In the middle of FAT activity in Dallas-TX, I’ve just got idea to use student pick-up service for the case contributing for Simatupang AACE 2014 blog. This case was triggered that my wife is tired with the traffic to accompany and pick up my daughter every day to her school and then planned to use student pick up service to school. She has checked the rate for go and forth is not expensive; it’s only IDR 500,000 per month so then across in my mind, is this business profitable with that level of price?
The type of car that the pick-up service use is Suzuki “Carry” minibus year 1995 that carries max 8 passengers and I checked on internet the good condition of 2nd Suzuki ‘Carry” year 1995 price IDR 46,000,000 now. So with this basis assumption, I try to assess the projected rate of return of this student pick-up service.
Other assumptions made are:
- 2 shift per day for morning and afternoon class
- The pick-up only covers nearby my neighborhood, so the service price assumed the same no much different on the fuel consumption for the additional student/ passenger.
- Projected for 2 years operation (24 months)
- “All Risk” insurance car: 3% from purchased price.
- Assumed the car will be sold at the end of investment the decreasing value is assumed IDR 2,000,000 per year (very conservative)
The feasible alternatives are simple; proceed with the business if the projected rate of return is above minimum attractive rate of return (MARR) and decline it if not.
On this business projection, I put three scenarios for the : 1st pessimistic with only 3 students use this service per shift, 2nd most likely with 5 students per shift (conservative that actually most likely is 5-6 students per shift) and 3rd optimistic with occupied maximum or 8 passenger per shift.
Outcomes/ Calculations of Each Alternative
Based on above assumption, I make calculation rate of return as follows:
Note: for the calculation of rate of return, I use spreadsheet formula: =rate(nper,pmt,pv,fv).
Setting Minimum/ Selection Criteria
Assumed the minimum attractive rate of return (MARR) is 15% to cover inflation rate, opportunity cost and business risk.
Analysis/ Comparison of the Alternatives against the Criteria
As shown above, the result is surprising to me that with the level of service price, the projected rate of return is above MARR, even for pessimistic scenario.
Selection of the Best/ Preferred Alternative Compared against the Criteria
Based on this assessment, the student pick-up service is profitable and quite promising; the projected rate of return is above MARR.
Performance Monitoring and Post Evaluation of Result/ Follow up Assessment
The fuel cost assumed in above calculation using the current “premium” type of fuel that so far the price is subsidized by government.
The low price of subsidized fuel/ gasoline may the reason why with that level of price, the business is still profitable.
But I believe the customer will understand if the fuel price increase and the price of student service pick-up service adjusted up.
- Sullivan, William G., Wick, Elin M., Koelling, C. Patric. (2012), Engineering Economy. 15th ed. Chapter 14: Decision Making Considering Mutiattributes, page 551-573, USA: Pearson Higher Education, Inc.
- Amos, Scott PE. (2012), Skill & Knowledge of Cost Engineering. 5th ed., USA: AACE International.
- Humphreys, Gary C. (2002), Project Management Using Earned Value. 2nd ed., USA: Humphreys & Associates, Inc.
- Bursa Kendaraan (2013). Carry Adiputro 1995. [ONLINE] Available at: http://kendaraan.trovit.co.id/. [Last Accessed 24 Sept 2013].
Asuransi Mobil (2013). Tarif Premi Asuransi Kendaraan Bermotor. [ONLINE] Available at: http://mitraca.com/. [Last Accessed 24 Sept 2013].