W7_LUCKY_DECISION TO REPAIR OR TO TRADE IN A CAR

W7_LUCKY_Decision to repair or to trade in a car

1.      Problem Recognition

I have been asked for advice by a colleague. He has an old Hyundai saloon car valued at $1,592. He has a budget of $600 for the project.  An experienced Honda mechanic, a close associate, has offered to refurbish the car at an estimated cost of $250 in one week, hopefully, before my colleague travels to Ghana. A certified OEM (Hyundai) Centre offered to revamp the car at a cost of $350 to make it look like new. The Centre also offered to accept a trade in of the car at a cost of $2,290.

2.      Problem Definition

A set of quick calculation reveals there is problem. My colleague has a budget of $600. 

Honda mechanic repair cost - $250

OEM repair cost - $350

Second hand value of car - $1,592

Trade-in car option cost - $2,290

Given his budget, which alternative will be the best?

a.      Assumptions

Key assumptions include:

·         The second hand value estimate of the car is reliable

·         The Honda mechanic estimate is good, and will meet deadline of one week

·         The OEM Centre estimates are correct and cast in stone

·         The OEM will be willing to buy the car upon seeing it and replacement car available

 

3.      Feasible Alternatives

Feasible alternatives include:

1.      Engage the Honda mechanic

2.      Engage the OEM Centre

3.      Trade in the car with the OEM Centre

 

 

4.      Development of outcomes  for each alternative

The outcomes for each alternative are as follows:

1.      Engage the Honda mechanic

·         Results in cost savings of $600-$250 = $350

·         Unsure of work Quality

·         Unsure of meeting delivery deadline of one week

2.      Engage the OEM Centre

·         Results in cost savings of $600 -$350 =$250

·         Quality assurance guaranteed

·         Unsure of meeting delivery deadline of one week

3.      Trade in the car with the OEM Centre

·         Results in borrowing additional fund of $98 ($2,290-$1,592- $600 =$98)

·         Quality assurance guaranteed

·         Sure of meeting delivery deadline of one week

 

4.      Selection Criteria

 

The selection criteria are as follows:

1.      On time delivery

2.      Quality standard

3.      Cost (within budget)

 

5.      Analysis and Comparison of the alternatives

 

·         Monetary consideration

To stay within budget, alternatives 1 and 2 are the only acceptable feasible alternatives, with alternative 1 being the best option.

·         Introducing risk into the solution

This applies to all three alternatives.

                                                              i.      Failure for on-time delivery – Travel to Ghana in public car [Best option is Alternative 3]

                                                            ii.      Quality issue – Instigate rework; make alternative travel arrangement [Best options are alternatives 2 and 3]

                                                          iii.      Cost changes – Request for firm price from service providers [All three options are acceptable alternatives]

 

·         Nonmonetary consideration

 

These include schedule and quality standard.

If schedule is considered, alternative 3 becomes the only feasible solution.

If quality is considered, alternatives 2 and 3 become better feasible alternatives.

 

 

6.      Selection of preferred alternative

I am prepared to advice my colleague to choose alternative 3 as my preferred alternative. He is credit worthy and could easily raise the additional $98 to cover the cost of trading in the car.

7.      Performance monitoring and post evaluation of results

The car shall be driven within town on test drives. Hopefully all performance issues with the car will surface and be resolved before being driven to Ghana.

 

 

Reference

1.      Sullivan, W., Wicks, E., Koelling, P., Kumar, p., & Kumar, N. (2012).Chapter 1Introduction to Engineering Economy (p. 35). Engineering economy (15^th edition). England: Pearson Education Limited.

2.      Purdue OWL APA style, (2011). APA formatting and style guide. Retrieved from http://owl.english.purdue.edu/owl/resource/560/19/

3.      Giammalvo, P. (2012, October 22). Integrated portfolio (asset), program (operations) and project management methodology course (cost engineering) slides (An AACE methodology course). Lagos, Nigeria: Lonadek