W15_AK_UPS Server Replacement Analysis


1.Problem Definition

Base on my W9 Blog data, we plan to replace our existing ups server because of performance reason.  And after the calculation we have the best choice from option that provide by our supplier. Please find below the data :

W15_Pict1

The existing ups was already used for two years , and estimate for live in another three years . Please find below expected data for the existing ups :W15-pict2

We have our company MARR is 18% as  calculated on at my previous blog.

 

2.Feasible alternatives

To analyze the best choice we used Flow  method as below :

W15-pict3

There are 3 method that we can do to analyze for replacement analysis :

  • ·         Method 1 ( Defender marginal cost increasing ?)

          Maintain the defender for one year more

          When the Defender’s marginal cost becomes greater than the Challenger’s minimum EUAC, then replace the Defender with the Challenger.

  • ·         Method 2 (Defender Marginal Cost Not Increasing)

          If the Defender’s minimum EUAC exceeds the Challenger’s minimum EUAC, then replace immediately.

          If the Defender’s minimum EUAC is lower than the Challenger’s minimum EUAC, then the Defender will be kept at least the minimum cost life.

  • ·         Method 3 (Defender Marginal Cost Not Available)

–  If the Defender’s EUAC exceeds the Challenger’s minimum EUAC, then replace immediately.

  • •          – If the Defender’s EUAC is lower than the Challenger’s minimum EUAC, then the Defender will     be kept.

3. Develop the outcomes

 

First : We calculate for Defender option

W15-pict4

Capital Recovery Calculation :

CR = -P(A/P,i%,n) + S(A/F,i%,n)

CR(1) = -$7,000 (A/P,18%,1) + $6,000(A/F,18%,1)

CR(1) = -$2,750

CR(2) = -$7,000(A/P,18%,2) + $5,000(A/F,18%,2)

CR(2) = -$2,638

CR(3) = -$7,000(A/P,18%,3) + $4,000(A/F,18%,3)

CR(3) = -$2,536

 

AOC/Annual Operation Cost  calculation :

AOC(1) = $1,300 + 300(A/G,18%,1) = $1,300

AOC(2) = $1,300 + 300(A/G,18%,2) = $1,388

AOC(3) = $1,300 + 300(A/G,18%,3) = $1,470

 

 EUAC Calculation :

EUAC (1) = 7,000 (A/P,18%,1) – 6,000(A/F,18%,1) + [1,300 + 300(A/G,18%,1)]

EUAC (1) = 4,050

EUAC (2) = 7,000(A/P,18%,2) – 5,000(A/F,18%,2) + [1,300 + 300(A/G,18%,2)]

EUAC (2) = 4,071

EUAC (3) = 7,000(A/P,18%,3) – 4,000(A/F,18%,2) + [1,300 + 300(A/G,18%,3)]

EUAC (3) = 4,093

 

4. Select Acceptable Criteria

Then we calculate for Challenger option :

W15-pict5

Calculate Capital Recovery :

CR(1) = -$10,000(A/P,18%,1) + 8,000(A/F,18%,1) = -$3,800

CR(2) = -$10,000(A/P,18%,2) + 6,500(A/F,18%,2) = -$3,408

CR(3) = -$10,000(A/P,18%,3) + 4,500(A/F,18%,3) = -$3,339

CR(4) = -$10,000(A/P,18%,4) + 3,000(A/F,18%,4) = -$3,141

CR(5) = -$10,000(A/P,18%,5) + 2,000(A/F,18%,5) = -$2,918

 

AOC Calculation :

AOC(1) = $900 + $100(A/G,18%,1) = $900

AOC(2) = $900 + $100(A/G,18%,2) = $944

AOC(3) = $900 + $100(A/G,18%,3) = $985

AOC(4) = $900 + $100(A/G,18%,4) = $1,022

AOC(5) = $900 + $100(A/G,18%,5) = $1,056

 

EUAC Calculation :

EUAC (1) = 10,000(A/P,18%,1) – 8,000(A/F,18%,1) + [900 + 100(A/G,18%,1)]

EUAC (1) = 5,400

EUAC (2) = 10,000(A/P,18%,2) – 6,500(A/F,18%,2) + [900 + 100(A/G,18%,2)]

EUAC (2) = 4,996

EUAC (3) = 10,000(A/P,18%,3) – 4,500(A/F,18%,3) + [900 + 100(A/G,18%,3)]

EUAC (3) = 4,928

EUAC (4) = 10,000(A/P,18%,4) – 3,000(A/F,18%,4) + [900 + 100(A/G,18%,4)]

EUAC (4) = 4,736

EUAC (5) = 10,000(A/P,18%,5) – 2,000(A/F,18%,5) + [900 + 100(A/G,18%,5)]

EUAC (5) = 4,532

 

5.  Compare the outcome

W15-Summary

we follow step decision map that already explain on step 2 :

1.  Defender marginal cost data ?  answer : available

2. Defender marginal cost increasing ? answer : No

3. Used technique 2 analysis : Based on the summary table, we can see defender EUAC < then chalengger EUAC, that’s why we can keep defender for other 3 years and then do swap for the ups server. (Best Option)

6. Best criteria from mimimum

 And also second option is to replace the ups server before 3 years with the new one, and this is maybe because performance issue or if the annual cost for defender is more hingher then usual.

7. Performance monitoring and post result

For performance monitoring and post result , the parameter that we can used for performance is annual cost. If the annual cost is hingher or lower then what we already calculate then we havo to recalculate again the EUAC and find out the best option.

 

References

Sullivan W.G., Wicks E.M., Koelling C.P, (2012), Engineering Economics Section 9.5 Determining the Economic Life of a new Asset (Chalengger), pp. 387, 15th edition, Prentice Hall

Ramadhan, Irfan. (2011). Umur Ekonomis, retrieved from: http://irfanramadhan4.wordpress.com/2011/12/30/umur-ekomonis/

Golbeck, Steven. (2012). Lecture 7-8: Equivalent Uniform Annual Cashflow & Expected NPV. retrieved from: http://users.iems.northwestern.edu/~sgolbeck/IEMS326/Lecture7_8.pdf

 

 

 

 

 

 

 

 

 

 

 

 

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1 Response to W15_AK_UPS Server Replacement Analysis

  1. drpdg says:

    Awesome, Andi!!!

    Excellent case study and you did a great job on your analysis!!!

    Be sure to claim appropriate credit for both your blog posting AND at least one question from the relevant chapter in Engineering Economy.

    Just be sure to split your time between the blog project and the question project….

    BR,
    Dr. PDG, Jakarta

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