Reference no: EM131427793

Planning and Decision Making in Construction Assignment

Problem 1: You are required to choose one of the two projects based on NPV and IRR calculations. Run the calculations over 5 year's time.

	Project 1	Project 2	Project 3
Setup cost	250,000	235,000	145,000
Revenue per year	150,000	135,000	180,000
OMR Expense per year	62,500	83,000	95,000

Input Uncertainties as follows:

Project 1: Set up cost (250,000, 270,000, 290,000)   

Revenue/ year (150,000, 170,000, 220,000)

Expenses/ year (55,000, 62,500, 70,000)

Project 2: Set up cost (235000, 280,000, 300,000)

Revenue/ year (100,000, 135,000, 160,000)

Expenses /year (62,500, 83,000, 100,000)

Project 3: Set up cost (145000, 180,000, 200,000)

Revenue/ year (180,000, 220,000, 240,000)

Expenses /year (80,000, 95,000, 120,000)

Use Risk simulation to determine the best project for investment. Provide all relevant graphs in your results and thoroughly discuss the results to support your decision.

Problem 2: You are helping one of your young cousins in making the decision of going to UK to work and travel on one year working visa. There is an uncertainty about the job prospects and how much would he earn? He is also uncertain what will be his expenses in UK? He has done single point estimation but he is not satisfied with his estimate as there is a lot of uncertainty and hence risk in the process. He has come to know that you are skilled in taking up uncertainty and risk into account while making decisions. He is also aware that you have some magic software that can realistically tell him what amount of money he would be earning over there? He contacts you about his situation and you have decided to help him by developing a probabilistic estimate of money (using @risk for Excel) he would be earning during his travel/work in UK for one year.

PS: Make suitable assumptions about all costs and income.

Problem 3: Your estimating and project team has been doing material take-offs and they, along with King Construction's Vice President for Estimating, Joe Scarponi, have briefed you.   Their briefing is summarized below:

1. Project Approach: Our prospective project superintendent, Albert Jones summed up the project approach: "The way to tackle this project is for us to do the slab demolition and to form and pour the replacement slabs. The Navy has a short completion time on this project-9 months, and we cannot afford delays since we may already have some weather issues given the time of year. The hangar erection is best done by subcontractors. We should also use subcontractors for rebar, hangar erection, mechanical, electrical, and fire protection systems running to and in the hangars.

2. Concrete Slab Demolition: The team has estimated that the costs for the demolition and removal of the concrete slabs as follows:

a. Material:  For the demolition phase of the project, the material cost is estimated to be $0.00.

b. Equipment: the equipment cost for the demolition is as follows: Albert Jones says we need to complete the excavation in 120 days. He plans to have one large excavator and front end loader feeding two 5CY dump trucks. Each excavator can demolish an average of four slabs a day, but if the crew and truck teams are not in synch, their productivity may drop to two slab a day.  Conversely, an experienced crew might be able to demolish up to six slabs a day. Rental Cost on a Caterpillar EX-300 excavator with a jack hammer attachment is $5,000/week. Rental cost of 5 CY dump trucks is $1,500/week. Rental Cost on a Front End Loader is $2,000/week. Scarponi estimates the demolition equipment cost as:

Minimum Equipment Cost: $390,000

Most Likely Equipment Cost: $480,000

Maximum Equipment Cost: $700,000

c. Labor: King Construction will have several foremen on the job, but will hire most of the concrete finishers and laborers locally.   The key variable impacting the labor cost will be productivity. Scarponi estimates that a crew of 10 to 20 laborers will be needed to support the demolition and debris removal, and recommends hiring 15 to start the project. He feels that he can hire them in Pensacola, but will have to pay them the Navy mandated Davis-Bacon wages.

• Minimum Labor Cost: $150,000
• Most Likely Labor Cost: $275,000
• Maximum Labor Cost: $450,000

3. Concrete Slab Replacement:

a. Labor: Albert Jones recommends forming and pouring 4-8 slabs at a time, in a checkerboard fashion across the parking apron.  He believes this work will require 50 to 75 laborers and concrete finishers.    He estimates that the labor to form the slabs as follows: 

• Average Crew: $1,450,000
• Poor Crew: $1,775,000
• Highly productive Crew: $1,150,000

b. Material: The team says that the volume of concrete in the slabs is easy to estimate, but the issue is how much waste to include in the bid and how much additional concrete will be required due to the sub base condition underneath the slab.   If the concrete crews are poor, the risk is some of the concrete will set up before the slabs can be properly finished.  In such cases, the slabs must be removed and re-formed and re-poured.  They recommend that a wastage factor of no less than 5% be used with 10% being most likely and 20% being worst case.   The price of 3500 PSI concrete in Pensacola is anticipated to be $110/CY, but could fluctuate from $100/CY to $118/CY.

• Lowest Estimated Concrete Cost: $3,080,000
• Most Likely Concrete Cost: $3,225,000
• Highest Estimated Concrete Cost: $3,500,000

4. Job Overhead:  Jones and Scarponi are concerned that the quality of the crews hired in Pensacola could cause the company to have to put more project foremen and field superintendents on the project to oversee both self-performed but also subcontracted work.  They won't know for sure until they hire the personnel once they begin to mobilize.  Scarponi estimates the job overhead at $275,000 but it could go as high as $400,000.

5. Sub-Contracted Work:

a. Aircraft Hangar Erection:   The following subcontractor quotes were received:

• Baker Buildings: $4.1 million. Jones says they are a low quality firm that hires inexperienced project managers and has trouble staying in control of their projects. In the three projects he has experience with them on, they finished late on each one.
• ABC Hangars: $4.6 million. Jones has worked with this firm before and says they are a very good firm-they have a reputation for finishing every project early.
• Jackson Construction: $3.3 million. Jones and the estimating team have never worked with Jackson Construction nor heard of them. Their efforts to try and talk to the firm have failed. Jones' thinks their bid price is a mistake and cautions against using them.
• Metex Building Erection: $4.4 million. Jones has heard of this firm, and says they are OK, but not as reliable as ABC Hangars.

b. Mechanical Contractors:   All the mechanical contractors who submitted bids are fairly reliable firms:

• ACME Mechanical: $1,460,000
• P-Cola Plumbing: $1,700,000
• Florida Mechanical: $1,570,000

c. Electrical Contractors:  

• EZ Electric: $900,000. Jones says they are an excellent firm.
• Tallahassee Electric: $605,000. Jones has heard that they have been struggling to stay afloat in the recession and some of their experienced superintendents have left.
• Sprague Electrical Construction: $799,000. Jones says they are difficult to work with, but do pretty good work.
• Ocean Electricians: $700,000. Jones has never heard from them.

d. Rebar Installation for Concrete Slabs: The following quotes were received:

• Johnson Rebar: $200,000 Jones says they are an OK firm.
• Rex Reinforcing: $156,000 Jones says they are a weak company.
• Gulf Steel: $230,000 Jones says they are an excellent firm.

e. Fire Protection: Only one bid was received for fire sprinkler work: 

• Sprinkler Systems of Florida: $265,000, but your estimating team used square footage values from a similar job to estimate that the job should cost about $330,000.

Model this problem in Excel and use Risk simulation to prepare your best estimate. After that answer the following questions:

1. Prepare a baseline estimate using most likely values. What will be the total project cost?

2. What will be the most likely cost of this project with 90% confidence?

3. Compare this cost with your earlier estimate (Part 1) and discuss your findings?

4. If your bid price is $9.0M, would you complete this project in profit/loss (use 90% confidence)?

Provide all relevant graphs and data.

Attachment:- Assignment File.rar