W2_Wimbo_
Alternative Selection for Own Tanker
1. Problem recognition,
definition and evaluation
In this year our company have plan to invest 1 unit oil tanker (30.000
DWT) that will be used for transport oil from Dumai to Jakarta. The problem for
the management is to decide which method that will be chosen to own chemical
tanker.
2. Development of the
feasible alternatives
There are two possible alternative to own tanker:
- -
Build New tanker
-
- Buy existing tanker (second
hand)
3. Development of the
outcomes
Build new tanker, our company need to wait minimum 24 month for EPC
period, operation life time 20 years. Market data show that tanker price is USD
32.8 Million project cost needed USD 1 million.
Buy existing tanker (secondhand), the vessel can directly use.
Tanker’s price is cheaper than new tanker. Market data show that tanker price
is USD 27.0 Million and administration cost need USD 0.5 million.
4. Acceptable Criteria
To meet company requirement, those alternatives method should give
benefit to our company such as ROI more than expected return and give support
to company operation.
Term and condition a special tanker could be accepted by our company:
Have Special technical specification
Age of the tanker :
less than 20 years
Revenue for the vessel :
USD 25.000 / day
To analyze which method that could meet the company requirement, we
use economical calculation to analyze each alternative
Build new special tanker
Buy secondhand tanker
Assuming:
1 unit tanker candidate with same technical specification and have 6
years old offering to our company.
5. Selection of the
preferred alternative
Alternative selection according economical
analysis show that secondhand tanker have more economical benefit compare to build
new tanker. The parameter show that IRR or ROI secondhand tanker 13.84% more
bigger than build new tanker 11.03%.
6. Conclusion
Base on economical analysis top
management could chose the second alternative buy secondhand tanker that give
more economical benefit for our company.
References:
i.
Shipping
Intellegence Network , retrieved from :
http://www.clarksons.net/sin2010/markets/Default.aspx
ii.
Market
Focus : Oil Tanker, retrieved from
iii.
How to calculate your Return On
Investment, retrieved from :
http://www.fatpitchfinancials.com/392/how-to-calculate-your-return-on-investment/
Excellent topic, Pak Wimbo and you followed our step by step process reasonably well. (You missed step 7- how will you know if your decision was a good one or not? How can you follow up after the purchase to capture your lessons learned?) You also did a great job on your citations.
ReplyDeleteCouple of challenges to you. Why didn't you cite Chapter 6 from your Engineering Economy- "Comparison Between Alternatives"? By using the tools and techniques shown in EngEcon, you could have claimed credit for not only your blog, but also for the problems?
Another idea- I see you used IRR. But why not look at pages 205 -207 and calculate the ERR (External Rate of Return) and compare the advantages of using ERR over IRR?
Another question. Are financial calculations the only reason for making decisions? Or are there other considerations? Suggest you read over Chapter 14, especially pages 560 to 569 and demonstrate you know and understand how to use Multi-attribute decision making tools and techniques?
See where I am going with this? By working smart and not hard, you could be getting credit for doing your problems at the same time you are doing your blog postings. Does this make sense to you?
Bottom line- I suggest you take this same problem and for W3, compare IRR vs ERR vs Payback; for W4, you can apply the tools/techniques from Chapter 6 and for W5, you can take this same case study and apply the tools/techniques from Chapter 14. Shouldn't take you long at all and it will give you a chance to get ahead of schedule in overall work effort, even though this is NOT on the critical path?
BR,
Dr. PDG, Jakarta