MGMT 3000 Assignment Semester 2 - 2016

Proposed Max Light Rail Project

MAX Light Rail

Metro Area Express, or MAX, is Perth’s proposed 517 km light rail network that will run from “Miri” to
“Kuching” of Sarawak State.

This visionary project will introduce a new era of public transport in Miri, supporting the city’s
transformation by providing a frequent, high-capacity service .

Imagine that you are employed with the Department of Transport (DoT) and you have been assigned to
work with the engineering planning team on the proposed new Max Light Rail Project.

The estimated total cost of the new Max Light Rail Project is estimated to be RM 1 billion in today’s
dollars.

It is expected that a total of 350,000 people will use the new Max Light Rail on an annual basis.

Revenue will be generated via ticket sales and from on board advertising.

Expected Revenue from onboard advertising RM 4000/ day

Table 1a

Engineering Management 3000 - Semester 2 2016 Assignment Page 1

There will be three types of tickets that can be purchased.
The price will vary depending on the length of your journey. Refer to table 1b below.

Ticket Type Expected Percentage of Cost per ticket per person

(One way) Population Usage (One way)

>= 14km 60% RM 3*N

>7 km and < 14 km 26% RM 2*N
< = 7km 14% RM N
Table 1b

Financing Structure of the Project

Funding for the project is expected to come from the State Government using a mix of existing and
borrowed funds. The government has RM900m in cash already allocated for this project, thus the
RM900m is not to be considered as part of this analysis.

The state government intends to make up the shortfall by borrowing the RM100m with an annual interest
rate of 2.5% to finance the project. The borrowed funds will help cover the cost of the preparation of all
the documentation, contracts, public consultation, the tendering process, the actual construction and
commissioning. It is envisaged that some of the borrowed funds will also in part cover, staff wages and the
ongoing operation and maintenance costs.

The proposed financing arrangement for the loan is to be financed over a 50 year period.
The government has stipulated that the initial project scoping must start on the 1st of Jan 2017 and has
stated that the project is to break even at the end of the 50 year period. This goal is to be achieved from
revenue generated via the ticket sales and from on board carriage advertising while also taking into
account expected annual ongoing maintenance and operational and costs.

The Government requires that the cost of a ticket must be affordable and has stipulated a constraint that
a one way ticket price must be set to less than or equal to RM 3 per ticket. A second constraint
stipulates that the project must break even in less than or equal to 50 years.

Note that the loan drawdown profile of the borrowed RM 100m total, follows the typical project lifecycle
“S curve” expenditure distribution as given in Table 2 below.

Year of Loan Drawdown Expected Loan Drawdown Profile

By the end of 1st Year
By the end of 2nd Year
By the end of 3rd Year
By the end of 4th Year
By the end of 5th Year
Expected drawdown is 18% of total loan amount.
Expected drawdown is 24% of total loan amount.
Expected drawdown is 36% of total loan amount.
Expected drawdown is 16% of total loan amount.
Expected drawdown is 6% of total loan amount.
Table 2

Note that the revenue stream can only start once the rail system is built, commissioned and handed over.

For simplicity work on an annual basis .

Engineering Management 3000 - Semester 2 2016 Assignment Page 2

 Operations and Maintenance Costs

The expected annual costs associated with the ongoing maintenance and operational costs (in today’s
dollars) are listed table 3 below. These costs commence only once the Max Light Rail is commissioned.

Operations and Maintenance Item Expected Annual Costs

Ongoing Track and Carriage Maintenance $RM 150,000
Table 3

Appendix Information

In the appendix you have been given tables of the work breakdown structures covering the expected
Electrical, Mechanical and the Communications / IT engineering scope of works.

You have also been given a table of the Master Plan for the project.

Task List

Your team has been asked to determine what a one way ticket price needs to be set to, in order to be
able to break even at the end of a 50 year time frame.

To help you to provide a response to this request you are required to present the following in your formal
report to the government:

Task 1. Draw the Gantt charts pertaining to each of the Work Breakdown Structures for the Mechanical,
Communication / IT and Electrical scope of work components as per tables 5, 6 and 7 respectively.
(Note: The Gantt charts can be hand drawn but no free hand drawings are acceptable as this is a
formal report. All charts are to be clearly labeled and show total time duration in weeks. )
[24 Marks]

Task 2. Draw an AOA diagram for the of the Electrical Engineering scope of works, starting from and
including activity “AE” up to and including activity “OE”. Refer to table 7. [10 Marks]

a. Find the critical path and determine its duration. [2 Marks]

b. Find the shortest path and determine the slack. [2 Marks]

c. State by how many weeks the relocation of all existing electrical infrastructure could be
delayed by, without affecting the completion time of the overall Electrical Engineering
component of the project. [2 Marks]

d. State by how many weeks the upgrade of existing substations and installations of new
transformers and switch gear could be delayed by, without affecting the completion time
of the overall Electrical Engineering component of the project. [2 Marks]

e. Similarly, by how many weeks could the termination of the primary incoming 66kV
overhead feeders be delayed by, without affecting the project duration time? [2 Marks]

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 Your Tasks List Continued …….

Task 3. Using the data given in Table 4 of the Appendix and incorporating information attained from
question 1, draw the complete Gantt chart of the “Master Plan” for this project. [8 Marks]

Task 4. Using the now completed Table 4 determine the overall expected project completion time from
the initial tender, “Activity A” to the commissioning and handover of the complete project,
“Activity K ”. Clearly state how many weeks in total it will take to build and commission the light
rail project. This is a critical number as it will determine when the project can commence earning
revenue. Derive the total revenue equation. [8 Marks]

Task 5. Draw the pre-tax cash flow diagram for the total project taking into account all relevant cash
inflows and outflows. [10 Marks]

Task 6. Given that the project is to break even at the end of 50 years, determine the value of a one way
ticket price, RM N if the government can negotiate an interest rate of 2.5%. (Show your working)
Is this in breach of a government constraint for the project? [20 Marks]

Task 7. Alternative Scenario: Assume the government at short notice, can at best negotiate to borrow the
funds at an interest rate of 3%. By setting the price of a one way ticket RM N = RM 3, calculate
how many years it would take to break even. (Show your working) Is this in breach of a
government constraint for the project?
[20 Marks]

Task 8. You are asked to look at a further scenario, where the government wants to set the price of a one
way ticket to RM N = RM 2.50 Given that the project must break even at the end of 50 years,
calculate what interest rate must be negotiated, to achieve this. Give your answer to an accuracy
of six decimal places. (Show your working) [20 Marks]

Task 9. Part of your role is to select the engineering contracting company to carry out the build of the
Electrical, Mechanical and Comms IT construction work. The list of accredited tenderers has been
narrowed down to two companies. Both companies have provided their respective financial
statements for the past two fiscal years. Refer to Appendix 2. Calculate the solvency, liquidity and
profitability ratios for each company (for both financial years) and display your workings. Based on
your calculations in 500 words or less make your recommendation as to which company would be
better placed to undertake this project. In your own words clearly explain your reasoning.
[35 Marks]
Task 10. Team Formation.
• Form teams of five people that you will work with.
• Refer to the notes on Team Development and Organising teams. In particular the “five stage
group model” of team formation and “leadership” respectively.
• A team leader will be selected. It is the team leader’s role to ensure that all team members
hand in their assignment on time.
• Define clearly amongst yourselves who is doing what and by when.
• If you are the team leader: In your own words write a short paragraph (50 – 100 words) on the
power tactics that you used to motivate and influence your group’s behaviour. Highlight which
tactic worked best for you.
[10 Marks]
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 Task 10 Continued …….

• If you are a team member: In your own words write a short paragraph (50 – 100 words) on the
power tactics that your team leader used to motivate and influence the group’s behaviour.
Comment on the tactic’s effectiveness. Also comment on if you had been the team leader, describe
if you would have used the same or a different tactic to motivate the team.

Assignment Requirements
1. The Assignment is due COB Friday the 3rd of October 2016.
2. The Assignment is worth 20% of the total MGMT 3000 unit mark.
3. It is to be handed in to the assignment office and later collected from the assignment office.
4. Your report must have a signed cover sheet from the assignment office.
5. Each team member is to hand in a complete report in his/her own name with its own cover page.
Each report will be marked individually. It is quite OK to have your own independent views.
You don’t have to agree with your team member’s view(s).
6. As this is a professional report for the government, nothing in the report is to be drawn free hand.
All diagrams must be either printed of ruled up and/or stenciled. Only ink pen is to be used.
All charts and diagrams are to be clearly labeled. Any main paragraphs of text must be typed.
7. Calculations can be hand written (neatly) and must be shown. Label which task you are answering.
8. A total of 10 marks will be allocated for the overall presentation of the assignment.
9. Late assignments – will incur a daily 10% penalty deduction off the total mark.

Report Format and Mark Breakdown

1. Assignment Office Registration Cover Page

2. Your Cover page – With Name and student ID numbers of all team members and who the leader was.
3. Introductory paragraph (in your own words) An executive summary outlining what this report will
address. (50 – 100 words) [5 Marks]
4. Your answers to each of the ten tasks. Include all charts and calculations. Each task you are answering
must be numbered. [175 Marks - For tasks 1 to 10. Refer to task list for breakdown]
5. Concluding paragraph (in your own words) summarising your results. (50 – 100 words) [5 Marks]
6. Paragraph (in your own words) of the power tactics that were used and their effectiveness.
(50 – 100 words) [5 Marks]
7. Assignment Presentation [10 Marks] (Remember this is a formal report)
Total possible assignment marks = [200 Marks]
When handing in your report:
• Your reports must be handed in together with your other team members reports. Place the team
leader’s report on top. This can be done by either of two ways:
o You may have all three reports inserted in the one plastic sleeve, or,
o You can have three plastic sleeves all tied together in one corner.
o When collecting your reports from the assignment office you will need to know your team
leaders name as they will be catalogued under your team leader’s name.

Engineering Management 3000 - Semester 2 2016 Assignment Page 5

 Appendix 1

The Master Plan - Construction of Perth Max Light Rail

Activity Description Predecessors Weeks*

A Prepare concept plan broad scope of the project Start 16

1/Jan/2017
B Seek Public Consultation and stakeholder engagement A 5
C Prepare Business Case and Obtain Environmental Approvals B 8
D Commence and Close the Tender Period C 11
E Analyse and award contract to the winning tenderer. D 10
F Finalise and submit the detailed design of the Civil, Electrical, E 23
Mechanical and the Comms IT engineering works and wait for
final approvals.
G Ordering of all materials required for the Civil, Electrical, F 25
Mechanical and the Comms IT engineering works
H Ordering of the carriages for the light rail project F 16
I Completion of the Construction Phase – for all the Civil scope G 45
of works
J Completion of the Construction Phase – for all Electrical, I TBD^
Mechanical and the Comms IT engineering scope of works
K Final Commissioning and Project Handover of the total project J 5
and commemorate with the Premier at a ribbon cutting
ceremony
Table 4

TBD^ - To be determined from the WBS tables 5, 6 & 7 in appendix

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 WBS Mechanical Engineering Scope of Works
Activity Description Predecessors Weeks*

AM Confirm order all materials from the design bill of quantities I (Master Plan) 2
BM Catalogue and deliver all materials to appropriate sites AM 1
CM Mobilise personnel to site office(s) BM 2
DM Install the rail tracks to specifications CM 13
EM Install rail sidings CM 6
FM Install track interchange infrastructure DM 7
GM Install all control and signaling equipment along the rail line DM,EM,FM 11
HM Install all the boom gates as per the design DM 8
IM Install the required control and signaling software for the HM 12
master control room
JM Test the rail tracks under load with actual carriage GM 4
KM Confirm max carriage speed allowable along the rail route JM 6
LM Test the air-conditioning system on each carriage and test the KM 4
onboard fire sprinkler systems.
NM Final testing commissioning and formal handover LM 5
Table 5

WBS Communications and IT Engineering Scope of Works

Activity Description Predecessors Weeks*

AT Confirm order all materials from the design bill of quantities I (Master Plan) 2
BT Catalogue and deliver all materials to appropriate sites AT 1
CT Mobilise personnel to site office(s) BT 2
DT Relocate all existing telecommunications infrastructure along CT 14
the proposed rail route as required by the design
ET Install optic fiber along the route and connect to the Telstra DT 6
network
FT Install the router system enabling wireless internet access ET 9
GT Installation of mobile towers and antennas as required ET 10
HT Install GSM4 mobile equipment racks as existing Telstra GT,ET 4
exchanges and the mobile towers
IT Setup the backup comms network for the train drivers to talk to HT 2
the main control room
JT Install the security microphone and speaker system at the ET 7
stopping stations
KT Install the remotely controlled security cameras with live feed IT 3
back to the control room.
LT Final testing commissioning and formal handover KT 4
Table 6

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 WBS Electrical Engineering Scope of Works

Activity Description Predecessors Weeks*

AE Confirm order all materials from the design bill of quantities I (Master Plan) 2
BE Catalogue and deliver all materials to appropriate sites AE 1
CE Mobilise personnel to site office(s) AE 2
DE Relocate all existing electrical infrastructure along the proposed CE,BE 5
rail route as required by the design
EE Build the 66kV substations along the route as per the design DE 9
FE Terminate the primary incoming 66kV overhead feeders from EE 4
Western Power to the new substations
GE Terminate the second 66kV cable for from Western Power for DE 3
power robustness. This diverse cable is for power reliability in
the event of a fault on the primary cable
HE Equip the switch room with the main switchboard and EE 7
protection fuses and circuit breakers at the sub stations
IE Install all sub switchboards HE 4
JE Install the uninterruptable power supply equipment in the main IE 6
switch room
KE Install all the wiring reticulation along the route for supply to FE,JE 9
the boom gates and signaling controls
LE Install the protection equipment in the mini sub station KE 5
ME Upgrade existing substations and install new transformers and GE,EE 14
switch gear as required
NE Install all lighting poles along the rail line including the security LE,ME 6
lighting at the various stopping stations.
OE Final testing commissioning and formal handover NE 5
Table 7

*Assume 52 weeks per year (i.e. no holiday gaps due to shift work arrangements) and the one week is
seven days. Also assume one year is equal to 365 days exactly.

Engineering Management 3000 - Semester 2 2016 Assignment Page 8

 Appendix 2

Creative Contractors AAA - Income Statement (RM x 1000)

Fiscal Year ending 30-Jun-15 30-Jun-14

Net Revenue 34,575 30,102

Cost of Good Sold 28,500 25,786

Gross Margin 6,075 4,316

Other Income
Investment A 31 25

Investment B 64 52

Investment C 58 19

Total Income from Investments 153 96

Operating Expenses

Selling, General & Admin 2,794 2,294

R&D and Engineering 345 419

Special Charges 7 45

Total Operating Expenses 3,146 2,758

EBITDA 2,929 1,558

Depreciation and Amortisation 110 235

EBIT 2,819 1,323

Interest 75 98

Provision for Income Tax 450 502

Net Profit / Income 2,447 819

Engineering Management 3000 - Semester 2 2016 Assignment Page 9

 Creative Contractors AAA - Cash Flow Statement (RM x 1000)

Fiscal Year ending 30-Jun-15 30-Jun-14

Cash flow from Operating Activities

Net Income 2,447 819

Depreciation and Amortisation 110 235
Changes in Working Capital 901 893
Changes in Non-Current Assets & Liabilities 108 87
Special charges and other adjustments -98 635

Net cash provided by Operating Activities 3,468 2,669

Cash flow from Investing Activities

Marketable Securities
Purchases -4,006 -4,736
Sales 3,642 2,956
Capital Expenditure -154 -152

Net Cash Used in Investing Activities -518 -1,932

Cash flow from Financing Activities

Purchase of Common Stock -1135 -1935

Issuance of Common Stock to
Staff 245 265

Net Cash Used in Investing Activities -890 -1670

Effect of exchange rate changes in cash 120 -60

Net Increase in Cash 1,940 -873

Cash at the beginning of the period 469 1,342

Cash at the end of the period 2,409 469

Engineering Management 3000 - Semester 2 2016 Assignment Page 10

 Creative Contractors AAA - Balance Sheet (RM x 1000)

Fiscal Year ending 30-Jun-15 30-Jun-14

Current Assets
Cash (at end of period) 2,409 469
Short Term Investments 205 154
Accounts Receivable 1208 987
Inventories 139 127
Other 950 801

Total Current Assets 4,911 2,538

Non - Current Assets

Property, Plant & Equipment 850 980

Long Term Investments 3209 2897
Other 148 256

Total Non Current Assets 4,207 4,133

Total Assets 9,118 6,671

Current Liabilities

Accounts Payable 1500 1807

Accrued and other 2500 1306

Total Current Liabilities 4,000 3,113

Non - Current Liabilities

Long Term Debt 1131 989

Total Non Current Liabilities 1,131 989

Total Liabilities 5,131 4,102

Equity

Preferred stock 692 440

Common Stock and Capital 1788 1253
Retained Earning 1496 876

Total Equity 3976 2569

Engineering Management 3000 - Semester 2 2016 Assignment Page 11

 Total Contractors BBB - Income Statement (RM x 100)

Fiscal Year ending 30-Jun-15 30-Jun-14

Net Revenue 34,564 29,845

Cost of Good Sold 29,105 24,538

Gross Margin 5,459 5,307

Other Income
Investment A 31 20

Investment B 64 41

Investment C 23 16

Total Income from Investments 118 77

Operating Expenses

Selling, General & Admin 2,894 2,500

R&D and Engineering 425 419

Special Charges 7 3

Total Operating Expenses 3,326 2,922

EBITDA 2,133 2,385

Depreciation and Amortisation 198 480

EBIT 1,935 1,905

Interest 39 45

Provision for Income Tax 975 502

Net Profit 1,039 1,435

Engineering Management 3000 - Semester 2 2016 Assignment Page 12

 Total Contractors BBB - Cash Flow Statement (RM x 1000)

Fiscal Year ending 30-Jun-15 30-Jun-14

Cash flow from Operating Activities

Net Income 1,039 1,435

Depreciation and Amortisation 198 480
Changes in Working Capital 901 893
Changes in Non-Current Assets & Liabilities 108 87
Special charges and other adjustments -98 635

Net cash provided by Operating Activities 2,148 3,530

Cashflow from Investing Activities

Marketable Securities
Purchases -4,006 -4,736
Sales 3,642 2,956
Capital Expenditure -154 -152

Net Cash Used in Investing Activities -518 -1,932

Cash flow from Financing Activities

Purchase of Common Stock -1135 -1935

Issuance of Common Stock to Staff 245 265

Net Cash Used in Investing Activities -890 -1670

Effect of exchange rate changes in cash 120 -60

Net Increase in Cash 620 -12

Cash at the beginning of the period 1,330 1,342

Cash at the end of the period 1,950 1,330

Engineering Management 3000 - Semester 2 2016 Assignment Page 13

 Total Contractors BBB - Balance Sheet (RM x 1000)

Fiscal Year ending 30-Jun-15 30-Jun-14

Current Assets
Cash (at end of period) 1,950 1,330
Short Term Investments 205 154
Accounts Receivable 1208 987
Inventories 142 131
Other 0 600

Total Current Assets 3,505 3,202

Non - Current Assets

Property, Plant & Equipment 850 980

Long Term Investments 3209 2897
Other 148 256

Total Non Current Assets 4,207 4,133

Total Assets 7,712 7,335

Current Liabilities

Accounts Payable 2089 2000

Accrued and other 1456 1400

Total Current Liabilities 3,545 3,400

Non - Current Liabilities

Long Term Debt 1250 1000

Total Non Current Liabilities 1,250 1,000

Total Liabilities 4,795 4,400

Equity

Preferred stock 452 806

Common Stock and Capital 969 1253
Retained Earning 1496 876

Total Equity 2917 2935

Engineering Management 3000 - Semester 2 2016 Assignment Page 14