W14_UDS_Fuel Tank Truck Feasibility Study Part 2: Best Depreciation Method

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.

1. 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

1. 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.

1. 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.

1. 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

1. 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.

1. 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

W13_UDS_Fuel Tank Truck Feasibility Study Part 1: Replacement Analysis

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 11th 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?

1. Development of feasible alternatives

In this evaluation there are three feasible options:

1. Follow SOP Policy (only change the head truck at year 11th)
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.

1. 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.

1. 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.

1. 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

1. 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.

1. 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.
1. The University of Tuledo (2017). Replacement Analysis. Retrieved from http://www.eng.utoledo.edu/~nkissoff/lessons/Lesson14.html
2. 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

W12_UDS_Emerald Blog Posting Learning Curve

1. Problem Evaluation

We are already in week 13 AACE preparation course; this period is in middle of the course duration. From the beginning until now only blog posting task that have a real and constant target every week. When we make planning time duration (BCWS) 14 weeks ago, we just use our feeling without any formula or technique. This time we want to evaluate our blog posting learning curve to predict our next hour spends. It will be on the track or not (between early and late BCWS) also help us in rebase line our target.

Figure 1. Emerald AACE Blog Posting productivity

1. Development of feasible alternatives

Refer to engineering economy book and Humphreys, they are two learning curve methods that we can adopt. Those two methods are:

1. The Unit Linear Learning Curves (ULC)
2. The Cumulative Average Linear Learning Curve (CUMAV)

In this small research, we analyzed our blog posting data in last 13 weeks to predict our next blog posting productivity, it also help us to get some picture of our learning curve in blog posting.

1. Development the outcome for each alternative

This small research methodology is compare two learning curve formula ULC and CUMAV which more appropriate with our behavior blog posting productivity. Regression analysis will use as comparison rating index of both learning curve formulas ULC and CUMAV.

1. Selection of criteria

There are three criteria of the best alternative in this method, there are:

1. The learning rate (s) < 100%, the lower the better
2. Coefficient Determination (R²) the higher the better
3. Learning Curve Exponent (n) < 1, the lower the better.

The chosen alternative should have learning curve fits most of the criteria.

1. Analysis and comparison of the alternative

Because we use group data (each week team productivity) in this research, first we should made lot unit to determine Lot Mid-Point (LMP). LMP formula that we are used is in the below :

Figure 2. LMP Equation

After LMP we should determine Average Unit Hour (AUH) of each Lot by dividing the total actual hours spending per lot to the lot size. The equation form default is exponential, it is will be easier and fit with our regression analysis method if we transform it Logarithm Equation below:

Ln (Yx) = Ln (T1) + b x Ln (X)

With definition:

• Ln(Yx) = natural logarithm of each unit hours spend to produce X unit
• Ln (T1) = natural logarithm of the first unit produced
• Ln (X) = natural logarithm of unit X produced
• b = the exponential value associated with the slope

For transform reason we use historical data of blog posting actual hour, the table is below:

Table 1. Blog Posting Historical Data

All data being calculated to following table for regression analysis pupose:

Table 2. Regression Analysis Calculation

There is no outliers’ data on table above, all data in between LCL and UCL line. In generate regression of each method (ULC and CUMAV) we use excel data analysis and get the summary below:

Table 3. ULC and CUMAV Comparison Result

After we get the equation of both method ULC and CUMAV, we can predict of the rest blog posting hour spending, using additional assumption team will produce 7 blog each week so prediction table result is below:

Table 4. Blog Posting Hour Projection

1. Alternative selection

From the comparison result table above has shown that The Unit Linear Learning Curves (ULC) Method is considered to be the favorable method to apply, rather than Cumulative Average Linear Learning Curve (CUMAV) Method using Heuristic LMP (Lot Midpoint) since its R² has shown higher rate than the CUMAV. The ULC’s R² value of 0.186 explain that the equation for estimating purpose is best fits with the data being analyzed. While the value of s = 0.72 represented the learning rate of Emerald AACE Team in Blog Writing Project. This number also tells us that Emerald AACE’s skill improvement in doing Blog Writing Project from W1 to W13 have been increased by 28%. The n value, indicate that Emerald AACE Team underspending in this project by (-0.28) and (-0.02) worth.

1. Performance monitoring & Post Evaluation Result

Using appropriate Learning curve method of our team (ULC) can give us a projection of our rest blog writing project especially when we want to rebase line our BACS. It is projection can guide us to plot our new BACS and maintain our CPI on the track. We can do the same evaluation for the other project in couple of weeks, when it already enough data, because the other project target not start in the beginning of preparation course.

References

1. Sullivan, G. W., Wicks, M. E., & Koelling, C. P.(2014). Engineering economy 16th Edition. Chapter 3 – Cost Estimation Techniques., pp.110-113. Prentice Hall.
2. Humphreys, G. (2014). Project Management Using Earned Value (Third Edition). Chapter 22 – Learning Curves., pp.435-441.Humphreys & Assoc.
3. Planning Planet. (2017). Acquiring Man Power For The Project. Retrieved from http://www.planningplanet.com/guild/gpccar/acquiring-manpower-for-the-project

W11_UDS_Forecasting Method Comparison

1. Problem Evaluation

Sometime we face problem when we have to predict future condition. This prediction is very important to us in making decision and choosing strategy for company. Forecast methods are usually used to predict future condition.

There are two type of forecast method:

1. Time series models; What happened in the past will happen again in the future (with consistent error)
2. Regression Analysis; One variable is affected by other variables

1. Development of feasible alternatives

This small research will evaluate forecast method focusing in time series models. Time series model are common model in forecasting because user friendly use and useful in determine future condition. There are three Time series models that will compare:

1. Simple Moving Average
2. Weighted moving average
3. Exponential smoothing

1. Development the outcome for each alternative

This time series model comparison will evaluate using two forecast error measurements: Mean Squared Error (MSE) and Mean Absolute Deviation (MAD). Using MSE and MAD approach we can get difference between actual data and forecast calculation. Comparing the value of MSE and MAD value each model are the good way to know which the best alternative is.

1. Selection of criteria

The best model is the model that has the lowest error. Error formula is actual data minus forecast result. Based on those criteria, we will choose model that have lowest MSE and MAD.

1. Analysis and comparison of the alternative

To simulate this comparison we will use one of the product demand data. Those data consist of 70 periods.

Table 1. Alternatives data

Next step is data calculating forecast prediction using three methods formula (Simple Moving Average, Weighted moving average, and Exponential smoothing).

Equation 1. Simple Moving Average, Weighted moving average, and Exponential smoothing Formula

The Calculation result of three forecasting methods are in table below:

Table 2. Simple Moving Average calculation result

Table 3. Weighted Moving Average calculation result

Table 4. Exponential smoothing calculation result

Table 5. Comparison Result

1. Alternative selection

As can be seen above there is no dominant model in MSE and MAD calculation result. The lowest result value of MSE is Exponential Smoothing model with alpha 0,5 and the lowest result value of MAD is three period Moving Average model.

Based on analysis above there is no the best model of forecasting, but we can conclude the appropriate model of each variances model (lowest error index in same variance). The appropriate model of each variances are list below :

1. 3 period moving average
2. 135 weighted moving average
3. Exponential smoothing with alpha 0.5
1. Performance monitoring & Post Evaluation Result

To get the best result of forecasting we have to find most appropriate model of forecasting. We should check the error index first (MSA and MAD) of our historical data. When you find the lowest error index in some forecast model, it should be the most appropriate model of your data. We should do the step above because every data have different characteristic.

References

1. Harvard Business Review (2017). How to Choose the Right Forecasting Technique. Retrieved from https://hbr.org/1971/07/how-to-choose-the-right-forecasting-technique
2. com (2017). JD Edwards EnterpriseOne Applications Forecast Management Implementation Guide. Retrieved from https://docs.oracle.com/cd/E16582_01/doc.91/e15111/und_forecast_levels_methods.htm#EOAFM00177
3. Data Science Central (2017). Selecting Forecasting Methods in Data Science. Retrieved from https://www.datasciencecentral.com/profiles/blogs/selecting-forecasting-methods-in-data-science

W10_UDS_Replacement Analysis: Keep Old Car or Buy New Car

1. Problem Evaluation

I have a car for my family that usually use for daily activity such as go to the market, family vacation and visiting our relative. This car was bought at 2014 and the type of it is city car. When I have a child this car feels narrow especially when we go out of the town and bring a lot of things. Those reasons make me thing to change it with the new and also the bigger one.

1. Development of feasible alternatives

In this situation there are two feasible options either buy new car or keep my old car.  I will analysis these two options to get the best result. Not only to meet my desire to change with bigger car but also compare the cost.

1. Development the outcome for each alternative

This defender & challenger analysis will use two method approach present worth 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.

1. 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.

1. 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

Next step is data calculating 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

1. Alternative selection

Based on PW and EUAC calculation result Challenger dominating over defender alternative in both PW and EUAC Method. The PW of the challenger is greater (less negative) than PW of defender. And new car has the smaller EUAC (IDR 70,041,887 < IDR 76,986,792). Thus, the old car should be replaced immediately. This evaluation result also Align with my desire to change the car with the bigger one.

1. Performance monitoring & Post Evaluation Result

The evaluation result show the old car should replace immediately because operating cost to maintain this car higher than if we buy the new one. If the asset already passed the economic life, they cost (cash out) should be higher than the new asset. Next blog posting I will try to pick a topic of “determining economic life of the asset” as another alternative to decide defender or challenger.

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

W9_UDS_ Evaluation in Choosing Best Supply Pattern Part 2

1. Problem Evaluation

Kediri is a city in east java; My Company has a Fuel Terminal in this city but was closed on 2009. Kediri consumes fuel almost 4% around east java region. And from the fuel consume forecast it will be growing up 3% each year.

Phenomena appear in Indonesia and Kediri also, which non subsidiary fuel consumption rise significantly and lead in the market. It is very different condition than few years ago. In this unpredictable situation, we need to prepare the facility of non-subsidiary fuel to catch the opportunity.

1. Development of feasible alternatives

There are three alternative Fuel Terminals as supply point to supply Kediri area to catch the opportunity:

• Existing pattern; Surabaya, Malang, and Madiun Fuel Terminal as supply point to supply Kediri area
• Shortcut pattern; Tuban Fuel Terminal as supply point to supply Kediri area. Tuban regularly also supply to Fuel Terminal in Surabaya, Malang, and Madiun
• New pattern; Kediri Fuel Terminal as supply point to supply Kediri area. In this alternative we will reopen the Kediri Fuel Terminal.

Multi Attribute Decision Making Method will use in choosing the best alternative pattern to supply Kediri area not only at economic aspect but also other aspect that influence customer satisfaction such as delivery time, transport loss,  operational flexibility, and etc.

1. Development the outcome for each alternative

In this part (2st part) I will use method that tension not only on economic criteria but also other criteria that is AHP Method.

AHP is multi-objective decision analysis tool first proposes by Saaty. It is designed when either subjective or objective measures are being evaluated in terms of a set of alternatives based upon multiple criteria, organized in hierarchical structure. At the top level, the criteria are evaluated or weighted, and at the bottom level the alternatives are measured against each criterion. The decision maker assesses their evaluation by making pairwise comparisons in which every pair is subjectively or objectively compared. The subjective method involves a 9 point scale that we present later.

The AHP converts these evaluations to numerical values that can be processed and compared over the entire range of the problem. A numerical weight or priority is derived for each element of the hierarchy, allowing diverse and often incommensurable elements to be compared to one another in a rational and consistent way. This capability distinguishes the AHP from other decision making techniques.

1. Selection of criteria

Decision rule of AHP method is grading the alternative based on AHP score. The higher score alternative is better alternative. So in this evaluation I will choose the alternative with highest score. Beside that In pairwise comparison step the most important is consistency ratio which should be 10% or less.

1. Analysis and comparison of the alternative

First we must determine the criteria that can influence customer satisfaction and operational excellent. We determine that criteria using brainstorming technique among our expert to get better result. We got four criteria that are:

• Delivery Time
• Transport Loss
• Operational Flexibility
• Economical Factor

Economical factor contain two method B-C ratio and ERR. This is the advantage of AHP, we can compare not only on economic factor but also other factor that important to us or our customer.

Figure 1. AHP hierarchy in choosing best pattern in supply Kediri area

We also used brainstorming technique when make pairwise comparison for each criteria again alternative and between all criteria.

Table 1. Pairwise comparison for delivery time

Table 2. Pairwise comparison for transport loss

Table 3. Pairwise comparison for operational flexibility

Table 4. Pairwise comparison for economical factor

Table 5. Pairwise comparison for all criteria

Table 6. AHP result

All pairwise comparison in this model has consistency ratio no more than 10%, so all judgment is consistent and appropriate.

1. Alternative selection

New Pattern alternative has biggest weighted score than the other so it preferred to be used.

1. Performance monitoring & Post Evaluation Result

Different form the first part, the second part (AHP method) show new pattern alternative is preferred to be used. In this part we use not only economic but also operational and customer satisfaction, so it is more comprehensive and must be better advise to use.

References

1. Planning Planet. (2017). Multi-Attribute Decision Making. Retrieved from http://www.planningplanet.com/guild/gpccar/managing-change-the-owners-perspective Figures 8-14
2. Sullivan, G. W., Wicks, M. E., & Koelling, C. P.(2014). Engineering economy 16th Edition. Chapter 14 – Decision Making Considering Multiattributes., pp.559-608.
3. Norris, G. A., & Marshall, H. E. (1995). Multiattribute decision analysis method for evaluating buildings and building systems. National Institute of Standards and Technology.
4. Fox, P. William. (2016). Application and Modeling Using Multi-Attribute Decision Making to Rank Terrorist Threats. Journal of Socialomics. 5:2.

W8_UDS_ Evaluation in Choosing Best Supply Pattern Part 1

1. Problem Evaluation

Kediri is a city in east java; My Company has a Fuel Terminal in this city but was closed on 2009. Kediri consumes fuel almost 4% around east java region. And from the fuel consume forecast it will be growing up 3% each year.

Phenomena appear in Indonesia and Kediri also, which non subsidiary fuel consumption rise significantly and lead in the market. It is very different condition than few years ago. In this unpredictable situation, we need to prepare the facility of non-subsidiary fuel to catch the opportunity.

1. Development of feasible alternatives

There are three alternative Fuel Terminals as supply point to supply Kediri area to catch the opportunity:

• Existing pattern; Surabaya, Malang, and Madiun Fuel Terminal as supply point to supply Kediri area
• Shortcut pattern; Tuban Fuel Terminal as supply point to supply Kediri area. Tuban regularly also supply to Fuel Terminal in Surabaya, Malang, and Madiun
• New pattern; Kediri Fuel Terminal as supply point to supply Kediri area. In this alternative we will reopen the Kediri Fuel Terminal.

Multi Attribute Decision Making Method will use in choosing the best alternative pattern to supply Kediri area not only at economic aspect but also other aspect that influence customer satisfaction such as delivery time, transport loss,  operational flexibility, and etc.

1. Development the outcome for each alternative

In this part (1st part) I will use method that different from my Company usually used (NPV, IRR, Payback Period and PI) but tension only on economic criteria that are B-C Ratio and ERR.

B-C Ratio 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. This is the process of quantifying cost and benefit of project over a period time.

External Rate of Return (ERR) is also known as the “Modified Internal Rate of Return”. This method measured not only depends on the cash flow from an investment and also on any assumptions about reinvestment rate.

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).

ERR decision rule: If ERR ≥ MARR, the project is economically justified. So in this evaluation I will eliminate alternative with ERR value less than 10.5% (My Company Hurdle Rate), because it not economically feasible.

1. Analysis and comparison of the alternative

Data of three alternatives that use in B-C ratio calculation are show below:

Table 1. Alternatives data

Figure 1. Profit per year shortcut pattern and new pattern alternatives

Shortcut Pattern and New Pattern have incremental benefit each year because in this alternatives have investment to improve facility to catch increasing demand opportunity. Present Worth of this profit PW (B) is  1,347,925,669,473 IDR.

Calculation result of Conventional and Modified B-C Ratio are in table below:

Table 2. B-C ratio calculation result

There is no B-C Ratio of each alternative that less than 1, so no one will be eliminated. Existing Pattern doesn’t have Modified B-C Ratio (N/A) because this alternative doesn’t have investment cost.

This three alternatives data such as interest, period, investment, benefit and cost to calculate ERR:

Table 3. Alternatives data

Using data in table 3, we get the result of ERR calculation of each alternative:

Table 4. ERR formula and calculation result

Based on ERR calculation table above there is no value less than MARR 10.5% so all alternative economically justified. In existing pattern there is no ERR value because it does not have investment cost so we cannot calculate it.

1. Alternative selection

All method show shortcut pattern alternative dominating over other alternative in both B-C Ratio and ERR Method. This alternative is recommended to be used.

1. Performance monitoring & Post Evaluation Result

Even I already have the chosen alternative base on economic aspect, I will evaluate this project base on other aspect such as operational and customer satisfaction. In next evaluation (2nd part) I will use AHP method to capture more aspect not only economic.

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. Sullivan, G. W., Wicks, M. E., & Koelling, C. P. (2014). Engineering economy 16th Edition. Chapter 5 – Evaluating a Single Project., pp.210-263.
2. Planning Planet. (2017). Benefit Cost Analysis. Retrieved from http://www.planningplanet.com/guild/gpccar/managing-change-the-owners-perspective
3. Mind Tools. (2017). Cost-Benefit Analysis. Retrieved from https://www.mindtools.com/pages/article/newTED_08.htm

W6_UDS_Tuckman Model Comparison between Division and Department Team Member

1. Problem Evaluation

I work at Central Supply & Distribution Division in My Company. This division main responsibility is to distribute fuel all around Indonesia. This division has four departments that are Fuel Product Quality & Quantity, Fuel Terminal Infrastructure, Operation Supply Chain, and Performance & Evaluation.

Figure 1. Organization Structure

This division has a very high mutation frequency, in other words employee only stay for 1 up to 2 years in this division.  Beside mutation frequency, employee educational background variation and employee number also influence team stage. This time, I want to determine leadership skills and styles for My Division and Performance & Evaluation (P&E) Department by knowing the stage of them. Appropriate leadership skills and styles will give us more advantage to achieve our goal, distribute fuel all around Indonesia with operational & service excellent.

1. Development of feasible alternatives

To fine appropriate leadership style there are some theory has been published, but the best one is Tuckman’s model. This model has five stages of team development and behavior that are Forming, Storming, Norming, Performing, and Adjourning. This model also explains how Team develops maturity and ability, relationships establish, and the leader changes leadership style. Beginning with a directing style, moving through coaching, then participating, finishing delegating and almost detached.

Figure 2. Team Development and Behavior Stage

1. Development the outcome for each alternative

To know the current My Division and Department stage, sample employee fill Tuckman scoring template two times, first as a Division team member and the second as a P&E Department team member.

Table 1. Scoring template result as S&D Division team member

Table 2. Scoring template result as P&E Department team member

1. Selection of criteria

Based on the individual’s scoring template result above, PERT analysis was performed to identify team behavior at P90 because most of these team member already join over long time (1-2 years).

1. Analysis and comparison of the alternative

Summary result of the survey data using Delphi technique with P90 as follow:

Table 3. P.90 Delphi technique result for S&D Division Team Member

Table 4. P.90 Delphi technique result P&E Department Team Member

Based on Delphi technique calculation in Table 3 and 4, we can conclude S&D Division team is in Norming stage but in Department team is in Performing (indicated by the rank).

1. Alternative selection

For S&D Division is in norming stage, team members often experience:

• Agreement and consensus largely forms among the team;
• Roles and responsibilities are clear and accepted;
• Big decisions are made by group agreement;
• Smaller decisions may be delegated to individuals or small teams within group.

Hints for Vice President as team leaders:

• Step back and help team members take responsibility for progress towards the goal;
• This is a good time to arrange a team-building event.

Style of leadership this stage is “TEAM BUILDING” mode where some leadership is to make team responsible for reaching the goal.

For P&E Department is in performing stage, team members often experience:

• The team is more strategically aware;
• the team knows clearly why it is doing what it is doing;
• The team has a shared vision and is able to stand on its own feet with no interference or participation from the leader;
• There is a focus on over-achieving goals

Hints for Manager as team leaders:

• Delegate tasks and projects as far as you can;
• Once the team is achieving well, you should aim to have as light a touch as possible;

Style of leadership this stage is “DELEGATING” mode where some leadership is shared by the team.

The differences stage between Division and Department are most influenced by number of team member and frequency of working together (closeness team member). It is important for vice president to more flexible in changing his leadership style when He gives assignment to employee. Because it would be different atmosphere of Employee as Division team member or as Department team member.

1. Performance monitoring & Post Evaluation Result

Tuckman model assessment should conduct periodically to capture team stage changing and give a clue to team leader to select appropriate style of leadership to improve coordination and productivity of the team. The Leader must have strategies to move the team through to the next stage in the team formation process

References

1. (2017). Tuckman Forming Storming Norming Performing Model. Retrieved from http://www.businessballs.com/tuckmanformingstormingnormingperforming.htm
2. (2017). Forming, Storming, Norming, and Performing – Understanding the Stages of Team Formation. Retrieved from http://www.mindtools.com/pages/article/newLDR_86.htm
3. Hendarto, Tommy (2017). W4_TH_Tuckman Survey on Non Process Engineer Team |EMERALD AACE 2017. Retrieved from http://emeraldaace2017.com/2017/08/24/w4_th_tuckman-survey-on-non-process-engineer-team/
4. Michell, Tony (2017). W2_ABM_Folow Up Tuckman|EMERALD AACE 2017. Retrieved from http://emeraldaace2017.com/2017/08/08/w2_abm_follow-up-tuckman-survey-on-spj-offshore-construction-team/
5. Saputra, Dhanu (2017). W1_Dhanu_Tuckman Analysis Assessment |EMERALD AACE 2017. Retrieved from http://emeraldaace2017.com/2017/08/01/w1_dhanu_tuckman-analysis-assessment/

W5.1_UDS_ Education Insurance Or Saving Or Other

1. Problem Evaluation

I have two years old daughter, I want her to be a doctor. To become a good doctor she should study in the best university and it must be expensive. From Now I need to choose strategy to collect more money for her education especially in university.

1. Development of feasible alternatives

There are some common alternatives to collect more money and you can still doing your job such as:

• Investing in property
• Investing in stock market
• Education Insurance
• Saving

In the first three alternatives need more initial investment/cash, so it would be hard for me. But I still analyze and compare all of the alternatives to get more option.

1. Development the outcome for each alternative

To choose the best alternative I will use Interest Rate of Return (IRR) Method and External Rate of Return (ERR) to compare all the alternatives. I still use IRR Method because it more common economical parameter and usually use in my company. ERR Method is the new one and has two basic advantages over IRR:

• It usually be solved for directly, without needing to resort to trial and error
• It is not subject to the possibility of multiple rates of return.
1. Selection of criteria

Decision rule of IRR and ERR method is Alternative will be feasible if IRR and ERR value greater than MARR 4.93% (in Indonesia we usually use BI Rate). So in this evaluation I will eliminate alternative with IRR and ERR value less than BI Rate, because it not economically feasible.

1. Analysis and comparison of the alternative

This calculation using data as below (Data of Purchasing Gold, Investing in Property, and Investing in Stock Market using colleague’s experience):

Table 1. Alternatives Data

Figure 1. Formula

Each IRR and ERR of alternatives table comparison are show below:

Table 2. IRR Calculation

Table 3. ERR Calculation

IRR and ERR of alternative purchasing gold is less than MARR, so this alternative can be eliminated.

1. Alternative selection

Base on calculation alternative investing in Property is preferred to choose because it gives the highest value in IRR and ERR Method. It would give me more option to choose the best university of my daughter.

1. Performance monitoring & Post Evaluation Result

All the alternatives have some risk and also assumptions change so I must to identify and mitigate them, but I still believe in quote “High risk high return”.

References

1. Sullivan, G. W., Wicks, M. E., & Koelling, C. P. (2014). Engineering economy 16th Edition. Chapter 5 – Evaluating a Single Project., pp.210-263.
2. Mind Tools. (2017). Net Present Value (NPV) and Internal Rate of Return (IRR). Retrieved from https://www.mindtools.com/pages/article/newTED_74.htm
3. Axa Mandiri. (2017). Asuransi Mandiri Sejahtera Cerdas. Retrieved from https://www.axa-mandiri.co.id/produk/asuransi-pendidikan/
4. Bank of Indonesia. (2017). BI 7-day (Reverse) Repo Rate. Retrieved from  http://www.bi.go.id/en/moneter/bi-7day-RR/data/Contents/Default.aspx

W5_UDS_ Education Insurance Or Saving

1. Problem Evaluation

I have two years old daughter, I want her to be a doctor. To become a good doctor she should study in the best university and it must be expensive. From Now I need to choose strategy to collect more money for her education especially in university.

1. Development of feasible alternatives

There are three alternative to collect more money for her study:

• Saving
• Education Insurance A (EI-A)
• Education Insurance B (EI-B)
1. Development the outcome for each alternative

To choose the best alternative I will use Interest Rate of Return (IRR) Method for compares two Education Insurance Alternatives. After that I will compare the selected Education Insurance with saving alternative using Net Present Value (NPV) Method. IRR Method is very use full and fair in comparing two alternative that have different condition such as period, premium, and benefit. NPV Method I use to compare value of money each alternative in present years.

1. Selection of criteria

The Rule of thumb in IRR method is Alternative will be feasible if IRR value greater than bank interest (in Indonesia we usually use BI Rate). So in this evaluation I will eliminate alternative with IRR value less than BI Rate, because it not economically feasible.

1. Analysis and comparison of the alternative

This calculation using data as below:

• Interest rate (i) 4.93% (BI 7-Day Rate)
• EI-A Period (n) 15 years
• EI-B Period (n) 21 years
• Annual insurance EI-A IDR 12,500,000
• Annual insurance EI-B IDR 17,368,500
• Benefit EI-A in 15th years IDR 465,400,000
• Benefit EI-B
• In 13th years IDR 75,000,000
• In 16th years IDR 150,000,000
• In 21st years IDR 75,000,000

Each IRR and PV of alternatives table comparison are show below:

Tabel 1. IRR Calculation

Tabel 2. PV Calculation

IRR of Education Insurance B is less than Bank interest, so this alternative can be eliminated.

1. Alternative selection

Base on PV calculation Education Insurance A is preferred to choose because it gives the highest value of PV and it would give me more option to choose the best university of my daughter.

1. Performance monitoring & Post Evaluation Result

The alternatives especially education insurance has a term and condition in some situation and assumption, so we need to look more detail and extra analysis to acquire a better conclusion.

References

1. Sullivan, G. W., Wicks, M. E., & Koelling, C. P. (2014). Engineering economy 16th Edition. Chapter 5 – Evaluating a Single Project., pp.210-263.
2. Mind Tools. (2017). Net Present Value (NPV) and Internal Rate of Return (IRR). Retrieved from https://www.mindtools.com/pages/article/newTED_74.htm
3. Axa Mandiri. (2017). Asuransi Mandiri Sejahtera Cerdas. Retrieved from https://www.axa-mandiri.co.id/produk/asuransi-pendidikan/
4. Panin Dai-ichi Life. (2017). Asuransi Pendidikan. Retrieved from https://www.panindai-ichilife.co.id/id/asuransi-pendidikan
5. Bank of Indonesia. (2017). BI 7-day (Reverse) Repo Rate. Retrieved from http://www.bi.go.id/en/moneter/bi-7day-RR/data/Contents/Default.aspx