OPS 935 Project Management: Truck Asset Renewal Programme
Scenario Background
In this part of the course, students take on the role of Asset Manager in a “gaming” environment that is a microcosm of the asset management practice.
This provides a “test bed” for students to make decisions in an asset management environment based on the knowledge framework and provides the opportunity to obtain feedback on the results of decisions that are consistent with what may occur in practice.
The scenario is structured as a simplified cost model typical of that encountered in a local government environment. The key elements of the context setting include:
- The Council SAMP has a requirement that tip truck capability be provided as part of the Council asset spread;
- A major re-investment decision is pending and needs to be made based on available information in week 1 (representing 2017);
- The cost model (asset performance) will be reviewed on an annual basis (2018, 2019 etc., representing week 2, 3 etc.);
- External and internal inputs will be revised each week, and asset management decisions revised and adjusted;
- Decision making “performance” will be recorded progressively, with the summary figures available to the class;
- Students will be asked to reflect on their own performance, and that of some of their peers in the final assessment.
Grading for assessment will primarily be based on the ability to relate the knowledge framework to the scenario, and to critically review asset management performance. In the context of the scenario, the ability to make good “experience” based decisions is commendable, but the ability to relate the scenario to knowledge framework and learning from the decision process is most important.
Requirements
You will be required to:
- Make decisions and make appropriate adjustments to the cost model;
- Check their own key parameters on their cost model, and post them, along with their decisions on the discussion board;
- Engage with their peers on the discussion board, including issues identified, and methodologies to resolve them;
- Document their own learning by week in a simple reflective diary; and
- Submit their Decision and Reflection Log.
Answer:
Background.
In the year 2016, the Hino trucks have reached the end of their service life and have to be either substantially upgraded or replaced by new fleet. The fleet manager has proposed the following alternatives :
- Replacing with Kenworth fleet.
- Replacing with New Freightliner fleet.
- Replacing with Sino Truck fleet.
- Overhauling Hino fleet.
In week 1 (F.Y2017), it was decided to replace Hino fleet with Kenworth fleet, due to its reliability and brand recognition. It was also decided that for improving the decision making process at the time of next fleet renewal which falls due in 2022, a cost and performance model will be developed in week 1 for all the aforesaid alternatives. Thereafter based on the weekly change in scenario, the model developed initially, will be modified each week. A decision will be taken in week 6 based on the weekly cost and performance models.
Analysis.
The data available for Kenworth was taken as the base for all the 4 alternatives. Thereafter the baseline figures are adjusted.
Freightliner and Sinotruck.
In the options and cost base sheet the price of Freightliner and Sinotruck mentioned is lower. Therefore the depreciation and finance charges costs will also be lower. The loan instalments have been calculated as per finance instalment calculator of www, nab.com. au.com as mentioned in Truck op cost sheet.
Service and maintenance intervals are lower as mentioned in the options and cost base sheet. Therefore the service and maintenance costs will be higher for both Freightliner and Sinotruck.
The Finance, depreciation, service and maintenance costs included in the base figures are deducted and the revised costs have been added to obtain the revised operating and outsourcing costs of 1 truck at the end of week 1.
Detailed calculations are available in week 1 of enclosed excel sheet file.
Hino Fleet Motor Rebuild.
In this case loans cannot be availed, so there is nil finance charges. Hence after deducting finance costs included in the base line figures, there will be negative finance costs. Further the trucks cannot be sold and hence no disposal value has been considered in the calculations.
Method of calculating the revised depreciation, service and maintenance costs will remain unchanged.
Revised operating and outsourcing costs at the end of week 1 is the baseline figures at the beginning of week 2.
The impact of change in scenario in week 2, have been considered and necessary changes made in the baseline figures.
The impact of reduction in Fuel costs and increase in outsourcing costs are the same in all the 4 alternatives.
Sinotruck.
In addition to the above, in the case of Sinotruck due to frequent breakdowns, the workshop manager has proposed that either 2 new trucks be purchased or retain the existing fleet and increase outsourcing (2 trucks). Based on calculations of the incremental costs under both these alternatives, it is observed, that the costs of outsourcing is lower. Please refer note 2, of week 2 sheet.
Further spares have to be imported from China to keep the existing fleet in running condition. Therefore the costs of spares have been added to the base line figures.
The adjusted operating cost at the end of week 2 has been taken as baseline figures at the beginning of week 3.
Detailed calculations are available in week 2 worksheet.
Based on change in scenario in week 3, adjustments to the baseline figures at the beginning of week 3 have been made by increasing the fuel costs and reducing the normal outsourcing costs.
Sinotruck.
Since a local dealer for Sinotruck spares has been located, the costs of imported spares have been reduced from the opening base line figures of week 3. Due to availability of local sources, the additional outsourcing of 2 trucks considered in week 2 calculations, is reduced to 1 truck only. Therefore the base line figures of Sino truck has been reduced by the outsourcing cost of 1 truck.
Kenworth and Freightliner.
Due to planned increase in capital works in week 4, it has been decided either to increase the capacity of Kenworth fleet by purchasing dog trailers in week 3 or to increase the capacity of Freightliner fleet by upgrading the trucks and purchasing dog trailers. The capital investments are required to be made in week 3 so that the increase in capacity is available at the beginning of week 4. Accordingly the increase in depreciation and finance charges of Kenworth fleet and Freightliner fleet have been added to the opening baseline figures of week 3. It is assumed that depreciation will be charged based on efflux of time and not when it is put to use.
Hino Upgrade.
As per the announced change of scenario in week 3, the life of upgraded Hino truck has been reduced from 5 years to 3 years. Hence residual value of $ 20,000 has been charged off as depreciation in Week 3.
Further the investments required to be made has been increased from $ 50,000 to $ 80,000. But since loans cannot be availed, it will have no impact on finance costs.
Calculation details are available in worksheet 3.
Based on change in scenario the following adjustments have been made to the opening baseline figures of week 4.
Kenworth.
The operating cost of dog trailer has been added to the opening baseline figures. The operating costs are available in Dog op cost worksheet. Since depreciation and finance charges have been included in the figures obtained from the Dog op cost worksheet and it is also included in the opening base line figures of week 4, the same has adjusted from the opening baseline figures.
Freightliner.
Due to capital works programme being increased to 26,000 hours from existing 10,000 hours, the operating costs of truck and dog trailer has been calculated. Please see note 2 of week 4 worksheet.
Hino Upgrade.
Freightliner
Due to increase in capital costs of Hino Upgrade from $ 50,000 to $ 80,000 adjustments will be required to be made in the opening baseline figures. Please see note 1 of week 4 worksheet.
As per the change in scenario of week 5, since the capital works programme have been reduced from 26,000 hours to 24,000 hours, adjustments have been made to the opening base line figures.
General
To prevent this exercise from becoming a ‘spreadsheet optimisation exercise’ the figures provided in the frame work document have been taken for our calculation purposes.
Conclusion.
Based on the operating cost figures and performance figures at the end of each week, it is concluded that the decision taken in 2017 to replace Hino with Kenworth was correct. It is recommended that in 2022 either new Kenworth fleet be purchased or it may be upgraded. Please refer to the decisions and reflections worksheet sheet.
