WK9_Tony_Leasing an Apartment

Problem Statement

When I first came into the town I am currently living in, I had to look for an apartment to lease. I saw several properties, many of which did not meet my requirement. I wanted a standalone well finished building in a decent environment. I had to narrow the choice to 3 three properties of such. How I made the choice on the best property to lease will now be discussed in line with Engineering Economy principles.

Alternative Solutions

The alternative solutions represent the three offers I narrowed my search to.

1. Alternative A – A 4 bedroom bungalow in a compound of its own

2. Alternative B – A 4 bedroom duplex in a compound of its own

3. Alternative C – A 4 Bedroom bungalow in an estate

Alternative A

The exterior of this bungalow was not painted. The owner has recently been posted by his Company to another town so he had to move from the house. The finishing generally is fairly okay, the environment is decent and accessibility is fair. Distance from my place of work is about 8km. The rental cost is $2,960/annum. No service charge applicable.

Alternative B

This is a duplex that is very well finished and in a compound of its own. The owner had recently relocated abroad. The environment is decent and accessibility is fair. Distance from work is about 8km. The rental cost is $4,605/annum. No service charge applicable.

Alternative C

This is a well finished detached bungalow in an estate of 16 prototype houses. The owner is on cross posting outside the country. The environment is very decent and accessibility good. Distance from work is about 5km. The rental cost is $3782 plus a service charge of $1,184.

Selection Criteria

1. Distance to work

2. Accessibility

3. Decent Environment

4. Cost

5. Finishing

Analysis and Comparison of Alternatives

Summarized below is the basic data for the alternatives.

Table 1: Alternatives Attributes

Attributes	Alternative A- Standalone bungalow	Alternative B Detached Duplex	Alternative C - Detached bungalow in an estate
Distance	8km	8km	5km
Accessibility	fair	fair	good
Decent Environ	fair	fair	Excellent
Cost	$2,960	$4,605	$4,966
Finishing	fair	Excellent	good

The comparative analysis will be done using non-compensatory models of Satisficing and Lexicography. Satisficing, sometimes referred to as the method of feasible ranges, requires the establishment of minimum or maximum acceptable values (the standard) for each attribute [1]. Alternatives with one or more attributes outside the standard are discontinued from further consideration [2]. To use satisficing, we must first establish the table of feasible ranges as in table 2 below.

Table 2: Feasible Ranges for Satisficing

Attribute	Minimum acceptable value	Maximum acceptable value	Unacceptable Alternative
Distance		10km	None
Accessibility	fair	Excellent	None
Decent Environ	fair	Excellent	None
Cost		$5,000	None
Finishing	good	Excellent	Alternative A

Following from table 1 we are left with Alternative B & C. To choose between this two we would use the lexicography model which is suitable when one attribute is more important than all other attributes. In order to do this we need to rank each of the 5 attributes in order of importance using ordinal ranking technique as shown below.

Table 3: Ordinal Ranking of Attributes

A	Result of paired Comparisons
	Accessibility > Distance	Accessibility is more important than distance
	Decent Environ > Distance	Decent environ is more important than distance
	Decent Environ > Cost	Decent environ is more important than cost
	Decent Environ > Finishing	Decent environ is more important than finishing
	Decent Environ > Accessibility	Decent environ is more important than accessibility
	Cost > Distance	Cost is more important than distance
	Cost > Accessibility	Cost is more important than accessibility
	Finishing > Distance	Finishing is more important than distance
	Finishing > Accessibility	Finishing is more important than accessibility
	Finishing > Cost	Finishing is more important than cost
B	Attribute	Number of times on left of > (=Ordinal ranking)
	Accessibility	1
	Decent Environ	4
	Cost	2
	Finishing	3
	Distance	0

Application of lexicography to the ordinal ranking gives the following result.

Table 4: Application of lexicography

Attribute	Rank*	Alternative Rank**
Distance	0	Alternative C > B
Accessibility	1	Alternative C > B
Decent Environ	4	Alternative C > B
Cost	2	Alternative B > C
Finishing	3	Alternative B > C

*Rank of 4 = most important, 0 = least important.

Selection of Best Alternative

Selection of best alternative is based on the comparative analysis of the alternatives as shown above using non-compensatory models of Satisficing and lexicography. When using lexicography, the alternative with the highest ranked attribute is the best choice and in this case it is ALTERNATIVE C with a rank of 4 for decent environment. This choice shows that a decent environment was more important for me than any other attribute.

Performance Monitoring & Post Evaluation of Results

1. I enjoyed the environment throughout my stay there

2. Cost was not a strong issue when I made the choice but it became a strong issue later as a result of rising cost of services. I started with a service charge of $1,184pa and within two years it rose to $3,157.

References

1. Sullivan, W., Wicks, E., Koelling, C., Engineering Economy, 14.6.2 – Satisficing

2. Ibid

Week 8.1_John Agbo_Choice of Staffing Option_Week 14_Lanre Giwa

Problem Recognition / Identification

A company intends to execute a 6-month project and requires 250,000 man-hours to execute the project. Currently, the operations staffs in the company are about 250 personnel. The company will need to work out modalities of solving the pending challenge.

Root Cause Analysis

Due to the dynamism in the engineering design industry, it is not economically viable to recruit and maintain a large workforce of engineers without having firmed up prospects or contracts awarded for engineering job. This will mean maintaining a high overhead if there are no jobs. So the trend has been to maintain the minimal number of engineers to attend to the few jobs around and ‘body shop’ when bigger jobs come on board. That is the fundamental reason for the shortage of staff based on the economic situation.

Based on in-house calculation and considering the rate differentials (sick leave, holidays, annual leave),It was estimated that the productivity per person per day is 5 hours considering a standard 8 hour workday.

Scaling this up, the required man-hours per month will be 250,000/6 = 41,667 Man-hours / month

Using a standard 22 Days / month, required man-hours per day will be 41,667 / 22 = 1894 Man-hours /day

With a Nigerian productivity of 5 hrs of a standard 8 hr day, the company will need 380 engineers (1894/5hrs) to carry out the job assuming that the job is the same and the level of skills and productivity of the engineers are equal.

Development of Feasible Alternatives/Solutions

The following are the alternatives available to my company:

Alternative 1:– Recruit 380 engineers on a 6 month contract basis.

Alternative 2:– Take 200 Engineers from the existing pool and recruit 180 additional engineers on contract basis

Alternative 3: Recruit 380 engineers on full time basis

Alternative 4 – Subcontract the job to an engineering company with more resources.

Possible Outcomes and Cash Flow of Alternatives / Solutions

Alternative 1: From experience, hiring personnel on short term contract basis is usually more expensive for the company because most contract staff factor elements like pension, insurance and medicals. Secondly, the company will need to spend more money searching for this level of skilled personnel.

Alternative 2: Utilization of the existing staff will reduce the company’s overhead and will be good for the company. However, the company will need to spend money recruiting additional engineers on contract basis.

Alternative 3: Recruiting a total of 380 engineers on full time basis is a big risk to the company. This will mean that the company will spend a lot of money recruiting and will increase its overhead when there are no jobs for the employees.

Alternative 4: Subcontracting or outsourcing is a way of mitigating the operational stress by pushing the risk on another company and making a marginal profit on the entire contract. With this, the company does not expand and just makes a mark-up profit on the project.

Alternative 5: DO nothing

Selection Criteria / Attributes of best solution

• Operational Cost and Overhead
• Productivity
• Profitability
• Cost of Money
• Improved company profile, reputation and Technical capability.

Analysis and comparison of the Alternatives/Solutions

Analysing all the options available to my company, I am of the view that alternative 3 is the least preferable with the highest risk. The chances of another project commencing are 50 – 50. Should another project not be won at the completion of this project, the company runs a risk of being over-staffed and the company may opt for downsizing. It will be unfair to pick personnel out of their “comfort zones” only to later downsize them. Furthermore, the cost of funds that will be used to recruit and maintain the large work force will definitely increase the overhead of the company. This does not make economic sense.

Alternative 4 seems like a good option too. With this option, the risk is literally transferred to another company that will execute the project and my company will just make a marginal profit on it. The downside to this option is that the operation cost of outsourcing could eventually be more than what was anticipated. Secondly, the profit from the large project will dwindle as my company will just make a marginal profit. Thirdly, the company profile, reputation and technical capacity will remain the same since the company would not be bold enough to take up the challenge to execute the project themselves.

Alternative 5 is not good for the company. The company had earlier conducted a profitability analysis and discovered that the project is profitable. So no going ahead to execute the project means that the company is planning to run out of business.

Alternative 1 and 2 look like the preferred options for the company in this current situation, but considering the cost and overhead of recruiting 380 contract engineers, it will be better to settle for Alternative 2. With the choice of alternative 2, the company will reduce the company overhead

Best Alternative to be Selected

Based on the analyses of the options identified, I would recommend alternative 2 to my company as I am of the view that the second option will satisfy the set criteria above and will minimise risk and loss of money.

Performance Monitoring / Post evaluation

For performance monitoring and post evaluation of the old staff and newly recruited contract staff, the company will set up a small project management office (PMO) consisting of planners, project controllers and cost engineers. A performance measurement system (PMS) will be set up to calculate and monitor earned value by monitoring the planned value, actual cost spent( man-hours expended) and the actual accomplishment ( earned value).

References:

1. AACE International. Skills & Knowledge of Cost Engineering, 5^th Edition Revised.Chapter-9, pp.9.1-9.9 Edited by Dr. Scott J. Amos, PE. 2010. AACE International. Morgantown, WV, USA.

2. Sulliven, W. G., Wicks, E.M., Koelling, C. P., et al. (2009). Engineering Economy (14^th ed.), Chp 14 pp551 -570. New Jersey: Pearson Education.
3. Brassard M, Ritter D. The memory Jogger 2. Tools for Continuous Improvement and Effective Planning.2010.