Saturday, March 9, 2013

W19_LUCKY_The Decision to propose Gas Engine Alternatives to a customer

W19_LUCKY_The Decision to propose Gas Engine Alternatives to a customer

1. Problem Recognition

Our application engineer came to me seeking advice on a gas engine he wants to propose to a customer for purchase.

2. Problem Definition

What are some of the economics-based questions the engineer should answer as they evaluate the alternatives to propose (1) Gas Engine A or (2) Gas Engine B or (3) Gas Engine C?

a. Assumptions

Key assumptions include:

· There is no room for not proposing an alternative

· The three alternatives are equally well supported by our company in Nigeria

· Salvage value equals initial cost

· Compare the alternatives using MARR = 12%

· Year, n = 20

3. Feasible Alternatives

Feasible alternatives include:

A. Propose Gas Engine A

B. Propose Gas Engine B

C. Propose Gas Engine C

4. Development of outcomes for each alternative

For the three alternatives

A B C

· Initial cost $150 $120 $110

· Maintenance Cost $20 $35 $39

· AB First 35.5 39.6 39.6

· Useful life 40 45 40

· Rate of Return 10% 15% 16.4%

D. Selection Criteria

Compare using MARR = 12%

· Future worth

· Benefit cost

· Payback period

Disregard alternative(s) with a return < MARR

E. Analysis and Comparison of the alternatives

Future worth: option A

F =-110 -20(F/P, 12%, 4) – 20 (F/P, 12%, 10) -110(F/P, 12%, 20) + 35.5(F/A, 12%, 20)

F =-110 -20(1.5735) -20(3.1058)-110(9.6463) +35.5(72.0524)

F = -110 -31.47-62.12-1,061.09+2,557.78

F_A = $1,293.19

Future worth: option B

F =-120 -35(F/P, 12%, 4) – 35 (F/P, 12%, 10) -120(F/P, 12%, 20) + 39.6(F/A, 12%, 20)

F =-120 -35(1.5735) -35(3.1058)-120(9.6463) +39.6(72.0524)

F = -120 -55.07-108.70-1,157.56+2,853.28

F_B = $1,411.95

Future worth: option C

F =-110 -39(F/P, 12%, 4) – 39 (F/P, 12%, 10) -110(F/P, 12%, 20) + 39.6(F/A, 12%, 20)

F =-110 -39(1.5735) -39(3.1058)-110(9.6463) +39.6(72.0524)

F = -110 -61.37-121.13-1,061.09+2,853.28

F_C = $2,559.71

Future worth Analysis

A B C

· Initial cost $150 $120 $110

· Maintenance Cost $20 $35 $39

· AB First 35.5 39.6 39.6

· Useful life 40 45 40

· Rate of Return 10% 15% 16.4%

· Future worth $1,293.19 $1,411.95 $2,559.71

Benefit-cost Ratio Analysis

Year C A C-A

0 -110 -150 40

1 39.6 35.5 4.10

2 39.6 35.5 4.10

3 39.6 35.5 4.10

Present worth of cost = 0

Present worth of benefit = 40+4.10(P/A, 12%, 40) + 150(P/F, 12%, 40) = 4.10(8.2438) + 150(0.0107) =75.41

B/C = infinity

Reject A

Benefit-cost Ratio Analysis

Year B C B-C

0 -120 -110 -10

1 39.6 39.6 0

2 39.6 39.6 0

3 39.6 39.6 0

Present worth of cost = 10

Present worth of benefit = 0

B/C =0/10 < 1

Reject B

Payback period

· A 150/35.5 = 4.23 years

· B 120/39.6 = 3.03 years

· C 110/39.6 = 2.78 years

F. Selection of preferred alternative

Summary

A B C

· Initial cost $150 $120 $110

· Maintenance Cost $20 $35 $39

· AB First 35.5 39.6 39.6

· Useful life 40 45 40

· Rate of Return 10% 15% 16.4%

· Future worth $1,293.19 $1,411.95 $2,559.71

· Benefit Cost C-A = infinity B-C = 0

· Payback period 4.23 3.03 2.78

Select Gas Engine C

I would advise our application engineer to propose Gas Engine type B.

G. Performance monitoring and post evaluation of results

The focus on speed versus efficiency limitations of the payback period analysis as well as the assumptions for MARR, the salvage value and the period, n, used for the analysis can change and thus would present a new scenario for choosing an alternative given the new parameters.

A further review with lease or buy option will be considered in a subsequent blog.

Reference

1. Sullivan, W., Wicks, E., Koelling, P., Kumar, p., & Kumar, N. (2012).Chapter 1 Introduction to Engineering Economy (pp. 29). Engineering economy (15^th edition). England: Pearson Education Limited.

2. Sullivan, W., Wicks, E., Koelling, P., Kumar, p., & Kumar, N. (2012).Chapter 14 The Time Value of Money (pp. 131 -134). Engineering economy (15^th edition). England: Pearson Education Limited.

3. Lindeburg, M. (1992).Chapter 13 Engineering Economic Analysis (pp.13-3).Engineer-In-Training Reference Manual (8^th edition).U.S.A: Professional Publications Inc.

4. 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

5. Lee, J. (2000). Engineering Economy Review. Retrieved from http://tofudi.com/read-file/engineering-economy-review-main-concepts-suggestions-for-pdf-288876/

Thursday, March 7, 2013

Austin_W19_Systems of weights and measures in Project Management

1. Problem recognition, definition and evaluation

Standardised Weights and Measures in Project Management promote uniformity and standards to achieve equity between buyers and sellers in the marketplace – Engineering, Procurement, Installation and Construction (EPIC). This standardisation enhances consumer confidence and strengthens Project Management Organizations worldwide. Hence, the problem statement this week is to determine the best and most accurate methods of weights and measures in project management.

2. Development of the feasible alternatives

1. Imperial system – The original method of weights and measures that do not conform to the metric system of weights and measures, includes the inches, foot, yard, mile, pound, gallon, etc.

2. Metric system (SI Units) - Decimal system of weights and measures, devised in France in 1791 and now adopted in project management for successful project delivery, includes the millimeters, centimeters, meters, kilometers, kilograms, liters, etc.

3. Development of the outcomes and cash flows for each

4. Selection of the acceptable criteria

Among selected attributes subject to ordinal ranking; accuracy, standardisation, simplification, compatibility, efficiency, tolerance and speed are the top most ranked attributes, which constitute acceptable criteria for determining the best and most accurate method of measuring and weighting project management activities.

5. Analysis and Comparison of the alternatives

Research, survey and experience have demonstrated that the Metric System is easier, accurate, compatible and most efficient to apply in project management digitalized tools and techniques compared to the original method that doesn’t conform to International Standards.

6. Selection of the preferred alternative

Metric System (SI UNITS) with the highest scoring attributes are therefore considered Best and most Accurate method of weights and measures in project management, especially Cost Estimating.

7. Performance Monitoring and Post Evaluation of Results

Metric System (SI UNITS) with the highest scoring attributes would therefore be important in future determination of “Best and Accurate” method of weights and measures in project management, especially Cost Estimating.

8. References/Bibliography

1. Skills and Knowledge of Cost Engineering, 5^th Edition, Appendix B “SI UNITS”

http://www.spe.org/authors/docs/metric_standard.pdf

http://www.worldwidemetric.com/measurements.html

2. Apr 22, 2009 – The Office of Weights and Measures promotes uniformity in U.S. weights ... to Request Publications using OWM Contacts Management System ... http://www.nist.gov/pml/wmd/

3. The date for Weights and Measures Week commemorates the signing of the first United States weights and measures law by President John Adams on March 2, 1799. http://www.nist.gov/pml/wmd/h44-12.cfm

Monday, March 4, 2013

W18_Austin_Building Professional Competency in Project Management

1. Problem recognition, definition and evaluation

In a flexible project management model individuals have to be capable of incorporating and contributing with their knowledge and experience to the management process as well as taking part in the analysis and solution of problems that hinder quality increase and productivity within the enterprise. Hence, the problem statement is to determine the best methods of building professional competency in Project Management.

2. Development of the feasible alternatives

Generally, there are six standard levels of professional competency that could be acquired either by means of a formal educational system, informal training or work experience. These levels of competency are connected with the degree of complexity and diversity of tasks in order to fulfill an occupational purpose.

Alternatives:

1. Formal education – This method of competency development corresponds to technical and technological higher education.

2. On the job training – This method relates to vocational education designed to provide the necessary skills for a specific job or career.

3. Work experience – This method involves continuing exposure or active involvement in an activity or process over a period of time that leads to an increase in knowledge or skill.

4. Brainstorming – This method involves an intensive group discussion to generate creative ideas spontaneously, usually for problem-solving.

5. Inborn talent – This method involves an unusual natural ability to do something well, especially in artistic areas that can be developed by training.

6. Innovation – This method involves the act or process of inventing or introducing something new or transformational, producing new idea, process or product for which there was no predecessor.

3. Development of the outcomes and cash flows for each

4.    Selection of the acceptable criteria

Among selected attributes subject to ordinal ranking, analytical and innovative are the top most ranked attributes, hence work experience and on the job training have highest attributes scores of 35 and 30 respectively, and therefore rated best methods of building professional competency in project management.

5. Analysis and Comparison of the alternatives

Formal educational system, brainstorming and talent focus primarily on theoretical and professional practice as a way of learning, while work experience and on the job training focus on technical and technological training, for sustainable competency improvement.

6.    Selection of the preferred alternative

Work experience and on the job training with the highest scoring attributes, are therefore considered more effective and efficient methods of acquiring professional competency development and improvement in project management.

7.    Performance Monitoring and Post Evaluation of Results

Work experience and on the job training with the highest scoring attributes would therefore be important in future decisions for building, developing and improving professional competency in project management.

8.    References/Bibliography

1.    Dr. Paul D. Giammalvo, CDT, CCE (#1240), MScPM, MRICS: www.build-project-management-competency.com.

2.    Humphreys, G. C. (2011). Project Management Using Earned Value (2nd ed. Chap 4 P.91-P.110-Responsibility Assignment Martix Case study). Humphreys & Associates, Inc. Retrieved from: http://www.humphreys-assoc.com/evms/project-management

3.    Thomas, F. Lyons (2012). Levels in Organizations and Role Clarity.Role clarity, need for clarity, satisfaction, tension, and withdrawal. Retrieved from:

http://dx.doi.org/10.1016/0030-5073(71)90007-9, How to Cite or Link Using DOI