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TEANECK CASE
I. INTRODUCTION

A. Who is the Company

Teaneck is a small organization primarily involved in contracts for municipal work

where it derives 90% of its peso volume is from

B. Objectives of the Company

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

opportunity in obtaining a contract worth about P50 million to be awarded by the

same town later in the year.

C. Objectives of the Case

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

for the project.

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Table 1 shows the different costs that would be entailed in the three

different shifts.

Table 1.

Costs per activity at varying shifts

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 shows the lengths of strike in weeks at varying probability points.

Table 2.

Length of strike in weeks at varying probability points.

Length of Strike in Weeks 3 5 7
Probability of a strike of n weeks, on condition
0.25 0.25 0.50
that a strike occurs

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,

showing time and cost estimates of Teaneck’s engineers. General and

administrative costs are at 40% of the sum of direct and indirect costs. Teaneck

aims at making a profit equal to 10% of total costs.

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. 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

properly landscaped before moving the machinery/equipment out.

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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

project duration. And so, as project managers of Teaneck, a detailed

recommendation must be submitted to the municipality, including the exact bid to the

main sewer three-kilometer extension

II. Project Management Analysis

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

the calculation making it at 5 days.

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Based on the narrative of the plan of Teaneck on how the sewer project will go, the

analysis below of the overlapping activities was made:

Table 3.

Overlapping activities in the sewage project

ACTIVITY
ACTIVITY PRECEDENCE
LABEL
A Move in machinery/equipment -
B Excavate primary shaft A
C Excavate secondary shafts B
D Excavate trenches A
E Excavate tunnel B
F Backfill (trenches only) J
G Pipelaying in trenches D
H Pipelaying in tunnel C, E
J Pour concrete in trenches G
K Pour concrete in tunnel H
L Landscape F
M Move out L

A. Sewage Project at One, Two, or Three Shifts with Normal Operations (No

Allocation for Strike)

From this activity schedule, a Gantt schedule was made to see what will

be the time in days needed to finish the sewage project.

Based on the activities mentioned in the schedule, a total of 497 days is

needed to complete the project assuming that the whole project will be

working on a one-day shift only.

The network diagram to support this and to show the critical path can be

seen in Figure 1 below.

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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

complete the project.

The variation will be at the number of days needed to reach completion. At

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

needed to complete the sewage project.

The network diagram can be seen in Figure 2 for two shifts and Figure 3

for three shifts.

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.

However, for indirect costs, it is expected to lower due to the decline in

days needed to complete the project.

The cost calculation for the sewage at varying shifts can be found in Table

4.
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Table 4.

Cost calculation at varying shifts for the sewage project

One Shift Two Shifts Three Shifts
ACTIVITY Days Pesos Days Pesos Days Pesos
A Move in machinery/equipment 12 150,000.00 6 165,000.00 4 180,000.00
B Excavate primary shaft 12 347,500.00 12 347,500.00 12 347,500.00
C Excavate secondary shafts 60 312,500.00 24 330,000.00 12 347,000.00
D Excavate trenches 300 1,685,000.00 150 2,125,000.00 100 2,250,000.00
E Excavate tunnel 305 1,807,500.00 155 1,955,000.00 105 2,000,000.00
F Backfill (trenches only) 50 50,000.00 25 75,000.00 17 100,000.00
G Pipelaying in trenches 50 375,000.00 25 410,000.00 17 445,000.00
H Pipelaying in tunnel 50 275,000.00 25 285,000.00 15 300,000.00
J Pour concrete in trenches 70 570,000.00 35 582,500.00 25 592,500.00
K Pour concrete in tunnel 60 550,000.00 30 562,500.00 20 575,000.00
L Landscape 10 100,000.00 8 145,000.00 6 150,000.00
M Move out 5 25,000.00 3 37,500.00 2 50,000.00
Total Direct Costs 6,247,500.00 7,020,000.00 7,337,000.00
Total Indirect Costs (Note 1) 3,479,000.00 2,016,000.00 1,539,000.00
Total Cost of the Sewage Project 9,726,500.00 9,036,000.00 8,876,000.00
General and Administrative Costs (Note 4) 3,890,600.00 3,614,400.00 3,550,400.00
Total Project Cost 13,617,100.00 12,650,400.00 12,426,400.00

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

complete the project.

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

level of shift will be as follows:

Table 5.

Bid price for the sewage project

ACTIVITY LABEL ONE SHIFT TWO SHIFTS THREE SHIFTS
Total Project Costs 13,617,100.00 12,650,400.00 12,426,400.00
Profit Rate (@10% of the cost) 1,317,710.00 1,265,040.00 1,242,640.00
Bid Price 14,978,810.00 13,915,440.00 13,669,040.00

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

company at Php 13.6 Million.

B. Crashing the Project to Optimize Costs

While, three shifts produce the lowest costs, the sewage project can still

be optimized through crashing some of the activities of the project.

By crashing some of the activities of the project, the following alternatives

are available at a lower cost.

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1. Option 1 – Shortest Days at 171 Days

Similar with the three shifts, 171 would be spent when activities will be

optimized. The critical path will still be A-D-G-J-F-L-M as seen in Figure 4.

The difference lies in the non-critical activities where the costs relating to

these can be lowered.

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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

critical path, they can be opted not to crash the activities.

Given this details, the cost calculation for the project will be as follows:

Table 6.

Cost calculation at 171 days optimized

ACTIVITY Shifts Days Pesos
A Move in machinery/equipment 3 4 180,000.00
B Excavate primary shaft 1 12 347,500.00
C Excavate secondary shafts 1 60 312,500.00
D Excavate trenches 3 100 2,250,000.00
E Excavate tunnel 3 105 2,000,000.00
F Backfill (trenches only) 3 17 100,000.00
G Pipelaying in trenches 3 17 445,000.00
H Pipelaying in tunnel 3 15 300,000.00
J Pour concrete in trenches 3 25 592,500.00
K Pour concrete in tunnel 3 20 575,000.00
L Landscape 3 6 150,000.00
M Move out 3 2 50,000.00
Total Direct Costs 7,302,500.00
Total Indirect Costs (@Php 9,000 per day) 1,539,000.00
Total Cost of the Sewage Project 8,841,500.00
General and Administrative Costs (40% of total costs) 3,536,600.00
Total Project Cost 12,378,100.00

Given this new cost rate, the bid price will be at as computed below.Php

13.615 Million vs the original computed at three shifts of Php 13.669

Million.

Table 7.

Bid price at 171 days optimized

ACTIVITY LABEL ONE SHIFT
Total Project Costs 12,378,100.00
Profit Rate (@10% of the cost) 1,237,100.00
Bid Price 13,615,910.00
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2. Option 2 – At 180 Days but lowest cost

Another option at 180 days is available that would produce the lowest

possible cost. The critical path will still be A-D-G-J-F-L-M as seen in

Figure 5. The difference lies here on activities that can be run as

independent activities that do not overlap with other activities.

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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.

Cost calculation at 171 days optimized

ACTIVITY Shifts Days Direct Costs
A Move in machinery/equipment 2 6 165,000.00
B Excavate primary shaft 3 12 347,500.00
C Excavate secondary shafts 3 12 347,000.00
D Excavate trenches 3 100 2,250,000.00
E Excavate tunnel 3 105 2,000,000.00
F Backfill (trenches only) 3 17 100,000.00
G Pipelaying in trenches 3 17 445,000.00
H Pipelaying in tunnel 3 15 300,000.00
J Pour concrete in trenches 3 25 592,500.00
K Pour concrete in tunnel 3 20 575,000.00
L Landscape 1 10 100,000.00
M Move out 1 5 25,000.00
Total Direct Costs 7,247,000.00
Total Indirect Costs (Note 1) 1,584,000.00
Total Cost of the Sewage Project 8,831,000.00
General and Administrative Costs (Note 2) 3,532,400.00
Total Project Cost 12,363,400.00

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

13.599 Million vs the original computed at three shifts of Php 13.669

Million.

Table 9.

Bid price at 171 days optimized

ACTIVITY LABEL ONE SHIFT
Total Project Costs 12,363,400.00
Profit Rate (@10% of the cost) 1,236,340.00
Bid Price 13,599,640.00
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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.

C. Sewage Project in Consideration of a Strike

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

The team has estimated the possibilities of strikes in Table 2. In

consideration of that, an expected value of strike is computed below in

Table 10.

Table 10.

Estimated days of strike at 75% probability of strike

One Shift Tw o Shifts Three Shifts Totals
Length of Strike (w eeks) 3 5 7
Probability of Strike 0.25 0.25 0.5

Converted to Days (assumed w orking days) 5

Length of Strike (days) 15 25 35
Probability of Strike 0.25 0.25 0.5
Weighted Average 3.75 6.25 17.5 27.5
Expected Probability 0.75
Expected Value 20.625
Round up 21

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

new cost computation in anticipation of any probable strike can be seen in

Table 11.
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Table 11.

Total costs and bid price at the varying shifts

@171 Days @180 Days
One Shift Two Shifts Three Shifts Optimized Optimized
Days with Strike 21 21 21 21 21
Indirect Costs 7,000.00 8,000.00 9,000.00 9,000.00 9,000.00
Additional Indirect Costs 147,000.00 168,000.00 189,000.00 189,000.00 189,000.00
Fixed Costs - Regular 3,479,000.00 2,016,000.00 1,539,000.00 1,539,000.00 1584000
Total Fixed Costs 3,626,000.00 2,184,000.00 1,728,000.00 1,728,000.00 1,773,000.00
Direct Costs 6,247,500.00 7,020,000.00 7,337,000.00 7,302,500.00 7,247,000.00
Total 9,873,500.00 9,204,000.00 9,065,000.00 9,030,500.00 9,020,000.00
General and Administrative 40% 3,949,400.00 3,681,600.00 3,626,000.00 3,612,200.00 3,608,000.00
Total Costs 13,822,900.00 12,885,600.00 12,691,000.00 12,642,700.00 12,628,000.00
Income Expected 10% 1,382,290.00 1,288,560.00 1,269,100.00 1,264,270.00 1,262,800.00
Bid Price 15,205,190.00 14,174,160.00 13,960,100.00 13,906,970.00 13,890,800.00
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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

there are activities that will run on three shifts.

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

the lowest costs, albeit at a longer period that 171 days.

III. Conclusions and Recommendations

Taking great consideration of the town’s health and safety, the possibility of strikes,

crashing, as well as weighing all options that will result to the most economical

benefits, the project managers of Teaneck has proposed two options.

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

project and will provide options to the person-in-charge in the town.