## W4_A_Selection Oil Pump Using Present Worth Method

1. Problem Definition

The decline in world oil prices resulted in the need for an efficiency program, one of which is efficiency in investing. In 2014 the price of oil is at USD 89 / barrel, but it has been more than 2 years the position of oil price has not moved from USD 47 / barrel, in 2015 the company conducts efficiency program in terms of investment by pressing Capital Expenditure, in Marketing Directorate one of routine investment on Oil Transfering Facility. High level management want to reduce cost by selection on Pump Investment.

1. Develop the Feasible Alternative

Management purpose 2 alternative, among others:

1.Using API Pump

2.Using Non-API Pump.

Compare Value from Present Worth Method approaching will be use  will be use to select.

1. Development of The Outcome for Alternative

Calculate all variable including Capital Expenditure/Capex, net income, operating cost, maintenance cost, and salvage value from internal company data.

1. Selection Criteria

The acceptance criteria when the present worth value or PV ≥ 0 or the large value.

5. Analysis & Comparison of Alternative

Regarding to company data, that we summarize on Tabel-1 which represent for using API Pump.

Tabel-1 API Pump Cash Flow (in IDR)

Refer to Bank Indonesia Rate at 2017 is 7%, now we can drag Future Value/FV from 10th year to zero (initial) to calculate Present Value/PV, a summarize calculation represent on Tabel-2.

Table-2 PV for all cash flow API Pump (in IDR)

Regarding to Tabel-1 and Tabel-2 now we can total Cash Flow in and out IDR. 2.133.894.555 + IDR. (900.000.000) = IDR. 1.233.894.555 (API Pump is economically justified because PW ≥ 0 ) but we not finished yet, we have to calculate for NON-API Pump.

next step we calculate for NON-API Pump, the cash flow show on tabel-3.

Tabel-3 NON API Pump Cash Flow (in IDR)

Regarding to tabel-3, now we can calculate PV for all year cash flow, it shown on tabel-4

Tabel-4. PV for all cash flow NON-API Pump (in IDR)

Regarding to Tabel-3 and Tabel-4 now we can total Cash Flow in and out IDR. 1.897.707.948 + IDR. (600.000.000) = IDR. 1.297.707.948 (NON-API Pump is economically justified because PW ≥ 0 )

Now we can compare each PW from API and NON-API Pump, it shown on tabel-5

Tabel-5 Comparasion API and NON-API Present Worth Value (in IDR)

6. Selection of the Preferred Alternative

Regarding to tabel-5 it shown that Non-API Pump has PW Value higher than API Pump, gap value between them is IDR.63.813.394, it can conclude that NON-API Pump in economically point of view can justified to selected. But we prefer select API Pump as our Pump Selection, the reason is API Pump a best practice use in Oil and Gas Industry and has high reliability record. If economy GAP only IDR.63.813.394 management can accept it as cost, cause PW ≥ 0 and investment decision can select API Pump.

7.Performance Monitoring and The Post Evaluation of Result

Management must monitor maintenance cost, because maintenance cost has give effect to select better decision.

Reference :

1. Sullivan, G. W., Wicks, M. E., & Koelling, C. P.(2014). Engineering economy 16th Edition. Chapter 5 – Evaluating a Single Project., pp.213-215.
2. BI Rate and Primary Reserve Requirement Lowered Again (February, 2016) Retrieved from http://www.bi.go.id/en/ruang-media/siaran-pers/Pages/sp_181416.aspx
3. Module 06-5 – Acquiring Equipment for The Project (2016)

## W4_AI_Selecting The Best Gas Supply Scheme for X Project Using Compensatory Models

1. Problem Definition

Since the last week the gas supply scheme already define by using non-compensatory model, then for this week compensatory models will be used to select the best gas supply scheme. By using and compare both of multi attribute decision making models, the best model can be chosen. The compensatory models divided into 2 (two) approach which is non-dimensional scaling and the additive weighting technique.

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

Table 1. Alternative Value

1. Development of The Outcome for Alternative

Compensatory model using weighted score with the range 0 to 1 with the purpose is identifying dimensionless value for each attribute.

1. Non-dimensional Scaling

Table 2. Dimensionless Scoring model

The table above, show the scoring 1 means the highest/optimum value of attribute (preference decision), meanwhile the scoring 0 means the minimum value (avoided decision). Quantitative comparison for each alternative describe in table 2 above, after that the total score is required to represent the rank of alternative.

Table 3. Dimensionless Relative Weighting

Using non-dimensional scaling, the highest rank is offshore regasification facility with total score 6.11 (1.5 times better than pipeline)

Table 4 (above) describe the highest rank is offshore regasification facility with total score 0.91 (1.7 times better than pipeline).

1. Selection Criteria

The highest alternative rank of gas supply scheme was defined using both of compensatory models.

1. Analysis & Comparison of Alternative

Both of compensatory models have the same result with offshore regasification facility as the highest rank, it shown on:

Table 5. Compensatory Model

The difference between these two techniques is the weighting factors, the additive weighting using weighting factor because each attribute might be have different level of importance. Therefore, the recommendation chosen by additive weighting model, has been concern the alternate values and the attribute importance also.

1. Selection of the Preferred Alternative

The compensatory model using quantitative data to being calculate, meanwhile the non-compensatory (last week) model using qualitative judgment to being analyze. Since the quantitative approach give more clear comprehension, so the preferred model to present to director is compensatory model.

Both models, compensatory and non-compensatory model show that Offshore Regasification facility was the best alternative to choose.

1. Performance Monitoring and The Post Evaluation of Result

The alternative value could be change based on the project characteristic (every project is unique), so it is importance to really understand about the alternative to be compared.

Reference:

1. Planning Planet (2017). Multi Attribute Decision Making.
1. Sullivan, G. W. (2014). Engineering Economy 16th Chapter 14 – Decision Making Considering Multiattributes, pp. 603-608.
2. Ardi (2017). W3_A_Using Multiattribute Decision Making with Compensatory and Non-Compensatory Model for Supply of Electricity Tanjung Uban

## W4_MFO_Contract Risk Mitigation For Topographic Survey

1. Problem Definition.

We have been conducting bidding for topographic survey of gas pipeline project in North Sumatera. We plan to start this work in August 2017 until December 2017 (5 months duration). This work is very vulnerable to weather conditions because if the weather is rainy then the survey could not be conducted. So that, during negotiation meeting, the prospective winner bidder proposed 2 options for its offer. First option is IDR 4,500,000,000 without condition; or second option is IDR 4,350,000,000 + IDR 10,000,000/day stand by rate if topographic survey could not be conducted due to a bad weather.

1. Identify the Feasible Alternative.

Facing to this case, we have to decide which proposal option is accepted, IDR 4,500,000,000 without condition (option 1);  or   IDR 4,350,000,000 + IDR 10,000,000/day stand by rate (option 2).

1. Development of the Outcome for Alternative.

It is clearly that if we accept first option, then contract price will be IDR 4,500,000,000.

But, for the second option, we must to ensure the stand cost that might be happened. For calculating the standby cost, we need to know the number of bad weather days during period of work. This number may be estimated by using historical weather data. The following table contains weather data for past five years from Indonesian Agency for Meteorological, Climatological and Geophysics :

Table 1. Occurance of Bad Weather (In Days)

By using Monte Carlo simulation, it is forecasted the total bad weather days for each month in 2017, at P70 as follows:

Table 2. Occurance of Bad Weather in 2017

Therefore, stand by cost is estimated as 11 days * IDR 10,000,000 = IDR 110,000,000,

so that the price for second option is IDR 4,350,000,000 + IDR 110,000,000 = IDR 4,460,000,000.

1. Selection of Criteria.

Of course, the main criterion is the lower cost. Another criteria is comes from our bidding procedure, namely the price should be lower than our owner’s estimation (OE) of IDR 5,000,000,000.

1. Analysis and Comparison of the Alternative.

Below table contains total cost for both options:

Table 3. Total cost for both options

From the table 3, Option 2 is cheaper IDR 40,000,000 than option 1

1. Selection of the Preferred Alternative.

Based on comparison table above, we decided to proceed with option 2, IDR 4,350,000,000 + IDR 10,000,000/day stand by rate.

1. Performance Monitoring and the Post Evaluation of Result.

Monitoring and supervision should be conducted strictly during the execution of the work, especially in relation to the determination of whether a day is bad weather or not.

References:

1. Sullivan, W.G., Wicks, E. M., Koelling, C. P. (2014). Engineering Economy, Chapter 12, page 526 to 562. Pearson. Sixteenth Edition.
2. Bidding Document. (2017). Topographic survey. PT. ABCD. (Disguised).