W3_Khalid Almamari_ Cost evaluation of site survey


1. Problem Definition

This subject is for estimating 5 km2 quotation of the area of the concession area related to our company from a survey contractor is OMR 2,000,000. Is the quotation is appropriate? If it is not, how much is the site survey price?

2. Identify the Feasible alternative

Options for alternatives:

  1. Accept the quotation, as price as OMR 2,000,000
  2. Using cost approach estimation. Historically, cost/km2 is about OMR 6,000. With length 5 km2, Total estimating budget is OMR 1,600,000
  3. Using comparison with another project in another company with cost/km2 is OMR 11,000. Total cost is OMR 2,200,000. With this assumption, the quotation will be accepted. It is need more analysis.

3. Development of the Outcome for Alternative

Evaluating all alternative using Benefit – Cost ratio method.

4. Selection of Criteria

Calculations:

With using discount rate 12.5% (as stated in PSC guideline in proposing project)

Benefit per/year = OMR 1,000,000

O&M/year = OMR 70,000

MV = 25%

Conventional B-C ratio with PW

Modified B-C ratio with PW:

w31

w32

5. Analysis and Comparison of the Alternative

All the alternatives are shows B-C Ratio’s calculation greater than one. All alternative is economically acceptable.

6. Selection of the Preferred Alternative.

Alternative 1 is preferred to be used because it gives the highest value than other even though all alternative is accepted.

7. Performance Monitoring and the Post Evaluation of Result.

Different alternatives only affect the amount of the B-C ratio, no effect on project tolerability. Extra analysis maybe needed to be done to present input in for a better conclusion.

References:

  1. West J, Public oil prospecting in Yemen 2: how would it work? (2010), Retrieved on August 5th, 2014 from http://openoil.net/2010/09/07/publicly-funded-oil-exploration-in-yemen-2-how-would-it-work/
  2. Sullivan, William G., Wick, Elin M., Koelling, C. Patric. (2012). Engineering Economy. 15th ed, Chapter 10, Pp. 419 – 450. Prentice Hall.
  3. Workbook 5, Cost Evaluations; 2000. Retrieved on August 5th, 2014. From http://www.emcdda.europa.eu/attachements.cfm/att_5867_EN_5_cost_evaluations.pdf
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One thought on “W3_Khalid Almamari_ Cost evaluation of site survey

  1. Sorry Khalid, but before you can perform any analysis like this, you FIRST must validate the use of the 12.5% MARR……. http://pmworldjournal.net/article/using-analytical-hierarchy-process-determine-appropriate-minimum-attractive-rate-return-oil-gas-projects-indonesia/ Once you have validated the MARR, repost as the rest of thse analysis was done correctly.

    The important lesson learned is that you should NEVER assume that a given MARR is correct…..

    BR,
    Dr. PDG, Muscat, Oman

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