management in an engineering environment | My Assignment Tutor

Assignment 1ENG8104 Asset management in an engineering environmentAssignment 1 – Semester 1 2021Date due: 22 April 2021Weighting: 50% (500 marks)This assignment meets the following course objectives:1. Demonstrate an understanding of the role of asset management.2. Apply cost effective whole of life financial planning for engineering andtechnological assetsSpecial Instructions1. Answer all questions, and ensure that your answers have the coverage, andare in the format, requested.2. Present your own ideas.3. Your answers should be properly referenced and reflect that you haveundertaken research outside the study material. You are to use the HarvardAGPS referencing system, information which is available from the USQLibrary webpage:http://www.usq.edu.au/library/referencing/harvard-agps-referencing-guide4. You should include a word count for all written questions. Word countsexclude the List of References.5. It is expected that your written answers will be produced using electronicword processing. The ‘.pdf’ format is preferred for written answers.6. Numerical answers will be produced using Microsoft Excel or a compatiblespreadsheet that can be easily read in Microsoft Excel. Calculations must beclearly shown in the spreadsheet.7. Assignments will be submitted electronically via the ENG8103 Study Desk.8. Please note that if plagiarism or cheating is detected in this assignment it willresult in no marks for the assignment. Students should ensure they clearlyunderstand the meaning of plagiarism and cheating. In particular, studentsshould understand that while they may collaborate with other students on theconceptual ideas in their assignments, the final written report submitted byeach student must be unique, and must not contain the written material of (a)any other student in the course, or (b) any other person without dueacknowledgement. Assignments are expected to be submitted to plagiarismdetection software at the time of submission.For further information refer to the University’s Academic Integrity Policy13752PL.9. You should apply for extensions via the online form in which you willoutline the reasons for the requested extension. Your application will beconsidered by faculty assessment teams, who will also update yourassignment due date in Study Desk. If you email your examiner anapplication for an extension, we are now required to direct you to the newlycreated Frequently Asked Question (FAQ) which contains a link to the onlineapplication form which is also embedded at the start of thismessage. Assignment extensions cannot be approved outside of this process.10. An Assignment submitted after the deadline without an approved extensionof time will be penalised. The penalty for late submission without a preapproved extension will be specified in the assignment instructions. At thevery least, the penalty for late submission is a reduction by 5% of themaximum Mark applicable for the Assignment, for each University BusinessDay or part Business Day that the Assignment is late. An Assignmentsubmitted more than ten University Business Days after the deadline willhave a Mark of zero recorded for that Assignment.11. Course Examiners may refuse to accept Assignments for Assessmentpurposes after Marked Assignments and/or feedback have been released. IfCompassionate and Compelling Circumstances appear to exist, CourseExaminers must consider these before refusing to accept an Assignment.See: http://policy.usq.edu.au/documents/14749PL#4.2_AssignmentsQuestion 1 (300 marks)Asset Management Strategic PlanningBackgroundYou are an asset manager for a medium sized company, the primary purpose of which is toprovide services or products to industrial and/or domestic consumers. Some examples of suchan organisation include, but are not limited to:• Water supply authority• Sewerage authority• Road network owner• Electricity supply company• Gas supply company• Telecommunications provider• Systems network provider• Power station owner• Product manufacturer.Your organisation owns a network of assets that enable it to deliver its services. The assets inthe network are of various types, sizes, ages and condition. Because of financial constraintsover the past several years, the assets in the network have not been replaced except whenabsolutely necessary. Maintenance equipment is also not in a generally good condition.Inspection is mainly by visual means, supplemented where required by more detailedinvestigation.While a basic asset management system program is in place, few minor assets are recordedon it. Several assets are still located by traditional methods such as links of key referencepoints (for example, bends, pits, poles, equipment) to property boundaries and centrelinedistances, building locations, similar types of reference points, or in some cases no referencepoints. Other asset information is minimal, and is mainly limited to information that isabsolutely necessary for maintenance purposes.There is concern that your organisation’s assets are not always located as per yourorganisation’s records. The situation has been exacerbated by poor record keeping in thepast, and by not recording changes when there have been changes to key asset data, includinglocation.This poor state of records makes it difficult for other service providers to have sufficientconfidence in the information you supply about your assets for their design, construction andmaintenance.Over the past several years, there have been a steadily increasing number of complaints byusers of your assets as a result of numerous breakdowns in service and failures. If it was notfor the fact that there are a number of barriers of entry to the business in which yourorganisation is engaged (for example, cost, government licences, technology), and the factthat the charges your organisation has levied for usage of its services are cheaper than similarservices elsewhere, your organisation might by now be in considerable difficulty.Underpinning these issues is an unclear definition of the asset management objectives of yourorganisation and lack of clarity about the main stakeholders in your asset managementnetwork and their roles.With changes in technology and an increasing focus on privatisation of services, there are anumber of potential competitors entering the market. The rapid technological changes in theassets under your organisation’s control, in asset management processes and methods, theincreasing use of advanced data collection and analysis, and in the types of products deliveredby your organisation, are increasingly placing competitors in a position to challenge yourorganisation to perform.In search for an answer to what are clearly a number of looming concerns, your organisationhas recently appointed you to develop an asset management strategy that meets your board’stargets of best industry practice for your particular type of asset network within five years,and a national leadership position within ten years.Funds – but not unlimited funds – have been made available for this purpose. Yourorganisation is expecting that the vastly improved standard of service brought by yourmanagement skills will bring contented customers who will pay the additional price requiredfor a modern and reliable service.New technologies are available that are expected to assist you to minimise the cost ofupgrading your asset, improve data collection and analysis, select the best type ofmaintenance and rehabilitation, and enable your organisation to take a leading position in theasset management field. Other new technologies are likely to enable you to increase thechoices available to the consumer and greatly improve the quality of service provided.Your TaskWrite a submission to your chief executive officer of your organisation describing a strategyto review and improve your organisation’s assets, their management, and the standard ofservice which they provide, to achieve the board’s goals. The approach used should beconsistent with the requirements of AS ISO 55001:2014 Asset management – Managementsystems – requirements.You will need to select the organisation, type of assets and asset network you are managing.While a real organisation is preferred, you may write your answer for a hypotheticalorganisation. You should indicate whether the organisation about which you are writing isreal or hypothetical.Your submission should be between 3000 and 4000 words in length and will have, in additionto the body of the report, an abstract, table of contents, background, introduction, conclusionand list of references. Background information should be as brief as possible and include abrief description of your organisation, its asset network, services provided by that assetnetwork, and current state of the network. The report should consider likely futuretechnological, regulatory and administrative changes with respect to asset management.At a minimum, your report should address the following specific points (240 marks total):• Background information about the asset network and the assets in it(this should be sufficient to set the scene for the reader) (20 marks)• Description of the life cycle of at least one (1) major asset in the network (15 marks)• Identification of major stakeholders, including their expectations (15 marks)• The main objectives that you want to achieve for the asset network (15 marks)• The specific outcomes you want to achieve at the end of five and tenyears (15 marks)• Performance and serviceability requirements and indicators (15 marks)• Development of a reliable asset inventory (15 marks)• Deterioration and condition monitoring (15 marks)• Approaches that you might use to achieve optimum performance from the asset network• Potential emerging and future technologies, including automated data(15 marks) collection, to improve the management of the asset network• Development of a corporate strategic asset management plan (SAMP) inaccordance with the AS ISO 55001:2014 Asset Management Standard(15 marks)(20 marks) • Use of appropriate asset management information systems (15 marks)• Outline of likely benefits and costs of implementing the revised strategy (15 marks)• Conclusion (15 marks)• Recommendations (20 marks)A further 60 marks are allocated for communication aspects of your report, as follows:• Abstract and table of contents (10 marks)• Structure (10 marks)• Language, style, spelling (10 marks)• Completion in 3000 to 4000 words (10 marks)• Setting out and referencing (20 marks).CommentsIt is recommended that you take some time considering a suitable asset type and network onwhich to write your report. You should then research the selected asset type and its likelynetwork arrangements; and also research processes and methods for managing both theselected asset type and the network. Critically review the information you have found in orderto select the most suitable methodology for managing the assets over the next ten years andbeyond. Reflect on the possible options and consider a suitable approach for the assets underyour control, with the aim of achieving national and ultimately world best practice.You should review references outside the course material, using both on-line and printresources. On-line resources include both the Internet and on-line library reference material.For example, the University of Southern Queensland subscribes to a number of on-linedatabases, which contain abstracts (and often full text) of many current journals.Useful reference material include the Study Modules, readings, the course text, AS ISO55000:2014, AS ISO 55001:2014.Question 2 (70 marks)Depreciation and Annual Costa) In about 500 words, compare the alternative methods of depreciation used in assetmanagement process. You should discuss the role of depreciation in the assetmanagement process, and give examples of where and when each method would be usedin that process. At least three (3) references should be used to support your discussion.(20 marks).b) An asset owner has decided to purchase an item of equipment with a 16 year workinglife. Financial information with respect to this equipment is as follows: Purchase price:Residual value:$12,000,000$ 1,500,000 i. Tabulate the depreciation and book value for the life of the item by each of thefollowing methods:• straight line• declining balance• sum of digits(15 marks) ii.Tabulate details of a sinking fund to accumulate to the original purchase price lessresidual value assuming an interest rate of 6.0% per annum.(10 marks)iii.Draw a graph showing the book values in each of the above (plotted on the samegraph for comparison).(10 marks)iv.Assume the cost of money is 10 percent per annum. Calculate the annual cost ofpurchasing this asset. State any assumptions.(10 marks)v.Assume that this asset works for 1,500 hours per year. Hourly costs, other thandepreciation are as follows:Operation$150.00Maintenance$100.00FuelProfit is 25%$75.00Calculate the hourly charge-out rate for use of this equipment.(5 marks) Question 3 (130 marks)Asset Management Economicsa) Using at least two (2) references to support your answer, discuss in 400 to 600 wordsthe issues that you might consider in assessing and comparing alternative options forpurchasing, rehabilitating, or replacing assets. Use at least two (2) methods ofcomparing alternative options to support your answer.(30 marks)b) An asset under your management, with an estimated design life of 16 years, cost$8,400,000 to purchase and install. It has a revenue stream of $2,150,000 per yearfor each full year of operation.Costs of operation and maintenance of this asset are as follows:• $800,000 per year for Years 1 to 5 of the life of the asset• $850,000 per year for Years 6 to 11 of the life of the asset• $950,000 per year for years 12 to 14 of the life of the asset• $1,000,000 for years 15 and 16 of the life of the asset.As the asset is currently 14 years old, and there is a lead time of twelve months forordering and installing a new asset, or undertaking rehabilitation, a decision needs tobe made soon with respect to the best option for its ongoing use. Conditionmonitoring information confirms that the asset is nearing the end of its design lifeand should be replaced once that life is reached.The replacement process will take about six months and commence at the end of thedesign life of the old asset. While the old asset will remain partially in service overthe replacement period, revenue during the year in which the replacement is beingundertaken will reduce to $1,100,000.The residual (scrap) value of the replaced asset is $1,800,000. It will cost $800,000to remove the asset from service when it is replaced.The asset can be rehabilitated and upgraded at the end of 16 years of service. Theopportunity will be taken to improve the technology of the asset and to enhance thecapacity of the asset. This process is expected to cost $10,500,000 and be completedwithin one year, during which the old asset will continue to remain in reducedservice. The upgraded asset is then expected to last for 16 years from thecommencement of the rehabilitation process).Costs of operation and maintenance of the rehabilitated and upgraded asset areexpected to be as follows:• $500,000 for Year 1 of the life of the upgraded asset (i.e., the year in whichrehabilitation takes, as there will still be some maintenance of the old assetduring this period)• $1,000,000 per year for Years 2 to 7 of the life of the upgraded asset• $2,500,000, which includes refurbishment work, in Year 8 of the life of theupgraded asset• $1,200,000 per year for Years 9 to 14 of the life of the upgraded asset• $1,500,000 per year for Years 15 and 16 of the life of the upgraded asset.The upgraded asset is expected to have a revenue stream of $2,800,000 per year,except in Year 1, when the upgrade process takes place.The complexities of the rehabilitation and upgrading process mean that while theasset will continue to operate during the upgraded, there will be some there will beconsiderable service reduction during the rehabilitation and upgrading process. Thisrevenue loss is expected to be $1,400,000, applicable to the first year of operation ofthe rehabilitated and upgraded asset only.At the end of the life (16 years) of the rehabilitated and upgraded asset, it must bereplaced by a completely new asset. The costs incurred for this replacement areexpected to be incurred by the new asset and are therefore not to be considered in theanalysis process.Funds are available for whatever option is selected.Your task i.Assess the best option between replacing and rehabilitating this asset.Money costs 6.0% per annum. Assume zero inflation.Use at least two methods of comparing alternatives, including net presentvalue.(35 marks)ii.Comment on your answer. Include in your comments an assessment of theadvantages and disadvantages of each method you use to comparealternatives.(10 marks)iii.Conduct a sensitivity analysis using different values of the discount rate,using the discount rates of 3% per annum, 10% per annum and at least three (3) other discount rates.(20 marks)iv.Draw your results on a graph showing net present value of each ofreplacement of the asset and rehabilitation of the asset against discount rate.(10 marks) v.Determine the discount rate at which the choice between replacement andrehabilitation of the asset after its life of 16 years would be indifferent.(10 marks)Consider (in about 300 to 400 words) your opinion of the role of the discountvi. rate and other factors in the assessment of asset development andmanagement projects. Topics to consider include:• The importance of selecting the most suitable discount rate in comparingtwo projects on a life cycle basis, including an assessment of the discountrate at which neither project is economically viable.• The role of non-economic factors in the asset development andmanagement decision-making process, such as risk, and environmentaland social factors. (15 marks)

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