CHAPTER III RESEARCH METHODOLOGY

The following section determines the methodology used for analyzing this study:

Initial Observation
Observe production process at PT. X Understand the standard applied in related process Direct observation and clarification with related party Documenting important information

Initial Observation

Problem Identification

Problem Identification
Feasibility study requirement Define objective, scope, assumption and limitation

Literature Study

Literature Study

Data Collection and Analysis

Sheet Metal Working Market feasibility (demand forecasting and business trends analysis) Technical feasibility (material availability and sustainability, facility layout, production capacity) Financial feasibility (ROI, NPV, IRR)

Data Collection and Analysis

Identification, collection, and validation of required data Market, technical, and financial feasibility study

Conclusion and Recommendation

Conclusion and Recommendation

Conclusion of feasibility study

Recommendation for research improvement

Figure 3.1 Research Methodology

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3.1.Initial Observation The initial observation will be conducted to define the reasoning of any capital expenditure decision of PT. X. This further can be used in defining the objectives of potential project. The observation will cover all the processes involved in analyzing the investment opportunity, as is in the feasibility study outline. Necessary data are requested to each respected department of PT. X. The gathered information will then be documented to be studied for the author learning points. The documented information will include revenue potential based on projected demand from the project, supply capacity projection, technical specification of machine, capital expenditure (investment cost), operational cost, and any additional risk and secondary cost that might occur during project conducted.

3.2.Problem Identification PT. Xs management want to know if the project are feasible or not, and further to decide if the project should be undertaken and if the investment should be executed or not.

3.3.Literature Study From the problem identification, suitable problem solving approaches are conducted focusing on how to perform a feasibility study. Manufacturing Engineering and Technology by Serope Kalpakjian & Steven R. Schmid (2001) will become the basic knowledge resources for metal sheet working activity. For feasibility study, the author will refer to Studi Kelayakan Proyek by Suad Husnan (1997). While Market Feasibility Analysis as well as demand forecasting, author will refer to Principles of Inventory and Materials Management by Richard J. Tersine (1998). Further study on how to estimate production capacity using time study will refer to Work Measurement and Methods Improvement by Lawrence S. Aft (2000). Determining Feasibility and Managing Analysis and Design Activities by Kendall & Kendall (2002) will be used as additional reference on technical feasibility and, as for related financial feasibility study for this research, author will refer to Financial Modeling by Simon Benninga (2000). 22

3.4.Data Collection and Analysis Reasoning of investment will be identify to further define the objective(s) of investment. After objective(s) are well defined, feasibility study will be conducted from 3 different perspective, which will concluding the feasibility of project.
Reasoning of Investment Building Basic Conceptual Understanding Feasibility Study

Market Feasibility

Technical Feasibility

Financial Feasibility

Cost and Revenue Element Analysis

Micro Economy Analysis (Demand History)

Demand Forecasting

Macro Economy Analysis (Global, Regional, and Local Economy Trends)

Facility Dimension Analysis

Material Availability Analysis

Production Planning and Schedule Analysis

Cost, Direct and Indirect Calculation

Revenue, Product and Services

Available Space and Current Facility Layout

Market and Economic Review

Multi-Product Single-Machine Schedule

Cost Revenue Data

Forecast Accuracy Measurement

Growth Sustainability Analysis

Layout Design Change

Sustainability of Supply

Production Capacity

Net Present Value Analysis

Return of Investment Analysis

Demand Projection of Project

Supportive Production Environment During Project

Investment Appeal

Investment Comparison vs. MARR

Market Feasible?

NO

Technically Feasible?
YES

NO

Financially Feasible?

NO

YES

YES

Execute Project (Go)

Abort Project (No-Go)

Figure 3.2 Data Analysis Flowchart

Market feasibility will be conducted with focus on demand analysis, historical demand and current economic condition will be the baseline of forecasting. Further accuracy of forecasting will be analyze using sets of calculation, in order to find and select the fittest forecasting method. Next, technical compatibility will be identified by calculating facility space availability and the comparison between 23

bolster with product dimension. Availability and sustainability of material supply also being consideration focus on technical feasibility, thus, both elements will determine if the project is technically feasible or not. Last, financial feasibility will be evaluated after defining elements of cost and revenue, using cost-benefit analysis, ROI and NPV analysis of project will be compared with MARR to define attractiveness of the investment. All elements of market, technical and financial feasibility study will determine if the project feasible or not, hence, all elements all equally important and the project could not be stated as feasible if either of the elements are not feasible.

3.5.Conclusion and Recommendation At the end, the result from data analysis will be summarized and presented for the final conclusion and recommendation. Next, comprehensive explanation of the selection will be presented with detailed description. Last, recommendation for future research will be mentioned as development of future study.

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