Month: October 2017

1. Problem Definition

In our project, we have plan to install electric fire water pump for the gas plant. We have received a complete offer with the specifications of the three brands of pumps. So in this blog, the author wants to try to compare the three brands of pumps using present economy study. Which pump has the most efficient cost?

2. Identify the Possible Alternative

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

Table 1. The pumps data

The pump will be operated 2,000 hours per year and 1 hp = 0.746 kW.

3. Development Of the Outcome For Alternative

Before calculate the expense of the pumps, we must know the electric power costs per kWh. From the PLN website the electric power costs per kWh is Rp 1,467.28 as shown as table below.

Table 2. The electric power costs per kWh

The expense of electric power for the Brand A Pump is

(50 hp / 0.58)*(0.746 kW / hp)*(Rp 1,467.28/kWh)*(2,000 hours / year) = Rp 188,722,566

The expense of electric power for the Brand B Pump is

(50 hp / 0.65)*(0.746 kW / hp)*(Rp 1,467.28/kWh)*(2,000 hours / year) = Rp 168,398,597

The expense of electric power for the Brand C Pump is

(50 hp / 0.72)*(0.746 kW / hp)*(Rp 1,467.28/kWh)*(2,000 hours / year) = Rp 152,026,511

4. Selection of criteria.

Pump selection criteria is pump 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 pumps as shown as table below.

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

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 plant.

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, W.G., Wicks, E. M., Koelling, C. P. (2014). Engineering Economy. Pearson. Sixteenth Edition.
2. Tarif Dasar Listrik PLN Oktober 2017. Retrieved from http://listrik.org/pln/tarif-dasar-listrik-pln/
3. Electric fire water pump specification & quotation Brand A
4. Electric fire water pump specification & quotation Brand B
5. Electric fire water pump specification & quotation Brand C

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

 

2. 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

 

3. 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.

4. 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. 

5. 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

6. 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
   

7. 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

Problem Definition

Emerald Group AACE 2017 is now facing serious issues with cost overruns and schedule delays when compared to original baseline.

Based on week 12 report, the group has recorded the following key progress indicators;

The programme is now critically delayed with only 39.8% complete despite 58.9% of total schedule time lapsed. SPI and BEI and figures further support this at status. This data translates to a 5 week delay on the completion of all deliverables unless action is taken to recover.

Key deliverables which are now considered as critical are summarised in below table;

In addition to the poor SPI and CPI figures, BEI metrics which compare planned and actually completed tasks indicate serious delay to the commencement of cheat sheet and problem solving projects. This delayed commencement is likely to be the result of delayed completion to 2500 word papers as well as time sunk in rectifying weekly reporting.

Based on the above, and the groups assessment of a 5 week programme delay, this represents a difference greater than 10% of the overall duration and CFH has now requested that the works be rescheduled indicate how the balance works are to be completed by the contract date.

In developing a recovery programme, the group can utilise 2 different methods. this blog will look at each method and decide which is most suitable for the recovery schedule.

Feasible Alternatives

There are 2 methods to create a new baseline or recovery schedule when using EVM. These include;

Option 1:Leave ACWP and BCWP to date unchanged. Change BCWS(early) and BCWS(Late) date curves showing the impact of changes against revised dates.

Option 2:Set BCWS (early) and BCWS(late) dates to ACWP date. Reschedule remaining works to original dates or revised dates

Development of the Alternatives

When considering Option 1, the method would generally rely on a specific event or change order to be agreed with CFH. This event(s) would provide the basis for amending the original baseline and may reflect omission or additional scope, acceleration efforts, etc.

Option 2, primarily focuses upon the remaining works from the date of rebaselining and the way in which it will be executed.

At this stage, there has been no agreement to revise completion dates. As such all deliverables must be completed by week 24 (**Jan 2018) implying that BCWS (early & late) curves to target 100% completion by the original dates.

Selection Criteria

The following criteria must be satisfied;

• Planned progress is realigned with actual progress to date to eliminate current reporting delay
• Allows for accurate tracking and monitoring of remaining works and costs to compete all deliverables by week 26

Comparison of the alternatives

Option 1 is only really suited to situations where there has been a series of changes in scope or definable events that have caused the BCWS to change i.e. variations

The delay and cost overrun observed within Emerald Team programme is a result of delayed execution of the activities by the group members,  including inefficient use of time and resources such that activities have not been completed within the planned durations and budgets. Initial estimates for time and cost may have also been insufficient leading to overspend and schedule delays.

They are not the result of scope changes.

Option 2 however requires lowering /realignment of the BCWS to meet the actual ACWP allowing for the return of the group’s reporting status to a neutral position.

The future BCWS curves would then be rescheduled by the team members to support stipulated completion dates

Selection of Alternatives

Option 2 appears to satisfy all criteria and will allow for the immediate elimination of perceived delay within the works as well as focusing upon the rescheduling of works to achieve original completion dates. Option 1 is not considered suitable in this instance.

Performance Monitoring

Group Members when preparing their recovery schedules should complete the following tasks

1. Revise BCWS figures from week 13 onwards such that BCWS (early and late) are equal to ACWP
2. Retain original completion dates as per CFH and re estimate time and cost budgets (BCWS) from week 13 onwards.
3. Include both a early and late curve
4. Assess and consider remaining work scope compared to remaining time and evaluate potential for scope reductions to support achievement of project objectives
5. Review duration estimates previously used and update where observed to be incorrect
6. Assess ability to increase working hours and potential to reduce vacation time previously planned.

References

1. 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

2. Humphreys, G.C 2011 Project Management Using Earned Value Humphreys associates, Management Consultants. Second Edition, pp 599-610

3. GAO (December 2015). GAO Schedule Assessment Guide, Best Practices for Project Schedules pages 135-145.
Retrieved from http://www.gao.gov/new.items/d093sp.pdf

 

1. Problem Definition

This Week objective is to select optimum WBS that could facilitate the future Fuel Terminal Development Project.

2. Development of Feasible Alternatives

There are 4 WBS that being considered :

A. Current WBS

Built on non-standard WBS that potentially will have a problem during the execution.

B. OmniClass

OmniClass is use faceted classification. Each table can be used separately or combined with other tables to construct a more complex subject.

Figure 1:OmniClass Tables

These 15 tables  can be simplified to the 4 main dimensions.

Figure 2:OmniClass tables–Grouping within family

C. Norsok Z-014

The system comprises of:

C.1. PBS (physical breakdown structure)

Hierarchical structure which defines the physical/functional components.

C.2. SAB (standard activity breakdown)

Defines all resources necessary for the planning and execution.

C.3. COR (code of resources)

Identifies the individual records/items/lines/components/elements of estimates.

Figure 3:Illustration of NORSOK Standard Z-014

D. 3D WBS

Jean-Yves Moine concept of 3D Work Breakdown Structure (3D WBS) with 3 tree structures that compose the WBS:

D.1. ZBS (Zone Breakdown Structure).

In EPC project, ZBS is  for the design and the commissioning phases. For construction phase, ZBS is geographical area.

D.2. PBS (Product Breakdown Structure).

Generally, PBS is equipment, material, deliverables, civil works components.

D.3. ABS (Activity Breakdown Structure)

Activities are deployed on products. It is the processes that build products.

Figure 4:Illustration of 3D WBS

3. Possible Solution

There are three (3) criteria that have been selected as parameters to analyze and compare the above alternatives:

• Level of details of Offshore facilities, this will explain how detail each alternative in facilitating Offshore facilities requirement
• Complexity, how complex the structures will be
• Work flow of activities, is how the activities work together from the project scope development to the final design.

Lexicography, one of non-compensatory models for multi attributes decision making technique.

4. Selection Criteria

Each WBS comparison of the attributes is expressed below:

Table 1 : Summary Information of Engineering Design Stage WBS

Rank in order of importance as shown on table 2.

Table 2:Ordinal Ranking of Attributes

5. Analysis and Comparison of the Alternatives

Based on table 2, the ranking is found to be:

WBS Level of details > Complexity > Future optimization > Work flow of activities

Table 3:Ordinal Ranking of Attributes

Note:

(a) Rank of 3 = Most Important, Rank of 0 = Least Important

(b) Selection is based on the highest ranked attribute

6. Selection and Preferred Alternatives

Considering the above ranking, the Omni Class Table 21  is typically the solution for the Fuel Terminal Project, current WBS need to be adjusted to accommodate the standard.

7. Performance Monitoring and the Post Evaluation of Result

Periodically, consistency of utilizing designed WBS need to be review. When further goal is gain the standardization and optimization, then by refer to the second highest rank combination between 3D WBS will give a greater advantage for the Fuel Terminal Project.

Refrences

1. Planning Planet (2017). Creating Work Breakdown Structure. Retrieved from http://www.planningplanet.com/guild/gpccar/creating-work-breakdown-structure
2. OmniClass (2017), OmniClass Table 21 – Elements (includes design elements). Retrieved from omniclass.org/tables/OmniClass_21_2012-05-16.zip
3. Norsok Standard Z-014 (2017), Norsok Standard Z-014. Retrieved from http://www.standard.no/pagefiles/951/z-014.pdf
4. Moine, J. Y. (2013). Retrieved from http://pmworldlibrary.net/wp-content/uploads/2013/04/pmwj9-apr2013-Moine-3D-Work-Breakdown-Structure-FeaturedPaper.pdf
5. W4_RD_WBS Selection
   Retrieved from https://garudaaace2015.wordpress.com/2015/03/23/w4_rd_wbs-selection/

Problem Definition

Wife requires new vehicle to travel to and from work.

She is required to travel between Singapore and Malaysia daily. There is a large difference in price between Singapore vehicles and Malaysian vehicles  however Malaysian cars are imposed a high entry tax by Singapore government meaning higher daily running costs

Leasing or rental of a vehicle offers certain convenience however monthly cost is also high. At the moment, she lease’s (rent) a Singapore registered vehicle to avoid paying high daily entry (VEP) taxes.

A comparison of cost is now required between leasing and buying a vehicle to determine if purchasing a vehicle is more economical from both a short and long term perspective.

Purchase options 4 alternatives with each containing its own advantages and disadvantages i.e high purchase prices for Singapore registered cars but low finance and high resale value compared to Malaysian vehicles which have low purchase prices but higher finance rates and running costs as well as lower resale values.

This blog will determine whether purchasing a vehicle is better financially than leasing based on a 5 year period. If will also consider which purchase option is best.

Feasible Alternatives

The following alternatives will be considered

1. Leasing of Singapore registered Vehicle
2. Leasing of Malaysian registered Vehicle
3. Purchasing New Malaysian registered vehicle
4. Purchasing Used Malaysian  registered Vehicle
5. Purchasing New Singapore registered Vehicle
6. Purchasing Used Singapore registered Vehicle

Development of the Alternatives

Figures and valuations will be based on the same (or equivalent) vehicle type and all values will be assessed using Ringgit as the currency.

A time frame of 5 years will be used to assess the alternatives with partial financing. Minimum Deposit requirements, loan terms and interest rates all vary between Singapore and Malaysia.

Refer to the Following table which outlines the vehicle values, finance terms, etc

An MARR of 6% will be used in the assessment of each option as this represents an equivalent interest rate for alternative investments or loan rates where funds could be otherwise be used to reduce ongoing interest charges.

Leasing options do not carrying any operating costs associated with insurance, road tax,etc and obviously carry no resale or residual value at the end of hire

Purchase options for new and used Malaysian registered vehicles are based on a higher minimum deposit percentage as well as a finance on balance. Term of loan for Foreigners is limited to 1 year meaning that the rate of repayment is very high. Resale / residual values are based on current MV for v ehicles on similar age

Purchase options for Singapore vehicle

Selection Criteria 

Final Selection of the preferred alternative will be based on the following

1. Lowest overall cost considering all factors such as annual operating costs, financing as expected resale or salvage values expected at the end of the study period. This will be expressed as a present worth with costs considered as negative cash outflows. Thus the PW value which is highest or least negative will be regarded as most preferred.
2. Equivalent Uniform Annual Cost (EUAC). We will also consider the EUAC which reflects

Comparison of Alternatives 

The Present Worth of each option is as follows

From the table, Option 5 has the highest present worth. This is surprising given the value of the car is almost 4 times the price of the same vehicle in Malaysia

As can be seen in the above table, whilst depreciation rates are higher, the MV after 5 years is significantly higher than Malaysian vehicles and do not suffer the same level of annual cost when considering government imposed taxes on foreign vehicles

The EUAC of each option is as follows

Again, option 5 provides the minimum (lowest) uniform annual cost over nominated economic life span. Again, this appears to be influenced be the following factors

1. Lower interest rates and longer loan terms
2. High resale values available at the end of the period
3. Capital recovery is actually lower for Singapore cars due to lower deposit requirements i.e. RM89k v RM145k for new vehicle capital investment in year 1. This means that less upfront capital is required in the first 1 year. values not considered excessively more despite the value of the vehicle being multiples more than local equivalent.

Selection of Alternative 

From the above, Option 5 (Purchase New Singapore vehicle) has satisfied both selection criteria with highest Present Worth and Lowest EUAC confirming that purchasing a new car from Singapore will result in the least overall cost overall as well as an annual basis.

This result has been surprising and was not expected!!!

Current practice of renting a vehicle needs to stopped as soon as possible.

Performance Monitoring 

Before finalising the selection, the following factors must be further researched;

1. Resale value of Singapore vehicles
2. Available Singapore interest rates
3. Currency fluctuations
4. Maintenance costs

Using Option 5 as the preferred option, the Economic life of the vehicle should be established. In the above example, 5 years may actually be past the maximum time for retention of the asset.

References

1. Sullivan, G. W., Wicks, M. E., & Koelling, C. P.(2014). Engineering economy 16th Edition. Chapter 4 – The Time Value of Money, pp.427-466. Prentice Hall.
2. W10_UDS_Replacement Analysis: Keep Old Car or Buy New Car retrieved from http://emeraldaace2017.com/2017/10/11/w10_uds_replacem…r-or-buy-new-car
3. Singapore Car resale values retrieved from http://www.sgcarmart.com/main/index.php
4. Malaysian Car Resale Values retrieved from https://www.carlist.my/
5. Singapore Vehicle Entry Tax regulations retrieved from https://www.lta.gov.sg/…singapore/vehicle-entry-permit-vep-fees-toll-charge-and-reci…

1. Problem Definition

In this week blog posting, Author want to compare company cost estimating template with US National Park services (NPS). Author will use Likert Scale / Compensatory method to compare both process.

2. Development of Feasible Alternatives

To make an estimate, the company already has a cost estimation template. But, most of our estimate are inaccurate, so there needs to be an improvement on the template.

Figure 1: Company Cost Estimating Template

The best fit with Company estimating process regarding to National Park Services is Class A estimating. The accuracy of Class A estimate is -5% to +15% as shown on figure 2.

Figure 2: NPS Template – Class A

3. Possible Solution

Based on both cost estimating template, author will compare NPS templates and compensatory method. For compensatory method, author determine the Likert scale using criteria on table 1.

Table 1: Likert Scale Criteria

After determine the likert scale and refer NPS cost estimation template, we can put each task with Likert value who meet with current condition of company in estimation process as shown on table 2.

Table 2: Company Estimating Template Using Likert Scale

4. Selection Criteria

We will perform a checklist of each stage proposed by NPS approach in the estimation template. If there are gap from the checklist and potentially to be fixed, it will be recommended to management to improve the estimation process.

5. Analysis and Comparison of the Alternatives

Based on the assessment of checklists in table 2, the authors calculate the average Likert value and we will see which attributes meet the NPS requirements and which have not.

Table 3: Calculation Result

Refer to table-3, only attribute – 3, 4 and 8 which already meet with NPS, the other step still reminds to consider highly and very highly implemented.

6. Selection and Preferred Alternatives

Based on above assessment and analysis, company must consider unimplemented step for a better and reliable estimating process, because 11 attribute purposed by NPS as one of best practice in estimating template.

7. Performance Monitoring and the Post Evaluation of Result

From Table 4, we can conclude which attribute has the biggest gap against NPS template.

Table 4: Gap

Using Pareto Diagram as shown on figure 3, Management can prioritize the improvement to meet NPS criteria on attribute 5, 7, and 10. By doing that, we can solve ± 60% of gap. After that, we can continue to improve next attribute. By using NPS Estimating Process as part of Company template, we can avoid under or over estimate, and make sure all the requirements are met.

Figure 3: Pareto Diagram

 

Refrences

1. Sullivan, William G., Wicks, Elin M. & Koelling, C. Patrick. (2014). Engineering Economy 16th edition Chapter 14 page 559- 617, England: Pearson Education Limited.
2. Cost Estimating Requirements Handbook National Park Service.
   Retrieved from https://www.nps.gov/dscw/upload/CostEstimatingHandbook_2-3-11.pdf
3. Module 08-1 Managing Cost Estimating & Budgeting
   Retrieved from http://www.planningplanet.com/guild/gpccar/introduction-to-managing-cost-estimating-budgeting
4. W9_MFO_Benchmark of Company Cost Estimating Template Process against NPS Template
   Retrieved from http://emeraldaace2017.com/2017/09/26/w9_mfo_-benchmark-of-company-cost-estimating-template-against-nps-template/

Problem Definition

In creating the weekly report for Team Emerald, the group noticed that other groups had calculated their BCWS figures differently using the planned completion percentages x BAC figures instead of creating a cost loaded schedule and S-Curve.

This blog will consider what are the differences between each approach and can 1 method be considered more correct than the other.

Feasible Alternatives

Method 1: Calculate BCWS using S-Curve or cost loaded programme bas

Method 2: Using the BAC figures calculated at end of method 1 above, calculate the weekly BCWS base on planned progress multiplied by BAC.

Development of the Alternatives

The BCWS is also known as the “Planned value” (PV) as well as the Performance Management Baseline (PMB)

Ultimately, the BCWS defined as the BCWS is the sum of the budget items for all work packages, planning packages, and overhead which was scheduled for the period. It can be compared to the Cost budget or what is planned to be spent.

Under Method 1, this is calculated by developing a cost or resource loaded programme from which an S-Curve is produced. refer to Figure Below which represents the early and late curves for Team Emerald’s entire programme. Each Team member (Resource) has made a weekly estimate of their hours required to complete the required deliverables.

In developing their schedules and progamme, the following factors have been considered;

• Total Weekly contribution
• Sequence in which hours are allocated to projects
• Anticipated Variances in weekly hours/costs due to availability, etc
• Non Working Times due to holidays, etc

Hours are then converted to costs on a week by week basis and summed over the full period of the progamme to determine the BAC (Budget at Completion).

Under Method 2, the BCWS is determined using the formula of Total Budget cost or BAC x Planned Schedule %

The Planned schedule progress is determined by reference to the project deliverables and each deliverable carries its own weight with respect to the overall programme as well as method of calculating progress.

Selection Criteria

• ACWP figures can be compared against BCWS accurately on a week by week basis
• BCWS reflects any fluctuations in resource usage or allocation

Comparison of the Alternatives

Refer to Figure 2 below for a comparison of each BCWS calculated using Method 1 and Metho 2.

Note that there is a large differencebetween the 2 methods at week 1. Under Method 2, the BCWS value is approximately $12k less than method.

This variance is due to a misalignment between the first project milestone and the planned costs for Week 0.

The project includes a milestone after week 0 which has been valued by the programme Owner as equivalent to 8% of the total project – 115 from 1500.

However after completing an estimate of the hours and cost, the total cost for Week 0 is equivalent to 18% of the BAC!!

Method 2 therefore reports a BCWS based upon the programme’s weightage allocation and this percentages has no relationship to the estimated hours or costs spent during the Week 0 period and as such are misleading.

Similarly, the use of Incremental Milestone Techniques to determine planned percentage for deliverables i.e. Paper Topic instead of units in place for deliverables such as blog postings, problem solving, etc also contributes to difference in BCWS figures between the 2 methods.

Similarly, non work periods predicted around week 22 to 23 are not reflected under method 2.

Selection of the Alternative

As can be seen the determination of BCWS figures using the planned progress % and BAC figure does allow for an accurate comparison with ACPW figures due to the fact that Planned progress % and planned Expenditure are not always aligned due to factors such as

• Resource usage may vary from time to time
• Resource Usage is not aligned with Deliverable weightage
• Method of calculating Progress percentage

Calculation of BCWS using a Cost loaded Schedule is the most accurate method when comparing on a week by week basis

Performance Monitoring

The Use of Method 2 could be considered if resource usage was aligned with planned progress percentage. This would likely require the milestones weightage closely reflects planned cost or effort

References

1. Chapter  9.1 – Introduction to Managing 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

2. Humphreys, G.C 2011 Project Management Using Earned Value Humphreys associates, Management Consultants. Second Edition, pp 512-515

3.Earned Value Management – Budgeted Cost of Work Scheduled (BCWS) (2017) retrieved from http://acqnotes.com/acqnote/tasks/budgeted-cost-of-work-scheduled

 

1. Problem Definition

Normally the company use lump sum or Firm Fixed Price (FFP) contract type. But, refer to some profiles of our project from my paper draft as seen as table 1 below, FFP contract type is not appropriate to use in our project because our “real” scope definition less than 85%. (70% – 84%). So, in this paper blog author try to analysis the contract type should be used for our project.

Table 1. Profiles of our project

2. Identify the Possible Alternative

Based from Engineering tool box (www.engineeringtoolbox.com) there are 4 (four) common types of contracts which is used in the engineering and construction industry i.e:

1. Lump Sum Contract
2. Unit Price Contract
3. Cost Plus Contract
4. Incentive Contracts

3. Development Of the Outcome For Alternative

a. The possibility outcomes if owner used Lump Sum Contract i.e.

Advantage:

• Minimum Risk for the owner
• Time involved for preparing the plans and specifications is considerably longer
• Contract is based on agreed rates
• Minimum Owner supervision related to quality and schedule.

Disadvantage :

• Time involved for preparing the plans and specifications is considerably longer.
• Because price determines who is awarded the contract, the quality of work will be poor.
• Difficult to make changes

b. The possibility outcomes if owner used Unit Price Contract i.e.

Advantage:

• Owner pays for only measured work
• Scope and quantities easily adjustable

Disadvantage:

• Negotiation of ‘unit’ rates can be very time consuming
• Final cost not known at outset since bills of quantities at bit time are only estimates
• Additional site staff needed to measure, control, and report on units completed

c. The possibility outcomes if owner used Cost Plus Fee Contract i.e.

Advantage:

• Set a contract early with little negotiation.
• Selection of supplier is based on rates.
• Work definition is unimportant to contract.
• Field work may be started before the plans and specifications are complete

Disadvantage:

• Owner assumes all of the risk.
• The contractor is encouraged to use inefficient (time wasting) labor and expensive materials.
• Owner has to manage all coordination issues.
• Owner carries cost of poor quality.
• the contractor cannot afford delays that will keep the job going longer than expected.

d. The possibility outcomes if owner used Incentive Contracts i.e.

Advantage:

• Used to Encourage More Effective Work From Contractors.
• When Appropriately Applied, Contractors are Paid Based on Their Handling of Cost, Schedule, and Their Performance
• Good Business Practice
• Owner & Contractor share financial risk and have mutual incentive for possible saving

Disadvantage:

• Opportunities are Given to Contractors to Receive Unearned Fees
• Require complete auditing by owner’ staff

4. Selection of criteria.

In order to determine what kind of contract should be used there are some criteria must be considered:

• Flexibility for additional or reduction of scope
• Quality of the services
• Detail spec, volume and scope of work requirement
• Owner financial risk
• Owner supervision
• Price negotiation

5. Analysis and Comparison of Alternatives

Author analyze and compare the alternatives by using compensatory models. The attributes of the contract type as shown in table 2.

Table 2. Attributes of The Contract Types

Ranking attribute by using non-dimensional scaling as shown in Table 3.

Table 3. Non-dimensional scaling

After set relative rank for each attribute, further is to conduct additive weighting for all alternatives as shown in table 4.

Table 4. Additive weighting for all alternatives

6. Select of the preferred alternative

Base from above calculation Incentive Contracts become the best alternatives to replace FFP contract type for our project.

7. Performance Monitoring and Post Evaluation of Result

Management should consider to use incentive contract type as the best alternatives to replace FFP contract type to avoid over budget project and monitoring should be conducted during the project contract to ensure that all requirements are met.

References:

1. Sullivan, W.G., Wicks, E. M., Koelling, C. P. (2014). Engineering Economy, Chapter 14, page 559 to 617. Pearson. Sixteenth Edition.
2. W2_FELIX_Contract Type. Retrieved from http://aacemahakam.blogspot.co.id/search?q=contract
3. W3_FELIX_Contract Type II. Retrieved from http://aacemahakam.blogspot.co.id/search?q=contract
4. 10.3 – module 10-3 – managing change – the owner’s perceptive. Retrieved from http://www.planningplanet.com/guild/gpccar/managing-change-the-owners-perspective
5. The Engineering Tool Box. Retrieved from http://www.engineeringtoolbox.com/contract-types-d_925.html

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.

2. 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.

3. 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.

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.

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

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

6. 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.

7. 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

1. Problem Definition

In this week blog posting, Author want to compare estimate process in Author’s company with Government Accountability Office (GAO). Author will use Likert Scale / Compensatory method to compare both process

2. Development of Feasible Alternatives

To make estimate, there are 5 steps to follow for Author company. Those steps are :

• Define the estimating elements
• Find the OE element price data
• Check the validity of price data
• Make estimates using predefined format
• Request approval from the competent authority

While GAO estimating process consist of 12 steps. Each steps are important to ensuring that high-quality estimates are meet the criteria. Figure 1 show GAO’s estimate process.

Figure 1: GAO’s Process Estimate

3. Possible Solution

Base on both alternatives, Author will compare using the 12 steps GAO estimating process and using compensatory model. For compensatory model, Author will use Likert scale as shown at table 1.

Table 1: Likert Scale Criteria

After determine the likert scale and refer to 12 steps GAO estimate process, we can put each task with Likert value who meet with current condition of company in estimation process like on table 2.

Table 2: Company Estimating using Likert Value

4. Selection Criteria

We will perform a checklist of each stage proposed by GAO approach in the estimation process. If there are gap from the checklist and potentially to be fixed, it will be recommended to management to improve the estimation process.

5. Analysis and Comparison of the Alternatives

Based on the assessment of checklists in table 2, the authors calculate the average likert value and we will see which attributes meet the GAO requirements and which have not.

Table 3: Result of GAO vs Company Estimating Process

Refer to table-3, only step-1 or define estimate purpose and step 4 – Determining estimate structure which already meet with GAO, the other step (still remind to consider highly and very highly implemented.  Company need to consider GAO for a better and reliable estimating process, because 12 steps purposed by GAO as one of best practice in process estimation.

6. Selection and Preferred Alternatives

Based on above assessment and analysis, company must consider unimplemented step for a better and reliable estimating process, because 12 steps purposed by GAO as one of best practice in process estimation.

7. Performance Monitoring and the Post Evaluation of Result

Management should consider the use of GAO Estimating Process as part of the estimation stage process to avoid Over Budget and Behind Schedule Project and monitoring should be conducted during estimation process to ensure that all requirements are met.

 

Refrences

1. Sullivan, William G., Wicks, Elin M. & Koelling, C. Patrick. (2014). Engineering Economy 16th edition Chapter 14 page 559- 617, England: Pearson Education Limited.
2. GAO (March 2009). GAO Cost Estimating and Assessment Guide, A Reliable Process for Developing Credible Cost Estimates pages 8-11.
   Retrieved from http://www.gao.gov/new.items/d093sp.pdf
3. Module 08-1 Managing Cost Estimating & Budgeting
   Retrieved from http://www.planningplanet.com/guild/gpccar/introduction-to-managing-cost-estimating-budgeting
4. W8_MFO_Benchmark of Company Cost Estimate Process vs GAO Process
   Retrieved from http://emeraldaace2017.com/2017/09/26/w8_mfo_-benchmark-of-company-cost-estimate-process-vs-gao-process/