# 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.
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

## 1 thought on “W13_UDS_Fuel Tank Truck Feasibility Study Part 1: Replacement Analysis”

1. Another EXCELLENT posting Pak Dhanu!!!

My challenge to you and anyone else doing these kinds of problems is where did you get the 12% MARR from?

What did Lita Liana’s research tell us about what MARR we should be using?
http://pmworldjournal.net/article/using-analytical-hierarchy-process-determine-appropriate-minimum-attractive-rate-return-oil-gas-projects-indonesia/

What happens to your analysis if/when you use the wrong MARR? (Gargage In/Garbage Out) Be VERY careful of these problems that you use an overly optimistic MARR.

BR,
Dr. PDG, Jakarta