme which is owning and leasing, found that by using owning scheme the investment can be recovered much faster than leasing scheme.

  1. Performance Monitoring and The Post Evaluation of Result

In economical evaluation, based on calculation using IRR method, ERR method and Payback Period Method resulted that owning scheme more profitable than leasing scheme. The number of IRR and ERR higher and faster to get the investment payback period as well. Furthermore, based on the scheme that has been selected, sensitivity analysis will be done to see the most influencing factor on IRR value.

References:

  1. Sullivan, G. W., Wicks, M. E., & Koelling, C. P. (2014). Engineering economy 16th Edition Chapter 5 – Evaluating a single project., pp.239-246.
  2. Paska, H. M. I. (2015). W12_HMIP_Prioritization Project Portofolio using IRR, ERR and Payback Period Method

Retrieved from

https://garudaaace2015.wordpress.com/2015/05/18/w12_hmip_prioritization-project-portfolio-using-irr-err-and-payback-period-method/

  1. Setyo, U. D. (2017). W8_UDS_Evaluation in Choosing Best Supply Pattern Part 1

Retrieved from

https://emeraldaace2017.com/2017/09/23/w8_uds_-evaluation-in-choosing-best-supply-pattern-part-1/

 

W12_AI_Offshore Regasification Project Economical Evaluation – Part 2

 
  1. Problem Definition

In the previous chapter we have calculated the economical evaluation of offshore regasification facilities project by using Interest Rate Return (IRR), furthermore this week the analysis of project feasibility will be conducted using External Rate of Return (ERR). The result of this economic modeling is useful for the company as an evaluation material and assist the Board of Direction in decision making.

  1. Identify the Possible Alternative

Calculations still use 2 business schemes as follows

  • Owning

Company purchase newbuilt offshore regasification facility at shipyard or to shipowner

  • Leasing

Company leasing the offshore regasification facility to ship management or shipowner

The assumption for offshore regasification capacity is 100 MMSCFD.

 

  1. Development of The Outcome for Alternative

Based on Sullivan 16th edition chapter 5, there are 3 (three) alternative methods to determine whether a project is feasible or not, ie

  • IRR (Interest Rate of Return) Method – Part 1
  • ERR (External Rate of Return) Method – Part 2

The ERR method using the net cash flow generated to be reinvested or borrowed with using external interest rate (€) to get the economical calculation evaluation. At the end, the ERR method produces result identical as same as IRR method.

Step 1 : All of the outflows are discounted to time zero (PW) at €%

Step 2 : All of the inflows are compounded to end period (FW) at €%

Step 3 : Equation the inflows and outflows will be generated the ERR

  • Payback Period Method – Part 3
  1. Selection Criteria
  • Owning

The assumption used in this calculation is

Table 1. Assumption

Based on the above calculation assumption, we get the calculation model as follows

Table 2. Owning Scheme Cash Flow

The following is shown economical project profile based on cash flow above:

Picture 1. Project Net Cash Flow

 

The table above shows the total outflows and inflows. Next to get the ERR, then both outcomes will be equalized.

Picture 2. ERR Cash Flow

  • Leasing

The assumption used in this calculation is

Table 3. Assumption

Based on the above calculation assumption, we get the calculation model as follows

Table 4. Leasing Scheme Cash Flow

The following is shown economical project profile based on cash flow above:

Picture 3. Project Net Cash Flow

 

The table above shows the total outflows and inflows. Next to get the ERR, then both outcomes will be equalized.

Picture 4. ERR Cash Flow

 

  1. Analysis & Comparison of Alternative

The rule of thumb to justify this project feasibility by using ERR method, ERR Decision rule: If ERR ≥ MARR.

  • Owning Scheme

ERR generated is 31.68%, then ERR (31.68%) MARR (14.68%). So, it can be concluded that based on calculation using ERR method, the project is economically feasible to being reinvestment.

  • Leasing Scheme

IRR generated is 20.14%, then IRR (20.14%) MARR (14.68%). So it can be concluded that based on calculation using ERR method, the project is economically feasible to being reinvestment.

  1. Selection of the Preferred Alternative

Based on the calculation of the two business schemes which is owning and leasing, it is found that by using both schemes the project can allocate its profits to other projects with interest at (€) 3%.

However, by looking at the generated ERR value, that is ERR owning scheme IRR leasing scheme, then it can be concluded that ERR with owning scheme or purchase newbuilt offshore regasification facility is more profitable for company compared with leasing scheme.

  1. Performance Monitoring and The Post Evaluation of Result

In economical evaluation, besides using IRR and ERR method, then will be done the study of calculations using Pay Back Period (PBP) to get more complete economic adjustment in choosing between the two schemes.

References:

  1. Sullivan, G. W., Wicks, M. E., & Koelling, C. P. (2014). Engineering economy 16th Edition Chapter 5 – Evaluating a single project., pp.237-239.
  2. Paska, H. M. I. (2015). W12_HMIP_Prioritization Project Portofolio using IRR, ERR and Payback Period Method

Retrieved from

https://garudaaace2015.wordpress.com/2015/05/18/w12_hmip_prioritization-project-portfolio-using-irr-err-and-payback-period-method/

  1. Setyo, U. D. (2017). W8_UDS_Evaluation in Choosing Best Suplly Pattern Part 1

Retrieved from

https://emeraldaace2017.com/2017/09/23/w8_uds_-evaluation-in-choosing-best-supply-pattern-part-1/

 

W11_AI_Offshore Regasification Project Economical Evaluation – Part 1

 
  1. Problem Definition

In the previous chapter the calculation of the capex and opex offshore regasification facilities project has been calculated, so that this week an analysis of the feasibility of the project will be conducted to determine whether or not this project is going forward. The results of the financial economic modeling of this project are useful to the company as an evaluation material and assist the Board of Direction in decision making. So this week the calculation of IRR Project will be applied.

  1. Identify the Possible Alternative

The calculation of project evaluation will be conducted with 2 business schemes, as follows :

  • Owning

Company purchase newbuilt offshore regasification facility at shipyard or to shipowner

  • Leasing

Company leasing the offshore regasification facility to ship management or shipowner

The assumption for offshore regasification capacity is 100 MMSCFD.

 

  1. Development of The Outcome for Alternative

Based on Sullivan 16th edition chapter 5, there is 3 (three) alternative method to determine whether a project is feasible or not, in example :

  • IRR (Interest Rate of Return) Method – Part 1

The project IRR will be calculated using several assumptions that will be explained at a later stage. The IRR represent the internal earning rate of the project. For this calculation the interest is being calculated on the beginning of year investment through the life of this project.

  • ERR (External Rate of Return) Method – Part 2
  • Payback Period Method – Part 3
  1. Selection Criteria

 

Refer to Sullivan chapter 5.6 The Internal Rate of Return Method, the IRR was defined by the present value of net cash flow.

  • Owning

The assumption used in this calculation is

Table 1. Assumption

Based on the above calculation assumptions, calculation model is obtained as follows

Table 2. Owning Scheme Cash Flow

 

The following shows an economical project profile based on cash flow:

Picture 1. Project Net Cash Flow

  • Leasing

The assumption used in this calculation is

Table 3. Assumption

Based on the above calculation assumptions, calculation model is obtained as follows

Table 4. Leasing Scheme Cash Flow

Picture 2. Project Net Cash Flow

  1. Analysis & Comparison of Alternative

The rule of thumb to justify this project feasibility by using IRR method, IRR Decision rule: If IRR ≥ MARR.

  • Owning Scheme

IRR generated is 16.31%, then IRR (16.31%) MARR (14.68%). So it can be concluded that based on calculation using IRR method, the project is economically feasible.

  • Leasing Scheme

IRR generated is 12.70%, then IRR (12.70%) < MARR (14.68%). So, it can be concluded that based on calculation using IRR method, the project is economically not feasible.

  1. Selection of the Preferred Alternative

Based on the calculation of the two business schemes which is owning and leasing, it is found that owning schemes are feasible and workable.

Hence by looking at the generated IRR value, IRR owning scheme or purchase newbuilt offshore regasification facility is more profitable for the company.

  1. Performance Monitoring and The Post Evaluation of Result

In economical evaluation, other than using IRR method, then a calculation study will be conducted using External Rate of Return (ERR) and Pay Back Period (PBP) so that the company get a more complete economic adjustment in choosing between the two schemes.

References:

  1. Sullivan, G. W., Wicks, M. E., & Koelling, C. P. (2014). Engineering economy 16th Edition Chapter 5 – Evaluating a single project., pp.210-237.
  2. Prasetio, H. (2013). W7.1_HPO_Determining The Contractor’s IRR in Production Sharing Contract.

Retrieved from

https://simatupangaace2014.wordpress.com/2013/11/17/w7-1_determining-the-contractors-irr-in-production-sharing-contract/#more-1975

  1. Setyo, U. D. (2017). W8_UDS_Evaluation in Choosing Best Suplly Pattern Part 1

Retrieved from

https://emeraldaace2017.com/2017/09/23/w8_uds_-evaluation-in-choosing-best-supply-pattern-part-1/

 

W10_AI_Minimum Attractive Rate of Return (MARR) for Offshore Regasification Project in Indonesia using AHP

 
  1. Problem Definition

Related to the investment rule in company, they are using single hurdle rate for all project. In this blog, the appropriate MARR will be developed to find whether 10% is an appropriate rate. MARR calculation will be using Analytical Hierarchy Process (AHP) to determine range of project risk covers activity, technology type and demand (project location). Hence as the result, we can find the highest and lowest MARR for offshore regasification project.

  1. Identify the Possible Alternative
  • Estimating the Hurdle Rate

A company will invest to a project or execute a project which gives grater expected return than company cost of capital or WACC. WACC formula:

While the cost of equity is calculated by using CAPM formula:

  • Develop offshore regasification project risk

To cover all the MARR offshore regasification project scheme, there are 3 categories to be analyze which are:

  • Activity: Development and EPC
  • Technology Type: Floating Storage Regasification Unit (FSRU), Floating Storage Unit (FSU) – Floating Regas Unit (FRU), Floating Storage Unit (FSU) – Jetty
  • Demand: Sumatera Island, Java Island, Kalimantan Island, Sulawesi Island, Papua Island

 

  1. Development of The Outcome for Alternative
  • Estimating the Hurdle Rate
Item Value Source
Risk Free Rate 2.16 Damodaran 2017
Market Risk Premium 9.01 Damodaran 2017
Beta 1.07 Yahoo finance
% Debt 0.18 Public Financial Report
% Equity 0.82 Public Financial Report
After Tax Cost of Debt 4.4  

 

CAPM = 1.07 x 9.01 + 2.16
  = 11.8%

 

WACC = (0.18 x 4.4) + (0.82 x 11.8)
  = 10.47 %

 

 

  • Develop offshore regasification project risk

To purpose is to determine range of project risk based on activity, technology type and demand.

Picture 1. Hierarchical Tree

  1. Selection Criteria

Refer to Hierarchical Tree above, next step is to synthesize the relative ranking for each sub criterion using Analytical Hierarchy Process (AHP).

Table 1. The relative score

Based on the table above, hence the relative score result for each sub criterion as follow:

Table 2. Pairwise comparison matrix of offshore regasification project

Table 3. Project risk matrix algebra

  1. Analysis & Comparison of Alternative

Based on the table 3 above, the hierarchical tree with matrix rank result, as follow:

Picture 2. Matrix rank result

Refer to picture 2 above, the risk for each category will be scoring.

Table 4. Project Risk Scoring

The riskiest of offshore regasification project is EPC FSRU to supply Papua island with 8.35% and the least risky is Development FRU-Jetty to supply Kalimantan island with 0.91%.

  1. Selection of the Preferred Alternative

The MARR for offshore regasification project in Indonesia can be calculated by adding that risk scoring and country risk with formula:

WACC + Risk Scoring + Country Risk

MAX : 10.47% + 8.35% + 3.3% = 22.12%
MIN : 10.47% + 0.91% + 3.3% = 14.68%

The appropriate MARR for offshore regasification project in Indonesia should be around 14.68% to 22.12%.

  1. Performance Monitoring and The Post Evaluation of Result

To get more accurate WACC, the calculation and country risk data should be updating periodically. Project risk scoring will be updated due to change of Indonesia political and economic condition.

References:

  1. Liana, L. (2012). Using Analytical Hierarchy Process to Determine Appropriate Minimum Attractive Rate of Return for Oil and Gas Project in Indonesia
  2. Nunug, O.A. (2017). W12_OAN_Car Selection using AHP

Retrieved from

https://emeraldaace2017.com/2017/11/05/w12_oan_car-selection-using-ahp/

  1. Setyo, U.D. (2017). W9_UDS_Evaluation in Choosing Best Supply Pattern Part 2

Retrieved from

https://emeraldaace2017.com/2017/09/23/w9_uds_-evaluation-in-choosing-best-supply-pattern-part-2/

W19_TH_Gas Dryer Feasibility Study: Replacement Analysis

 
1. Problem Evaluation

Beside CNG Compressor, one of the critical equipment on gas station is gas dryer.  The main function of gas dryer is to make sure that water content on gas pipeline meets the Ditjen Migas CNG specification; maximum allowable water content is 3 lb/mmscf.

 

Figure 1. Ditjen Migas CNG Specification

Based on the author company SOP life time gas dryer is 20 years, but in years 10th the molecular sieve of gas dryer must be replace with the new one combine with others equipment. In this unique situation trigger me to deep dive what the best alternative of gas dryer replacement: follow SOP, change new all, or leasing?

2. Development of Feasible Alternatives

In this evaluation there are three feasible options:

  • Follow SOP Policy (only change the molecular sieve at year 10th)
  • Change all with the new
  • Leasing

Author will analysis these three options which most efficient and also determine when Economic life of gas dryer.

3. Development the Outcome for Each Alternative

Two common methods in replacement analysis are present worth approach and Equivalent Uniform Annual Cost (EUAC). The reason why author chose those two methods because present worth method can calculate in present time how much the cost of two alternatives during economic life and from EUAC method I can get annual cost of each alternative with equivalent uniform/condition. Comparing the value of present worth and EUAC are the good way to know which the best alternative is.

4. Selection of Criteria

The Rule of thumb in present worth method; choose the Alternative with the highest value. The opposite of present worth method, in EUAC method we choose alternative with smallest value. The highest value of present worth method and smallest value of EUAC indicate the best alternative from economic perspective. And for the economic life is minimum total year by year marginal cost (minimum EUAC) in all period.

5. Analysis and Comparison of the Alternative

Defender and challenger data that will be used in PW and EUAC calculation are in the table below:

Table 1. Alternatives Data

After that is calculate data using PW and EUAC method. The Calculation result of PW and EUAC method are in table below:

Table 2. PW Calculation Result

Table 3. EUAC Calculation Result

Table 4. Economic Life of Alternative

6. Alternative Selection

Based on PW and EUAC calculation result, Change All Alternative is dominating over other alternative in both PW and EUAC Method. The PW of SOP Policy is greater than PW of Change All and Leasing (IDR -3,399,041,203 > IDR -3,420,207,693 > IDR -4,384,676,641). And SOP Policy has the smallest EUAC (IDR 755,806,075 < IDR 860,495,634 < IDR 1,204,210,589). Thus, the old dryer should not be replaced immediately with all new products (molecular sieve).

From the economic life evaluation we also get the optimum years of the dryer should be used. SOP Policy Alternative wills optimum in 5 years use and for change all will optimum in 4 years use. Based on PW, EUAC and economic life evaluation we get big picture of alternative sequence there is follow SOP Policy until 20 years then change the tank truck and trailer with the new one for 4 years using only.

7. Performance monitoring & Post Evaluation Result

Combination PW, EUAC and economic life evaluation will give you complete picture of alternative selection such as best alternative, sequence, and duration. It will help us to prepare all what it need, especially in alternative changing.

References

  1. Sullivan, G. W., Wicks, M. E., & Koelling, C. P.(2014). Engineering economy 16th Edition. Chapter 9 – Replacement Analysis., pp.427-466. Prentice Hall.
  2. Kullabs.com (2017). Note on Replacement Analysis and Economic Service Life. Retrieved from https://www.kullabs.com/classes/subjects/units/lessons/notes/note-detail/6002
  3. Dhanu, Utomo. (2017). W13_UDS_Fuel Tank Truck|Emerald AACE 2017. Retrieved from: http://emeraldaace2017.com/2017/11/21/w13_uds_fuel-tank-truck-feasibility-study-part-1-replacement-analysis/

W18_TH_Severance Cost Analysis for Regasification Plant Project

 
1. Problem Evaluation

Currently PLN (Indonesian electricity state owned company) now have tender to build regasification plant which BOT (Build, Operate and Transfer) scheme. Bidder will have 10 years to operate the facilities before transfer the asset to PLN. Due to this scheme, bidder should be calculate the percent of salary cost need to save yearly so by the end of years ten, severance cost will available. Severance pay is the compensation an employer provides to an employee who has been laid off, whose job has been eliminated, who has decided to leave the company through mutual agreement, or who has parted ways with the company for other reasons. In addition to pay, severance packages can include extended benefits, such as health insurance and out placement assistance, to help an employee secure a new position.

2. Development of Feasible Alternatives

This regasification project will cover more than five regasification plant on Kalimantan, NTT and NTB area. Total employee almost 100 employee. The regasification plant will COD on 2020, so the first salary cost will spent on 2020.

Table 1. Salary Cost and Assumption Data

The salary cost is paid at the end of the year, at which point some percentage is placed in a bank account. The interest calculation is based on cumulative deposits and interest in the account at the beginning of the year, but not on the deposits made at the end of the year. The salary cost is increased and the cycle repeats.

In this evaluation there are three feasible options for percentage of salary cost need to save yearly:

  • Option 1 = 12%
  • Option 2 = 13%
  • Option 3 = 14%
3. Development the Outcome for Each Alternative

Author will use Excel spreadsheet to calculate percentage of salary cost need to save yearly.

4. Selection of Criteria

Authors will analysis these three options which percentage is meet with desired amount on 2030 (smallest difference).

5. Analysis and Comparison of the Alternative
  • Option 1 = 12% salary cost save yearly

Table 2. Calculation of 12% Salary Cost Save Yearly

  • Option 2 = 13% salary cost save yearly

Table 3. Calculation of 13% Salary Cost Save Yearly

  • Option 3 = 14% salary cost save yearly

Table 4. Calculation of 14% Salary Cost Save Yearly

  1. Alternative selection

Based on calculation result, 14% salary cost save yearly has smallest difference with desired amount on 2030. So 14% salary cost save yearly will use by bidder to meet with PLN severance cost requirement.

Table 5. Comparison of Salary Cost Save Yearly

  1. Performance monitoring & Post Evaluation Result

Once the problem has been formulated in a spreadsheet, we can determine the impact of different rates, inflation rates, and so on, on the severance cost plan, with minimal changes and effort.

References

  1. Sullivan, G. W., Wicks, M. E., & Koelling, C. P.(2014). Engineering economy 16th Edition. Chapter 8 – Price Changes and Exchange Rates., pp.407-409. Prentice Hall.
  2. Investopedia.com (2017). Severance Pay. Retrieved from https://www.investopedia.com/terms/s/severancepay.asp
  3. Investorwords.com (2017). Severance Costs. Retrieved from http://www.investorwords.com/7710/severance_costs.html

W22 Offshore Electrical Substation – Part 2 Network Development

 

PROBLEM DEFINITION

Further to week 21 and Part 1 of electrical substation planning, we will continue in our preparation of Electrical Substation programme development following the GPCC process / work flow commencing from step 3 (Identify / capture all activities). Week 21 blog and Part 1 has satisfied step 3 and the  identification of activities and scope definition using Omniclass table 21 as the basis.This weeks blog and Part 2 will detail methods and approaches to finalisation of Activity Sequencing and ensuring a high-quality network.

Part 3 will focus on the development and assignment of resources as well as the different methods for calculating activity durations

Part 4 will calculate the critical path and float based on target completion dates including validation checks

Part 5 will consider the development of a schedule risk analysis for the works

Part 6 will consider available options to respond to high potential for negative float within the programme

The development of the Logic Networks must consider thethe following and constraints and works sequences;

  1. Works can only commence upon approval of Design drawings
  2. Activity RC structure will be constructed using Precast Elements (Columns, beams, floors, roof) with topping screed for floor and roof areas.
  3. An external Precast manufacture will be appointed. After Appointment, it is expected that the columns and beams will be progressively delivered to site. First delivery is expected within 28 days after appointment however all precast must be complete before the commencement of erection activities for the Roof Structure inclusive of 1st floor columns.
  4. Columns and Structure for roof can only commence after 1st floor slab has been completed to avoid risk of working overhead.
  5. Permitter Scaffold erection can commence when 50% of Ground floor columns and beams are installed
  6. Columns for Transformer bay can only be installed until after 75% of Roof precast has been installed to ensure access for crane is maintained.
  7. Ground floor Block work may commence immediately after erection of 1st floor columns and beams and erection of permitter scaffold
  8. Scaffold cannot be removed until all cement rendering and painting has been completed for all external walls
  9. Assume that internal walls and external wall will commence simultaneously
  10. Internal finishing works can only commence after service rough in has been completed
  11. Internal finishing work sequence shall follow Wall, ceiling then flooring.
  12. External Handrail, access ladders and fixtures to be installed upon removal of scaffold
  13. Target Dates are as follows
    • Building to be “watertight by the 15th April 2018
    • Overall Completion by the 1st June 2018

FEASIBLE ALTERNATIVES

To develop the sequence and network logic we will consider the following methods

  1. PDM (Activity on Node)
  2. ADM (Activity on Arrow)

This blog will not select the preferred option – this will be undertaken in part 4

DEVELOPMENT OF OUTCOMES

To ensure that above constraints are accurately reflected within the network logic, suitable activity relationships must be selected. Table 1 below is a summary of the logic used within the sequence and network development (PDM).

Using the relationships and logic outlined in table 1, the following PDM network has been created – split into 3 sheets.

When considering the same constraints within a ADM network however, we cannot use the same Logical relationships between the activities as ADM method requires that all relationships be based on Finish to Start.

This means that lags and leads indicated in the PDM network to reflect the partial completion of certain activities before another activity can commence cannot be modelled in the same way.

For example, a constraint (No. 6) has been placed on the erection of Transfer columns such that this activity cannot commence until at least 75% of the roof has been installed due to crane position requirements for hoisting roof slab segments. Under a PDM network, we have conveniently used the S-S relationship on the Roof erection activity with a lag of 75% complete to reflect this constraint.

Under the ADM network, this cannot be modelled the same way as all relationships must be F-S in nature. Thus under the ADM, we have split the roof erection activities into > Erect Roof Slabs to GL 5 (75%) > Erect roof slab t GL 8 (50%) > Roof slab topping works. This will now ensure that the column erection cannot commence until 75% of the roof has been installed whilst maintaining the F-S relationships between all activities. The full ADM network is outlined below;

SELECTION CRITERIA

The following checklist (adapted from GAO best practices) will be used in assessing the quality of the proposed sequence and logic network

1. The schedule contains complete network logic between all activities so that it can correctly forecast the start and end dates of activities within the plan.
2. The majority of relationships within the detailed schedule are finish-to- start.
3. Except for the start and finish milestones, every activity within the schedule has at least one predecessor and at least one successor.
4. Any activity that is missing predecessor or successor logic—besides the start and finish milestones—is clearly justified in the schedule documentation.
5. The schedule contains no dangling logic. That is,
 – Each activity (except the start milestone) has an F–S or S–S predecessor that drives its start date.
– Each activity (except the finish milestone and deliverables that leave the project without subsequent effect on the project) has an F–S or F–F successor that it drives.
6. The schedule does not contain start-to-finish logic relationships.
7. Summary activities do not have logic relationships because the logic is specified for activities that are at the lowest level of detail in the schedule.
8. Instead of SNET constraints, conditions of supply by an outside vendor or contractor are represented as actual activities in the schedule.
9. Date constraints are thoroughly justified in the schedule documentation. Unavoidable hard constraints are used judiciously and are fully justified in reference to some controlling event outside the schedule.
10. Lags are used in the schedule only to denote the passage of time between two activities.
11. Instead of lags and leads, every effort is made to break activities into smaller tasks to identify realistic predecessors and successors so that logic interfaces are clearly available for needed dependency assignments.
12. If included in the schedule, lags and leads are used judiciously and are justified by compelling reasons outside the schedule in the schedule documentation.
13. The schedule is assessed for path convergence. That is, activities with many predecessors have been examined to see whether they are needed and whether alternative logic can be used to link some predecessors to other activities.

COMPARISON OF THE ALTERNATIVES

Using the GAO – best practices as a guideline we will compare / assess both the PDM and ADM logic networks.

PERFORMANCE MONITORING

After reviewing the above PDM network against the GAO best practices, the use of summary activities is not advised with SS and FF relationships / lags used to reflect column erection and precast activities could be improved or even eliminated through the use of lowest level activities making for a more reliable network and overall duration estimate.

Consider updating the PDM network for Part 4 blog and calculation of critical path and float.

References

  1. Chapter  7.4 – Create the Logical Realtionship ands & Sequence relationships – Guild of project controls compendium and reference (CaR) | Project Controls – planning, scheduling, cost management and forensic analysis (Planning Planet).  Retrieved from http://www.planningplanet.com
  2. O’brien, J.J, Plotnick, F.L, (2006). CPM in Construction Management-6th Edition Chapter 4 , McGraw-Hill
  3. GAO Schedule Assessment Guide, December 2015, Appendix IV

W16_OAN_Standardized WBS for Fuel Terminal Project

 
  1. Problem Definition

Fuel Terminal (FT) project is a construction project of Fuel Distribution facility to Received, Storage, and distribute Fuel to Gas.

A FT area consists of several areas: Office Area, Tank Farm area, Pump equipment area, Jetty Area, Fire & Safety and utility equipment area. In this project each area is supported by some equipment or facilities.

Figure 1: Typical Layout Fuel Terminal

  1. Development of Feasible Alternatives

Using OmniClass, we have 15 Possible Alternatives:

  • Table 11- Construction Entities by Function
  • Table 12 – Construction Entities by Form
  • Table 13-Spaces by Function
  • Table 14 – Spaces by Form
  • Table 21 – Elements
  • Table 22 – Work Results
  • Table 23-Products
  • Table 31 – Phases
  • Table 32 – Services
  • Table 33 – Disciplines
  • Table 34 – Organizational Roles
  • Table 35 – Tools
  • Table 36 – Information
  • Table 41 – Materials
  • Table 49 – Properties

 

  1. Possible Solution

Table 13-Spaces by Function

Spaces by Function are basic units of the built environment delineated by physical or abstract boundaries and characterized by their function or primary use. Spaces have a purpose or use.  This is their function and the concern of this table.  Spaces can be occupied by people, things, and substances and serve as mediums for activities and movement.

  1. Selection Criteria

The criteria for choose OmniClass are:

  • The WBS should represent zone for FT Project
  • Deliverables should be decomposed to the level of detail needed to estimate the effort required to obtain them
  • Ensure That each WBS element has a single point of accountability
  • Support historical cost collection for future cost estimating purposes

 

  1. Analysis and Comparison of the Alternatives
  • Table 13-Spaces by Function – Zone Breakdown Structure (ZBS).

Detail ZBS for FT projects can be extracted by OmniClass Table 13 (Space by Function) which noted spaces for decompose ZBS components, which detail shown:

Table 1: FT OmniClass ZBS

Figure 2: FT Space by Function

  1. Selection and Preferred Alternatives

Based on Figure 2, WBS represent Zone for FT Project. All Deliverable consist detail needed to estimate the project. By doing this, we can ensure our WBS has high accountability, and we can use our historical data for future cost estimating purposes.

  1. Performance Monitoring and the Post Evaluation of Result

Standardized FT WBS can build from OmniClass Tables 13 – Spaces by Function. It is necessary to keep update the WBS periodically during project phase. Project management team also needs to evaluate the impact during phases of the project so the project can smoothly deliver with on time, on budget and on scope.

Refrences

  1. Planning Planet (2017). Creating Work Breakdown Structure.
    Retrieved from http://www.planningplanet.com/guild/gpccar/creating-work-breakdown-structure
  2. W7_TH_Standardized WBS Structure for Gas Station Project – Part 4
    Retrieved from https://emeraldaace2017.com/2017/09/
  3. OmniClass (2017), OmniClass Table 13 – Spaces by Function.
    Retrieved from http://www.omniclass.org/

 

 

 

W15_OAN_Contract Type for EPC Project

 
  1. Problem Definition

Normally the company use lump sum or Firm Fixed Price (FFP) contract type. Using EPC Contract History from last 5 projects, scope accuracy less than 80%.

Table 1: Project Profile

  1. Development of Feasible Alternatives

there are 4 (four) common types of contracts which is used in the engineering and construction industry:

  1. Lump Sum Contract
  2. Unit Price Contract
  3. Cost Plus Contract
  4. Incentive Contract

 

  1. Possible Solution

Lump Sum Contract

Advantage

  • Minimum Risk for the owner
  • Time involved for preparing the plans and specifications is considerably longer
  • Contract is based on agreed rates
  • Minimum Owner supervision related to quality and schedule

Disadvantage

  • Time involved for preparing the plans and specifications is considerably longer.
  • Because price determines who is awarded the contract, the quality of work will be poor.
  • Difficult to make changes

Unit Price Contract

Advantage

  • Owner pays for only measured work
  • Scope and quantities easily adjustable

Disadvantage

  • Negotiation of ‘unit’ rates can be very time consuming
  • Final cost not known at outset since bills of quantities at bit time are only estimates
  • Additional site staff needed to measure, control, and report on units completed

Cost Plus Contract

Advantage

  • Set a contract early with little negotiation.
  • Selection of supplier is based on rates.
  • Work definition is unimportant to contract.
  • Field work may be started before the plans and specifications are complete

Disadvantage

  • Owner assumes all of the risk.
  • The contractor is encouraged to use inefficient (time wasting) labor and expensive materials.
  • Owner has to manage all coordination issues.
  • Owner carries cost of poor quality.
  • the contractor cannot afford delays that will keep the job going longer than expected.

Incentive Contract

Advantage

  • Used to Encourage More Effective Work From Contractors.
  • When Appropriately Applied, Contractors are Paid Based on Their Handling of Cost, Schedule, and Their Performance
  • Good Business Practice
  • Owner & Contractor share financial risk and have mutual incentive for possible saving

Disadvantage

  • Opportunities are Given to Contractors to Receive Unearned Fees
  • Require complete auditing by owner’ staff

 

  1. Selection Criteria

In order to determine what kind of contract should be used there are some criteria must be considered:

  • Flexibility for additional or reduction of scope
  • Quality of the services
  • Detail spec, volume and scope of work requirement
  • Owner financial risk
  • Owner supervision
  • Price negotiation

 

  1. Analysis and Comparison of the Alternatives

Author analyze and compare the alternatives by using compensatory models. The attributes of the contract type as shown in table 2.

Table 2: Attribute of Contract Type

Ranking attribute by using non-dimensional scaling as shown in

Table 3: Non Dimensional Scaling

After set relative rank for each attribute, further is to conduct additive weighting for all alternatives as shown in table 4

Table 4: Weighting for Alternatives

  1. Selection and Preferred Alternatives

Base from above calculation Incentive Contracts become the best alternatives to replace FFP contract type for our project.

  1. Performance Monitoring and the Post Evaluation of Result

Management should consider to use incentive contract type as the best alternatives to replace FFP contract type to avoid over budget project and monitoring should be conducted during the project contract to ensure that all requirements are met

Refrences

  1. Sullivan, W.G., Wicks, E. M., Koelling, C. P. (2014). Engineering Economy, Chapter 14, page 559 to 617. Pearson. Sixteenth Edition.Benefits & Disadvantages of Functional Organizational Structure.
  2. The Engineering Tool Box.
    Retrieved from: http://www.engineeringtoolbox.com/contract-types-d_925.html#
  3. Giammalvo, Paul D. AACE Certification Preparation Course Day 5. Page 75 to 95.
  4. Module 05-1: Introduction to Managing Contract.
    Retrieved from : http://www.planningplanet.com/guild/gpccar/introduction-to-managing-contracts
  5. W40_MFO_Contract Type for EPC Project
    Retrieved from https://emeraldaace2017.com/2017/10/13/w10_mfo_contract-type-for-epc-project/

 

W21 – ABM – Best methods to communicate schedule information to Field Teams

 

Problem Definition

Whilst developing a schedule is critical for delivering projects on time, making sure people understand the schedule can be equally important.

To many programmes have been lost to the trash can due to complexity or poor presentation particularly when issued to field staff for implementation.

In this weeks blog, we will explore the various methods and tools available for presenting schedule information to field staff so they can clearly understand the work scope and planning aspects.

We will determine which are the best tools using an example construction project – SPJ jetty works (Container Berth Works) Which includes elements of unique sequence critical works as well as large sections of highly repetitious work activities.

Feasible Alternatives

We will consider the following options

  1. Bar/Gantt Charts
  2. Time Scaled Diagram
  3. Velocity Chart / Line of Balance
  4. Time – Location Diagrams

Development of the alternatives

  1. Bar chart/ Gantt Chart

A Bar Chart or Gantt Chart does not show logic links, only the bars. This is often used to compare actual progress against a baseline and is often used for management reporting, in particular to compare planned starts and finishes vs actual start and finishes.

Figure 1 above is taken from the “master or construction programme” broken down to level 4. Typically, the construction team will break this down further and develop a level 5 or 6 working schedule referred to as a 3 or 2 week look ahead. The programme is normally developed using a bar chart format and will attempt to co ordinate the works at a site level. It provides site engineers and supervisors with the flexibility to make the necessary refinements to planning which may not have been possible to foresee by planners when developing the master or baseline programme. An example is provided under Figure 2 below.

  1. Time Scaled Diagram

The diagram below indicates the same network but this time is presented in what is known as a Time Scaled Logic Diagram. Notice that the only change which has been made is to turn on the logic links. Otherwise, the durations, start and finish dates and critical path remain identical.

  1. Velocity Diagram / Line of Balance

The concept of the Line of Balance (LOB) technique (also referred to as Velocity Diagram) is to have a greater understanding and control of production rates (outputs) between various trades such that resource levels can be balanced and wastage (such as „standing time‟ between trades) can be kept to a minimum.

It is also sometimes referred to as a „lean construction‟ technique and is useful when repetitive cycles of activities are required

Figure 4 below allows us to understand that the production rates relative to each other element or activity. It will also allow site teams to know exactly where they need to be by a certain date and get a better feel for which activities are achieving higher than planned production and potential delays if a mis balance in activity productions are left to run without action.

  1. Time – Location Diagrams

The activities of a linear project are plotted on a grid where one axis is the time-scale and the other axis is the distance-scale and diagrams of the project (scans of maps, landscape cross-sections, etc.) are often included across the distance axis of the diagram to help orientate the reader to where physical attributes are located.

Figure 4 above provides similar information to the Velocity diagram however it allows the site teams to understand better the time (start and Finish) blocks which work must be completed as well as general rate of production. It summarises or rolls up multiple tasks

Selection Criteria

Each method shall be assessed based on the following

  1. Ease of Interpretation
  2. Definition of work scope at working level
  3. Definition of Activity and resource relationships
  4. Assessment of production targets / requirements

To help assess which method/s provide may be regarded as the most suitable for field staff to plan and execute works we will use the above criteria within a Non-compensatory decision model.

Comparison of Alternatives

Results are as follows

The time scaled chart fails to provide a clear and easily interpreted discerption of the works due to the presence of the

Time bar charts at either level 4 offer the site team the best opportunity to describe the works and short term working bar charts provide a format where adjustments and more tailored solutions can be made to reflect the field teams own sequence preferences.

Line of balance or velocity diagrams can be useful and easy to understand for understanding “where we need to be” by a certain date. Plotting the actual production and location data obviously gives field teams the ability to assess ongoing rates and predict delays or stoppages if crews are moving too fast or slow.

Selection of the preferred Alternative

Through the application of the Lexicograph analysis, the Gantt chart has been determined to be the best method of communicating schedule information to field teams.

Performance Monitoring 

The use of the bar chart to provide supervisors and engineers with an full understanding of the programme drivers and constraints can be greatly enhanced when accompanied with a Line of balance diagram to show the inter relationships between crews and resources as well as providing a high level indication of what average productions rates are required.

Further assessment and understanding of Time location diagrams need to be carried out. Software programmes such as TILOS can bridge the gaps identifited above with resource planning, works sequence and activity definition however it remains to be seen if the clarity and presentation will allow for distribution to field staff for implementation.

References

  1. Sullivan, G. W., Wicks, M. E., & Koelling, C. P.(2014). Engineering economy 16th Edition. Chapter 3 – DEcision making Considering Multiattributes., pp604-606.
  2. Chapter  7.1 – Introduction to Managing Planning & Scheduling – Guild of project controls compendium and reference (CaR) | Project Controls – planning, scheduling, cost management and forensic analysis (Planning Planet).  Retrieved from http://www.planningplanet.com
  3. TILOS, Schedule with confidence retrieved 20 December 2017 from  from https://www.tilos.org/sites/default/files/2017-04/022482-3430_TILOS_Bro_033016.pdf