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Teaneck Case
Teaneck Case
Teaneck Case
TEANECK CASE
I. INTRODUCTION
The company’s management decided to submit a bid for the construction of a three-
kilometer extension to the main sewer system in a nearby town which until now has
used septic tanks. Construction is set to begin in April. The bidding for the project is
expected to be competitive as whoever will get the contract will have a bigger
In order to submit the most competitive bid possible, the project managers of
Teaneck decided to evaluate the alternatives of using one, two or three work shifts
Table 1 shows the different costs that would be entailed in the three
different shifts.
Table 1.
Since Teaneck’s direct labor is hired from union pools and with the strong chance
that the local Excavators Union will strike on the project’s inception date, profitability
of the project may be seriously affected. At a meeting of the project managers, there
was a consensus to use 75% probability of such a strike for planning purposes.
Table 2.
It must be noted that with a strike, direct costs would remain unchanged, since the
issue involved was not one of wages. In terms of indirect costs, this would accrue for
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the duration of the strike at the same daily rate as indicated in Table 1 below,
administrative costs are at 40% of the sum of direct and indirect costs. Teaneck
The trunk sewer extension is to be laid in a tunnel for 1/3 its length; the remaining
excavated first, then the secondary shafts can be driven and the tunnel can be dug
simultaneously. The trench is to be started at the same time as the primary shaft.
Another crew of workers follows the trench workers, laying pipes, pouring concrete
and refilling trenches as far as they have been excavated. The excavators lose no
time as a result of this follow up. A third group would be performing a similar function
in the tunnel. With the machinery/equipment being settled at the construction site,
excavation of the primary shaft and trenches will immediately begin. It will now be
followed by the excavation of the secondary shafts and the tunnel. After the
excavation procedures, the pipes will be laid in the trenches together with those
placed in the tunnel. After the laying of pipes, concrete will then be poured to fill the
excavation. Once the concrete has set, construction team can begin to backfill the
holes in the trenches for foundations to be sturdier. Lastly, the construction must be
D. Problem
Teaneck must be able to submit a competitive bid for them to be able to win the
project. But in order to win the bid, the company must be able to develop some kind
of estimate to describe the probability of any possible strikes that can affect the
recommendation must be submitted to the municipality, including the exact bid to the
For purposes of this project plan, given that the project was estimated to have either
one, two, or three shifts, this assumes that per shift there would be a different set of
workers working on 8-hour shifts. Also, working days are only those considered in
Based on the narrative of the plan of Teaneck on how the sewer project will go, the
Table 3.
A. Sewage Project at One, Two, or Three Shifts with Normal Operations (No
From this activity schedule, a Gantt schedule was made to see what will
needed to complete the project assuming that the whole project will be
The network diagram to support this and to show the critical path can be
Figure 1. Network Diagram showing the critical path (in red) of the sewage project at one shift
Figure 2. Network Diagram showing the critical path (in red) of the sewage project at two shifts
Figure 3. Network Diagram showing the critical path (in red) of the sewage project at three shifts
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With this schedule the critical path falls with activities A-D-G-J-F-L-M. This
is true for the whole project regardless of the number of shifts needed to
two shifts, a total of 252 days is needed to complete the project assuming
that the whole project. And at three shifts, a total of 171 days will be
The network diagram can be seen in Figure 2 for two shifts and Figure 3
More working shifts will be entailed causing the total working days to
lessen. Due to this, higher cost for the shifts is expected for direct costs.
The cost calculation for the sewage at varying shifts can be found in Table
4.
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Table 4.
Note 1:
Indirect Cost per day 497 252 171
Total Days 7,000.00 8,000.00 9,000.00
Total Indirect Costs 3,479,000.00 2,016,000.00 1,539,000.00
Note 2:
Total Cost of the Sew age Project 9,726,500.00 9,036,000.00 8,876,000.00
Percent of General and Adminstrative Expenses 40% 40% 40%
General and Adm inistrative Costs 3,890,600.00 3,614,400.00 3,550,400.00
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Based on the cost calculations above, the lowest cost can be found at a
project wherein three shifts are scheduled this is due to the cost savings
attributable to the indirect costs being lower since less days are needed to
The cost to bid, given that this is a project for the government should be at
the lowest bid possible in order to win. At this point, the bid prices at each
Table 5.
Bids were made under the assumption of a 10% return to the company.
With this, the plan with three shifts produces the lowest bid price for the
While, three shifts produce the lowest costs, the sewage project can still
Similar with the three shifts, 171 would be spent when activities will be
The difference lies in the non-critical activities where the costs relating to
Figure 4. Network Diagram showing the critical path (in red) of the sewage project optimized to lower costs.
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Instead of opting to work on all the activities at three shifts, activities B and
C can be opted to be run at one shift only. Since they are not part of the
Given this details, the cost calculation for the project will be as follows:
Table 6.
Given this new cost rate, the bid price will be at as computed below.Php
Million.
Table 7.
Another option at 180 days is available that would produce the lowest
Figure 5. Network Diagram showing the critical path (in red) of the sewage project optimized to the lowest costs.
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Given this details, the cost calculation for the project will be as follows:
Table 8.
Note 1:
Shifts Days Cost per Day Totals
Move in machinery/equipment 2 6 8,000.00 48,000.00
Landscape 1 10 7,000.00 70,000.00
Move out 1 5 7,000.00 35,000.00
Remaining Activities 3 159 9,000.00 1,431,000.00
Total days/cost 180 1,584,000.00
Given this new cost rate, the bid price will be at as computed below.Php
Million.
Table 9.
In this case, it will seem that the best option in terms of cost would be to
have the project at 180 days since this would have the lowest possible
cost.
More than optimizing the costs, Teaneck is faced as well with a problem of
the possibility of a strike from the workers for the sewage project
Table 10.
Table 10.
The project is still expected to have the same critical path as the strike
may only affect the project in its inception stage. The additional 21 days
when imputed in the cost computation will increase the costs as indirect
costs will still be incurred per day in the event of a strike. The estimated
Table 11.
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Table 11.
The indirect costs per strike were assumed to be at the level depending on
the number of shifts. For those activities optimized at the 171 and 180
days level, the rate for the max number of shifts was used to reflect that
Given the probability of strike, the best cases are still those project plans
at the optimized levels of 171 and 180 days with the 180-day plan yielding
crashing, as well as weighing all options that will result to the most economical
First proposal would be a shorter project timeline which is the 171 day plan. This would
ensure that there is less health risks since there will only be minimal exposure of the
town’s people to the open sewage. However, a shorter construction timeline will be
costlier by Php 14,700 (affecting the bid price at Php 16,170 both at regular operations
and with the assumption of strike) in comparison to the 180 day project they will be
proposing as well. This may be minimal cost to the municipality in consideration of the
people’s well-being.
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Since the project is to be funded by the government of the town, Teaneck project
managers have also prepared a proposal that would take longer project completion at
180 days. Option two involves less cost, but will take the project more number of days,
longer by 9 days, to finish the project, in comparison the first proposal. However, a
longer timeline will give more leeway should strikes really do occur.
Both proposals ensure that the company will achieve its target of 10% profit from the