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Week 9 Extra Credit a Precision Tree Opportunity
Maximum Points:10 extra credit Points
Horaces Blockades — To Rent or Buy
Introduction to the Case Study
Horace Beeper has been the chief provider of road blockades in and around Prescott Florida for decades. He is distantly related to Bob ofBobs Barricades, of Interstate fame, but as Horace likes to say, Old Bob, there, why his barricades dont stop anything. My cades save lives, and save money!
Recently the Florida Department of Transportation (FDOT) has let a bid to provide barricades for a new stretch of Interstate 752 that will replace FL highway 103 out of Prescott. This 10-mile length of road will be built along the side of highway 103 and will require shutting down one lane of the highway for weeks or months at a time. They will work on one mile at a time so as to not completely shut down the entire highway. The contractor will provide stop and go lights at either end of the construction zone so that cars will know when it is safe to drive on the one lane highway, and at intersections with major crossing roads and driveways.
That is where old Horace comes in. He wants to bid on that job because it could mean several years of work but all of his inventory is out on other jobs right now and he would have torent,lease, orbuy additional barricades for this job. That is his dilemma,to rent, lease or to buy the barricades if he wins the bid.
Here are some facts for you to know about the specifications:
Number of barricades Needed
Normally the FDOT requires road barricades to be no more than 10 feet apart when blocking off a travel lane. That means in a one-mile stretch, Horace will have to have a minimum of 528 to 600 barricades for this job. He would, of course, move the barricades when that mile of construction was completed and reuse the barricades on the next mile of construction. Additional barricades would be needed to have open lanes to exits and to driveways to subdivisions or to businesses along that section of road. The contractor expects the winning bidder to havea minimum of 700 to a maximum of 850 barricades available for this job.
Length of time for this Construction
The FDOT wants the job finished in 2½ years, and will pay a premium if the job is done in 2¼ years. So the time range is between2.25 and 2.50 years for this job.
Setting up and taking down the barricades
Setting up the barricades is time consuming. Horace knows from experience that his crack team ofbarricade setters can get¼ of a mile done in one day, so it would take him4 days to set up a mile, and for exits to roads and driveways it would take anadditional3 days each time he sets up the barricades.
Taking down the barricades is somewhat easier, Horace estimates that his team will need5 days to remove the barricades, then of course they must reset the barricades at the next construction site. He charges$85 dollarsper hour for his team of 4 guys and gals to set up or take down the barricades. The normal working day for this team is8 hours.
Cost of Renting versus Buying New Barricades
Here are the costs for renting, leasing or buying barricades (the costs are somewhat accurate).
Table 1. Renting, leasing or buying Barricades
Rent, lease or Buy Barricades
Annual Cost (If renting or leasing)
Daily Rental Cost per Barricade
Long-term lease (1 yr.) per Barricade
Purchase price for Barricade with strobe night lights
Rental costs include repair and replacement for damaged (which always happens) of barricades during the rental period.
If Horace buys or leases the barricades then he is responsible for repair and replacement of the barricades at his cost. Horace estimates that 10% of the barricades are damaged each year (Them darn kids think it is a race track dodging in and out of the cades!) and that 20% would need repair each year. It costs Horace about $55 to repair the normal wear and tear on those barricades. If he leases the barricades and must replace one it will cost him an additional $50 convenience fee to the owner of the barricade.
The contractor would be responsible for recharging the strobe lights on each of the barricades and this would not be a charge for Horace regardless which way he decides to go.
The Precision Tree
You are to create a Precision Tree beginning with a decision node to either submit a bid or not. Then create a chance node with the three possible alternatives, rent, long-term lease or buy, and then on each branch determine the costs associated with each branch. For instance, if Horace buys then he has repair and replacement costs that he does not have if he rents. Plus, he has setup and take down costs that must be factored into the cost options. When you have completed this you will have a total cost for each purchase/rent/lease option. Complete Table 2 below and include it in your report.
Table 2. Rent versus lease or purchase of the Barricades
Cost per Barricade
Annual Cost per Barricade
Total cost for 850 barricades
Cost to install and remove barricades 4 times during the 2.5 years
Repair/Replacement costs (if any) based on percentages from above for all 850 barricades for 2.5 years
Total Project Cost (2.5 yrs.) for 850 barricades
The Bid Price
Now that you have completed the total project cost for the barricades, you must help Horace withcalculating his bid for the FDOT. Normally he tries to bid with a profit of 5% to 8%. Select the best way of either renting, leasing or purchasing the barricades and then calculate the potential bid for Horace. Include this table with your mini report.
Table 3. Calculation of the Bid Price
Selected Option to obtain barricades (rent, lease, purchase
Total Cost for Option (includes 850 barricades, any repair or replacement rate and set up and take down costs for 2.5 years.)
Bid at 5% profit level
Bid at 8% profit level
Continued next page.
Comment: What do you think Horaces chances are to win this bid (why or why not and be specific):
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