1. Problem Evaluation

Continue tank truck operation evaluation in blog posting W13, this time author want to research what the best depreciation is. The best mean give more benefit of Author Company such as minimize income tax and also give financial projection of tank truck operational cash flow.

2. Development of feasible alternatives

There are four depreciation models that will compare to get best method:

1. Straight Line Method
2. Declining Balance Method
3. Declining with switchover to Straight Line Method
4. MACRS Method

 

3. Development the outcome for each alternative

Those four method depreciation are choose to compare two group method, commonly use method such as  Straight Line Method and Declining Balance Method, and not commonly use such as Declining with switchover to Straight Line Method and MACRS Method. All method will be compare by depreciation value; bigger depreciation value will get lower income tax.

4. Selection of criteria

The best method is the method that has the biggest depreciation value. Depreciation value is get from sum present worth of all year depreciation result of each method. 

5. Analysis and comparison of the alternative

To simulate this depreciation comparison author will use 24 KL aluminum fuel tank truck data. Those data is in table below.

Table 1. Fuel Tank Truck Data

Next step is data calculating of each depreciation method, according to straight line method:

dk = (B – SVN) / N

dk* = k. dk for 1 ≤ k ≤ N

BVk = B – dk*

According to Declining Balance method:

d1 = B(R)

dk = B (1 – R)k-1 (R)

dk* = B (1 – (1 – R)k)

BVk = B (1-R)k

Where:

N               = depreciable life of the asset in years

B                = cost basis, including allowable adjustments

Dk             = annual depreciation deduction in year k (1 ≤ k ≤ N)

BVk           = book value at end of year k

SVN          = estimated salvage value at end of year N

dk*             = cumulative depreciation through year k

The calculation results of four depreciation methods are in table below:

Table 2. Straight Line Method

To demonstrate Declining Balance method, the author use 300% DB equations and result of calculation based on above equation is

Table 3. 300% Declining Balance Method

Method of Declining Balance Method Switchover to Straight Line Depreciation, in this method the first step is the asset would be depreciated by the 300% DB Method (R =3/N). Because the DB method never reach a zero BV, suppose that author further specify that at switchover to SL depreciation to will be made to ensure a BV of zero (determined salvage value).

Table 4. DB Method Switchover to SL Method

To determine the MACRS (GDS) with half year convention assumption and period of analysis in 6 years based on GDS property class.

Table 5. MACRS (GDS) Method, Using Half year convention

Table 6. PW(12) Comparison

Figure 1. PW(12) of each method

6. Alternative selection

As can be seen above MACRS method have the largest PW(12) than other. We can conclude MACRS method is the best alternative that more attractive to profitable companies.

7. Performance monitoring & Post Evaluation Result

To get the best result of method we have to find most appropriate model of depreciation. We should calculate PW of depreciation value of each method, because bigger PW of depreciation value will get lower income tax and more profit of our company.

References

1. Sullivan, G. W., Wicks, M. E., & Koelling, C. P.(2014). Engineering economy 16th Edition. Chapter 7 – Depreciation and income tax., pp.332-391. Prentice Hall.
2. Planning Planet. (2017). Acquiring Equipment For The Project. Retrieved from http://www.planningplanet.com/guild/gpccar/acquiring-equipment-for-the-project
3. Accounting-Simplified.com (2017). Depreciation Methods. Retrieved from http://accounting-simplified.com/financial/fixed-assets/depreciation-methods/types.html

1. Problem Evaluation

Enhancing of My W10 blog posting about car replacement analysis, this time I will evaluate about fuel tank truck replacement analysis. Based on the author company SOP life time 24 KL aluminum tank truck is 15 years, but in years 11^th the head truck must be replace with the new one combine with old trailer tank. In this unique situation trigger me to deep dive what the best alternative of fuel tank truck replacement: do nothing (follow SOP), change new all, or leasing?

2. Development of feasible alternatives

In this evaluation there are three feasible options:

1. Follow SOP Policy (only change the head truck at year 11^th)
2. Change all with the new
3. Leasing

Author will analysis these three options which most efficient and also determine when Economic life of fuel tank truck.

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 I 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 dominating over other alternative in both PW and EUAC Method. The PW of Change All is greater than PW of SOP Policy and Leasing (IDR -1,687,647,340 > IDR -1,705,410,492 > IDR -2,055,370,427). And Change All has the smallest EUAC (IDR 468,169,796 < IDR 473,097,468 < IDR 570,179,759). Thus, the old Fuel Tank Truck should be replaced immediately with all new product (Head Truck and Tank Trailer). This evaluation result also align my question before about why change head truck only.

From the economic life evaluation we also get the optimum years of the tank truck should be used. SOP Policy Alternative wills optimum in 5 years use and for change all will optimum in 2 years use. Based on PW, EUAC and economic life evaluation we get big picture of alternative sequence there is follow SOP Policy until 10 years then change the tank truck and trailer with the new one for 2 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. The University of Tuledo (2017). Replacement Analysis. Retrieved from http://www.eng.utoledo.edu/~nkissoff/lessons/Lesson14.html
3. 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

1. Problem Definition

CNG compressor is one of the critical equipment on gas station. If the compressor fails, gas station cannot sell CNG after CNG storage empty. High level management suggested the project team to analyze the scenario to include spare when running compressor fails. To respond that finding, the Author will do exercise to analyze the benefit to include the critical equipment spare in the cost.

2. Development of Feasible Alternatives

To answer the challenge from the reviewer, we should analyze the benefit if we purchase the critical spare compressor which will be installing if the running compressor fails. To do the analysis, author gathers the equipment data from Gas Station Operation Team and also data form Author`s Blog Week 14 when Brand A Compressor selected as best option. Summary of all data can we see as below:

Table 1. Critical Spare Compressor and Gas Station Operation Data

3. Development of the Outcomes for Alternative

Based on above data, authors need to conduct Life-Cycle Costing calculation.
Life-cycle costs (LCC) are associated with an asset and extend of the cost management information beyond the acquisition (creation) of the asset to the use and disposal of the asset.
The purpose of Life-cycle Cost (LCC) is to optimize the total costs of an asset while satisfying specific performance requirements over a defined period of operational time.

First we need to estimate the annual cost saving by installing the critical spare equipment.
The annual cost saving = Increase production due to higher plant availability – Annual maintenance of critical spare equipment

From Table 1 data above, we calculate:

Saving due to no shut down = 5 days/year x 455.4 million IDR/day = 2,277 million IDR /year

The annual cost saving = 2,277 million IDR – 153.25 million IDR = 2,123.75 million IDR

Calculate LCC using present-worth (PW).

To calculate PW, we need to determine the appropriate discount rate. The appropriate discount rate to be used is MARR = 15%

Calculation examples:

PW cash flow in Year 1 = Year 1 cash flow * (1/ (1+15%)^1)

= 2,123.75 million IDR * 0.8708

= 1,862.94 million IDR

PW for 20 years periods are calculated as below:

Table 2. Present Worth of 20 years Cash Flow

4. Selection of the Acceptable Criteria

The higher total PW is the preferred alternative from an economic perspective.

5. Analysis and Comparison of the Alternatives

From Table 2, the total PW of the “with critical spare compressor” option is 11,001.48 million IDR and PW without critical spare compressor is negative 15,080.87 million IDR. By installing the critical spare compressor will have higher PW than not installing it.

6. Selection of the Preferred Alternative

The estimating team can recommend to install critical spare compressor is the preferred option from an economic perspective, compare with not install the critical spare compressor, since by installing the critical spare compressor will give higher PW of total cash flow balance.

7. Performance Monitoring and Post-Evaluation of Results

When assessing the critical spare requirement, beside the technical analysis, it is important to conduct Life-cycle costs (LCC) analysis to justify how critical the spare requirement is, related to minimize the cost of loss production.

References:

1. Sullivan, G. W. (2014). Engineering Economy 16^th Chapter 6 – Comparison and Selection among Alternatives, pp. 264-331
2. Wija, Wahyu. (2015). W16_WW_Cost Analysis of Critical Spare Compressor|GARUDA AACE 2015. Retrieved from: https://garudaaace2015.wordpress.com/2015/07/31/w16_ww_cost-analysis-of-critical-spare-compressor/
3. Hendarto, Tommy. (2017). W14_TH_Analyzing Cost Only Alternative|Emerald AACE 2017. Retrieved from: http://emeraldaace2017.com/2017/11/19/w14_th_analyzing-cost-only-alternative-using-equivalent-worth-for-cng-compressor-with-electric-motor-prime-mover/

1. Problem Definition

One of the critical phases on gas station project is commissioning phase. If the gas station not already connects with gas pipeline, gas station will commission using gas from Gas Transport Module (GTM). Gas will directly inject to scrubber. GTM also have function for deliver gas from mother station to daughter station. Author Company`s will assess the most economical way to use from GTM.

2. Development of feasible alternatives

Alternatives for GTM:

1. Investing new GTM and commission by company resources
2. Hire third party specialize on GTM for commissioning phase
3. Leasing GTM as commission tools and commission by company resources

It is important to choose which most efficient way to commission gas station, especially with numerous number of gas station project.

3. Possible Solution / Alternative

Calculation of investment, maintenance cost, operating cost and rent cost based on inquiry from GTM Vendor for new equipment or leasing and Third Party specialize in this field.

4. Selection of Criteria

The acceptance criterion is the option with lowest total net worth.

5. 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 65% of investment price, based on internal author company data.

Table 2. Book Value at the end of life time, using Straight Line Depreciation

Calculation summary :

Table 3. Present Worth for Purchasing

Table 4. Present Worth for Renting

Table 5. Present Worth for Leasing

Table 6. Calculation Net Worth Purchase, with MARR 14%.

Author use MARR 14% based on Lita Liana paper that concludes range of MARR in oil and gas project is 14% to 34%.

6. Selection and Preferred Alternatives

Table 6 show that total cost of leasing GTM is the lowest. For long term use, leasing GTM is the most efficient way.

7. 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.

 

References

1. Sullivan, G. W. (2014). Engineering Economy 16^th Chapter 2,5 and 7, pp. 71-73, 213 – 215 and 332 – 337
2. Adhi, Oktafianto. (2017). W3_OAN_ Investing vs Renting vs Leasing Studies|Emerald AACE 2018. Retrieved from http://emeraldaace2017.com/2017/08/15/w3_oan_investing-vs-renting-vs-leasing-studies/
3. Liana, Lita. (2014). Using Analytical Hierarchy Process to Determine Appropriate Minimum Attractive Rate of Return for Oil and Gas Projects in Indonesia, PM Word Journal Vol. III. Retrieved from http://pmworldjournal.net/article/using-analytical-hierarchy-process-determine-appropriate-minimum-attractive-rate-return-oil-gas-projects-indonesia/?lipi=urn%3Ali%3Apage%3Ad_flagship3_pulse_read%3Bzx66NZmmQrKJ3%2BZJpWDqkw%3D%3D

1. Problem Definition.

Same case like on W9 blog posting, author plan to install CNG compressor with electric motor prime mover for the gas station and author received a complete offer with the specifications of the three manufacturers of CNG compressor. In this blog, the author wants to analyze cost-only alternatives of the three brands of CNG compressor using equivalent worth. Which CNG compressor should be preferred base on equivalent worth?

2. Identify the Feasible Alternative.

The following table contains data of three brand of CNG compressor that will be selected.

Table 1. The CNG Compressor Data

This CNG compressor will be used for 20 years and the company has a MARR of 15%

3. Development of the Outcome for Alternative.

Using table 1 data, we will calculate the PW (Present Worth), AW (Annual Worth), and FW (Future Worth). The result cans we seen on table below.

Table 2. The Result of Equivalent Worth Values

4. Selection of Criteria.

The pump that will minimize the equivalent worth of total costs over the ten-year analysis period will be used as selection of criteria.

5. Analysis and Comparison of the Alternative.

The comparison of three brand CNG compressor using the PW, AW, and FW methods to minimize total cost as seen as table 3 below.

Table 3. The Comparison of the CNG Compressor

From the table 3, alternative Brand A minimizes all three equivalent-worth values of total costs and is the preferred alternative. The preference ranking (Brand A > Brand C > Brand B) resulting from the analysis is the same for all three methods.

6. Selection of the Preferred Alternative.

Base from above calculation, brand A minimizes all three equivalent-worth values of total costs and is the preferred alternative for the gas station.

7. 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, G. W. (2014). Engineering Economy 16^th Chapter 6 – Comparison and Selection among Alternatives, pp. 264-331
2. Fakhri, Muhammad. (2017). W12_MFO_Analyzing Cost Only Alternative|Emerald AACE 2018. Retrieved from http://emeraldaace2017.com/2017/11/17/w12_mfo_analyzing-cost-only-alternative-using-equivalent-worth-for-selecting-fire-water-pump/
3. What is the formula for calculating net present value (NPV) in excel. Retrieved from https://www.investopedia.com/ask/answers/021115/what-formula-calculating-net-present-value-npv-excel.asp
4. How to calculate net present value (NPV) in excel. Retrieved from https://www.youtube.com/watch?v=hG68UMupJzs

1. PROBLEM DEFINITION

Further to Week 5 & 7 blogs  on the construction of trench RC barrier for SPJ – 12B project and the effects of Learning curve on production we would now like to review production results observed over the past 12 weeks and assess the actual learning curve parameters and make an assessment of the total predicted man hours to complete the entire 1330 Lm of barrier wall – based on actual productivity figures

2. FEASIBLE ALTERNATIVES

Two types of learning curves will be assessed for the purpose of assessing the actual learning curve parameters

• Unit Learning and;
• Cumulative average

3. DEVELOPMENT OF OUTCOMES

Selecting the correct learing curve will be critical in estimating the total man hours to complete the works. The total hours (or cost) determined using the Unit Linear method will be the sum of the unit costs however the Cumulative Average linear, the total hours (or costs) will be the unit values times the total number of units up to that point.

Productivities for planned as well as actual cumulative figures are outlined in table 1 below

Contractor has performance from 12th August to the 3rd November is further broken down as per table 2 below.

Note that the Unit Linear figures are based on the weekly average.

To determine which curve can be used to estimate the total man hours at completion we must first evaluate which is most reliable. To achieve this we will perform a regression analysis on both sets of data and determine the R^2 or coefficient of determination.

4. SELECTION CRITERIA

The option which provides a R^2 value  closer to 1.0 will be regarded as representative or best fit of the data. An R^2 of 0.9 or better is considered a good fit however a result of less than 0.9 may mean the resultant equation doe not adequately represent the data that are being analysed.

 5. ANALYSIS OF THE ALTERNATIVES  

Both the Unit linear and Cumulative average are plotted on the graph below including the corresponding R^2 values and equations for each set of data and best fit curves

The Blue line indicates the cumulative average whilst the red dashed line indicates the Unit Linear and whilst the  R^2 for the cumulative average is closer to 1.0 than the unit linear, both options are below 0.9 indicating that the line of best fit or equation may not accurately represent the data.

6. Selection of the Preferred alternative

Whilst neither curve satisfies the requirement of an R^2 value <0.9, the cumulative average may provide the best chance of estimating total man hours at completion

Based on the figure 1 above, the learning rate of the cumulative average-time model is the anit-log of 10^-0.246*log(2) = 84.32%

The cumulative average is determined by =464*67^(log(0.8432)/log(2) = 165 mnhrs /unit with a total number of direct labour hours estimated as 11,047 (165*67 units)

6. Performance Monitoring

The range of the figures obtained from the field data would indicate that there is too much variance in the data to allow for the development of an equation that allows accurate forecasting.

The labour figures and productivities above are based on weekly averages and these will include non productive periods and man hours associated with delays from weather, concrete supply, etc.

It may be advisable to eliminate some of the data points which include excessive delay periods or exclude non productive man hours from the total figures.

Also consideration needs to be given to any changes in actual crew members  and the impact that this may have on the crews overall productivity.

Further assessments will be over the next 2-3 weeks with a closer assessment of man hours spent during disruption or delay periods.

References

1. Sullivan, G. W., Wicks, M. E., & Koelling, C. P.(2014). Engineering economy 16th Edition. Chapter 3 – Learning and Improvement., pp.110-112.
2. Humphreys, G.C 2011 Project Management Using Earned Value Humphreys associates, Management Consultants. Second Edition, pp 435-440
3. Dennis F. Togo, Curivlinear Analysis of Learning for Cost Estimation.  Retrieved from http://http://www.swdsi.org

1. Problem Definition.

Same case like in W11 blog posting, we have plan to install electric fire water pump for the gas plant and we have received a complete offer with the specifications of the three brands of pumps. In this blog, the author wants to analyze cost-only alternatives of the three brands of pumps using equivalent worth. Which pump should be preferred base on equivalent worth?

2. Identify the Feasible Alternative.

The following table contains data of three brand of pumps that will be selected.

Table 1. The pumps data

This pumps will be used for 10 years and the company has a MARR of 14%

3. Development of the Outcome for Alternative.

Using table 1 data, we will calculate the PW (Present Worth), AW (Annual Worth), and FW (Future Worth). The result as seen as table below.

Table 2. The result of Equivalent Worth Values

4. Selection of Criteria.

The pump that will minimize the equivalent worth of total costs over the ten-year analysis period will be used as selection of criteria.

5. Analysis and Comparison of the Alternative.

The comparison of three brand pump using the PW, AW, and FW methods to minimize total cost as seen as table 3 below.

Table 3. The comparison of the pumps

From the table 3, alternative brand C minimizes all three equivalent-worth values of total costs and is the preferred alternative. The preference ranking (Brand C > Brand B > Brand A) resulting from the analysis is the same for all three methods.

6. Selection of the Preferred Alternative.

Base from above calculation, brand C minimizes all three equivalent-worth values of total costs and is the preferred alternative for the gas plant.

7. 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. Pearson. Sixteenth Edition.
2. Electric fire water pump specification & quotation Brand A
3. Electric fire water pump specification & quotation Brand B
4. Electric fire water pump specification & quotation Brand C
5. What is the formula for calculating net present value (NPV) in excel. Retrieved from https://www.investopedia.com/ask/answers/021115/what-formula-calculating-net-present-value-npv-excel.asp
6. How to calculate net present value (Npv) in excel. Retrieved from https://www.youtube.com/watch?v=hG68UMupJzs

 

 

1. Problem Recognition, Definition and Evaluation

Our company will install Ultrasonic Gas Metering Station for our project. Is the use of OmniClass can be applied to this project?

This blog is made to revise the W5.2 blog post before.

2. Development of the Feasible Alternatives

OmniClass consists of 15 hierarchical tables, each of which represents a different facet of construction information or entries on it can be combined with entries on other tables to classify more complex subjects.

Fig 1. Inter-related OmniClass

Author will be chosen what kind of tables on OmniClass that applicable for Gas Metering Project WBS.

3. Development of the Outcomes for Each Alternative

To choose top four most applicable tables from the 15 tables, the most appropriate technique will be the multi attributes approach. Compensatory models, the additive weighting technique has been chosen to help performing the comparison and selection. In all compensatory models, which involve a single dimension, the values of all attributes must be converted to a common measureable scale. By using determined criteria related to the Gas Metering Project, the additive weighting technique will rank the 15 tables, shows high to low applicability and relevance to the project.

4. Selection of a Criterion

There are six criteria related to gas metering project that have been determined for the OmniClass tables selection:

1. WBS location that related to Gas Metering Project (1-3, 3 being highest relationship)
2. WBS deliverables related to Gas Metering Project (1-3, 3 being highest relationship)
3. WBS activity related to Gas Metering Project (1-3, 3 being highest relationship)
4. WBS organization that related to Gas Metering Project (1-3, 3 being highest relationship)
5. WBS level detail completeness (1-4, 4 being preferable)
6. Tables applicability/uses for oil & gas project (low to high)

5. Analysis and Comparison of the Alternatives

The comparison result of OmniClass Tables is shown in the following table:

Table 1. OmniClass Tables Comparison Based on Six Selection Criteria

All attributes in table 1, be ranked in order of importance by doing paired comparison between each possible attribute combination. Result as shown on table 2:

Table 2. Ordinal Ranking of OmniClass Tables attributes

Based on Table 2, relative rank = ordinal rank + 1. A rank of 5 is best, the relative ranking will become as follows:

Table 3. OmniClass Tables Selection – Attribute Weight

The attributes values on Table 1 have to be converted in to non-dimensional form. The procedure for converting the original data on table 1 for a particular attribute to its dimensionless rating is:

The non-dimensional (dimensionless) values of the attributes are shown on Table 4:

Table 4. OmniClass Tables Selection – Dimensionless Value

Finally, for each OmniClass table, the normalized weight of the attribute (Table 3) is multiplied the non-dimensional attribute value (Table 4) to obtain a weighted score for the attribute. These weighted score are then summed to arrive at an overall score for each OmniClass table. The result is shown on Table 5.

Table 5. OmniClass Tables Selection – Weighted Score

6. Selection of the Preferred Alternative

Based on calculation and Table 5 comparison, the top three most applicable and relevant WBS from OmniClass for the Gas Metering Project is:

1. Table 14-Spaces by Form (score 0.310)
2. Table 23-Products (score 0.357)
3. Table 31-Phases (score 0.270)

7. Performance Monitoring and Post Evaluation of Results

Monitoring and supervision should be conducted strictly during project to keep the project inline with the WBS.

Reference:

1. Planning Planet (2017). Creating Work Breakdown Structure. Retrieved from http://www.planningplanet.com/guild/gpccar/creating-work-breakdown-structure
2. Hendarto, Tommy. (2017). W6.1_TH_Standardized WBS Structures for Gas Station Project-Part 3. Retrieved from http://emeraldaace2017.com/2017/09/22/w6-1_th_-standardized-wbs-structures-for-gas-station-project-part-3/
3. OmniClass (2017), OmniClass Table 21 – Elements (includes design elements). Retrieved from www.omniclass.org/tables/OmniClass_21_2012-05-16.zip
4. Gannasonggo, Gustaf. (2012). W3_GGS_OmniClass WBS|Casablanca AACE 2012. Retrieved from https://aacecasablanca.wordpress.com/2012/02/06/w3_ggs_omniclass-wbs-table-selection-using-additive-weighting-technique/

 

 

1. Problem Definition

The decline in world oil prices resulted hard competition between gas and oil fuel. As we know that gas is alternative fuel beside oil. Gas is feasible to use when oil price above 50 $/barrel. When oil price is around 50 $ /barrel, gas player need to very efficient on supply chain to make sure gas price is still acceptable for costumer. Indonesia is now developing LNG retail supply chain. One of the critical parts of this supply chain is LNG ISOtank. Author wants to reduce cost by selection on LNG ISOtank Investment.

Figure 1. LNG ISOtank Truck

2. Develop the Feasible Alternative

Manufacturer purpose 2 alternative, among others:

1. Using LNG ISOtank ASME U stamp
2. Using LNG ISOtank that follow ASME U stamp

Compare Value from Present Worth Method approaching will be used to select the best option.

3. Development of The Outcome for Alternative

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

4. 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 LNG ISOtank ASME U stamp.

Tabel-1 LNG ISOtank ASME U stamp 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 LNG ISOtank ASME U stamp (in IDR)

Regarding to Tabel-1 and Tabel-2 now we can total Cash Flow in and out IDR. 1,425,478,520 + IDR. (1,080,000,000) = IDR. 345,478,520 (LNG ISOtank ASME U stamp is economically justified because PW ≥ 0 ) but we not finished yet, we have to calculate for LNG ISOtank that follow ASME U stamp.

next step we calculate for LNG ISOtank that follow ASME U stamp, the cash flow show on tabel-3.

Tabel-3 LNG ISOtank that follow ASME U stamp 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 LNG ISOtank that follow ASME U stamp (in IDR)

Regarding to Tabel-3 and Tabel-4 now we can total Cash Flow in and out IDR. 1,420,395,027 + IDR. (918,000,000) = IDR. 502,395,027 (LNG ISOtank that follow ASME U stamp is economically justified because PW ≥ 0 )

Now we can compare each PW from LNG ISOtank ASME U stamp and follow ASME U stamp, it shown on tabel-5

Tabel-5 Comparison LNG ISOtank ASME U stamp and follow ASME U stamp Present Worth Value (in IDR)

6. Selection of the Preferred Alternative

Regarding to tabel-5 it shown that follow ASME U stamp has PW Value higher than ASME U stamp, gap value between them is IDR. 156,916,507.08, it can conclude that follow ASME U stamp in economically point of view can justified to select.

7. Performance Monitoring and the Post Evaluation of Result

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

References:

1. Sullivan, G. W. (2014). Engineering Economy 16th Chapter 5 – Evaluating a Single Project, pp. 213-215. Pearson. Sixteenth Edition.
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. Ardiansyah. (2017). W4_A_Selecting Oil Pump|Emerald AACE 2018. Retrieved from https://emeraldaace2017.com/2017/08/22/w4_a_selection-oil-pump-using-present-worth-method/
4. Pengiriman LNG Pertama dengan Media (December, 2013). Retrieved from http://www.candraawiguna.id/2013/12/pengiriman-lng-pertama-dengan-media.html

1. Problem Definition

Following my Week 14 assessment of IEAC, 4 methods were used to calculate the EAC.

After reviewing each method, IEAC 3 was determined to be the most suitable however  this still implied that the Estimated Cost at completion would be some 183% above original Budget. This is unrealistic and would appear to be an over estimate of remaining cost.

Another method is now required to determine the IEAC and this weeks blog will assess further alternatives.

2. Feasible Alternatives

Last week we considered IEAC1-4 which can be described as;

• IEAC1 = ACWP + ((BAC – BCWP) / CPI)
• IEAC2 = ACWP + ((BAC – BCWP) / SPI)
• IEAC3 = ACWP + ((BAC – BCWP) / CPI * SPI)
• IEAC4 = ACWP + ((BAC – BCWP) / ((0.2 * SPI) + (0.8 * CPI))

This week we will assess the IEAC using pproductivity  and unit cost referred to as IEAC 5.

3. Development of the Alternatives

IEAC 5 method considers the Actual productivity or unit cost of work completed to date as the basis for predicting the cost of balance works.

As noted in my week 13 blog, BCWS,BCWP and ACWP figures during Week 0 were calculated in line with the nominated split and weightages provided in notes. This has created some inconsistencies in the reporting figures where by earned values are limited by an pre determined arbitrary weighting which is misaligned with BCWS and ACWP figures – wrongly indicating that productivity is low.

As such, inclusion of week 0 figures in any productivity assessment would not provide an accurate indication of how many hours (or cost) have  been spent to date on actual tasks to establish a correct unit cost.

As such we will exclude week 0 costs and earned value and make an assessment of Productivity based on week 1 to 13 only.

Table 1 below summarises budget and estimate productivity based on the total work units required to completed the course;

CPI is based upon comparison of Budget and Actual unit cost of for works completed from weeks 1 to 13 and indicates that 3 out 5 are operating under budget.

Unit costs associated with weekly blogs and reports are however significantly over budget when considered on a unit cost basis.

Table 2 further outlines the IEAC for method 5.

4. Selection Criteria

The same selection criteria is to be applied as per week 13 blog.

1. Realistic
2. Reduce chance of further increases / changes

5. Comparison of the Alternatives

Table 3 outlines comparisons between all 5 methods

IEAC 5 provides the lowest IEAC ($27,717) compared to the previously preferred methods IEAC 1 & 4 ($33,233) which was also determined using CPI figures without any allowance for week 0.

6. Selection of Alternatives

IEAC 5 is considered more appropriate as a method for assessing my own IEAC. It ignores the week 0 anomalies and uses the actual unit cost of works completed so far to estimate . Unit costs do however still include learning curve inefficiencies during early phases and as such, productivity is expected to improve and assist with final cost

7. Performance Monitoring

Current Dashboard to include weekly assessment of IEAC based on unit productivity and cost – excluding week 0 figures.

References

1. W09_SJP_Forecasts retrieved 5 November 2107 from https://js-pag-cert-2017.com/w09_sjp_forecasts
2. Chapter  9.5 – Performance Monitoring Progress – 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. National Defence Industrial Association. (2014). A Guide to managing programs using predictive measures.