1. Problem Definition.
We have been conducting bidding for site assessment work in offshore area. We plan to start this work in April 2014 until July 2014 (4 months duration). Due to the location of the work is at offshore area, this work is very susceptible to weather condition. So that, during negotiation meeting, the prospective winner bidder proposed 2 options for its offer. First option is IDR 1,600,000,000 without condition; or second option is IDR 1,400,000,000 + IDR 10,000,000/day stand by rate if offshore survey could not be conducted due to a bad weather.
2. Identify the Feasible Alternative.
Facing to this case, we have to decide which proposal option is accepted, IDR 1,600,000,000 without condition (option1); or IDR 1,400,000,000 + IDR 10,000,000/day stand by rate (option 2).
3. Development of the Outcome for Alternative.
It is clearly that if we accept first option, then contract price will be IDR 1,600,000,000.
But, what about second option? What is the standby cost due to bad weather? For calculating the standby cost, we need to know the number of bad weather days during period of work. This number may be estimated by using historical weather data. The following table contains weather data for past five years from our marine division:
By using Monte Carlo simulation, it is forecasted the total bad weather days for each month in 2014, at P70 as follows:
Therefore, stand by cost is estimated as 9 days * IDR 10,000,000 = IDR 90,000,000, so that the price for second option is IDR 1,400,000,000 + IDR 90,000,000 = IDR 1,490,000,000.
4. Selection of Criteria.
Of course, the main criterion is the lower cost. Another criteria is comes from our bidding procedure, namely the price should be lower than our owner’s estimation (OE) of IDR 1,750,000,000.
5. Analysis and Comparison of the Alternative.
Below table contains total cost for both options:
6. Selection of the Preferred Alternative.
Based on comparison table above, we decided to proceed with option 2, IDR 1,400,000,000 + IDR 10,000,000/day stand by rate.
7. Performance Monitoring and the Post Evaluation of Result.
Monitoring and supervision should be conducted strictly during the execution of the work, especially in relation to the determination of whether a day is bad weather or not.
- Microsoft.com. (2014). Introduction to Monte Carlo simulation. Retrieved from http://office.microsoft.com/en-us/excel-help/introduction-to-monte-carlo-simulation-HA001111893.aspx
- Bidding Document. (2014). Site assessment project. PT. ABCD. (Disguised).
- Sullivan, W.G., Wicks, E. M., Koelling, C. P. (2012). Engineering Economy page 502 to 506. Prentice Hall. Fifteenth Edition.