Week 19_LanreGiwa_Productivity Analysis

Problem Recognition / Identification

Determination of Labour productivity has always been an issue within the company. The company has just been awarded a contract on re-imbursable basis and the client wants the project Controls team to report on the performance of the project using earned value. The client is particularly interested in knowing the actual hours expended on Projects and the level of productivity. Personnel productivity ultimately affect rate of completion of the job within approved budget.

Development of Feasible Alternatives/Solutions

With the client’s current request, there are basically three options available to the company at this crucial period.

Plan 1 – Do nothing about the request from the client and try to distract the client.

Plan 2 – Employ a consultant Project Controls Engineer to execute the project in order to fulfil clients’ demands.

Plan 3 – Challenge the in-house project controls team to calculate personnel productivity on the project to meet clients’ request.

Possible Outcomes and Cash Flow of Alternatives / Solutions

Plan 1: With the first plan, the company will be taking a big risk by not obliging to the request of the client. In a very competitive business like engineering design, it is imperative to always satisfy the customer because the future implication is that the company may not be recommended for future projects which in turn will reduce the revenue or cash flow of the company.

Plan 2: The second plan is to recruit a specialist or consultant Project Controls Engineer to execute the Project. Since this scenario was not initially considered during the proposal stage and the profitability analysis, there will be an increase in the cash outflow since it is very expensive to provide a specialist on the Project Controls Team. Ultimately, the client will be satisfied with the company since the company has met clients’ requirement.

Plan 3: With plan 3, the existing Project Controls team will have to study and conduct research on a quick method of calculating the productivity of personnel on the Project. The cash flow will relatively be the same since the existing team had been factored initially. The possible outcome is that the team will effectively analyse productivity though there may be a learning curve.

Selection Criteria / Attributes of best solution

• Customer Satisfaction
• Capacity and competency Building.
• Professionalism and effective reporting

Analysis and comparison of the Alternatives/Solutions

Analysing the three options available, the company should realise that goodwill and recommendation is very important in business especially a very competitive business. There is a general rule of thumb that the CUSTOMER IS KING. If it is the requirement of the customer / client to calculate the productivity so as to get true value for money, then opting for Plan 1 will not be good enough. The contractor company is in business to make money, therefore, anything that will send clients away will not be encouraged.

Option 2 is a very good and quick plan. With the plan, all kinds of request such as earned value analysis and productivity analysis can easily be produced by the specialist. This will make the client very happy and would recommend the company for future projects. This plan will be very expensive for the company since the specialist will be an expatriate, the company will pay hourly rates in dollars, provide good accommodation, rest & recreation allowances, flight tickets and other expenses. Secondly, the local project controls team will be denied the opportunity building capacity and Hands-on experience on this calibre of Project.

Option 3 is also a very good plan. The third option may initially not yield results because the current project controls team will try to calculate productivity for the first time so basically, there will be a learning curve. However, on the long run, the project controls team will improve in-house capacity by learning how to produce world class reports. One of the members of the team has even proposed on a method of calculating the productivity as discussed below:

Lets assume that the team wants to calculate the productivity of personnel on a certain deliverable in a Project of about 600 total Man-Hours

1. Piping and Instrumentation Diagrams

S/No	Activity	Duration	Rules of Credit	Weighting	Planned Start	Actual Start	Plan Finish	Actual Finish	Completed (Y/N)
1	P & ID	20 Hrs	Start	10%					Y
			IDC	30%					Y
			IFR	30%					Y
			IFC	25%
			Handover	5%

To Determine percentage % Complete of the above deliverable that has just been issued for IFR;

% complete = (20/600) hrs * 70%*100% = 2%

Credit Work Hours (CWH) = (percent complete) x (budgeted unit rate)

= 2% * 20 Hrs = 0.47hrs

The Productivity index is further calculated by the formula below:

Productivity index = (CWH to date) ÷ (actual WH to date)

= (0.47 / 14) hrs

= 0.03

The Project Controls teams intend to send this draft calculation to the client to see if it is acceptable. This process may be a reiterative process of getting the formula right. Once the formula is correct, the project controls team would have solved a problem they once thought was impossible to achieve.

Best Alternative to be Selected

Amongst all the options analyzed, Plan3 is the cheapest option available to the company in terms of the total amount that will be spent. Secondly, it will be an opportunity to develop in-house capacity. Thirdly, the client will be satisfied when their demands are responded too on time. Fourthly, this will be good for the company in terms of monitoring performance and productivity of personnel working on the Project.

Performance Monitoring / Post evaluation

For performance monitoring and post evaluation, The Company will train the project controls team of more accurate methods of calculating the productivity of personnel on the Project. The Project manager can also improve productivity of the team by introducing some incentives such as Target Bonuses, Merit Awards, Team Building sessions and Personnel recognition.

References:

1. AACE International. Skills & Knowledge of Cost Engineering, 5^th Edition Revised.Chapter-17, pp.17.1-17.9 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 4 pp104 -135. New Jersey: Pearson Education.
3. Brassard M, Ritter D. The memory Jogger 2. Tools for Continuous Improvement and Effective Planning.2010.

Week 6_ Agbato Oluwabusayo_Determining the most economic investment _Week 17 _SeeGod Meregini

Problem Recognition/Evaluation

In my company, one of the services rendered by my department involves purchasing pumps for various company applications. I was leading a group of purchasing team in evaluating which pump to purchase that would result in an overall economic savings for the company.

For this specific purchase, the selected pump would only be utilized for one year and would have no market value at the end of the year.

Development of Feasible Alternatives/Solutions

Examination of three feasible investments is used based on total life-cycle costs.

In carrying out this analysis, an assumption is that the engineering economic analysis is present economy studies because comparison is done for only one year hence the time value of money is not a factor.

Alternative 1-

Purchasing Pump A

Alternative 2 –

Purchasing Pump B

Alternative 3-

Purchasing Pump C

Probable Outcomes of Alternatives / Solutions.

A number of meetings were held with various key stakeholders in the purchasing departments and financial divisions within the company including various vendors in order to know the technical and commercial details of the pumps.

Costs used are factored but have same equivalence with original for the purpose of showing the final result.

Key Technical/Commercial Parameters	Pump A	Pump B	Pump C
Purchase price	$166,000	$168,500	$170,000
Annual Maintenance	$8,000	$9,500	$10,500
Efficiency	70%	80%	90%

Selection Criteria in determining the solution

1. The total annual cost of owning and operating should be the most economical.

2. The selected pump should have higher operability.

Analysis and Comparison of the alternatives

The analysis was based on the fact that electric power costs $0.08 per kWh and that the pump would operate at 4,500 hours per year. Also, the pumps to be purchased are capable of delivering 100 hp.

With the knowledge that 1hp = 0.746KW, calculations for each alternatives are given below.

Alternative 1- Purchasing Pump A

Annual expense electric power =(100hp/0.7)(0.746kW/hp)($0.08/kWh)(4,500 hours/yr) = $38,365.68.

Maintenance costs = $8,000

Purchase Price = $ 166,000

Total annual cost of owning and operating = $212,366

Alternative 2 – Purchasing Pump B

Annual expense electric power =(100hp/0.8)(0.746kW/hp)($0.08/kWh)(4,500 hours/yr) = $33,570.

Maintenance costs = $9,500

Purchase Price = $168,500

Total annual cost of owning and operating = $211,570

Alternative 3- Purchasing Pump C

Annual expense electric power =(100hp/0.9)(0.746kW/hp)($0.08/kWh)(4,500 hours/yr) = $29,840.

Maintenance costs = $10,500

Purchase Price = $170,000

Total annual cost of owning and operating = $210,340

Selection of Preferred Alternative

Based on the above analysis and criteria, I recommend ALTERNATIVE 3.

· This alternative satisfies criteria 1 because it has the lowest total annual cost.

· Using only the annual energy expense (green background)

o Alternative 3 has 22% reduction in cost compared to Alternative 1

o Alternative 3 has 11% cost reduction compared to Alternative 2

· It also satisfies criteria 2 because it is more energy efficient having an efficiency of about 90% hence has the capacity to produce more output.

Performance Monitoring/Post Evaluation

This would be monitored by constantly evaluating:

· Its reliability over the coming months during its life.

· Any reduced or additional costs that might be incurred due to other risks like new technology associated with design in the higher efficient pump.

References

Sullivan, W. G., Wicks, E.M., & Koelling, C.P. (2009). Cost Concepts and Design Economics. In M.J. Horton (Ed.), Engineering economy (15^th ed.) (chapter 2) (pp. 20 - 25). New Jersey, NJ: Pearson Education, Inc.

United States Government Accountability Office (2009, March). Cost Risk and Uncertainty. GAO Cost Estimating and Assessment Guide. Best Practices for Developing and Managing Capital Program Costs. (chapter 14) (pp.160).Washington, DC: GAO.

AACE International Education Board. (2006). Risk Management. In J.K.Hollmann (Ed), Total cost management framework – A process for applying the Skills & knowledge of cost engineering (1st ed) (chapter 7.6.1) (pp.159-160). Morgantown, West Virginia: AACE International.