W2_OAN_Investing vs Renting Studies

  1. Problem Definition

Reliability of equipment in oil and gas industry has been main concern in our company, storage tank to be specific. As main equipment it needs special attention, since we are taking care hydrocarbon product, which is highly flammable. Our goals are to assess reliability of storage tank such as corrosion rate and remaining plate thickness. To achieve our goals, it is important to determine the most economical method to asses reliability or conduct inspection of storage tank.

  1. Development of feasible alternatives

To asses corrosion rate and remaining plate thickness alternatives :

  1. Investing an Ultrasonic Thickness (UT) Crawler as inspection tools
  2. Hire third party specialize on storage tank inspection

It is important to choose which most efficient way to conduct inspection, especially with numerous number of storage tank.

  1. Possible Solution / Alternative

Calculation of investment, maintenance cost, operating cost and rent cost based on inquiry from UT Crawler Vendor and Third Party specialize in this field.

  1. Selection of Criteria

Summary result of investing and renting data :

Table 1: Investing vs Renting from Third Party

As shown on the table 1, if we rent from 3rd party company we dont have to deal with maintenance cost, while if we purchase we must consider maintenance cost, operating cost beside investment cost.

  1. Analysis and Comparison of the Alternatives

Total number of inspection based on our work plan and KPI. In 1 month we must performed at least 2 storage tank inspection, therefore in 1 year we have target at least 24 storage tank to be inspected. We assume that our equipment have 5 years life expectancy. This will be our baseline for calculation.

Table 2: Useful life and Total Number of Inspection in 1 year

Calculation summary :

Table 3 : Summary total cost inspection 24 storage tank/year for 5 years inspection

  1. Selection and Preferred Alternatives

Table 3 show that total cost of invest UT Crawler is lower thant rent from 3rd party. The biggest difference in operational cost, this cost reduction more than balance the extra $53.383 in investment. In short run, one year or less, we can consider outsourced inspection activity. But for this case, long term inspection with numerous number of tank, investment on UT crawler will be economically feasible.

  1. Performance Monitoring and the Post Evaluation of Result

Periodic monitoring and maintenance is needed to conduct, for company to make sure equipment in the best condition. Review shall be conducted to reveal uncertainty parameter such as overhead and cost of run.

 

References

  1. Sullivan, William G., Wicks, Elin M. & Koelling, C. Patrick. (2014). Engineering Economy 16th edition page 71-73, England: Pearson Education Limited.
  2. W2_AL_Sleeping Field Development (2013, March).
    Retrieved from https://kristalaace2014.wordpress.com/2014/03/03/w2_al_sleeping-field-development/#more-269
  3. W02.1_SJP_Bamboo Scaffolding ((2017, June)
    Retrieved from https://js-pag-cert-2017.com/w02-1_sjp_bamboo-scaffolding/
 

2 thoughts on “W2_OAN_Investing vs Renting Studies”

  1. OK Pak Nunug, not bad given you were the first person to post a blog totally on your own. Overall you did great in setting up the problem EXCEPT that for Step 4- Selection Criteria you should have stated “The acceptance criteria is the option with the lowest total cost”. What you showed under Step 4 should have been part of Step 5.

    You also missed a really important part of the calculations and that is the impact DEPRECIATION EXPENSE will have on the outcome. If you rent, there is no depreciation but if you purchase, the impact depreciation expense may actually make the difference between “Rent or Buy”. When you purchase, there may also be some salvage value that you failed to consider in your analysis.

    Lastly, why did you not reference this topic as it appeared in the CAR? Module 6.5 http://www.planningplanet.com/guild/gpccar/acquiring-equipment-for-the-project addresses. Honestly, I cannot begin to tell you how important the GPCCAR is going to be in terms of helping you pass BOTH the AACE and Guild of Project Controls exams. Why? Because the CAR was WRITTEN using AACE’s RP 11R-88 as the CHECKLIST.

    While you don’t have to, for your W3 blog you may want to REDO this case study but this time add in the missing elements of your analysis, so you won’t make that same mistake again in the future?

    BR,
    Dr. PDG, Jakarta

     
  2. PS IF you had read the CAR before you started writing you could have explored a THIRD option which would be to LEASE the equipment rather than PURCHASE it.

    IF you choose to redo this as your W3 posting (which I would urge you to consider) you would be wise to explore that “in between” option of leasing the equipment and if so, what kind of lease would you choose.

    FWIW, this is EXACTLY the type of question you are likely to see on your AACE and GPC certification exams, which is why I highly recommend you consider reposting it with all the fixes.

    BR
    Dr. PDG, Jakarta

     

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