W16_Dirman_Tuckman Assessment

Problem Statement

Mahakam_2012 as a team of AACE certifications course is facing a situation to catch up the performance which left behind the plan. 3 members have resigned from the team. Tuckman assessment is used to determine which of the Tuckman’s Phases the team is in now and which LEADERSHIP STYLE is appropriate for to use to succeed the program objective.

Feasible Alternatives

There are some leadership styles alternatives can be implemented for the team i.e.:

  1. The exploitive
  2. The benevolent
  3. The consultative
  4. The participative

 Alternative Outcome

  1. The exploitive, where decisions are imposed on subordinates, motivation is characterized by threats, high levels of management have great responsibilities but lower levels have virtually none, there is very little communication and no joint teamwork.
  2. The benevolent, where leadership is by a condescending form of master-servant trust, motivation is mainly by rewards, managerial personnel feel responsibility but lower levels do not, there is little communication and relatively little teamwork.
  3. The consultative system, where leadership is by superiors who have substantial but not complete trust in their subordinates, motivation is by rewards and some involvement, a high proportion of personnel feel responsibility for achieving organization goals, there is some communication (vertical and horizontal) and a moderate teamwork.
  4. The participative, where leadership is by superiors who have complete confidence in their subordinates, motivation is by economic rewards based on goals which have been set in participation, personnel at all levels feel real responsibility for the organizational goals, where there is much communication, and a substantial amount of cooperative teamwork.

Selection of the criteria

The team development survey by Donald Clark at http://www.cscaweb.org/EMS/ sector_team/support_files/ tools_for_the_team/tool_stage. pdf  is used as tool for the Tuckman’s phases identification.

Most of the remaining team members already submit their answer and it is presented as below in Table 1 & Radar Chart 1.

 

 Using statistics we can predict the team score tendency as Table 2 and Radar Chart 2 below.

 

Figure 2  Radar Chart for Team Development Survey

 

 It’s shown from Table 1, 2 & Chart 2, 3, that the team score of the survey get the maximum value on the performing stage (32.6), these indicating  that The Mahakam_2012 team members are now is back to the forming stage. This is caused mostly by some people is not committed anymore to the team goal.

Analysis and comparison of the alternatives

  1. The exploitive system is match with forming phase since each member of the team focuses on the leader, accepting only the leader’s guidance and authority and maintaining a polite but distant relationship with the others. Structure and assertive leadership should be anticipated at this stage.
  2. The benevolent system is match for storming phase. Here’s when team members engage in debate, conflict, and struggles. Trust is questioned at this stage, some members attempt to assert individual superiority. Strong leadership is needed at this stage to keep the group on task as a facilitator and teacher.
  3. The consultative system is match with norming phase. The group members begin productive teamwork during this stage. They develop roles for working together, realize each others talents, and develop mutual trust and respect. Group cohesion grows, roles understanding, and witness interdependency and synergy. The effective leader in this stage gives up control and serves as a cheerleader and coach.
  4. The participative system is match with performing phase. Team thinking, team behavior, and team loyalty are realized in this phase. Individuals identify and take pride in team accomplishments. Interdependency and interpersonal trust peaks, so that team members cover for one another even without request. Now the team leader is inconspicuous, serving as sponsor and consultant

Selected alternative

The exploitive system should be applied in this situation, where the team needs to re-structure / re-establish the team roles, reset the team goal and objective. The team leader must be directive and assert power.

Performance monitoring

The Performance is monitored weekly and monthly refers to the team schedule reports and meeting. This is necessary to determine when the leadership style will change as will be prompted by change in phase to the performing. If in any case, the teams goes backward in phase (serious event/project crisis), there will be need to identify elements of non-conformance and ensure these are treated, corrected or eliminated if they cannot be avoided.

Reference:

1. Donald Clark. (April 21, 2002). Training , Leadership, and Performance. The Team Development Survey. Retrieved from http://www.cscaweb.org/EMS/ sector_team/support_files/ tools_for_the_team/tool_stage. pdf

2. Tucman’s Team Development Model Retrieved from http://salvos.org.au/scribe/sites/2020/files/Resources/Transitions/HANDOUT_-_Tuckmans_Team_Development_Model.pdf

3. E. Scott Geller, Ph.D. (1998). The Stages of Teamwork. Retrieved from http://www.safetyperformance.com/TheStagesofTeamwork.pdf

4. Carol Wilson. (2010). Performance Coach Training. BRUCE TUCKMAN’S FORMING, STORMING, NORMING & PERFORMING TEAM DEVELOPMENT MODEL. Retrieved from  http://www.performancecoachtraining.com/resources/docs/pdfs2/BruceTuckman_Team_Development_Model.pdf

5. AACEL Team Development. Human Relations Contributors. Rensis Likert. Management System & Styles Retrieved from http://www.accel-team.com/human_relations/hrels_04_likert.html

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Blog Name : W#11_DAL_Estimating_Resources

Blog Topic:

Estimating Number of Equipment (Resources).

Brief Project Description: 

Wellwork Team wanted to estimate the number of hoist that would be needed in their workshop. Investigation based on their historical data indicate that :

  • The receiving rate of Routine Service job  recommendation was on the average 2 (wells) per day (2 per 24 hours period) and
  • The average duration of execution per wells was 60 hours.

The hoist will work at 24 hours mode.

Problem  Statement

Wellwork Manager asks his Planing Engineer to use statistical approach in order to estimate the number of equipment should be provided if Wellwork Team has to satisfy the customer (Asset Team) requirement that only 5% backlogs are acceptable (means that 95% of recommendation should be executed).

Feasible Alternatives

Possible solutions to response this request is using statistical approach where we can use :

  • Poission Distribution
  • Normal Distrubition

Selection Alternatives

Planning Engineer decide to use Poisson Distribution since recommendation received are Poisson distibuted, so he can estimate the number of Hoist required to satisfy 95% criterion as stated above.

TOOLS & TECHNIQUE

The Probability Mass Function (pmf) of Poission Random Variable are following :

Where :

PMF      = Probability Mass Function

𝝀            = average number of occurence per unit interval (time or space)

X            = number of occurence per unit interval (n = 0,1,2,3,……)

e             = base of the natural logarithmic and it is approximately 2.71828

Analysis of Alternative

Assuming that:

X            = # of recommendations received per 60 hours and

𝝀          = 2 per 24 hours period

= 5 per 60 hours period

If we assume that n = the number of Hoist required, then P (X > n) represent the probability that there would be more recommendation received in 60 hours period than there are hoist to execute those recommendation timely.

If we want to calculate PMF : P(X>1) then we can calculate by using this relationship:

P(X>1) = 1- P(X=1) – P(X=0)

P(X>1) = 1-0,03369- 0,00674 = 0,9596

In this problem,we want to calculate P(X>n) <0.05 as the acceptable range of backlogs

Using the same procedure for n=2 – 11, we can summarized all the calculation as shown on table below:

Decision Criteria

The acceptable range of backlogs is 0,05 (5%) or in other term P(X>n)<0,05.

Performance Monitoring

From the calculation above and based on the criteria, assuming that n is the number of equipment needed, then we want to determine the smallest value of n for which P(X>n) <0.05. As we can see from the chart that the number of equipment that giving P(X>n) <0.05 is 9 hoists:


 

Conclusion:

  1. Statistical approach using Poisson Distribution can be used as an alternative to estimate resource allocation (equipment needed).
  2. Poisson Distribution is characterized by the form “the number of occurence per unit interval” where the occurence can be a number of equipment need, number of arrival/departure etc and the interval could be in unit of time or volume etc.

 Reference:

  1. Sullivan, W.G., Wicks, E. M., Koelling C.P. (2012). Engineering Economy Fifteenth Edition,  103 – 124.
  2. Kiemele, M.J., Schmidt, S.R., Berdine, R.J., Basic Statistics : Tools for Continous Improvement Fourth Edition.
  3. Ginting, R., Diktat Ekonomi Teknik . Retrieved from http://labsistemtmip.files.wordpress.com/2010/10/diktat-ekonomi-teknik.pdf
  4. Discrete Compounding Table. Retrieved from http://www.scribd.com/doc/68641728/Discrete-Compounding-Table

 

 

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W13_Dirman_ Risk Identification & Assessment

Problem Statement

This blog posting is purposed to identify and assess the Risks of Kiln 3 New Ore Feed Bin Project. The project shall upgrade the existing Kiln 3 New Ore Feed Bin and Weight Feeder to get higher capacity.

Feasible Alternatives

  1. Identify and Assess the Project Risks
  2. Do nothing

Alternatives Outcome

1. Identify and Assess the Project Risks

The first step of this alternative is to develop Risk Breakdown Structure as Figure-1 below

The second step is to develop the project Risk Level Identification & P*I Matrix based on Risk Breakdown Structure above. It is shown in Table 1 below

The next step is to assess the risk and formulate the control action to control / mitigate the risks. Table 2 below represents the control action to be don

2. Do nothing

No outcome available for this alternative. We still don’t have any idea about the project risks and the project will be most likely become in jeopardize due to unprepared the upcoming problems.

Selection of the Criteria

The alternative which identify and assess the project risks

Analysis and Comparison of the Alternatives

Due to the alternative-1 results an identification and assessment of the risks of the Kiln 3 Ore Feed Bin Project, while the alternative-2 has no idea about the project risks and will lead the project to become in jeopardize due to unprepared the upcoming problems solution and, it’s certainly to choose alternative-1

Selected Alternative

Alternative-1 which Identifies and Assesses the Project Risks

Performance monitoring

The project risks identification and assessement is an iterative works during the project lifecycle, and should be done from the beginning up to the end. During the iterative works the project risks identification and assessment shall be updated and revised as necessary.

Reference:

  1. Mulchacy R. (2009). PMP Exam Preparation. Sixth Edition. RMC Publications Inc. USA.
  2. AACE International. (2012). Skills & Knowledge of Cost Engineering. 5th Edition. Morgantown. USA.
  3. Soeharto I. (1995). Manajemen Proyek dari Konseptual Sampai Operasional. Erlangga. Jakarta. Indonesia.
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W#10_DAL_Economics_Life_Prediction

Blog Topic:

Computing the Economics Life of Equipment.

Brief Project Description: 

One of the Communication company plan to buy Digital Centre Equipment about US$ 1,000,000 with the predicted salvage value and operational cost (annually) as per table below. Assume that MARR is 10%.

Table below shows the detail of Salvage value and Annual Operational cost :

Table1. Salvage Value and and Annualy Operational Cost

Problem  Statement

The company wants to know the Economics Life of the equipment (Digital center)

Feasible Alternatives

The solution to answer the question are :

  1. Calculate the Economics Life for fixed asset which define as the periods that give the minimum Equivalent Uniform Annual Cost (EUAC).
  2. Calculate using Depreciation by assuming booked value is equal to zero.

Selection Alternatives

The company decide to calculate using EUAC method.

TOOLS & TECHNIQUE

The formula that we can use to calculate the Economics Life of Fixe Asset is define below:

EUACk = EUAC Capital Recovery          + EUAC Operations

EUACk = P(A/P,I%,k) – Sk (A/F,I%,k) + [∑AOCj(P/F,I%,j)](A/P,I%,k)

Where :

  • P            = Asset Value
  • Sk          = Salvage Value at year k
  • AOCj     = Annual Operating Cost at year j, j = 1,2,3…k

Term P(A/P,I%,k) – Sk (A/F,I%,k) = EUAC Capital Recovery

[∑AOCj(P/F,I%,j)](A/P,I%,k) = EUAC Operations

Analysis of Alternative

Using Formula above and Interest factor table, below is the example of the calculation at end of year k = 1 where:

  • P            = US$ 1,000,000
  • Sk=1      = US$ 900,000
  • AOCj=1  = US$ 100,000
  • I             = 10%

Then we can calculate:

EUACk = EUAC Capital Recovery + EUAC Operations

EUACk=1 = US$ 1,000,000 * (A/P,10%,1) – US$ 900,000 * (A/F,10%,1) +US$ 100,000 * (P/F,10%,1)(A/P,10%,1).

Interest table for the specific puspose are shown below:

Table 2 Interest Table

 EUACk=1 = US$ 1,000,000 * (1,1000) – US$ 900,000 * (1,0000) + US$ 100,000 * (0.9091) (1,1000)

EUACk=1 = US$ 1,100,000 – US$ 900,000 + US$ 100,001

EUACk=1 = US$ 200,000+ US$ 100,001

EUACk=1 = US$ 300,001

Using the same procedure for k=2 – 10, we can summarized the calculation as shown on table below:

Table 2 Summary Result

Decision Criteria

As stated earlier that Economics life of fix asset define as the periods that give the minimum Equivalent Uniform Annual Cost (EUAC)

 Performance Monitoring

From the calculation above and based on the criteria, we can see from the chart that the period when give minimum Equivalent Uniform Annual Cost (EUAC) is at year 8 with EUAC US$ 262,080:

Figure 1 Equivalent Uniform Annual Cost Chart

 

Conclusion:

  1. The economics life of an asset minimize the EUAC of owning and operating the asset and it is shorter than useful or physical life. It is important to know the economics life, minimum EUAC and total year by year cost for evaluation of replacement existing asset with new (Defender) or replacement (new) assets (challenger). This period might be extended with adequate maintenance and implementing operational excellence or maybe suddenly jeoperdized by an external factor (Technology change)
  2. This value can be compute if we can predict some number such as Capital investement, Annual Expenses, and year by year market value. Estimating problem in replacement analysis is not unique and this become a difficulties or discourage performing the economics life and equivalent cost calculation.

Reference:

  1. Sullivan, W.G., Wicks, E. M., Koelling C.P. (2012). Engineering Economy Fifteenth Edition,  103 – 124.
  2. Kiemele, M.J., Schmidt, S.R., Berdine, R.J., Basic Statistics : Tools for Continous Improvement Fourth Edition.
  3. Ginting, R., Diktat Ekonomi Teknik . Retrieved from http://labsistemtmip.files.wordpress.com/2010/10/diktat-ekonomi-teknik.pdf
  4. Discrete Compounding Table. Retrieved from http://www.scribd.com/doc/68641728/Discrete-Compounding-Table
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W12_Dirman_Fishbone Diagram

Problem Statement

PTVI north sulphur melter agitator was not in proper operation. It began when the motor was burnt out, and after replacement, hi-current about 10% above Full Load Ampere (FLA) occurred. This condition would cause motor trips & burnt out again.

 Feasible Alternatives

  1. Perform root cause analysis and determine corrective action
  2. Continue to operate the agitator as current condition

 Alternatives Outcome

1. Perform root cause analysis and determine corrective action

 To perform root cause analysis, we need to collect field data such as field findings and action have been done as below

 Some findings related to the problem are as below:

  1. North agitator motor current :
    1. for clockwise (CW) rotation is 36~40 Amp; Voltage 368 V
    2. for counter clockwise (CCW) rotation is 29~30 Amp; 368 V
  2. South agitator motor current for clockwise (CW) rotation is 28~29 Amp; 370 V
  3. There were no cabling/electrical problems on the agitator.
  4. Unclear information about the method to rise up and dismantle south agitator unit to check and compare the impellers.
  5. Sulphur temperature is satisfy, around 126.8 – 134ºC (in range of liquid phase)
  6. North agitator gearbox has clockwise rotation sign/indicator (Figure-1)

Figure 1

 

  1. Operation need for north agitator is CW rotation to get liquid mixing as Figure-2; refer to south agitator.

Figure 2

 

  1. Actual agitator impeller (north & south) is different from original drawing as Figure-3 & 4

Figure 3

 

Figure 4

 

  1. Agitator impeller north has different blade attack angle, north 45º while south 135º as Figure-5

Figure 5

 Some actions have been done to overcome the problem as below:

  1. Exchange north and south agitator motor.
  2. Measure temperature north sulphur melter as finding-5.
  3. Replace existing with new gearbox on the north agitator.
  4. Drain out and clean up north sulphur melter pit.
  5. Measure current motor north and south agitator as finding-1 & 2
  6. New cable simulation for north motor to check problems in cabling as finding-3 and Figure-6.

Figure 6

 

  1. Rise up and check north and south agitator impeller as finding-8 & 9
  2. Install south agitator unit at north melter to make sure the hi-current ampere does not occur.
  3. South agitator current is in normal range, 28~29 Ampere, after installed at north melter pit.

 The next step is to develop the fishbone diagram based on the problem possible causes

Figure 7

 

 Based on above Fishbone diagram (Figure 7) with exploration and validation to the field findings and action have been done, we conclude that the motor high current/ampere is caused by disorientation of agitator impeller blades in CW rotation, which has 45º attack angle. The angle should be 135º refer to south agitator impeller as reference.

To overcome this situation the action need to be done is to sent the north agitator unit to fabrication shop, to modify it’s blade attack angle as same as south impeller, from 45º to 135º. This will accommodates gearbox CW sign rotation. North agitator then will install at the south melter. 

2. Continue to operate the agitator as current condition

This alternative would cause motor trips & burnt out again thus will lead to production loss.

Selection of the criteria

The alternative which results a solution to the situation occurred

Analysis and comparison of the alternatives

Due to the alternative-1 results a solution for the operating problem on the sulphur melter agitator after exploring the possible cause of the problem and validated with field finding and condition, while the alternative-2 has no solution and will lead to equipment damage and production loss, it’s a certainly to choose alternative-1

Selected alternative

Alternative-1 Perform root cause analysis and determine corrective action

Performance monitoring

After the modification and installation of the impeller blade at south sulphur melter, monitor the motor ampere and evaluate the result.

Reference:

  1. Brassard, M., & Ritter, D. (2010). Cause & Effect/Fishbone Diagram. The Memory Jogger 2 Second Edition. GOAL/QPC. USA.
  2. Hayward Gordon Ltd. (Dec 1998). Mixing Fundamentals. Montreal. Canada.
  3. Hayward Gordon Ltd. (August 1999). Service Instruction for MB Series Mixer. Montreal. Canada.
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W#08_Ros_3D WBS for Mining Facilities Development Project

Problem Recognition, Definition and Evaluation

One of  the item stated in  the lesson learned register is WBS that  was not defined in sufficient model to  produce meaningful analysis and flexible roll up that can be used for estimate feed back, scheduling and project control during execution of  Mining facilities development project.

The project was divided into several areas of work (GBS) such are ROM, permanent camp, haul road and port area.  In each area there are multiple product (PBS) need to be delivered as of project scope of work (civil/structure/earth works, electrical/instrumentation, mechanical works).  Each product has multiple activities that will be structured as ABS.

Problem recognition: to explore optimal WBS for Mining facilities development project.

Development of Feasible Alternatives

Below table shown are several WBS alternatives available. Alternative-1 is the WBS used in previous project (Client WBS).

Alternative Type WBS Level
1 2 3
1 2D Area (GBS) Product (PBS) Activities (ABS)
2 2D Product (PBS) Area (PBS) Activities (ABS)
3 3D Product (PBS)-
X axis
Activities (ABS) –
Y axis
Area (GBS) –
Z axis

Development of the Outcomes and Comparison

Alternative 1:  In figure below it appears that the WBS level 1 is GBS and  level 2 is PBS.  In each PBS, there will be related activities (ABS) as WBS level 3.

Alternative 2: In figure below it appears that the WBS level 1 is PBS and  level 2 is GBS.  There will be related activities (ABS) within GBS as WBS level 3.

Alternative 3: Below figure shown 3 dimensional model of WBS, where PBS as X-axis, ABS as Y-Axis and GBS as Z-Axis. In this model, we can visualize the site preparation works as 2D model of 1 particular location (PBS and ABS) and then applied to the same in the third dimension for other area within the project scope of work (GBS).

Selection of Criteria

The selection criteria of each WBS alternative are:

  1. Flexible roll-up of cost and schedule
  2. Optimal flexibility and visibility for project reporting including estimating feed back, cost, schedule and project control analysis.
  3. Optimal schedule to manage recourses (labor and equipment).

Selection of Preferred Alternative

Alternative 3 was selected because it meets with the criteria and will be proposed to apply in typical scope of work project for better visibility and flexibility of cost estimation feed back, schedule and project control monitoring/analysis. The 3D WBS model is suitable for Mining facilities development project because there will be similar PBS and ABS in the typical each facilities area.

 Performance Monitoring and Post Evaluation of Results

Performance Monitoring:

–  Compare with current Company practice, the above selected WBS need to setup from the estimating stage (at least as draft) to identify and confirm the project management reporting system required for the related project.

–  It requires developing WBS dictionaries and coding manual/procedure in order to maintain same understanding within the project team and other support functional division regarding applied WBS and reporting system.  It also can avoid report error during project execution.

Results:

–   Based on the advantages that have been identified, the 3D WBS can be expanded to 4th dimension (combine/mapping with OBS and RBS).

References

–       Humphreys, G.C. (2011). Project Management Using Earned Value Second Edition. USA: Humphreys & Associates, Inc.

–   Project Coding Conundrum As it Relates to Project Controls: a Study of EPC Project/s in Canada.  Retrieved from: http://toostep.com/insight/article—break-down-structures—wbs-obs-rbs-pbs-cbs-an-ove.

–    Moine, J.Y. 3D Work Breakdown Structure. Retrieved from: http://3d-wbs.blogspot.com/

–    Kumar, H. Applying 3D WBS to Telecommunication RAN Roll out.  Retrieved from:http://aacecasablanca.wordpress.com/author/hkblaze/.

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W#9_DAL_Investment_Plan_Selection

Blog Topic: 

Investment Plan Alternatives Selection.

Brief Project Description: 

One of major Oil Company plans to acquire land as part of business expansion. The company has 4 different purpose to utilize that land.

Table below show the details of each alternatives:

 

Alt.

Description

Cost of Investment (US$)

Annual Net Income (US$)

A Fuel Station with lubrication facility

145,000

23,300

B Automatic Fuel station

300,000

44,300

C Conventional Fuel station

100,000

10,000

D Fuel station with with low pump

200,000

27,500

 

Table1. Alternative Capital Investment and Annualy Income

Each alternative has usage life for 15 years with Salvage Value US$ 70,000. The company expect that rate of return to be 10%.  

Problem  Statement:  

The Management wants to select the most favorable alternative.   

 Feasible Alternatives

Some feasible alternatives are as follows:

  • Rate of Return Method
  • Incremental Analysis of rate of return 

Selection Alternatives

Management decide to use Rate of Return Method for alternative selection.

TOOLS & TECHNIQUE

The company wants to use Incremental analysis to decide which alternative to be selected.

Analysis of Alternative

Using the calculation of Rate of Return, we got the summary as shown on the table below:

Alt.

Description

Cost of Investment (US$)

Annual Net Income (US$)

Rate of Return (%)

A Fuel Station with lubrication facility

145,000

23,300

15

B Automatic Fuel station

300,000

44,300

12,9

C Conventional Fuel station

100,000

10,000

9

D Fuel station with with low pump

200,000

27,500

12

From table above, alternative C is not considered as it has lower than the expected rate of return by the company. Next step is to compare and select another 3 alternatives (A,B and D).

 

Calculation Example

We compare alternative D and alternative A

Delta Investment = US$ 200,000 – US$ 145,000 = US$ 55,000

Delta Annual Income = US$ 27,500 – US$ 23,300 = US$ 4,200

Delta Salvage Value = US$ 70,000 – US$ 70,000 = US$ 0

US$ 55,000 = US$ 4,200 (P/A,i%,15)

(P/A,i%,15) = US$ 55,000/US$ 4,200

(P/A,i%,15) = 13,09

Refer to Interest and Annuity Table for Discrete Compounding, we find:

(P/A,1%,15) = 13,8651

(P/A,i%,15)  = 13,09

(P/A,2%,15) = 12,8493

Using interpolation, we can calculate:

i =  1% + 1% x [(13,09-13,8651)/(12,8493-13,8651)]

i = 1% + 0,2407%

i = 1,24%

From this result, we reject alternative D and select alternative A to be compared with Alternative B. The reason we reject alternative D is because it has lower rate of return than the expected rate of return so we select alternative B which has lower Capital Investment.

Comparison Alternative B and Alternative A

Delta Investment = US$ 300,000 – US$ 145,000 = US$ 155,000

Delta Annual Income = US$ 44,300 – US$ 23,300 = US$ 21,000

Delta Salvage Value = US$ 70,000 – US$ 70,000 = US$ 0

US$ 155,000 = US$ 21,000 (P/A,i%,15)

(P/A,i%,15) = US$ 155,000/US$ 21,000

(P/A,i%,15) = 7,3809

Refer to Interest and Annuity Table for Discrete Compounding, we find:

(P/A,10%,15) = 7,6061

(P/A,i%,15)  = 7,3809

(P/A,12%,15) = 6,8109

Using interpolation, we can calculate:

i =  10% + 2% x [(7,3809-7,6061)/( 6,8109-7,6061)]

i = 10% + 0,2832%

i = 10,2832%

Decision Criteria

As stated earlier that the expected Rate of Return by the company is 10% (MARR) and

If Delta  Interest (RoR) > MARR then Select alternative which has higher Capital investment amount.

If Delta Interest (RoR) < MARR then Select alternative which has Lowest Capital investment amount.

Performance Monitoring

From the calculation above, one of the individual rate of return (alternative C) has lower that the expected so we do not consider to evaluate. We compare three alternative using incremental analysis with the result as follows:

Alternative comparison

Increment Rate of Return

D-A

1,24%

B-A

10,28%

Conclusion:

  1. Incremental Analysis technique is applicable when we are face to selection alternative process that muttually exclusive where we have to select only one them.
  2. This case is also a simulation of Interpolation technique as alternative when calculating the rate of return  when its not available in the table.

Reference:

  1. Sullivan, W.G., Wicks, E. M., Koelling C.P. (2012). Engineering Economy Fifteenth Edition,  103 – 124.
  2. Kiemele, M.J., Schmidt, S.R., Berdine, R.J., Basic Statistics : Tools for Continous Improvement Fourth Edition.
  3. Ginting, R., Diktat Ekonomi Teknik . Retrieved from http://labsistemtmip.files.wordpress.com/2010/10/diktat-ekonomi-teknik.pdf
  4. Discrete Compounding Table. Retrieved from http://www.scribd.com/doc/68641728/Discrete-Compounding-Table
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