Justification of PM program St. Ignatius School has 3 hot water boilers which pr
ID: 353844 • Letter: J
Question
Justification of PM program St. Ignatius School has 3 hot water boilers which provide heat and hot water for the two school buildings. They have collected data over the past two years on how often the boilers fail. That data is shown below. When a boiler fails, the school incurs a $2500 cost. A facilities engineer brought St. Ignatius two proposals to help deal with their boiler issue. Firm A proposes a combined TPM program and insurance plan costing $50,000 per year which will pay for 50% of the annual boiler failure costs in excess of $30,000. Firm B proposes a less intensive TPM program costing $40,000 per year in which they guarantee they will reduce current boiler failures by 60% each year. Should St. Ignatius adapt the program offered by Firm A, the one by Firm B or neither of the programs? (Show all work) Number of failures Number of months with this number of failures 10 24Explanation / Answer
Total number of failures in last two years = 2*3 + 0*1 + 1*10 + 4*6 + 3*4 = 6 + 10 + 24 + 12 = 52
Total cost occurs in failure = 52*$2500 = $130000
Firm A:
Cost of Firm A = $ 50000/year
Cost for 2 years = $ 100000
They are paying 50% of annual cost in excess of $ 30000/year i.e $60000 for two years
Cost they are paying = 50% of (130000 - 60000) = 70000/2 = $35000
By Firm A, school gets $35000 by paying $100000, overall they are paying $65000 extra (100000 - 35000).
Firm B:
Cost of Firm B = $40000/year
Cost of Firm B for two years = $80000
In return they will reduce the boiler failure be 60%
New number of boiler failure = 40% of 52 = 40*52/100 = 20.8
Cost of repairing 21(approx of 20.8) = 21* $2500 = $52500
Total cost to the school = $80000 + $52500 = $132500
Since $132500 > $130000
Neither of the Firm A or B is advantageous for the school. School should run on status quo.
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