Group B Aco, Bernadette Liza Angeles, Aaron
Mendoza, Vincent Morada, Roberto Carlo
TEANECK COMPANY For strategic reasons, it is very important for Teaneck Company to submit the mo st competitive bid. Winning the bid not only means that the company will get the sewer system project but it can also edge out the other competitors in obtaining a contract amounting to P50 million later that year. Precedence Table Before coming up with the bid price, we have laid out the activities required in constructing the sewer system in the precedence table below. Table 1. Precedence Table A B C D E F G H J K L M
ACTIVITY Move in machinery/equipment machinery/equipment Excavate primary shaft Excavate secondary shafts Excavate trenches Excavate tunnel Backfill (trenches only) Pipelaying in trenches Pipelaying in tunnel Pour concrete in trenches Pour concrete in tunnel Landscape Move out
Precedence A B A B J D C,E G H F L
After the machinery/equipment has been settled at the construction site, the excavation of the primary shaft and trenches will begin immediately. These will be followed by the excavation of the secondary shafts and the tunnel. After all the excavation procedures, the pipes will then be laid both in the trenches and in the tunnel. After pipelaying, concrete will be poured to fill the excavation. Once the concrete has set, the construction team can begin backfilling the holes in the trenches to make the foundations sturdier. Lastly, the construction should be properly leveled or landscaped before moving out the machinery/equipment.
Base Case: Absolute Shifts A. No Strike Assuming there is no strike, the project is expected to be completed in 497 days if the company decides to use 1 shift, 252 days for 2 shifts, and 171 days for 3 shifts. The PERT diagrams
Page 1 of 1
supporting these calculations are shown in the Appendix Section. The project cost and bid prices are summarized in Table 2a. In this scenario, we have observed that the direct cost increases as the company increases its number of shifts. However, increasing the number of shifts dramatically reduces the number of days required to complete the project, consequently cutting down total indirect costs. As the number of shifts increases, the reduction in indirect costs more than offsets the increase in direct costs, thus decreasing the overall cost and making our bid price more competitive. By comparing absolutely 1, 2 or 3 shifts, we can see that the optimal shift seems to be the last one as this has the lowest total cost and shortest project period. Table 2a. Bid Price Per Shift – No Strike Scenario Direct cost Indirect cost Total direct & indirect cost General and administrative expense Total cost Mark-up Bid price
One shift 6,247,500 3,479,000 9,726,500 3,890,600 13,617,100 1,361,710 14,978,810
Two shifts 7,020,000 2,016,000 9,036,000 3,614,400 12,650,400 1,265,040 13,915,440
Three shifts 7,337,000 1,539,000 8,876,000 3,550,400 12,426,400 1,242,640 13,669,040
497
252
171
27,399
50,200
72,669
Days Cost/day B. With Strike
Unfortunately, an Excavators Union strike is expected to occur on the project’s inception date . This is expected to stretch the completion date of the project by the weighted average number of days, i.e. summation of the product of length of strike days and probability. We can expect the sewer system’s project completion date to be extended by approximately 32.5 days Length of strike days 20 30 40 Total
Probability .25 .25 0.5
Expected length of strike 5 7.7 20 32.5
Although the strike will not affect direct costs, the group expects the cost o f the strike to be charged with the indirect cost per day for the corresponding shift. The cost is then multiplied by the probability of occurrence which is 80%. The bid prices for the absolute shift scenarios that incorporate the strike are shown in Table 2b. Based on this, the most competitive bid still utilizes three shifts.
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Table 2b. Bid Price Per Shift – With Strike Scenario Direct cost Indirect cost Indirect cost attributable to the strike Total direct & indirect cost General and administrative expense Total cost Mark-up Bid price
One shift 6,247,500 3,479,000 182,000 9,908,500 3,963,400 13,871,900 1,387,190 15,259,090
Two shifts 7,020,000 2,016,000 208,000 9,244,000 3,697,600 12,941,600 1,294,160 14,235,760
Three shifts 7,337,000 1,539,000 234,000 9,110,000 3,644,000 12,754,400 1,275,400 14,029,400
529.5
284.5
203.5
28,818
50,038
68,941
Days Cost/day
Alternate Scenario: Using Combination of Shifts To meet the objective of minimizing the project bid price, the group has decided to find the optimal number of shifts for each activity. The optimal number of shift is the one that minimizes the total direct and indirect costs for a specific activity as shown in Table 3. The activities with their corresponding optimal shifts and minimum total costs are summarized in Table 4. Using a combination of shifts will extend the completion date to 222 .5 days from 203.5 days using straight 3 shifts with strike. By considering the direct costs for the optimal number of shift for each activity and the indirect costs along the critical path only, we have estimated a bid price of P13.95 million for the with strike scenario (see Table 5). We can still bring down the price by choosing lesser number of shifts for the activities that are not along the critical path. Using only 1 shift instead of 3 for activity C and 2 shifts instead of 3 for activity H will decrease total cost by P34,500 and P15,000, respectively. Cutting the number of shifts for activities E and K will not be operationally practical because it will alter the critical path and extend the project completion time. For additional project savings, strike cost is estimated by assigning the minimum indirect cost of P7,000/day. The result is then multiplied by the probability of occurrence of 80%. The final bid price is estimated at P13.87 million.
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Table 3. Computation of Total Cost per Activity
One shift
Two shifts
Indirect Cost 84,000
Total Cost 234,000
Three shifts Total Cost 213,000
Total Cost 216,000
Move in machinery/equipment
12
Direct Cost 150,000
6
165,000
Indirect Cost 48,000
180,000
Indirect Cost 36,000
B
Excavate primary shaft
12
347,500
84,000
431,500
12
347,500
96,000
443,500
12
347,500
108,000
455,500
C
Excavate secondary shafts
60
312,500
420,000
732,500
24
330,000
192,000
522,000
12
347,000
108,000
455,000
D
Excavate trenches
300
1,685,000
2,100,000
3,785,000
150
2,125,000
1,200,000
3,325,000
100
2,250,000
900,000
3,150,000
E
Excavate tunnel
305
1,807,500
2,135,000
3,942,500
155
1,955,000
1,240,000
3,195,000
105
2,000,000
945,000
2,945,000
F
Backfill (trenches only)
50
50,000
350,000
400,000
25
75,000
200,000
275,000
17
100,000
153,000
253,000
G
Pipelaying in trenches
50
375,000
350,000
725,000
25
410,000
200,000
610,000
17
445,000
153,000
598,000
H
Pipelaying in tunnel
50
275,000
350,000
625,000
25
285,000
200,000
485,000
15
300,000
135,000
435,000
J
Pour concrete in trenches
70
570,000
490,000
1,060,000
35
582,500
280,000
862,500
25
592,500
225,000
817,500
K
Pour concrete in tunnel
60
550,000
420,000
970,000
30
562,500
240,000
802,500
20
575,000
180,000
755,000
L
Landscape
10
100,000
70,000
170,000
8
145,000
64,000
209,000
6
150,000
54,000
204,000
M
Move out
5
25,000
35,000
60,000
3
37,500
24,000
61,500
2
50,000
18,000
68,000
ACTIVITY A
Days
Days
Direct
Days
Direct
4
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Table 4. Optimal Number of Shifts per Activity ACTIVITY
Min. Total Cost/Activity
Shift
Days
Critical path (days)
Move in machinery/equipment
213,000
2
6
6
B
Excavate primary shaft
431,500
1
12
C
Excavate secondary shafts
455,000
3
12
D
Excavate trenches
3,150,000
3
100
E
Excavate tunnel
2,945,000
3
105
F
Backfill (trenches only)
253,000
3
17
17
G
Pipelaying in trenches
598,000
3
17
17
H
Pipelaying in tunnel
435,000
3
15
J
Pour concrete in trenches
817,500
2
35
K
Pour concrete in tunnel
755,000
3
20
L
Landscape
170,000
1
10
10
M
Move out
60,000
1
5
5
A
100
35
190
TOTAL
Table 5. Computation of Bid Price Based on Optimal Number of Shifts in Table 4 ACTIVITY
Shift
Days
Direct
Indirect
Table 4. Optimal Number of Shifts per Activity ACTIVITY
Min. Total Cost/Activity
Shift
Days
Critical path (days)
Move in machinery/equipment
213,000
2
6
6
B
Excavate primary shaft
431,500
1
12
C
Excavate secondary shafts
455,000
3
12
D
Excavate trenches
3,150,000
3
100
E
Excavate tunnel
2,945,000
3
105
F
Backfill (trenches only)
253,000
3
17
17
G
Pipelaying in trenches
598,000
3
17
17
H
Pipelaying in tunnel
435,000
3
15
J
Pour concrete in trenches
817,500
2
35
K
Pour concrete in tunnel
755,000
3
20
L
Landscape
170,000
1
10
10
M
Move out
60,000
1
5
5
A
100
35
190
TOTAL
Table 5. Computation of Bid Price Based on Optimal Number of Shifts in Table 4 A B C D E F G H J K L M
ACTIVITY Move in machinery/equipment Excavate primary shaft Excavate secondary shafts Excavate trenches Excavate tunnel Backfill (trenches only) Pipelaying in trenches Pipelaying in tunnel Pour concrete in trenches Pour concrete in tunnel Landscape Move out
Shift 2 1 3 3 3 3 3 3 2 3 1 1
Days 6 12 12 100 105 17 17 15 35 20 10 5
Normal direct cost Normal indirect cost Indirect cost attributable to strike
Direct P 165,000 347,500 347,000 2,250,000 2,000,000 100,000 445,000 300,000 582,500 575,000 100,000 25,000
Indirect P 48,000
P 7,237,000
P 1,639,000
900,000 153,000 153,000 280,000 70,000 35,000
No Strike P 7,237,000 1,639,000
With Strike P 7,237,000 1,639,000 182,000
P 8,876,000 3,550,400 P 12,426,400 1,242,640 P 13,669,040
P 9,058,500
(at P7,000/day, with 80% prob. of occurrence = P7000 x 32.5 days x 80%)
Total direct and indirect cost G&A costs Total cost Profit Bid price
3,623,200 P 12,681,200 1,268,120 P 13,949,320
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Table 6. Revised Shift Schedule A B C D E F G H J K L M
ACTIVITY Move in machinery/equipment Excavate primary shaft Excavate secondary shafts Excavate trenches Excavate tunnel Backfill (trenches only) Pipelaying in trenches Pipelaying in tunnel Pour concrete in trenches Pour concrete in tunnel Landscape Move out
Shift 2 1 1 3 3 3 3 2 2 3 1 1
Days 6 12 60 100 105 17 17 25 35 20 10 5
Direct P 165,000 347,500 312,500 2,250,000 2,000,000 100,000 445,000 285,000 582,500 575,000 100,000 25,000
Indirect 48,000
P 7,187,500
1,639,000
900,000 153,000 153,000 280,000 70,000 35,000
Table 7. Final Bid Price Based on Revised Shift Schedule No Strike Direct cost Indirect cost Estimated cost of the strike (at P7,000/day, with 80% prob. of occurrence = P7000 x 32.5 days x 80%) Total direct and indirect cost
With Strike
P 7,187,500 1,639,000
P 7,187,500 1,639,000 182,000
P 8,826,500
P 9,008,500
G&A costs
3,530,600
3,603,400
Total cost
P 12,357,100
P 12,611,900
1,235,710
1,261,190
P 13,592,810
P 13,873,090
Profit Bid price
Conclusion and Recommendation Usually, there are tradeoffs between cost and time to complete a project. Completing a project sooner by requiring more resources makes the project more expensive. However, this is n ot always the case for Teaneck’s sewer system project . If management prioritizes a faster completion of the project at minimal cost, then the group recommends using 3 shifts for all activities wherein the project will be completed in 203.5 days at a cost of P14.03 million assuming a strike occurs. However, since the main concern is obtaining the lowest bid price, then the group recommends a combination of shifts per activity as Teaneck will be able to reduce the bid price to P13.87 million. At this bid price, project completion date will be extended by 19 days relative to using straight 3 shifts.
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Appendix: PERT Diagrams (critical path in blue) A. Base Case - No Strike 1 shift START strike
0
0
0
0
0
A
0
12
12
0
12
D
12
312
B
12
24
300
12
312
12
55
67
G
312
362
E
24
329
C
24
84
50
312
362
305
67
372
60
312
372
J
362
432
H
329
379
70
362
432
50
372
422
F
432
482
K
379
439
50
432
482
60
422
482
L
482
492
10
482
492
M
492
497
5
492
497
END
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2 shifts START strike
0
0
0
0
0
A
0
6
6
0
6
D
6
156
B
6
18
150
6
156
12
19
31
G
156
181
E
18
173
C
18
42
17
156
181
155
31
186
24
162
186
J
181
216
H
173
198
25
181
216
25
186
211
F
216
241
K
198
228
17
216
241
30
211
241
L
241
249
8
241
249
M
249
252
3
249
252
END
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3 shifts START strike
0
0
0
0
0
A
0
4
4
0
4
D
4
104
B
4
16
100
4
104
12
11
23
G
104
121
E
16
121
C
16
28
17
104
121
105
23
128
12
116
128
J
121
146
H
121
136
25
121
146
15
128
143
F
146
163
K
136
156
17
146
163
20
143
163
L
163
169
6
163
169
M
169
171
2
169
171
END
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B. Combination of shifts The strike is expected to occur on the project inception date, pushing the start of moving in the machinery/equipment by the expected length of strike. START strike
0
32.5
32.5
0
32.5
A
32.5
38.5
6
32.5
38.5
D
38.5
138.5
B
38.5
50.5
100
38.5
138.5
12
45.5
57.5
G
138.5
155.5
E
50.5
155.5
C
50.5
110.5
17
138.5
155.5
105
57.5
162.5
60
102.5
162.5
J
155.5
190.5
H
155.5
180.5
35
155.5
190.5
25
162.5
187.5
F
190.5
207.5
K
180.5
200.5
17
190.5
207.5
20
187.5
207.5
L
207.5
217.5
10
207.5
217.5
M
217.5
222.5
5
217.5
222.5
END
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