Group B

Aco, Bernadette Liza

Angeles, Aaron

Mendoza, Vincent
Morada, Roberto Carlo
TEANECK COMPANY

For strategic reasons, it is very important for Teaneck Company to submit the most competitive bid.
Winning the bid not only means that the company will get the sewer system project but it can also
edge out the other competitors in obtaining a contract amounting to P50 million later that year.
Precedence Table
Before coming up with the bid price, we have laid out the activities required in constructing the
sewer system in the precedence table below.
Table 1. Precedence Table
A
B
C
D
E
F
G
H
J
K
L
M

ACTIVITY
Move in machinery/equipment
Excavate primary shaft
Excavate secondary shafts
Excavate trenches
Excavate tunnel
Backfill (trenches only)
Pipelaying in trenches
Pipelaying in tunnel
Pour concrete in trenches
Pour concrete in tunnel
Landscape
Move out

Precedence
A
B
A
B
J
D
C,E
G
H
F
L

After the machinery/equipment has been settled at the construction site, the excavation of the
primary shaft and trenches will begin immediately. These will be followed by the excavation of the
secondary shafts and the tunnel. After all the excavation procedures, the pipes will then be laid both
in the trenches and in the tunnel. After pipelaying, concrete will be poured to fill the excavation.
Once the concrete has set, the construction team can begin backfilling the holes in the trenches to
make the foundations sturdier. Lastly, the construction should be properly leveled or landscaped
before moving out the machinery/equipment.

Base Case: Absolute Shifts

A. No Strike
Assuming there is no strike, the project is expected to be completed in 497 days if the company
decides to use 1 shift, 252 days for 2 shifts, and 171 days for 3 shifts. The PERT diagrams

Page 1 of 1

supporting these calculations are shown in the Appendix Section. The project cost and bid prices
are summarized in Table 2a.
In this scenario, we have observed that the direct cost increases as the company increases its
number of shifts. However, increasing the number of shifts dramatically reduces the number of
days required to complete the project, consequently cutting down total indirect costs. As the
number of shifts increases, the reduction in indirect costs more than offsets the increase in direct
costs, thus decreasing the overall cost and making our bid price more competitive. By comparing
absolutely 1, 2 or 3 shifts, we can see that the optimal shift seems to be the last one as this has the
lowest total cost and shortest project period.
Table 2a. Bid Price Per Shift No Strike Scenario
Direct cost
Indirect cost
Total direct & indirect cost
General and administrative expense
Total cost
Mark-up
Bid price

One shift
Two shifts
6,247,500
7,020,000
3,479,000
2,016,000
9,726,500
9,036,000
3,890,600
3,614,400
13,617,100 12,650,400
1,361,710
1,265,040
14,978,810 13,915,440

Days
Cost/day

Three shifts
7,337,000
1,539,000
8,876,000
3,550,400
12,426,400
1,242,640
13,669,040

497

252

171

27,399

50,200

72,669

B. With Strike
Unfortunately, an Excavators Union strike is expected to occur on the projects inception date. This
is expected to stretch the completion date of the project by the weighted average number of days,
i.e. summation of the product of length of strike days and probability. We can expect the sewer
systems project completion date to be extended by approximately 32.5 days
Length of strike days
20
30
40
Total

Probability
.25
.25
0.5

Expected length of strike

5
7.7
20
32.5

Although the strike will not affect direct costs, the group expects the cost of the strike to be charged
with the indirect cost per day for the corresponding shift. The cost is then multiplied by the
probability of occurrence which is 80%. The bid prices for the absolute shift scenarios that
incorporate the strike are shown in Table 2b. Based on this, the most competitive bid still utilizes
three shifts.

Page 2 of 2

Table 2b. Bid Price Per Shift With Strike Scenario

Direct cost
Indirect cost
Indirect cost attributable to the strike
Total direct & indirect cost
General and administrative expense
Total cost
Mark-up
Bid price

One shift
Two shifts
6,247,500
7,020,000
3,479,000
2,016,000
182,000
208,000
9,908,500
9,244,000
3,963,400
3,697,600
13,871,900 12,941,600
1,387,190
1,294,160
15,259,090 14,235,760

Days
Cost/day

Three shifts
7,337,000
1,539,000
234,000
9,110,000
3,644,000
12,754,400
1,275,400
14,029,400

529.5

284.5

203.5

28,818

50,038

68,941

Alternate Scenario: Using Combination of Shifts

To meet the objective of minimizing the project bid price, the group has decided to find the optimal
number of shifts for each activity. The optimal number of shift is the one that minimizes the total
direct and indirect costs for a specific activity as shown in Table 3. The activities with their
corresponding optimal shifts and minimum total costs are summarized in Table 4. Using a
combination of shifts will extend the completion date to 222.5 days from 203.5 days using straight
3 shifts with strike.
By considering the direct costs for the optimal number of shift for each activity and the indirect
costs along the critical path only, we have estimated a bid price of P13.95 million for the with strike
scenario (see Table 5). We can still bring down the price by choosing lesser number of shifts for the
activities that are not along the critical path. Using only 1 shift instead of 3 for activity C and 2 shifts
instead of 3 for activity H will decrease total cost by P34,500 and P15,000, respectively. Cutting the
number of shifts for activities E and K will not be operationally practical because it will alter the
critical path and extend the project completion time.
For additional project savings, strike cost is estimated by assigning the minimum indirect cost of
P7,000/day. The result is then multiplied by the probability of occurrence of 80%. The final bid
price is estimated at P13.87 million.

Page 3 of 3

Table 3. Computation of Total Cost per Activity

One shift

Two shifts

Indirect
Cost
84,000

Total
Cost
234,000

Three shifts

Indirect
Cost
48,000

Total
Cost
213,000

180,000

Indirect
Cost
36,000

Total
Cost
216,000
455,500

Move in machinery/equipment

12

Direct
Cost
150,000

Excavate primary shaft

12

347,500

84,000

431,500

12

347,500

96,000

443,500

12

347,500

108,000

Excavate secondary shafts

60

312,500

420,000

732,500

24

330,000

192,000

522,000

12

347,000

108,000

455,000

ACTIVITY

Days

Days

Direct

165,000

Days

Direct

Excavate trenches

300

1,685,000

2,100,000

3,785,000

150

2,125,000

1,200,000

3,325,000

100

2,250,000

900,000

3,150,000

Excavate tunnel

305

1,807,500

2,135,000

3,942,500

155

1,955,000

1,240,000

3,195,000

105

2,000,000

945,000

2,945,000

Backfill (trenches only)

50

50,000

350,000

400,000

25

75,000

200,000

275,000

17

100,000

153,000

253,000

Pipelaying in trenches

50

375,000

350,000

725,000

25

410,000

200,000

610,000

17

445,000

153,000

598,000

Pipelaying in tunnel

50

275,000

350,000

625,000

25

285,000

200,000

485,000

15

300,000

135,000

435,000

Pour concrete in trenches

70

570,000

490,000

1,060,000

35

582,500

280,000

862,500

25

592,500

225,000

817,500

Pour concrete in tunnel

60

550,000

420,000

970,000

30

562,500

240,000

802,500

20

575,000

180,000

755,000

Landscape

10

100,000

70,000

170,000

145,000

64,000

209,000

150,000

54,000

204,000

Move out

25,000

35,000

60,000

37,500

24,000

61,500

50,000

18,000

68,000

Page 4 of 4

Table 4. Optimal Number of Shifts per Activity

ACTIVITY

Min. Total Cost/Activity

Shift

Days

Critical path (days)

6

Move in machinery/equipment

213,000

Excavate primary shaft

431,500

12

Excavate secondary shafts

455,000

12

Excavate trenches

3,150,000

100

Excavate tunnel

2,945,000

105

Backfill (trenches only)

253,000

17

17

Pipelaying in trenches

598,000

17

17

Pipelaying in tunnel

435,000

15

Pour concrete in trenches

817,500

35

Pour concrete in tunnel

755,000

20

Landscape

170,000

10

10

60,000

5
190

M Move out
TOTAL

100

35

Table 5. Computation of Bid Price Based on Optimal Number of Shifts in Table 4

A
B
C
D
E
F
G
H
J
K
L
M

ACTIVITY
Move in machinery/equipment
Excavate primary shaft
Excavate secondary shafts
Excavate trenches
Excavate tunnel
Backfill (trenches only)
Pipelaying in trenches
Pipelaying in tunnel
Pour concrete in trenches
Pour concrete in tunnel
Landscape
Move out

Shift
2
1
3
3
3
3
3
3
2
3
1
1

Days
6
12
12
100
105
17
17
15
35
20
10
5

Normal direct cost

Normal indirect cost
Indirect cost attributable to strike

Direct
P 165,000
347,500
347,000
2,250,000
2,000,000
100,000
445,000
300,000
582,500
575,000
100,000
25,000

Indirect
P 48,000

P 7,237,000

P 1,639,000

900,000
153,000
153,000
280,000
70,000
35,000

No Strike
P 7,237,000
1,639,000

With Strike
P 7,237,000
1,639,000
182,000

P 8,876,000
3,550,400
P 12,426,400
1,242,640
P 13,669,040

P 9,058,500
3,623,200
P 12,681,200
1,268,120

(at P7,000/day, with 80% prob. of occurrence = P7000 x 32.5 days x 80%)

Total direct and indirect cost

G&A costs
Total cost
Profit
Bid price

P 13,949,320

Page 5 of 5

Table 6. Revised Shift Schedule

A
B
C
D
E
F
G
H
J
K
L
M

ACTIVITY
Move in machinery/equipment
Excavate primary shaft
Excavate secondary shafts
Excavate trenches
Excavate tunnel
Backfill (trenches only)
Pipelaying in trenches
Pipelaying in tunnel
Pour concrete in trenches
Pour concrete in tunnel
Landscape
Move out

Shift
2
1
1
3
3
3
3
2
2
3
1
1

Days
6
12
60
100
105
17
17
25
35
20
10
5

Direct
165,000
347,500
312,500
2,250,000
2,000,000
100,000
445,000
285,000
582,500
575,000
100,000
25,000

Indirect
48,000

P 7,187,500

1,639,000

900,000
153,000
153,000
280,000
70,000
35,000

Table 7. Final Bid Price Based on Revised Shift Schedule

Direct cost
Indirect cost
Estimated cost of the strike
(at P7,000/day, with 80% prob. of occurrence = P7000 x 32.5 days x 80%)
Total direct and indirect cost
G&A costs
Total cost
Profit
Bid price

No Strike
P 7,187,500
1,639,000

With Strike
P 7,187,500
1,639,000
182,000

P 8,826,500
3,530,600
P 12,357,100
1,235,710
P 13,592,810

P 9,008,500
3,603,400
P 12,611,900
1,261,190
P 13,873,090

Conclusion and Recommendation

Usually, there are tradeoffs between cost and time to complete a project. Completing a project
sooner by requiring more resources makes the project more expensive. However, this is not always
the case for Teanecks sewer system project. If management prioritizes a faster completion of the
project at minimal cost, then the group recommends using 3 shifts for all activities wherein the
project will be completed in 203.5 days at a cost of P14.03 million assuming a strike occurs.
However, since the main concern is obtaining the lowest bid price, then the group recommends a
combination of shifts per activity as Teaneck will be able to reduce the bid price to P13.87
million. At this bid price, project completion date will be extended by 19 days relative to using
straight 3 shifts.

Page 6 of 6

Appendix: PERT Diagrams (critical path in blue)

A. Base Case - No Strike
1 shift
START

D
300

12
12

G
50

312 362
312 362

J
70
F
50

strike
0

0
0

0
0

A
12

0
0

12
12

312
312

B
12
E
305

24
67

12
55

24
67

329
372

C
60

362 432
362 432

H
50

329 379
372 422

432 482
432 482

K
60

379 439
422 482

L
10

482 492
482 492

M
5

492 497
492 497

24
84
312 372

END

Page 7 of 7

2 shifts
START

D
150

6
6

strike
0

0
0

0
0

A
6

0
0

6
6

156
156

G
17

156 181
156 181

J
25
F
17

B
12
E
155

18
31

6
19

18
31

173
186

C
24

181 216
181 216

H
25

173 198
186 211

216 241
216 241

K
30

198 228
211 241

L
8

241 249
241 249

M
3

249 252
249 252

18
42
162 186

END

Page 8 of 8

3 shifts
START

D
100

4
4

strike
0

0
0

0
0

A
4

0
0

4
4

104
104

G
17

104 121
104 121

J
25
F
17

B
12
E
105

16
23

4
11

16
23

121
128

C
12

121 146
121 146

H
15

121 136
128 143

146 163
146 163

K
20

136 156
143 163

L
6

163 169
163 169

M
2

169 171
169 171

16
28
116 128

END

Page 9 of 9

B. Combination of shifts
The strike is expected to occur on the project inception date, pushing the start of moving in the
machinery/equipment by the expected length of strike.
START
strike
32.5

0
0

32.5
32.5

A
6

32.5
32.5

38.5
38.5

D
100

38.5
38.5

138.5
138.5

B
12

G
17

138.5 155.5
138.5 155.5

J
35

155.5 190.5
155.5 190.5

H
25

155.5 180.5
162.5 187.5

F
17

190.5 207.5
190.5 207.5

K
20

180.5 200.5
187.5 207.5

E
105

50.5
57.5

L
10

207.5 217.5
207.5 217.5

M
5

217.5 222.5
217.5 222.5

155.5
162.5

38.5
45.5

50.5
57.5
C
60

50.5 110.5
102.5 162.5

END

Page 10 of 10