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Sharon Construction Case Study
- 1. Case Study (1) - Sharon Construction Corporation April 16, 2013
- 2. Case situation • Project- 200,000 seat stadium • Start from Feb. 15, expected finish time: 1 year • Overhead cost of $500 per week for any delay after 52 weeks • Penalty of $15,000 per week of delay beyond next Feb. 15 • Uncertainties: Strike and Weather in December (42th weeks). 1.) Possible labor strike in Dec.: No Strike, P=50%; Strike:+8 weeks , P=35%; +12 weeks , P=15% 2.) Possible heating need: 33% with extra heating cost $500 per week, 67% with no heating need.
- 3. Five proposals • 1. Expedite the pouring of seat gallery supports with extra cost $20,000 and cut 6 weeks • 2. The same as proposal 1, but in addition, expediting filling of the field with extra cost $10,000 and cut 5 weeks • 3. Expedite the roofing with extra cost $9,000 and cut 6 weeks • 4. Do nothing until Dec. 1. If it is cold, delay the pouring or heating; If a strike occurs, expedite all activities after strike over with extra cost $3000 per activity per week. • 5. Do nothing until Dec. 1.
- 4. A clean site B Subsurface drainage C Field & Truck filling D Turf installation E Excavation F Pouring concrete footing G Pouring seat gallery support H Pre cast galleries I Pouring concrete seats J Installing steel structure K Roof erection L Building dressing room M Seat painting FINISH N Light installation O Scoreboard & facilities Precedence Network 8 80 8 8 8 16 4 12 16 14 30 12 4 16 16 30 12 12 28 16 4 8 20 20 28 28 42 41 13 41 45 4 28 4 32 45 48 3 28 28 5 4 33 48 32 Critical Path: A E F G H I M
- 5. A clean site B Subsurface drainage C Field & Truck filling D Turf installation E Excavation F Pouring concrete footing G Pouring seat gallery support H Pre cast galleries I Pouring concrete seats J Installing steel structure K Roof erection L Building dressing room M Seat painting FINISH N Light installation O Scoreboard & facilities 8 80 8 8 8 16 4 12 16 14 30 12 4 16 16 30 12 6 22 16 4 8 20 20 28 22 42+X 35 13 35 39 4 28 4 32 39 42+X 3 28 28 5 4 33 42+X 32 Proposal 1 Possible strike occurs in 42th week Possible strike occurs in 42th week Actual Cost P(Strike) No heating (P=67%) Heating (P=33%) No strike, P=50% $20,000 $20,000 Strike +8w, P=35% $20,000 $20,000 Strike +12w, P=15% $51,000 $51,000 $20,000[Expediting cost]+(42+12-52) x ($15,000[Penalty]+$500[Overhead]) =$51,000
- 6. A clean site B Subsurface drainage C Field & Truck filling D Turf installation E Excavation F Pouring concrete footing G Pouring seat gallery support H Pre cast galleries I Pouring concrete seats J Installing steel structure K Roof erection L Building dressing room M Seat painting FINISH N Light installation O Scoreboard & facilities 8 80 8 8 8 16 4 12 16 9 25 12 4 16 16 25 12 6 22 16 4 8 20 20 28 22 37 35 13 35 39 4 28 4 32 39 42+X 3 28 28 5 4 33 42+X 32 Proposal 2 Possible strike occurs in 42th week Actual Cost $30,000[Expediting cost] +(42+12-52)x ($15,000[Penalty]+$500[Overhead cost]) = $61,000 P(Strike) No heating (P=67%) Heating (P=33%) No strike, P=50% $30,000 $30,000 Strike +8w, P=35% $30,000 $30,000 Strike +12w, P=15% $61,000 $61,000
- 7. Scenario of Proposal 3 scenario No Strike Good weather no heating needed, done within 48 weeks Bad weather, delay 4 weeks, no heating needed, done within 52 weeks. Bad weather, heating needed, done within 48 weeks Strike +8 weeks strike, no heating needed, done within 56 weeks +12 weeks strike, no heating needed, done within 60 weeks
- 8. A clean site B Subsurface drainage C Field & Truck filling D Turf installation E Excavation F Pouring concrete footing G Pouring seat gallery support H Pre cast galleries I Pouring concrete seats J Installing steel structure K Roof erection L Building dressing room M Seat painting FINISH N Light installation O Scoreboard & facilities 8 80 8 8 8 16 4 12 16 14 30 12 4 16 16 30 12 12 28 16 4 2 20 20 22 28 42+X 41 13 41 45+X 4 22 4 36 45+X 48+X 3 22 22 5 4 27 48+X 26 Proposal 3 Possible strike and cold weather occur in 42th week Possible strike and cold weather occur in 42th week Actual Cost P(Strike) No heating (P=67%) Heating (P=33%) No strike, P=50% $9,000 $11,000 Strike +8w, P=35% $71,000 $71,000 Strike +12w, P=15% $133,000 $133,000 $9,000[Expediting cost] +(48+12-52) x ($500[Overhead cost] + $15,000[Penalty]) =$133,000
- 9. Scenario of Proposal 4 scenario No Strike Good weather, no heating needed, done within 48 weeks Bad weather, delay 4 weeks, no heating needed, done within 52 weeks Bad weather, heating needed, done within 48 weeks Strike +8 weeks strike, Crash 4 weeks, no heating needed, done within 52 weeks +12 weeks strike, Crash 4 weeks , no heating needed, done within 56 weeks
- 10. A clean site B Subsurface drainage C Field & Truck filling D Turf installation E Excavation F Pouring concrete footing G Pouring seat gallery support H Pre cast galleries I Pouring concrete seats J Installing steel structure K Roof erection L Building dressing room M Seat painting FINISH N Light installation O Scoreboard & facilities 8 80 8 8 8 16 4 12 16 14 30 12 4 16 16 30 12 12 28 16 4 8 20 20 28 28 42+8 41 13 41 49+2 4-2=2 28 4 32 51 51+1 3-2=1 28 28 5 4 33 52 32 Proposal 4 Possible strike and cold weather occur in 42th week Possible strike and cold weather occur in 42th week Actual Cost P(Strike) No heating (P=67%) Heating (P=33%) No strike, P=50% $0 $2,000 Strike +8w, P=35% $12,000 $12,000 Strike +12w, P=15% $74,000 $74,000 42+12 53+2 55 55+1 56 $3,000[crash cost]x4 +(56-52) x ($500[Overhead cost] + $15,000[Penalty]) = $74,000 $3,000[ Expediting cost] x 4 weeks= $12,000
- 11. Scenario of Proposal 5 scenario No Strike Good weather, no heating needed, done within 48 weeks Bad weather, delay 4 weeks, no heating needed, done within 52 weeks Bad weather, heating needed, done within 48 weeks Strike +8 weeks strike, no heating needed, done within 56 weeks +12 weeks strike, no heating needed, done within 60 weeks
- 12. A clean site B Subsurface drainage C Field & Truck filling D Turf installation E Excavation F Pouring concrete footing G Pouring seat gallery support H Pre cast galleries I Pouring concrete seats J Installing steel structure K Roof erection L Building dressing room M Seat painting FINISH N Light installation O Scoreboard & facilities 8 80 8 8 8 16 4 12 16 14 30 12 4 16 16 30 12 12 28 16 4 8 20 20 28 28 42+X 41 13 41+X 45+X 4 28 4 32 45+X 48+X 3 28 28 5 4 33 48+X 32 Proposal 5 Possible strike and cold weather occur in 42th week Possible strike and cold weather occur in 42th week Actual Cost P(Strike) No heating (P=67%) Heating (P=33%) No strike, P=50% $0 $2,000 Strike +8w, P=35% $62,000 $62,000 Strike +12w, P=15% $124,000 $124,000 (48+8-52)x ($500[Overhead cost]+$15,000[Penalty])= $62,000
- 13. Cost Analysis No heating Scenario (67%) Heating needed Scenario (33%) Probability Strike Proposal 1 Proposal 2 Proposal 3 Proposal 4 Proposal 5 No Strike- 50% $20,000 $30,000 $9,000 $0 $0 +8 weeks- 35% $20,000 $30,000 $71,000 $12,000 $62,000 +12 weeks- 15% $51,000 $61,000 $133,000 $74,000 $124,000 EMV $24,650 $34,650 $49,300 $15,300 $40,300 Probability Strike Proposal 1 Proposal 2 Proposal 3 Proposal 4 Proposal 5 No Strike- 50% $20,000 $30,000 $11,000 $2000 $2000 +8 weeks- 35% $20,000 $30,000 $71,000 $12,000 $62,000 +12 weeks- 15% $51,000 $61,000 $133,000 $74,000 $124,000 EMV $24,650 $34,650 $49,330 $15, 630 $40, 630
- 14. Recommendation basedonCostAnalysis-EMVmethod • Choose proposal 4 • Proposal 1 would be the second choice Reason • Proposal 4 has the lowest EMV, and it can end up with no extra cost. • Proposal 1 would be the second choice because it has second lowest EMV and is better than 2, 3 and 5 if a strike happens. • If the CEO is adverse to risk, then select proposal 1 which has smaller loss range (from $20,000 to $ 51,000)
- 15. Time Analysis Probability Strike Proposal 1 Proposal 2 Proposal 3 Proposal 4 Proposal 5 No Strike- 50% 42 42 48 48 48 +8 weeks- 35% 50 50 56 52 56 +12 weeks- 15% 54 54 60 56 60 Make span 46.6 46.6 52.6 50.6 52.6
- 16. Recommendation basedonTimeAnalysis • Take proposal 1 • Proposal 4 would be the second choice Reason • Proposal 1 & 2 has the shortest average duration, but proposal 2 costs more. • Proposal 4 would be the second choice because it has second shortest average duration and is better than proposal 1 if the cost-time ratio is considered. • If the CEO cares time the most, then select proposal 1.
- 17. Other factors • Behavioral – Employee morale and enthusiasm if a strike occurs. Is this company brand oriented? • Organizational – Will a strike and falling behind schedule lead to layoffs or low morale? Does the sub-contractor have the capacity to work in an expedited scenario? • Political- Will local or state government become involved in a labor dispute • Financial- how urgently does the firm need cash flow? Will early completion lead to financial benefits? • Cultural – If labor force is mostly of the same background, they may be more culturally or less culturally likely to strike.
- 18. Decision making as the president • I will choose proposal 4. • The first reason is obvious that it has the lowest EMV. I am a risk seeker so I do not think the broader loss rang would be a big problem. • Although proposal 4 has longer duration than proposal 1 based on Time Analysis. Besides, there is no extra bonus if we get it done earlier. For financial reason, I will choose proposal 4 for sure.
Editor's Notes
- Expedite the pouring by paying extra $20,000 with 6 weeks deduction. Weather will not affect the activity I (pouring concrete)
- It is pretty much the same as the proposal 1 except adding the “field & truck filling cost” with extra $10,000.
- If there is no strike, let the cold weather happed without heating and delay 4 weeks, because there is no incentive to get it done earlier. It causes 4 weeks delay, so totally duration of the project is 52 which is still within 1 year.
- Cut six weeks of the roof erection with additional cost of $9,000. Pouring concrete would be affect by bad weather, so the extra heating cast $500/ week MIGHT happen.Lets take proposal 3 for example. If there is no strike, just delay 4 weeks and wait for the bad weather over. The total duration is still beyond 52 weeks. If there is a strike, no matter 8 weeks or 12 weeks, this strike period overlap with the bad weather forecast. Therefore, there is no need to use heating when pouring concrete.
- If there is no strike, let the cold weather happed without heating. It causes 4 weeks delay, so totally duration of the project is 52 which is still within 1 year.
- Wait for the strike over and then expedite the remaining works by cutting no less than 1/3 of its duration with extra cost $3,000/week. Cold weather and strike occur at the same timeIf there is a strike, then heating is no longer needed at all.
- Wait for the strike over and then expedite the remaining works by cutting no less than 1/3 of its duration with extra cost $3,000/week. Cold weather and strike occur at the same timeIf there is a strike, then heating is no longer needed at all.
- Based on each scenario, we generate EMV (expected money value) for each case. For proposal 1, we got EMV=$24,650 by add up fixed cost and possible extra cost. $20,000 which is the fixed cost of expediting the pouring process and ($51,000-20,000)*0.15.
- So based on the cost analysis EMV method, we recommend to choose Proposal 4 because it has the lowest EMV in both no heating and heating needed scenario. On the other hand, Proposal 1 would be The second choice. Not only because it has the second lowest EMV, but also smaller loss range compared to Proposal 4.
- And we do the Time Analysis to satisfy the question 2 ” what other basis might be used to make a decision besides expected costs?” So we do the calculation of each possible duration.As I said before, for proposal 3,4 5, there is no incentive to get the project done earlier than 52 weeks, so there are two option open (either do heating or not ) when no strike scenario.
- Based on the Time analysis, we recommend to choose proposal 1, for the shortest expected duration. Although Proposal 1& 2 have the same duration, proposal 1 is cheaper. On the other hand, proposal 4 would be the second choice if the cost-time ratio is considered.
- What other factors might enter into the decision such as behavioral, organizational, and political? Behavioral-Is my company brand oriented? For example, we have a good reputation of always being on time, we want to keep this reputation. So we might under more time pressure and then pick up the shortest duration even it costs more. Sometimes, there are many like 3~5 project doing simotaneously. They might financially sacrifice this time pressure project to finished it earlier as possible and bring more capacity to do other project and earn more money to make it up. Also for the CEO attitude like he is a risk seeker or adverse? Organizational-Do the subcontractors, or material, machine suppliers have to capacity to work in an expedited scenario? Political- will governer get involved to labor dispute? Or maybe the government want to lower down the unemplyee rate, so they change policy, like we can hire non un worker.Financial- there is no information about the financial structure in this case study, such as how does the owner pay us, monthly or at the end of the project, how would our cash flow be?. Do we have enough liquidity to expedite the project? Do we have bonus if the project is done earlier?