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
 

1 thought on “W3_OAN_Investing vs Renting vs Leasing Studies”

  1. WOW!!! AWESOME Pak Nunug!! Really nice work on this. Not only that, but this gave you an even BETTER solution than what you came up with in W2? Probably saved the cost of this course many times over!!! This is EXACTLY what we are trying to get you to do. Come up with BETTER solutions to real problems well in excess of the cost of this training.

    Also don’t forget that because you are working SMART, not HARD, by demonstrating to me that you know how to use the tools/techniques from Engineering Economy, you can also take credit for one of your two problems from each of the chapters you cited. Just be sure that you figure out how to allocate hours in a fair manner so that your CPI and SPI values are as realistic as possible,

    Also don’t forget that the INTRODUCTIONS to your papers are due this week.

    Keep up the really impressive work and looking forward to seeing what you do for your W4 blog posting.

    BR,
    Dr. PDG, Jakarta

     

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