W2.1_ANG_AC Product Selection


Problem Statement

In our day to day, there are bunch of product offered by the market and we have tendency to select a product based on its cost of acquisition only. For air conditioner product, some brands come out with power inverter technology that offer low power consumption with the same capacity, but of course due to its additional equipment and market demand, the price is higher than the one without power inverter. So what we have to choose? Choose the one with power inverter? Is the tag price too high? Or is the price quite justified by the low power consumption offered?

This product selection shall consider the total life cycle of the product (air conditioner).

Feasible Alternatives

For the test case of total life cycle cost between air conditioner with inverter technology and not, the writer choose the same brand Panasonic with type CS-S13NKP for the one with inverter technology and CS-PC12PKP for the one without inverter technology. Both have the same capacity 1.5 PK (12,000 BTU).

The price of CS-S13NKP is RP. 5,800,000.-, higher than CS-PC12PKP: Rp. 4,250,000.- but CS-S13NKP has lower power consumption: 1,010 watt compare to CS-PC12PKP: 1,170 watt.

For the total life cycle cost comparison, the writer considers the potential electrical bill shall be paid on the run operation for these two air conditioners. The cost of other things such maintenance, replacement parts, etc. are assumed the same for these two air conditioners (same brand).

Outcomes/ Calculations of Each Alternative

Description

Unit

I

II

Deviation

Inverter technology

 

Yes

No

 
Type

 

Panasonic CS-S13NKP

Panasonic CS-PC12PKP

 
Capacity

PK

1.5

1.5

 
Cooling Capacity

BTU

12,000

12,000

 
Rated Input

watt

1,010

1,170

 
Unit Price (CAPEX)

IDR

5,800,000

4,250,000

1,550,000
 

 

 

 

 
Utilization per day (estimated)

hour

8

8

 
Utilization per month

hour

240

240

 
Electrical consumption per month

kwH

242

281

 
Electrical power price per kWh

IDR

676

676

 
OPEX per month

IDR

163,862

189,821

(25,958)
 

 

 

 

 
Total CAPEX and OPEX for 1 year

IDR

7,766,349

6,527,850

1,238,499
Total CAPEX and OPEX for 2 year

IDR

9,732,698

8,805,699

926,998
Total CAPEX and OPEX for 3 year

IDR

11,699,046

11,083,549

615,498
Total CAPEX and OPEX for 4 year

IDR

13,665,395

13,361,398

303,997
Total CAPEX and OPEX for 5 year

IDR

15,631,744

15,639,248

(7,504)

Time value based money is not considered on above comparison calculation and assumed the electrical power price is the same in above mentioned time horizon.

Setting Minimum/ Selection Criteria

The selection shall be based on the minimum total life cycle alternative, in this case the one that has lower total CAPEX and OPEX for the same life span assumption.

In life-cycle cost concept, a summation of all costs related to a product, structure, system, or service during its life span is considered. In general, life cycle may be divided into two general time periods: the acquisition phase and the operation phase. The greatest potential for achieving life-cycle cost saving is available in the acquisition phase of the life-cycle, because maximizing that potential life-cycle cost saving is critically dependent on effective engineering design and economic analysis that implemented during this (early) acquisition phase/ period.

Analysis/ Comparison of the Alternatives against the Criteria

Based on the table calculation above, shown the positive deviation CAPEX of having Inverter air conditioner can only paid off by lower power electric bill (lower OPEX) in five year operation.

Based on writer experience, the life span of Panasonic air conditioner can be last more than five years. From this perspective, because the life span is more than five years then air conditioner with inverter technology is more valuable (has lower total life cycle cost).

But the time value based money is not put into consideration in above simple total life cycle cost calculation and there is risk that the air conditioner is broken before achieve its economic life span. The other thing shall be considered is the monthly OPEX deviation benefit of air conditioner with inverter technology is too low, only Rp. 25,958.- compared to the CAPEX deviation that we have to pay, Rp. 1,550,000.- and seems the air conditioner with inverter in above case is over price.

Selection of the Best/ Preferred Alternative Compared against the Criteria

Considering above analysis, air conditioner without inverter technology is the preferred alternative.

Performance Monitoring and Post Evaluation of Result/ Follow up Assessment

There are some parameters which are sensitive for the result of above total life cycle calculation. Those are Unit Price of air conditioner (fair price/ over price), Power consumption of air conditioner, price of power electrical per kWh and the life span utilization of the air conditioner.

References :

  1. Bursa Elektronik (2013). Products Categories. [ONLINE] Available at: http://www.bursa-elektronik.com/. [Last Accessed 5 Sept 2013].
  2. PT PLN (Persero) (2013). Tarif Tenaga Listrik. [ONLINE] Available at: http://www.pln.co.id. [Last Accessed 5 September 2013].
  3. Newel, Michael W. (2005), Preparing for PMP Certification Exam Chapter 1 Pp. 34, Third Edition, AMACOM.
  4. Sullivan, William G., Wick, Elin M., Koelling, C. Patric. (2012), Engineering Economy. Chapter 2 Pp. 20 – 66, Fifteenth edition, Prentice hall.
  5. Mulcahy, Rita, PMP, et al., (June 2013). PMP Exam Prep. 8th ed. USA: RMC Publication, Inc.
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2 Comments

Filed under Anggono M, Week 02

2 responses to “W2.1_ANG_AC Product Selection

  1. AWESOME posting, Pak Anggono!!! NOW you get what I am looking for!!! PERFECT case study and your references are spot on!!! Your W2 posting is ACCEPTED as resubmitted…..

  2. Could I use this posting to claim Solve Problem Assignment in Engineering Economy Chapter 2?

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