W7_INDRA_Terminate Option for Shipyard

1.            Problem Recognition, Definition and Evaluation

Sancai Heavy Industries is our most disaster contractor.  We build 5 vessels there. 3 vessels already delivered and all late more than 50 days. The 2 vessels remain should be delivered on 15^th Novemeber 2012 and 15^th December 2012. Here the last progress of these vessels :

Table 1 : Last Progress of MT. Singomenggolo & MT. Sembada

Based on contract, we may terminate the vessel if more than 80 days from contract delivery date the vessel do not finish yet. The shipyard promise the vessel may be delivered no more than 80 days from the contract delivery date. But we are not sure

Problem Statement

            What will we do for the 2 remain vessels? Terminate or continue?

2.            Develop of  the Feasible Alternatives

a.     Continue the contract. On the day 80^th, we may choose the option to terminate or continue the contract

 b.    Terminate the contract. Only can be terminated on the day 80^th from the contract delivery date.

3.            Develop the outcomes for each alternative

a.     Continue the contract. If the vessel delivered no more than 80 days, the shipyard pay penalty based on the delay days. If the late delivery days more than 80 days, the shipyard only pay penalty max 80 days

 b.    Terminate the contract. Only can be terminated in the day 80^th from the contract delivery date. If we do not make decision until the 90^th day, it means we accept to continue the contract. So we only have 10 days to make decision. The problem is we can’t make sure the BOD may decide no more than 10 days. Because for the vessel price more than 20,000,000 US$ is need 5 Director and CEO approved. If we terminate the contract, we may take the refund guarantee from the shipyard financier. The refund guarantee value is same to how many payment we already paid plus LIBOR in this year

4.            Selection of the acceptable criteria.

The parameter we use :

a.     Schedule Performance Index (SPI) = BCWP/BCWS = Actual progress / Progress Plan

b.    Predicted Delivery Date using EVM =

Date Equal BCWP + [(Contract Delivery Date – Date Equal BCWP)/SPI]

Figure 1 : Calculate Predicted Delivery Date

5.            Analysis and comparison of the alternatives

Based on the simulation, we calculate the SPI and Predicted Delivery Date as below :

Table 2 : Predicted Delivery Date

6.            Select the preferred alternative

Based on the calculation, the shipyard is able to delivery no more than 80 days from contract delivery date. The preferred alternative is continue the contract and gives penalty to the shipyard based on the delay days

7.            Performance Monitoring & Post Evaluation of Result

The progress of these vessels will be monitor every week. Using the progress report we may control the SPI and Predicted Delivery Date per week to make sure the vessels will be delivered not more than 80 days from contract delivery date

Reference

i.        A Prototype Description of A Shipbuilder’s Earned Value Management System, Retrieved from: http://www.sparusa.com/Documents/Preview%20Prototype%20EVMS%20Description.pdf

ii.       Building Ships On Time, retrieved from:

          http://www.rand.org/pubs/research_briefs/RB9116/index1.html

iii.      Earned Value Management For Shipbuilding, retrieved from: http://www.sparusa.com/Presentations/PERCEPTION%20Earned%20Value%20Mgmt.pdf