This time I continue to discuss further using topic from my previous posting on week 3 now I want to talk about laundry service further in this posting. Evaluating a single project using tools as discussed in in Engineering Economy Engineering Book, chapter 5, page 178-211. Introducing concept of Minimum Attractive Rate of Return (MARR) and Inernal Rate of Return (IRR) to see whether the business investment project should go or not.
To find the economic desirability of this laundry business proposal here we must collect some data in order to get the image of laundry business economic profile, data collection for capital investment includes washer machine price, set up or installment cost on laundry workshop. Laundry workshop to put the machine and employee is using rental kiosk sized 9 square meters which is available on the market. Budget expense for rental kiosk is categorized on monthly operating cost together with electrical payment, labor cost, and other expense. For working hour assumption for working hour is an 8 hours/day, from Monday to Saturday. By using 4 machines installed and 2 worker employed to operate then I make what named laundry business economic profile as described below:
Market value is assumed at best marketing effort or in another word there is no idle time for machine because there is no customer coming in and give their order. And for laundry market price as I know at very competitive price is IDR 6500
Outcomes/ Calculations of Each Alternative
Having had all necessary data for major aspect for required for this project, then we can calculate in spreadsheet to get monthly operating cost component and shown in tabel.2.
This data and calculation will result a net annual revenue as shown in tabel.1 previously.
And then next step is making the alternatives product using Microsoft Excel spreadsheet calculation to get the Interest Rate of Return from excel Technique as the following table:
From the table we know that IRR is 35% or greater than given MARR (20%)
Setting Minimum/ Selection Criteria
The economic justification for this project is based on IRR > given MARR
Analysis/ Comparison of the Alternatives against the Criteria
For this case the business affected by volume of order obtained from market. which determine that the business will lead to success or not, because this business can be established in relatively low technology and low capital, surely the market competition is playing its major influence to company. Worker productivity and machine availability also contribute revenue gained.
Selection of the Best/ Preferred Alternative Compared against the Criteria
Considering above analysis, the project will go economically justified if IRR is greater than MARR
Performance Monitoring and Post Evaluation of Result/ Follow up Assessment
Understanding that ranking the aspect affecting revenue can be from many factors such as labor productivity, machine availability, market condition, I try to put in graph how is the IRR moving from low machine availability to the maximum availability of the machine. Factorized revenue versus machine availability is giving interesting simulation result. As shown in figure.1 we know at some point the business that seemed so easy will lead to loss rather than profit if we don’t manage seriously the productivity in terms of equipments, workers, and customer.
Figure.1, ( x-axis: productivity, y-axis : factorized revenue)
And many other things seemed interesting can be discussed as productivity is one of small business key success factor.
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- Sullivan, William G., Wick, Elin M., Koelling, C. Patric. (2012), Engineering Economy. Chapter 5 Pp. 178 – 211, Fifteenth edition, Prentice hall.
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