W3_OAN_Investing vs Renting vs Leasing 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 asses 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

As commented in the blog for Week 2, 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
  3. Leasing UT Crawler as inspection tools

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 for new equipment or leasing and Third Party specialize in this field.

  1. Selection of Criteria

The Acceptance criteria is the option with lowest total net worth.

  1. Analysis and Comparison of the Alternatives

Table 1: Summary result of investing, renting, and leasing (Operating Lease Scenario) data

The scenario for leasing is “Operating Lease”, with lease rental payment is 75% of investment price.

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

Table 3: Book Value at the end of life time, using Straight Line Depreciation

Calculation summary :

Table 4 : Present Worth for Purchasing

Table 5 : Present Worth for Renting

Table 6 : Present Worth for Leasing

Table 6 : Calculation Net Worth Purchase, With i : 7% (Bank Indonesia Rate – 2016)

  1. Selection and Preferred Alternatives

Table 6 show that total cost of leasing UT Crawler is the lowest. For long term inspection with numerous number of tank, leasing UT Crawler is the most efficient way.

  1. Performance Monitoring and the Post Evaluation of Result

It is recommended to review feasible leasing alternatives, and conduct performance equipment monitoring. For example Net lease scenario, where the payment not include maintenance and insurance, or Capital Lease scenario, where we can buy the asset at the end of lease term. Regard, the maintenance cost is very low and almost need no maintenance, also we can calibrate UT Crawler by our self.

 

References

  1. Sullivan, William G., Wicks, Elin M. & Koelling, C. Patrick. (2014). Engineering Economy 16th edition page 71-73, page 213 – 215, and page 332 – 337, England: Pearson Education Limited.
  2. Module 10-3 Managing Change The Owner’s Perspective (2015).
    Retrieved from http://www.planningplanet.com/guild/gpccar/managing-change-the-owners-perspective
  3. Module 06-5 – Acquiring Equipment for The Project (2016)
    Retrieved from http://www.planningplanet.com/guild/gpccar/acquiring-equipment-for-the-project
  4. Press Release (2016)
    Retrieved from http://www.bi.go.id/en/ruang-media/siaran-pers/Pages/sp_181416.aspx
 

W3_UDS_Terminal Operating Cost Evaluation

  1. Problem Evaluation

Kediri Fuel Terminal was closed on 2009 because it is inefficient. Now this area is distributed from Surabaya, Malang and Madiun Fuel Terminal. Best on future demand estimation, fuel volume of this area will be raising and we need more storage of new product. Those are the reasons why we want to reopen Kediri Fuel Terminal again.

So we need to evaluate Operating cost of Kediri Fuel Terminal quotation from our subsidiary is IDR 130/Liter. Is the quotation appropriate? If it is not, how much is operating cost of Kediri Fuel Terminal?

  1. Development of feasible alternatives

There are three options approach in evaluate Operating cost of Kediri Fuel Terminal :

  • Accept the quotation, as price as IDR 130/liter (Alternative A).
  • Using cost approach estimation. Historically in 2009, Kediri Fuel Terminal cost/liter was about IDR 108 (Alternative B).
  • Using comparison with other Fuel Terminal cost that operated by ourselves. The cost/liter is IDR 157 (Alternative C).
  1. Development the outcome for each alternative

In this evaluation I am using Benefit – Cost ratio method in Evaluating all alternative. This method is very useful to select alternative in economical approach with a simple way, because it compare positive (cash in) and negative (cash out) cash flow of each alternatives.

  1. Selection of criteria

The Rule of thumb in Benefit – Cost ratio method is Alternative will be feasible if B-C ratio greater than one. So in this evaluation we will eliminate alternative with B-C Ratio less than one, because it not economically feasible (their cash out higher than their cash in).

  1. Analysis and comparison of the alternative

This calculation using data as below:

  • discount rate 10.5% (as a Pertamina Hurdle Rate of Investment)
  • Investment Cost (I) = IDR 19,854,221,656
  • Benefit (B) per/year = IDR 100,937,362,800
  • Operation & Maintenance (O&M) /year :
    1. Alternative A = IDR 54,674,404,850
    2. Alternative B = IDR 45,421,813,260
    3. Alternative C = IDR 66,029,858,165
  • There is no market value because we use it until the end of the life cycle (20 years)

Conventional B-C ratio with PW:

Modified B-C ratio with PW:

B-C ratio each alternatives:

Table 1. B-C Ratio Result

All the alternatives are shows B-C Ratio’s calculation greater than one. So all alternative is economically acceptable.

  1. Alternative selection

Base on B-C Ratio Alternative B is preferred to be used because it gives the highest value than other but it use historical data of year 2009. As we know 8 years is a long time and everything has changed, so it would be better if we use Alternative A. This alternative is a second highest value and also more efficient than operating cost that operated by ourselves.

  1. Performance monitoring & Post Evaluation Result

Different alternatives only affect the amount of the B-C ratio, no effect on project tolerability. Extra analysis needs to be done to present input in order to acquire a better conclusion.

References

  1. Sullivan, G. W., Wicks, M. E., & Koelling, C. P.(2014). Engineering economy 16th Edition. Chapter 10 – Evaluating Project with the Benefit – Cost Ratio Method., pp.467-491. Prentice Hall.
  1. Planning Planet. (2017). Benefit Cost Analysis. Retrieved from http://www.planningplanet.com/guild/gpccar/managing-change-the-owners-perspective
  2. Mind Tools. (2017). Cost-Benefit Analysis. Retrieved from https://www.mindtools.com/pages/article/newTED_08.htm
 

W3_A_Using Multiattribute Decision Making with Compensatory and Non-Compensatory Model for Supply of Electricity Tanjung Uban

  1. Problem Definition

From my previous blog posting on Week-2, we using Compensatory Model for select the best choice for Tanjung Uban Electricity Supply. Dr. PDG suggest to use other technic to select a decision by using Non-Compensatory Model and compare which one is better and fit.

  1. Develop the Feasible Alternative

There are 3 alternatives in the supply of electricity at oil and gas storage facilities in Tanjung Uban, among others :

  1. Using direct electricity produced by PLN (State Own Electricity Company).
  2. Using gas turbine with feed from gas flare utilization.
  3. Using power generator with diesel fuel

Multiattribute Decision Making with Non-Compensatory Model will be made to choose the electricity supply option in Tanjung Uban. 

  1. Development of The Outcome for Alternative

Comparative analysis is conducted for each proposed alternative to see the impact of cost, reliability, efficiency, and environment.

Below on Tabel-1 is the comparison for alternative :

Tabel-1 Data Alternative

to summary information on table-1 and make a paired comparisons all attributes must be inspected, it shown and describe on tabel-2

Tabel-2 Checking Pairwise Comparisons of each attibuttes

After that we do satisficing for checking dominance among alternatives, it shown on tabel-3.

Tabel-3 Check for Dominance Among Alternatives

4. Selection Criteria

Alternative with highest dimensionless value will be selected

  1. Analysis and Comparison of the Alternative.

Next step is analyzing by orinal ranking of attibutes, it shown on tabel-4

Tabel-4 Ordinal Ranking of Attributes

By using Lexicography technic we can define which selection is the best and fit, it shown on Tabel-5.

Tabel-5 Application of Lexicography

Regarding to Tabel-5 it can explain alternative B (Using Gas Turbine for Electricity Generation) can be choose as the best option as Cost basis. if alternative A can reduce cost/tariff electricity per kWh it can be choosed because Reliability as basis.

Compare with my previous blog posting by using Compensatory Model it same result with Non-Compensatory Model because Alternative B or using Gas Turbine selected for the best and fit decision.

  1. Selection of the Preferred Alternative.

By using 2 technic Compensatory and Non-Compensatory Model it’s shown Alternative B or Using Gas Turbine is prefered to choose. But Compensatory Model more prefered to used, because it calculated with quantitative technic, it’s different with Non-compensatory using qualitative. People with high level management more comfortable to make a decission by using numbers because qualitative result it’s hard to explain and near to be subjective.

  1. Performance Monitoring and the Post Evaluation of Result.

For sharp the result, people with high experience on Electricity Generation must be involve to make more independece opinion put in this decission proses step by step.

References:

  1. Sullivan, G. W., Wicks, M. E., &Koelling, C. P.(2014). Engineering economy 16th Edition. Chapter 14 – Decision Making Considering Multiattributes., pp.559-608.
  2. W11_AL_Platform Decommissioning(2014, May). Retrieved from : https://kristalaace2014.wordpress.com/2014/05/06/w11_al_platform-decommissioning/#more-1340
  3. W3_HI_Decision Making Considering MultiAttributes (2015, March). Retrived from : https://garudaaace2015.wordpress.com/2015/03/10/w3_hi_decision-making-considering-multi-attributes/
  4. MODULE 10-3 – MANAGING CHANGE – THE OWNER’S PEREPCTIVE(2015, December). Retrieved from http://www.planningplanet.com/guild/gpccar/managing-change-the-owners-perspective

 

 

W3_AI_Selecting The Best Gas Supply Scheme for X Project Using Non-Dimensional Scaling Technique

  1. Problem Definition

My Company in initiation stage to fulfill gas needs of x area. There are 3 (three) alternative gas supply scheme, which can be analyzed to meet the company objective. Board of Director has been develop 7 (seven) mandatory parameter to select the best gas supply scheme. Hence a method is needed to accommodate all mandatory parameter, Multi-Attribute Decision Making method would be applied.

 

  1. Identify the Possible Alternative

3 (three) alternative gas supply facility to fulfill gas needed of x area, as follow:

  1. Offshore regasification facility
  2. Gas pipeline
  3. Landbase regasification facility

Because of the selected facility must be accommodating all the parameter that have been determined by Board of Director, then non-compensatory approach shall be chosen to select the best alternative in view of the full dimensionality.

 

  1. Development of The Outcome for Alternative

Non-compensatory approach consists of 4 different techniques:

  1. Dominance
  2. Satisficing
  3. Disjunctive Reasoning
  4. Lexicography

This technique is use to select the best alternative by comparing an attribute –by-attribute.

Table 1. Parameter Objective

Using non-compensatory approach, all of 3 (three) alternative gas supply will be ranked to get the most optimal alternative.

 

  1. Selection Criteria
  • Dominance

Table 2. Alternative Dominance

From table (2) above, Offshore Regasification Facility dominates for all categories, with the only contenders would be Pipeline A. While, Landbase Regasification Facility cannot compete in all an attributes with offshore Regasification and pipeline A.

  • Satisficing

Table 3. Alternative Satisficing

The minimum and maximum acceptable value for alternative has been described in table (3) above. Maximum acceptable value was adjusted by the company target, with baseline MARR 10% and project on-stream Q2 2019.

This step to weed out any outliers, and also serves to look at only the alternative are marginally acceptable, eliminating the ability to look extremes which may prove to be acceptable trade off.

  • Disjunctive Reasoning

Table 4. Attribute Disjunctive

The attribute ranking base on importance scale are Social Risk > Permit Duration > Capex > Location > Delay Potential > Project Duration > Optimize Existing Asset.

This step is serves to determine attribute ranked in order of importance, by means of compare between each possible attribute combination.

  • Lexicography

Table 5. Alternative Lexicography

Using the ordinal ranking of attribute, in terms of social risk (1st rank) the best alternative is Offshore Regasification Facility, with another alternative which is even close would be Pipeline A and follow by Landbase Regasification Facility as the last alternative rank.

 

  1. Analysis & Comparison of Alternative

Base on the attribute, comparison for all alternatives would be defined, as follow:

Table 6. Alternative Comparison

  1. Selection of the Preferred Alternative

The best alternative was described in the analysis above, offshore regasification facility would be the best supply gas scheme to be proposed to Board of Director.

This alternative has considered all parameter objective required by BoD, while the only one cons should be mitigated by the planning team.

 

  1. Performance Monitoring and The Post Evaluation of Result

The cons condition shall be monitor and manage on the planning and execute stage to reduce the risk. Planning and project team must be identifying the activity which will give impact to offshore regasification facility construction.

Reference:

  1. Planning Planet (2017). Multi Attribute Decision Making.

Retrieved from http://www.planningplanet.com/guild/gpccar/managing-change-the-owners-perspective

  1. Sullivan, G. W. (2014). Engineering Economy 16th Chapter 14 – Decision Making Considering Multiattributes, pp. 603-608.
  2. Dhanu, H. U. (2017). 1_UDS_Choosing a New Fuel Terminal Location in Dumai Using Additive Weighting Technique in Multi-Attribute Decision Making.

Retrieved from http://emeraldaace2017.com/2017/08/09/w2-1_uds_choosing-a-new-fuel-terminal-location-in-dumai-using-additive-weighting-technique-in-multi-attribute-decision-making/

 

 

W3_MFO_ Gas Meter Selection by Using Multi Attribute Decision

  1. Problem Definition.

In our gas pipeline project, we need gas metering system to measure how much gas flow which is flowing in our gas pipeline. There are several types of gas meters commonly used are ultrasonic meters, orifice meters, and turbine meters; and each gas meter has different characteristics. So, I want to try to analyze what kind of gas meter which is suitable for our project by using multi attribute decision

  1. Identify the Feasible Alternative.

The following table contains data of three gas meter types that will be selected.

Table 1 Gas Meter Data

As shown in above table, there are five criteria of evaluation (in this case known as attribute).

Further, selection of gas meter types will use both methods of multi-attribute decision, namely non-compensatory model and compensatory model.

  1. Development of the Outcome for Alternative.

3.1.    Non-compensatory model.

Four non-compensatory models, that are (1) dominance, (2) satisficing, (3) disjunctive resolution, and (4) lexicography, will be used.

For evaluation of dominance, pairwise comparison between two alternatives will be done for all attributes, as shown in table 2.

Table 2 Evaluation of Dominance

It is still unclear from above table, which one is dominant with others.

The satisficing model is done by applying acceptable limit, as shown in Table 3, where there are no alternatives that are eliminated.

Table 3 Satisficing Model Evaluation

Table 3 also is used to evaluate the disjunctive resolution, where concluded that all alternatives is acceptable because each has at least one attribute value that meets or exceeds the minimum expectation.

To conduct lexicography, the first should be done is to rank each attribute, as shown in table 4.

Table 4 Attributes Ranking

And then Table 5 shows evaluation using lexicography, where “Ultrasonic Gas Meter (A)” has highest rank attribute.

Table 5 Lexicography Evaluation

 3.2.     Compensatory model.

In this evaluation, two compensatory models, that are the non-dimensional scaling and the additive weighting technique will be used.

Ranking attribute by using non-dimensional scaling as shown in Table 6.

Table 6 Non-dimensional scaling

After set relative rank for each attribute, further is to conduct additive weighting for all alternatives as shown in table 7.

Table 7 Additive weighting evaluation

Note: Column Relative Rank is taken from Table 4.

As shown in Table 7, alternative “Ultrasonic Gas Meter (A)” has highest rank.

  1. Selection of Criteria.

A selection criterion for gas meter selection is the highest rank.

  1. Analysis and Comparison of the Alternative.

Table 8 shows ranking of gas meter that resulted from both non-compensatory model and compensatory model.

Table 8 Ranking of gas meter

As shown in Table 8, it is interesting to see that both methods result the same rank order, where “Ultrasonic (A)” has rank number I (highest) followed by Orifice (B), and Turbine (C).

  1. Selection of the Preferred Alternative.

Off course, Ultrasonic gas meter will be decided as gas meter type which is used for the project.

  1. Performance Monitoring and the Post Evaluation of Result.

Monitoring should be conducted during execution of the project to ensure that all requirements are met.

References:

  1. Sullivan, W.G., Wicks, E. M., Koelling, C. P. (2014). Engineering Economy, Chapter 14, page 559 to 617. Pearson. Sixteenth Edition.
  2. W17_YAW_Licensor Selection by Using Multi Attribute Decision. Retrieved from https://kristalaace2014.wordpress.com/2014/06/19/w17_yaw_licensor-selection-by-using-multi-attribute-decision/
  3. W4_Andi_Decision Making Multi Attributes. Retrieved from https://kristalaace2014.wordpress.com/2014/03/21/w4_andi_decision-making-multi-attributes/
  4. 10.3 – module 10-3 – managing change – the owner’s perepctive. Retrieved from http://www.planningplanet.com/guild/gpccar/managing-change-the-owners-perspective