KING ABDULAZIZ UNIVERSITY

Faculty of Engineering
Department of Industrial Engineering

IE 411 Spring 2021

Operations Research II Dr. Ammar Y. Alqahtani
Final Term Project
(Due: May, 3rd, 2021 – 10:30 PM)

Instructions:
1. This is a GROUP work: Each member should contribute to it. Collaboration between
groups of the same section or other sections is PROHIBITED. Please adhere to these
regulations for your own individual benefit.
2. Any member can submit the project in the name of his group. There is no need for each
member to upload the assignment.
3. You are expected to submit FOUR files: The report files, Presentation file with the Excel
solution, and a report written on MS Word (or PDF). The files should have proper
formatting and labeling. Use the final report requirement bellow to prepare your report.
4. Not following any of the instructions stated above will result in a DEDUCTION of 1
mark for each member of the group per violated instruction, except for instruction number
3, as we will follow the procedure found in the rules and regulations of KAU.
5. Some questions require you to make ASSUMPTIONS about some information not given
in the question statement. Use your wise judgment to do so.
6. Your overall score will be on BlackBoard as soon as your instructor completes the
grading.
7. In this project there are three real life problems related to OR-2 techniques. For each do
the following:
 Use internet to gather and disseminate information.
 Use Math, Science, and Engineering Fundamentals to formulate the problem and
devise appropriate solution strategies.
 Apply engineering judgment to evaluate answers.
 Capture essential information and deal with ambiguity.
 Approach and model the problem in a logical and technically correct fashion.
 Describe a solution procedure.
 Use computers and computer software for analyzing and solving theEngineering
problems.
 Uploade all files powerpoint presentation, excel solution and your full report (Word
and PDF) to the Blackboard.
 You need to present your project to the class.
 Final Report Requirements:
 Cover page: It includes course name, project title, students’ names and ID numbers.
 Table of contents: The contents and their page numbers.
 Introduction for the project: Introduce the project’s main problem and its surrounding
environment. Overview the remaining topics of the report.
 Project Management: Organize the tasks of the project in a timeline scale using Gantt
chart. Distribute the tasks among the group members and show that in the chart.
 Problem Solution: Generate an optimal solution for the problem using Excel software
package. Attach the software input and output in the appendix of the report.
 Results and discussion: Analyze the output of the optimal solution. Explain the results
and the suggested decisions. Answer all the questions from the case study here.
 Conclusion: What was learned from the considered problem and the results.
 References: Give full bibliographic information on all materials cited in the report and
the sources of data used in it. It should have some website addresses.
 Appendix: Contains software input and output and any material that is not directly needed
in the report’s main body.
SPARK City: Capacity Expansion.
King Salman Energy Park (SPARK) is being developed to capture the full economic value
from energy-related goods and services in Saudi Arabia and throughout the region
localizing value creation through dedicated industrial development. SPARK's President &
CEO Saif Alqahtani has decided to commission a study to ensure that the city has sufficient
power until 2040. The study requires a time horizon of 16 years; the first decisions can be
implemented in January 2025. Even though operations plans for power companies are
important, this study is at a higher level.
Our concern is with power capacity during the year and not with day-to-day or hour-to-
hour power-usage fluctuations.
By the start of 2025, SPARK will have plants with 60 megawatts’ worth of production
capacity. Estimates of demand for power from the city for the years 2025 to 2040 have
been made and are listed in Table below.
The economics of a geothermal plant run according to a power law—that is, the cost of a
new plant in constant dollars (sometimes called “year 0 dollars”) follows the following
estimation rule:

Cost of Plant with Capacity K =

0.8
𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝐾
[ ] × 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑡ℎ𝑒 𝑏𝑎𝑠𝑒 𝑠𝑖𝑧𝑒 𝑝𝑙𝑎𝑛𝑡
𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑜𝑓 𝑏𝑎𝑠𝑒 𝑠𝑖𝑧𝑒 𝑝𝑙𝑎𝑛𝑡

For this analysis, the base plant’s production capacity is 5 megawatts; its cost is $18
million. The city estimates inflation at 4% per year for the duration of the time horizon.
The city uses a discount rate of 12% per year; this assumes that actual dollars are used in
the analysis [1 actual dollar in year 1 is equivalent to 1/(1.12) = .89 dollars now in year 0].
The time required for constructing a new plant is two years. The project requires 65% of
the cost at the start of the first year; the remaining 35% is spent at the start of the second
year. If SPARK City starts a new plant in 2027, for example, then 65% of the costs occur
in 2027 and 35% in 2028; the plant then comes online and can be used to satisfy demand
in 2029. With this lead time, it is clear that SPARK City needs to do advanced planning.

Demand Demand
Year Year
(Megawatts) (Megawatts)
2025 54 2033 87
2026 58 2034 87
2027 63 2035 90
2028 63 2036 90
2029 69 2037 100
2030 75 2038 110
2031 77 2039 110
2032 77 2040 120

SPARK City can build plants with 5- megawatt, 10- megawatt, 15- megawatt, and 20-
megawatt capacities. If the city invests now in research for new technologies ($3 million
per year for 5 years), then it can reduce the exponent in the power model from 0.8 to 0.65.
Besides building new capacity, SPARK City must operate plants; operations costs are
based on the amount of capacity used. If demand in year t is Dt megawatts and total
capacity in year t is Ct megawatts, then the operations cost in constant dollars for the year
is:
𝐶𝑡 0.5
( ) × 𝐷𝑡 × $400,000
𝐷𝑡
By and large, the city must satisfy all demand in the year, although there are opportunities
to buy 3 megawatts per year from neighboring power companies at $600,000 per megawatt
(in constant dollars).

Key Questions:
 The SPARK Board would like to know when to augment capacity. How big should
the expansions be? When should they start?
 What are the actual dollars spent over the time horizon to acquire and satisfy
demand? What is the discounted value of these expenditures?
 Should the city invest in research to lower the power law coefficient?
 If demand estimates are increased or decreased, then how would the plan change?
 If the $400,000 value in the operations cost changes, then how would the plan
change?

Final-Project-IE411-SPRING2021