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Teaneck Construction Company Case Study

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TEANECK CONSTRUCTION COMPANY

Teaneck is a small organization with 90% of its peso volume obtained from contracts for municipal work. Management decided to submit a bid for the construction in April of a mile-long extension to the main sewer system in a nearby town which until now has used septic tanks. The bidding is expected to be competitive because whoever gets this contract will have some advantage in obtaining a contract to be awarded by the town later in the year worth about P50 million. 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 time and cost estimates of Teaneck's engineers. The trunk sewer extension is to be laid in a tunnel for 1/3 its length; the remaining 2/3 is to be constructed in trenches. To build the tunnel, a primary shaft must be 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.

Teaneck's direct labor is hired from union pools. There is a strong chance that the local Excavators Union will strike on the project's inception date which may seriously affect its profitability. At a meeting of the project managers, there was a consensus to use 80% probability of such a strike for planning purposes. With a strike, direct costs would remain unchanged, since the issue involved was not one of wages; but indirect costs would accrue for the duration of the strike at the same daily rate as indicated in Table 1. General and administrative costs are put at 40% of the sum of direct and indirect costs. Normally, Teaneck aims at making a profit equal to 10% of total costs.

There was also a recognized need to develop some kind of estimate to describe the probability of the strike's duration. With a great deal of misgiving, the project managers came up with the following guesses:

Length of the strike in days 20 30 40

Probability of a strike of n days, on condition that a strike occurs 0.25 0.25 0.50

You are the project manager assigned. The president and his two executive vice-presidents have asked you for a detailed recommendation, including the exact bid to be submitted.

One Shift Two Shifts Three Shifts

TABLE 1

ACTIVITY Predecessor Days Pesos Days Pesos Days Pesos

A Move in machinery/equipment - 12 150,000 6 165,000 4 180,000

B Excavate primary shaft A 12 347,500 12 347,500 12 347,500

C Excavate secondary shafts B 60 312,500 24 330,000 12 347,500

D Excavate trenches A 300 1,685,000 150 2,125,000 100 2,235,000

E Excavate tunnel B 305 1,807,500 155 1,955,000 105 2,000,000

F Backfill (trenches only) J 50 50,000 25 75,000 17 100,000

G Pipelaying

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