W17_TH_LNG ISOTank Feasibility Study: Best Depreciation Method

1. Problem Evaluation

Continue LNG ISOTank 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 LNG ISOTank operational cash flow.

2. Development of Feasible Alternatives

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

  • Straight Line Method
  • Declining Balance Method
  • Declining with switchover to Straight Line Method
  • 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 LNG ISOTank 20 feet data. Those data is in table below.

Table 1. LNG ISOTank 20 feet 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 reaches 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(14) Comparison

 

Figure 1. BV Comparison for Selected Methods of Depreciation

6. Alternative Selection

As can be seen above DB Method Switchover to SL Method have the largest PW(14) than other. We can conclude DB Method Switchover to SL 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. (2014). Engineering Economy 16th Chapter 7 – Depreciation and Income Tax, pp. 332-391
  2. Utomo, Dhanu. (2017). W14_UDS_Fuel Tank Truck Feasibility |EMERALD AACE 2017. Retrieved from: http://emeraldaace2017.com/2017/11/21/w14_uds_fuel-tank-truck-feasibility-study-part-2-best-depreciation-method/
  3. Planning Planet. (2017). Acquiring Equipment for The Project. Retrieved from http://www.planningplanet.com/guild/gpccar/acquiring-equipment-for-the-project
  4. Accounting-Simplified.com (2017). Depreciation Methods. Retrieved from http://accounting-simplified.com/financial/fixed-assets/depreciation-methods/types.html
 

W16_TH_Cost Analysis of Critical Spare CNG Compressor on Gas Station Project

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 16th 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/
 

W15_TH_Investing vs Renting vs Leasing Studies for Gas Transport Module (GTM)

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 16th 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
 

W14_TH_Analyzing Cost-Only Alternative Using Equivalent Worth for CNG Compressor with Electric Motor Prime Mover

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 16th 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
 

W13_TH_Selection LNG ISOtank Using Present Worth Method

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
 

W12_TH_Contract Risk Mitigation for Tug Boat Rental

1. Problem Definition

Author has been conducting bidding for tug boat rental as part of LNG supply chain to PLN power plant on Kupang area. Duration for the contract is one year period, start from January-December 2018. This contract is very vulnerable to weather conditions because if the weather is bad then the tug boat could not be used. So that, during negotiation meeting, the prospective winner bidder proposed 2 options for its offer. First option is IDR 7,800,000,000 without condition; or second option is IDR 7,500,000,000 + IDR 22,000,000/day stand by rate if tug boat could not be used due to a bad weather.

2. Identify the Possible Alternative

Facing to this case, we have to decide which proposal option is accepted, IDR 7,800,000,000 without condition (option 1); or IDR 7,500,000,000 + IDR 22,000,000/day stand by rate (option 2).

3. Development of The Outcome for Alternative

It is clearly that if we accept first option, then contract price will be IDR 7,800,000,000.

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. Occurrences of Bad Weather (In Days)

By using Monte Carlo simulation, it is forecasted the total bad weather days for each month in 2018, at P70 as follows:

Table 2. Occurrences of Bad Weather in 2018

Therefore, stand by cost is estimated as 20 days * IDR 22,000,000 = IDR 440,000,000,

so that the price for second option is IDR 7,500,000,000 + IDR 440,000,000 = IDR 7,940,000,000.

4. Selection 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 8,000,000,000.

5. Analysis & Comparison of Alternative

Below table contains total cost for both options:

Table 3. Total Cost for Both Options

From the table 3, option 1 is cheaper IDR 140,000,000 than option 2

6. Selection of the Preferred Alternative

Based on comparison table above, we decided to proceed with option 1, IDR 7,800,000,000

7. 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, G. W. (2014). Engineering Economy 16th Chapter 12 – Probabilistic Risk Analysis, pp. 526-562. Pearson. Sixteenth Edition.
  2. Monte Carlo Simulation. Retrieved from http://www.palisade.com/risk/monte_carlo_simulation.asp
  3. Asro, Yoseph. (2014). W4_YAW_Contract Risk Mitigation|Kristal AACE 2018. Retrieved from https://kristalaace2014.wordpress.com/2014/03/17/w4_yaw_contract-risk-mitigation/
  4. Fakhri, Muhammad. (2017). W4_MFO_Contract Risk Mitigation|Emerald AACE 2018. Retrieved from http://emeraldaace2017.com/2017/08/22/w4_mfo_contract-risk-mitigation-for-topographic-survey/
  5. Weather data. Retrieved from http://dataonline.bmkg.go.id/home
 

W11_TH_Pareto Priority Index for Gas Station Project

1. Problem Definition

Author’s company has cost reduction campaign on gas station project. Author will define the alternatives for project cost reduction and specify the priority of project that will be execute.

2. Identify the Possible Alternative

Feasible alternatives project to cost reduction are:

  • Electrical Equipment
  • Civil Specification
  • Instrument Equipment
 3. Development of The Outcome for Alternative

Generate estimate cost, estimate saving and probability of success.

 

  • Electrical Equipment

Value engineering evaluation: using compressor with smaller power consumption, using trafo 400/220 V, using UPS only on critical equipment and improvement on lighting specification.

Cost to implement = 120 M IDR

Cost saving = 4,500 M IDR

Probability to success = 0.7

Time to completion = 0.5 year

 

  • Civil Specification

Value engineering evaluation: backfilling specification adjusted by civil site survey

Cost to implement = 30 M IDR

Cost saving = 1,600 M IDR

Probability to success = 0.8

Time to completion = 0.25 year

 

  • Instrument Equipment

Value engineering evaluation: CCTV re-position by hazardous area classification, minimize the use of gas detector, minimize the use of control valve (no redundancy)

Cost to implement = 10 M IDR

Cost saving = 170 M IDR

Probability to success = 0.9

Time to completion = 0.25 year

 

Calculate Pareto Priority Index (PPI), Equation that will be use is as follow

Table 1: PPI Calculation Result

4. Selection Criteria

Cost reducing project that have biggest PPI will be selected

5. Analysis & Comparison of Alternative

Civil Specification has the biggest PPI value among other, according table 2 the project ranking as follow:

Table 2: Project Priority

6. Selection of the Preferred Alternative

Based on above analysis, Civil Specification project is selected due to has biggest PPI (102.40)

 7. Performance Monitoring and The Post Evaluation of Result

To select project more accurately, if it is available historical information can be use to estimate standard times and resources. Whenever update data is available, calculation should be re-run to validate selection.

 

References

  1. Six sigma daily (2014). The Six Sigma Approach to Project Selection. Retrieved from: http://www.sixsigmadaily.com/implementation/the-six-sigma-approach-to-project-selection
  2. Selecting Projects where Six-Sigma can add value (2014). Retrieved from: http://unpan1.un.org/intradoc/groups/public/documents/arado/unpan020936.pdf
  3. Laksono, Andhy. (2014). W13_AL_Pareto Priority Index|Kristal AACE 2014. Retrieved from https://kristalaace2014.wordpress.com/2014/05/21/w13_al_pareto-priority-index/
  4. Adhi, Oktafianto. (2017). W13_OAN_ Pareto Priority Index|Emerald AACE 2018. Retrieved from http://emeraldaace2017.com/2017/11/05/w13_oan_pareto-priority-index/
 

W10_TH_ Price Forecasts for Electric Motor CNG Compressor at Gas Station Project

1. Problem Definition

After using Power Sizing Model and Index Value to estimate the indicative price for 0.5 MMSCFD electric motor CNG compressor on Blog Week 8, this week author will use price forecast method to predict the price within next 5 years. This forecasting still using budgetary quotation data from three different compressors manufactures at 2015. MS Excel will be choosing as tool to help the author.

2. Identify the Possible Alternative

Using last week indicative price, then capex value for 0.5 MMSCFD electric motor CNG compressor, as follow:

Figure 1. CEPCI Annual Index

 

Table 1. CEPCI Index Value Result to 3 Quotation

Table 2. Indicative Price 2015-2017 use P50

From the table above, author will analyze price forecasts for next 5 years use:

  1. MS Excel “Best Fit” Linear Regression Analysis Curve
  2. MS Excel “Best Fit” Polynomial Regression Analysis Curve
  3. MS Excel “Best Fit” Logarithmic Regression Analysis Curve

3. Development of The Outcome for Alternative

These are the following an initial data plotting in determining price forecast:

Figure 2. Input Data

Using these input data (indicative price 2015-2017) and MS Excel “Best Fit” Linear Regression Analysis Curve, then trendline and trending them out to 5 years provide in picture (2) below. While the trendline use R2 = 0.9482.

Figure 3. Linear Trendline

Then still using data input in 2015-2017, now MS Excel “Best Fit” Polynomial Regression Analysis Curve with R2 = 1 will be used in the second analysis. The result of the polynominal regression analysis can be seen in the picture (3) below.

Figure 4. Polynominal Trendline

The latest, on the third data input in 2015-2017 analysis will use MS Excel “Best Fit” Logarithmic Regression Analysis Curve with R2 = 0.9483. The result of the logarithmic regression analysis can be seen in the picture (4) below.

Figure 5. Logarithmic Trendline

With the purpose to make it simple to see the results of the analysis, then bellow will be displayed plotting all three trendline in one chart.

Figure 6. All Trendline (Linear, Polynominal, Logarithmic)

4. Selection Criteria

Further, value of all treadline for the fifth year, which is 2022, will be used, ranked and analyzed using PERT calculation. As for the smallest value represents “best case”, middle value represents “most likely” and the highest value represents “worst case”.

5. Analysis & Comparison of Alternative

The following is data to be used for PERT calculation

Table 3. Trendline Forecasts of 0.5 MMSCFD electric motor CNG compressor

From the table above, we can see

  1. Best case (optimistic) = $ 280
  2. Most Likely case = $ 285
  3. Worst case (pessimistic) = $ 372

Using PERT calculation, then the Mean, Sd, and variance:

Step 1 – PERT weighted Mean

= ((Optimistic)+(4 x Most Likely)+(pessimistic))/6

= $ ((280) + (4 x 285) + (372))/6

= $ 1792/6

= $ 298.67

Step 2 – Standard Deviation

= (Largest Value – Smallest Value)/6

= $ (372 – 280)/6

= $ 92/6

= $ 15.33

Step 3 – Variance

= Sigma/Standard Deviation^2

= $ 15.33^2

= $ 235.1

The following picture (6) below shows normal distribution curve:

Figure 7. Normal Distribution Curve

From the step 3, there is big variance means that the risk was big, so need high contingency to cover the risk. Hence, P(75) will be considered to being calculate for the indicative price.

Figure 8. P(75) Distribution Curve

The following above is P(75) cost estimate 0.5 MMSCFD electric motor CNG compressor in 2022 with value $ 310.93.

6. Selection of the Preferred Alternative

This blog displays one of method in determining price forecast, on next week blog another price forecast method will be applied. So in the last price forecast series, the best and optimum forecast method will be chosen to be applied in part of financial economic model for 0.5 MMSCFD electric motor CNG compressor.

7. Performance Monitoring and The Post Evaluation of Result

Forecasting method very dependent on the amount of data used, so it will be better and optimal if forecasting calculations using updated and valid data. Therefore project character are dynamic and unique, preferably input data for price forecast is updated periodically as a continual process of checking, reviewing and monitoring.

 

References:

  1. Planning Planet (2017). Creating The Owners Cost Estimate (Top Down). Retrieved from http://www.planningplanet.com/guild/gpccar/creating-the-owners-cost-estimate
  2. Sullivan, G. W. (2014). Engineering Economy 16th Chapter 3 – Cost-Estimation Techique, pp. 113-121
  3. Irene, Audray. (2017). W6_AI_Price Forecasts for Offshore|Emerald AACE 2018. Retrieved from http://emeraldaace2017.com/2017/09/10/w6_ai_price-forecasts-for-offshore-regasification-facility-project/
 

W9_TH_Present Economy Study for Selecting CNG Compressor with Electric Motor Prime Mover

1. Problem Definition

New gas station will be built on 2018, author need to compare the three brands of CNG compressor using present economy study. Which CNG compressor with electric motor prime mover has the most efficient cost?

2. Identify the Possible Alternative

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

Table 1. The CNG Compressor Data

The CNG compressor will be operated 10 hours per day or 3,650 hours per year. 5 hours on PLN peak hours (waktu beban puncak/WBP) and 5 hours on not PLN peak hours (luar waktu beban puncak/LWBP). Peak hours and not peak hours have different electricity cost.

3. Development Of the Outcome For Alternative

Before calculate the electricity cost expense of the CNG compressor, we must know the electric power costs per kWh. From the PLN website the electric power costs per kWh for B-3 group is 1,035.78 IDR for not peak hours (LWBP) and K x 1,035.78 IDR for peak hours (WBP) as shown as table below. We assume that PLN use maximum K value which mean 2.

Table 2. The Electric Power Costs per kWh

The electricity cost expense for the Brand A CNG compressor is

((75 kW / 0.85)*(1,035.78 IDR /kWh)*(1,825 hours / year)) + ((75 kW / 0.85)*(1,035.78 IDR/kWh*2)*(1,825 hours / year)) = 361,519,588 IDR

The electricity cost expense for the Brand B CNG compressor is

((90 kW / 0.80)*(1,035.78 IDR /kWh)*(1,825 hours / year)) + ((90 kW / 0.80)*(1,035.78 IDR/kWh*2)*(1,825 hours / year)) = 408,304,476 IDR

The electricity cost expense for the Brand C CNG compressor is

((85 kW / 0.72)*(1,035.78 IDR /kWh)*(1,825 hours / year)) + ((85 kW / 0.72)*(1,035.78 IDR/kWh*2)*(1,825 hours / year)) = 347,058,805 IDR

4. Selection of criteria

CNG compressor selection criteria is CNG compressor that have the most efficient total cost of owning and operating

5. Analysis and Comparison of Alternatives

The total cost of owning and operating the all CNG compressors as shown as table below.

Table 3. The total cost of owning and operating the all CNG compressors

From the table 3, Brand B have the most efficient total cost of owning and operating.

6. Select of the preferred alternative

Base from above calculation, Brand B have the most efficient total cost of owning and operating. So, author will recommend the brand B for the gas station project.

7. Performance Monitoring and 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 16th Chapter 2 – Present Economy Studies, pp. 67-73
  2. Fakhri, Muhammad. (2017). W11_MFO_Present Economy Studies|Emerald AACE 2018. Retrieved from http://emeraldaace2017.com/2017/10/27/w11_mfo_present-economy-study-for-selecting-fire-water-pump/
  3. Tarif Dasar Listrik PLN Juli-September 2017. Retrieved from http://listrik.org/pln/tarif-dasar-listrik-pln/
 

W8_TH_ Index and Power Sizing Technique for CNG Compressor Cost Estimating

1. Problem Definition

Electric Motor has been choosing as a prime mover type for gas station project on Blog Week 3. In 2017, company will build new gas station project with capacity is 0.5 MMSCFD. Company has budgetary quotation data from three different compressor manufactures at 2015. Since the company will be using the price for calculate conceptual economic model, then the optimum price for 0.5 MMSCFD electric motor CNG compressor must be develop.

2. Develop the Feasible Alternative

There are budgetary quotation price from three different compressor manufactures, as follow:

Table 1. Budgetary Quotation Price

3. Develop of the Outcome for Alternative

Author will use formula of power sizing technique (correlation between price and capacity) and index to get cost estimation for 0.5 MMSCFD electric motor CNG compressor in 2017 project.

Fig 1. Power Sizing Model Formula

For index, author will use Chemical Engineering Plant Cost Index (CEPCI) because CEPCI is one of best bench-marking index since introduction in 1963.

Fig 2. Index Formula

Fig 3. CEPCI Index

4. Selection Criteria

Author will use P50 at PERT analysis to determine optimum price for 0.5 MMSCFD electric motor CNG compressor.

5. Analysis & Comparison of Alternative

Based on data and formulation above, here is the analysis and calculation for correlation exponent result:

Table 2. Correlation Exponent

Using correlation exponent (m), sizing model analysis for 0.5 MMSCFD for each budgetary quotation could be calculated as follow:

Table 3. Estimate Cost 0.5 MMSCFD CNG Compressor

The calculation above show still using 2015 database and to get reflection new cost 2017 the data shall be adjusted by CEPCI index value at March 2017 (Figure 3).

Table 4. CEPCI Index Value Result

6. Selection of the Preferred Alternatives

Author use PERT analysis on P50 to determine optimum price, the result as follow:

Table 5. P50 PERT Analysis Result

Based on analysis above, price for 0.5 MMSCFD CNG compressor with electric motor prime mover is $ 313,970.

7. Performance Monitoring and The Post Evaluation Result

Power Sizing Model and Index Value above is a good formula to estimate the indicative price for conceptual economic calculation. It can be using of any kind project, such as oil & gas, automotive, power plant, etc.

References:

  1. Planning Planet (2017). Creating The Owners Cost Estimate (Top Down). Retrieved from http://www.planningplanet.com/guild/gpccar/creating-the-owners-cost-estimate
  2. Sullivan, G. W. (2014). Engineering Economy 16th Chapter 3 – Cost-Estimation Techniques, pp. 99-110
  3. Irene, Audray. (2017). W5_AI_Power Sizing Model|Emerald AACE 2018. Retrieved from http://emeraldaace2017.com/2017/09/03/power-sizing-model-and-index-value-for-offshore-regasification-facility-project-cost-estimating/
  4. CEPCI June 2017 (2017), CEPCI June 2017. Retrieved from https://www.scribd.com/document/352561651/CEPCI-June-2017-Issue