Statistics PDF

Shiv Nadar University
School of Management and Entrepreneurship (SME)
SYLLABUS
ACADEMIC SESSION FALL 2019
ISM 101 – Introduction to Information Systems and Operations

Management (OM)
Visiting Faculty: Ajit Saxena
1 11/14/19 © Nokia 2017

For internal use
Operation Management Syllabus & Class schedule
Class Topic Objective and Learning Outcomes
• What is Operation Management and economic sense behind OM

• Evolution of Operation Management techniques with evolution of
Overview of Operation Industrial Management
1
Management • Define quality and TQM
• What is ISO , Six Sigma and Lean?
• The seven tools of TQM
• Process overview and concept of SIPOC in defining process flow
Setting up business • Capacity planning
2 performance measurement • Concepts of key performance Indicators and its operational
system (BPMS) definition
• Setting up measurement system
• DMAIC overview
• Basic statistics
Quality Management
3 • Types of data – Discrete & continuous
methodologies – Six Sigma
• Data normality, Central Tendency theorem & Variation
• Gauge R&R – repeatability & reproducibility
• Use and purpose of a control chart
4 Statistical Process Control • Types of control charts
• Process Capability and Learn the use of process capability
Quality Management • Fundamentals and Evolution of Lean

5
methodologies – Lean • Lean principles & tools
2
• Process flow concepts, Just in Time (JIT) and Toyota way of

Application of Key Lean production system
6
tools • Value Stream Mapping (VSM) and its application in streamlining
in process flow
• Understand time horizons for forecasting
• Quantitative methods: Simple, moving average, exponential
7 Forecasting
smoothing
• Signal tracking
• Define capacity, determine design capacity, effective capacity,

and capacity utilization
• Compute net present value (NPV)
Capacity planning, location
8 • What factors affect location and Methods of evaluating location
and layout strategy
alternatives
• How to achieve a process-oriented layout facility?
• How to achieve a product-oriented layout facility?
• What is project management?

• Application of PM in production as well as in service industry
9 Project Management • Understand relationships between short time scheduling,
concept of critical path and master schedule
• Learn how to develop Gantt Chart
3
• Describe labor planning policies

Human Resources (HR) and • Issues in job design
10 Job Design • Learn the tools of methods analysis
• Understand the contribution of the visual workplace
• Explain the strategic importance of the supply chain (SC)
• Identify the SC strategies
Supply chain Management and • Issues and opportunities in SC
11 Outsourcing • Evaluate SC performance
• Compute percent of assets committed to inventory
• Compute inventory turnover
• Conduct an ABC analysis

• Explain cycle counting
• Details of EOQ and POQ models
12 Inventory Management
• Computation of reorder point and safety stock
• Learn the quantity discount model
• Understand the basics of probabilistic inventory models
• Decision process in OM
• What is decision-making?
• Decision-making under uncertainty
13 Decision Making Analysis
• EMV analysis
• EVPI analysis
• Strategy and decision-making 4
Setting up business performance measurement
system (BPMS)
5
BPMS
Business Process Management System (BPMS)- a nine step model enables companies to model, deploy
and manage mission-critical business processes, that span multiple enterprise applications, corporate
departments. BPMS is usually used for lesser mature processes to make them Repeatable & Reliable.
The nine step approach includes:
1. Create Process Mission

2. Document Process
3. Document Customer & Process requirements
4. Identify Output & Process Measures
5. Build process management system
6. Establish data collection plan
7. Process performance monitoring
8. Develop dashboards with spec limits & targets
9. Identify improvement opportunities https://youtu.be/XtvIU0ZCwjE
https://youtu.be/_YXqnEXnnBk
6
SIPOC
SIPOC:
• A tool to identify all relevant elements of a process
• Helps to understand a complex process better
• Graphic display of steps, events and operations that constitute a
process
S - Suppliers
I - Inputs
P - Process
O - Outputs
C - Customers
7
SIPOC
Suppliers
– People who provide input to the process
Inputs
– Information, material etc., goes into the process from some other group of
people (supplier)
Process
– Process is a series of activities that takes an input, adds value to it and
produces an output for a customer
Outputs
– Output of a process creating a product or service that meets a customer need
Customers
8
– Users of the output
Information Flow & Measures
Thinking
Flow
Requirements Requirements
S I P O C
Suppliers Inputs Process Outputs Customers
Input Measures Process Measures Output Measures
Measures That Are

Internal To Your Output Measures
The Key Quality
Process. They Include Are Measures Used
and Delivery
Quality and Delivery To Determine How
Requirements
Measures Important To Well Customer Needs
Placed On Your
Your Internal Customers And Requirements
Suppliers.
As Well as Waste and Are Met.
Cycle Time Measures.
9
SIPOC: Example 1:
Contract Management : Contract Publishing
SIPOC LEVEL I Contract Management : Contract Publishing
Supplier Input Process Output Customer

Electronic 1.Receive scanned images
Scanning Team Documents
Job Aid: Four-Eye 2.Sanity Check

ABC Bank
principle, Contract
Commodity Record
Classification, 3.Assign Contract Number
Global Sourcing- Template from
ABC Retained Emptoris, A-
signatory list 4. Upload Data
Vendor folder P2P Arthur

in shared drive
5.Create Vendor Folder in the shared drive
Vendor Number
from SAP, Contract
template from
Emptoris 6. Review Contract record
7.Publish Contract
Contract
Number.xls,
Contract
Information Sheet 8.Update Contract Tracking Sheet
10
Contract Management : Contract Review
SIPOC LEVEL I Contract Management : Contract Review
Supplier Input Process Output Customer

Electronic 1. View & analyze electronic document
Documents
Global Sourcing-
ABC Retained Review
ABC Bank
2. Check Contract Compliance Record
Job Aid
P2P Contract
3. Validate Contract Data
Management
Onshore Team Emptoris P2P Arthur
4. Check terms & conditions Vs ABC standard terms & conditions
Contract
Number.xls
5. Create Contract Summary records
11
SIPOC: Example 2:
Call Handling
S I P O C
Agents Team Incoming Call Opening Completed Caller
Call Call
Y
Spanish? Interpreter
Managers Client
ACD
Performance
Confirmation
Reports
Auditors IVR Internal
Verification Customers
Number of App Assistance

agents, Speed of
Managers, answer
Response Satisfaction
Auditors, Number of
Calls score
ACD calls,
Certified /
Pattern, Q
Y abandoned
ASA
On training Escalate? & Time
Experience
Spanish? N Quality
Agent
productivity
/Vintage Nature of Closing Talk Time
Query Talk Time
Process
Wrap Time
Knowledge App Wrap Time
After Call Work Hold time
Listening / Response %
Accent, Resolved ? Abandoned
Uptime of
speaking & No of lines per step, Time per
ACD, Alltel Aband Time
keyboarding step, Time holding for response,
Skills Noise? Call Accuracy, Quality, Cycle Time AHT,ACW
Input Measures Process Measures Output Measures
12
Performance Measurement Indicators
Operational Definition
An operational definition is a precise description of the specific criteria used

for the measures (the what), the methodology to collect the data (the how),
the amount of data to collect (how much) and who has the responsibility to
measure the data
When developing an operational definition, it is important for the team to

fully understand and agree that the DEFINITION reflects exactly what
information the team is attempting to gather on the process.
16
Operational Definition
Example :
Operational definitions may determine whether, a team is required to

count all the defects on an invoice (required to calculate defects per
million opportunities)
or
the total number of defective invoices (any invoice with any defect)
or
the type of defects encountered on an invoice (to eliminate the most

common defects first).
Each of these cases may require a very different approach for gathering
the data.
17
Example of Operational Definition.
Poor Operational Definition:

Cycle time of a transaction
Good Operational Definition:

Collect data for all transactions processed from 1-Aug-05 to 31-Aug-05.
The cycle time of each transition will be determined by the date and
time of transaction download from client server by an agent/CSR to the
date and time of the PROCESSED transaction was submitted in client
server as per the client server system time.
18
Exercise: Operational Definition
Write operational definitions for the following cases
1) Maximization the server availability
2) Reduction of the attrition rate in ABZ
3) Improving the quality percentage a process
4) Reduction of call handling time
5) Minimization of abandoned calls in a call center
19
Basic Statistics
20
Data Types - Overview
§ Not all data is the same, the mathematical attributes for different types of
measurements/data are different
§ A Survey score on a scale of 1-10 has different attributes when compared to room
temperature measured in degrees Celsius
§ Few data types provide more information about the attributes of the unit being
measured when compared to other data types
§ The type/attributes of data determines

§ What are the appropriate measurements of central tendency & variation
§ The amount of data to be collected for sampling
§ What tools should be used for analysis of data for accurate test results
§ The distribution/shape of the data
Types of Data
Data Types
Discrete Continuous
Binary Ordinal Count
Classified into two Measured on a continuous scale.

Rank / Rating / Discrete Count
categories only Can be measured to infinity & to
Definite Scale any decimal precision
Has an employee Number of

Employee
completed 5 years employees who
in the company satisfaction with completed 5 years Tenure of employee measured in
the company on a in the company years of service completed
scale of 1-5
Data Types – Key differences
Discrete Data Continuous Data
§ Can identify if a unit/situation is a problem § Apart from identifying whether there is a

or not with limited/no understanding of the problem or not, captures the extent of the
extent of the problem problem in great detail
§ Cant be measured to infinity § Can be measured to infinity
§ Cant be measured to any desired level of § Can be measured to the desired level of
precision precision
§ Measures of central tendency & variation § Measures of central tendency & variation
cant be applied all times can be applied at all times
§ Easier and less expensive to collect § Requires a gauge and is more expensive to
discrete data collect continuous data
§ Larger samples are required for analysis § Smaller samples can be used for analysis
Identify Data Types
Identify the data types for the examples below

§ Revenue by sales person
§ Employee satisfaction survey score
§ Cycle time for processing an invoice
§ Average speed to answer for a call
§ Function over budget / under budget
§ Meters of cable required for installation
§ Project completion on time
§ Number of calls received by the call center
§ Number of visits to resolve a service request
§ Lead time to fulfill purchase requisition
§ % of parts stocked for service
§ Supplier meets OH&S requirements
Shapes of data - Overview
§ A data distribution is a frequency distribution (Histogram) for the data

values in a given sample
§ The shape/distribution of the data provides more information about the

randomness of the individual data points apart from highlighting some
aspects of the process being studied
§ The statistical tools and analysis is different for different types of data
distributions
Types of data distributions
There is almost an infinite variety of data frequency distributions, but we
shall consider only three in our efforts to understand how frequency
distributions affect the interpretation of data
Normal Distribution
§ Normal Distribution: Sometimes called the "bell curve“, is perhaps Examples:
the best-known data distribution. Data are symmetrically distributed to 1. Repair Times
2. Any process with specification
either side of a central value, so the entire population can be limits & target
represented equally well by the mean, median, or the mode. 3. Weight/height of people
§ Skewed Distribution: Skewed distributions are similar to the normal Skewed Distribution
Examples:
distribution, but the data are not distributed symmetrically. In these 1. Distribution of wealth
cases, the entire population is better represented by either the median 2. Time between arrivals
or the mode than by the mean.
Examples:
§ Uniform Distribution: A uniform distribution means that there is no Uniform Distribution 1. High precision processes
2. Mainframe server response
central value but that every value has the same likelihood of occurring. times
In such cases, the mean, median, and mode are meaningless. 3. Intervals between atomic
processes
4. Samples from perfect mixtures
Normal distribution
§ Bell Shaped: A normal distribution is bell shaped with a concentration of data points around the mean of the
distribution and reducing number of data points moving away from the mean
§ Continuous & Symmetrical: A normal distribution spreads till infinity on both sides of the mean and hence is
continuous. The number of data points on either side of the mean will be similar making the curve symmetrical
§ Measures: Mean can be safely used as the measure of central tendency of a normal distribution and a for
perfect normal distribution the mean, median & mode will be equal
§ Area: Total area under the normal curve is always equal to 1

Key Statistical measurements
§ Central Tendency (Mean, Median, Mode, etc)

§ Easiest way to measure performance for more than one transaction/event as a group
§ Typically used to define performance targets & benchmarks
§ Not sufficient by itself to provide a true picture of performance
§ Variation (Standard Deviation, Span, Range, etc)

§ Customers always feel the variation in any process/operation
§ Is inevitable and cannot be eliminated completely
§ Tolerances are an effective way of controlling variation
§ Is caused by a lot of factors, primarily variation in inputs and methods
Why measure central tendency
§ The idea of comparing an individual data point to the collective performance of the sample is
fundamental to statistics
§ Measures for central tendency are also critical in comparing two groups of data together, these
groups could be teams, organizations, etc
§ Majority of measurements we see around us in commercials/reports are measures of central

tendency. Ex: Average mileage, Average survey scores, etc
Why measure variation
§ Variation is an important statistical measure as it measures consistency and

compliments the measures of central tendency to provide a complete picture of
performance
§ Variation is the acid test beyond any central tendency measure in comparing
two or more groups of data
§ Customers to any process feel the variation in the process and not the average
Basic Statistics Primer – Variance Based Thinking >>>
An average without variation is of very little value!
Which river would you walk across?
Average = 4 feet
B
Average = 4 feet
Measures of Central tendency
Central tendency can be simply defined as the mid point of a given data
set or a point in the data set where the entire set can be balanced
equally on both sides
§ Mean: The average value, calculated by adding all the observations and
dividing by the number of observations.
§ Median: Middle value of a list or smallest number such that at least half the
numbers in the list are no greater than it.
§ Mode: The most common (frequent) value

Mean (Average)
§ Mean is popularly known as average and is representative of the center point

of a sample
§ The correct measure of central tendency when the data is Continuous &
Normal
§ Formula in Excel to calculate Mean : average(Range)
Median (Mid Point)
{Date must be sorted ascending before calculating Median}
§ Not a measurement in itself but used as a method to represent a specific

measurement for a sample
§ Median is the 50th percentile of a given data sample
§ The correct measure of central tendency when the data is Continuous &
Normal/Non-Normal
§ Formula in Excel to calculate Median : median(Range)
Mode
Mode is simply the most frequently occurring value in a

sample

measurement for a sample.
§ The correct measure of central tendency when the data is Continuous/Nominal
& Normal/Non-Normal
§ Formula in Excel to calculate Mode : mode(Range)
Measures of Variation
Variation can be defined as the difference in the values of the data points in a given data set or
the deviation of any given data point from the center of the process.
§ Variance: Is computed as the average squared deviation of each number from its mean
§ Standard Deviation: Computed as Square root of Variance, standard deviation is also

referred to as the SPREAD of a process.
§ Inter Quartile Range: Difference between the 75th & the 25th percentile
Variance

measurement for a sample
§ Variance takes into consideration the difference of each data point from the
central point in the process
§ The correct measure of variation when the data is Continuous & Normal
§ Formula in Excel to calculate Variance : var(Range)
Standard Deviation
§ Not a measurement in itself but used as a method to represent a specific measurement for a
sample.
§ Standard deviation is simply the square root of variation. However it is a more popular measure in
statistics as it is easy to compute percentile rank associated with the source using standard
deviation. In a normal distribution ~68% of data points are within 1, ~95% of data points are within
2 and ~99.99966% of data points are within 6 standard deviation units from the mean of the data
sample
§ The correct measure of variation when the data is Continuous & Normal, a more widely used
replacement to variance as the measure of variation
§ Formula in Excel to calculate Standard Deviation : stdev(Range)
Inter Quartile Range
§ Divides a set of data into two groups (high and low) of equal size at the statistical median if there is
an even number of data points, or two groups consisting of points on either side of the statistical
median itself plus the statistical median if there is an odd number of data points
§ The correct measure of variation when the data is Continuous/Nominal & Non-Normal, best used as
a measure of variation when the measure of central tendency being used is Median
§ Formula in Excel to calculate IQR:
§ percentile(Range,.75)-percentile(Range,.25)
STATISTICAL PROCESS CONTROL
PROCESS STABILITY & CAUSES OF VARIATION
Example:
Time to reach office : 9:30 am

It is not possible to reach office exactly at 9:30 everyday
Normally there will be a small variation around 9:30 as follows:
9:31 9:33 9:28 9:29 9:25
9:34 9:26 9:27 9:34 9.58
This small variation is difficult to explain.

Generally
Looking at the past values, it is possible to give some range around
9:30 am (e.g.: 9:30 ± 5 Minutes) to reach office
Normally it is possible to reach office within this range
Suppose
A particular day , there is vehicle break down
that day it may not be possible to reach office at 9:30 ± 5 Minutes
Say, you reach office at 9:50 am
In other words
If you reach office too late (beyond normal range of 9:30 ± 5 Minutes),
there will be some special reason for that or
it is easy to find out the reason for such variation
CONTROL CHARTS
• A statistical tool to ensure that process is stable or in control
• A statistical tool to detect the presence of Assignable Causes in the process.
1. Stable Process
• No Assignable Causes are present

• Process is operating under chance causes only
If a process is stable & the data follows normal distribution

Then the variation will be Mean ± 3 x Standard deviation
2. Assignable Cause of Variation
• Variations of large magnitude

• Easy to identify the causes of variation
• Easy to eliminate the cause of variation
3. Chance Cause of Variation
• Variations of small magnitude

• Difficult to identify the causes of variation
• Difficult to eliminate the cause of variation
Stable Process
• No Assignable Causes are present

• Process is operating under chance causes only
If a process is stable & the data follows normal distribution

Then the variation will be Mean ± 3 x Standard deviation
Stable Process: Example
The processing times of 10 transactions randomly taken from a transaction processing

process is given below. Based on the data, can we conclude that this process is stable?
5.1 5.5 4.5 4.8 5.0

5.1 5.2 5.5 4.9 4.5
Mean = 5.01
SD = 0.351
Mean + 3 x SD = 6.063
Mean – 3 x SD = 3.956
CONTROL CHARTS
1. For Normally distributed Data
UCL =Mean + 3 x SD
CL = Mean
LCL = Mean – 3 x SD
Control Chart
UCL
CL
LCL
Control Charts: Working
1. Calculate the Control Limits from past data

2. Plot the values in the chart
3. If the values are within the limits, the process is stable. Otherwise not.
Control Chart
6
5
4
3
2
1
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Types of Control Charts
Continuous Data
• Xbar & R Chart
• Individual X & Moving range Chart
Discrete Data
Control Chart for Defectives
• p chart
• np chart
Control Chart for Defects
• c chart
• u chart
Steps for monitoring Handling Time using this Xbar & R Chart
1. Every hour collect Handling Time of 4 transactions from the process

2. Calculate the average Xbar & range R
3. Plot R value in R chart and Xbar value in Xbar chart
4. If either R chart or Xbar chart is showing out of control, the process is not
stable, search for assignable causes and correct the process. Otherwise
continue
Xbar chart
UCL = 5.014
CL=4.997
LCL=4.98
Steps for monitoring Handling Time using this Xbar & R Chart
Range chart
UCL = 0.053
CL=0.0233
LCL=0.00
Xbar – R Chart: Example
Process: Characteristic: Handling Time
Sample Size N: 9 Sub Group Size n: 4
Frequency of Sampling: Once in a Hour
Step 1: Collect Data
Sample No. Hour x1 x2 x3 x4

1 8:00 5.00 5.01 4.98 5.00
2 9:00 5.01 4.98 5.00 5.00
3 10:00 5.02 5.01 5.00 5.00
4 11:00 5.00 5.00 5.00 5.00
5 12:00 4.98 4.98 5.01 4.99
6 13:00 5.02 4.99 5.00 4.98
7 14:00 4.99 4.99 4.98 4.98
8 15:00 5.00 5.01 5.02 5.00
9 16:00 4.98 5.00 5.01 4.98
Step 2: Calculate Sub Group Mean & Range
Sample No. Hour x1 x2 x3 x4 Mean Range

1 8:00 5.00 5.01 4.98 5.00 4.998 0.03
2 9:00 5.01 4.98 5.00 5.00 4.998 0.03
3 10:00 5.02 5.01 5.00 5.00 5.008 0.02
4 11:00 5.00 5.00 5.00 5.00 5.00 0.00
5 12:00 4.98 4.98 5.01 4.99 4.990 0.03
6 13:00 5.02 4.99 5.00 4.98 4.998 0.04
7 14:00 4.99 4.99 4.98 4.98 4.985 0.01
8 15:00 5.00 5.01 5.02 5.00 5.008 0.02
9 16:00 4.98 5.00 5.01 4.98 4.993 0.03
Step 3: Calculate Control Limits for R Chart
Center Line
CL = Mean = Rbar = Sum of all Range Values / Total Number
of Values
= 0.21 / 9 = 0.0233
Upper Control Limit

UCL = Mean + 3 SD = D4 Rbar, For n = 4, D4 = 2.282
= 2.282 x 0.0233 = 0.053
Lower Control Limit

LCL = Mean - 3 SD = D3 Rbar, For n = 4, D3 = 0
= 0 x 0.0233 = 0.0
Step 4: Plot R values in R chart as shown below:
R Chart
0.06
0.05
0.04
0.03
0.02
0.01
0
1 2 3 4 5 6 7 8 9
Step 5: If any value is beyond Control Limits, Do Homogenization
Homogenization:
Remove the out of control value
Recalculate the limits
Step 6: Calculate Control Limits for Xbar Chart
Center Line
CL = Mean = Xdoublebar = Sum of all Means / Total Number
of Values
= 44.975 / 9 = 4.997
Upper Control Limit

UCL = Mean + 3 SD = xdoublebar + A2Rbar, For n = 4, A2 = 0.729
= 4.997 + 0.729 x 0.0233 = 5.014
Lower Control Limit

LCL = Mean - 3 SD = xdoublebar - A2Rbar, For n = 4, A2 = 0.729
= 4.997 - 0.729 x 0.0233 = 4.98
Step 7: Plot mean values in xbar chart as shown below:
xbar Chart
5.02
5.01
5
4.99
4.98
4.97
4.96
1 2 3 4 5 6 7 8 9

Xbar – R Chart: Exercise
A BPO company wants to ensure that the transaction processing process is free from
assignable causes. The following data on processing times was collected, How would
you establish a control mechanism so that the process is free from assignable cause?
Sample x1 x2 x3 Sample x1 x2 x3
Number Number
1 6.0 5.8 6.1 11 6.2 6.9 5.0
2 5.2 6.4 6.9 12 6.7 7.1 6.2
3 5.5 5.8 5.2 13 6.1 6.9 7.4
4 5.0 5.7 6.5 14 6.2 5.2 6.8
5 6.7 6.5 5.5 15 4.9 6.6 6.6
6 5.8 5.2 5.0 16 7.0 6.4 6.1
7 5.6 5.1 5.2 17 5.4 6.5 6.7
8 6.0 5.8 6.0 18 6.6 7.0 6.8
9 5.5 4.9 5.7 19 4.7 6.2 7.1
10 4.3 6.4 6.3 20 6.7 5.4 6.7
Individual X & Moving Range Chart: Example
• For Short Run Process

• Not possible to collect data in Sub Groups
Characteristic: Vendor Debit Balance at the end of day
Day Vendor Debit Balance Day Vendor Debit Balance

1 83670 9 233506
2 130682 10 72886
3 96428 11 59160
4 80396 12 141705
5 179682 13 92573
6 62505 14 223495
7 99748 15 144321
8 129064 16 138341
Step 2: Calculate Moving Range
Vendor Debit Moving Vendor Debit Moving

Day Balance Range Day Balance Range
1 83670 9 233506 104442
2 130682 47012 10 72886 160620
3 96428 34254 11 59160 13726
4 80396 16032 12 141705 82545
5 179682 99286 13 92573 49132
6 62505 117177 14 223495 130922
7 99748 37243 15 144321 79174
8 129064 29316 16 138341 5980
Step 3: Calculate Control Limits for M R Chart

Center Line
CL = Mean = MRbar = Sum of all MR Values / Total Number
of Values
= 1006861 / 15 = 67124.07
Upper Control Limit

UCL = Mean + 3 SD = D4 MRbar, For n = 2, D4 = 3.276
= 3.276 x 67124.07 = 219898.4
Lower Control Limit

LCL = Mean - 3 SD = D3 MRbar, For n = 2, D3 = 0
= 0 x 67124.07 = 0.0
Step 4: Plot MR values in MR chart as shown below:
MR Chart
250000
200000
150000
100000
50000
0
1 2 3 4 5 6 7

Step 6: Calculate Control Limits for Individual X Chart
Center Line
CL = Mean = Xbar = Sum of all Data / Total Number
of Values
= 1968162 / 16 = 123010.1
Upper Control Limit

UCL = Mean + 3 SD = xbar + A2MRbar, For n = 1, A2 = 2.66
= 123010.1 + 2.66 x 67124.07 = 301560.1
Lower Control Limit

LCL = Mean - 3 SD = xbar - A2MRbar, For n = 1, A2 = 2.66
= = 123010.1 - 2.66 x 67124.07 = -55539.9
Step 7: Plot individual values in Individual X chart as shown below:
Individual X Chart
350000
300000
250000
200000
150000
100000
50000
0
-50000 1 2 3 4 5 6 7 8
-100000

Steps for monitoring Customer Rating using this Individual X & MR Chart
1. Collect the vendor debit balance every day
2. Calculate the Moving Range (MR) using current and previous day value
3. Plot MR value in MR chart and current vendor debit balance in Individual X
chart
4. If either MR chart or Individual X chart is showing out of control, the process
is not stable, search for assignable causes and correct the process.
Otherwise continue
Individual chart
UCL = 301560.1
CL=123010.1
LCL= -55539.9
Steps for monitoring Customer Rating using this Xbar & R Chart
Moving Range chart

UCL = 219898.4
CL=67124.07
LCL=0.00
Individual X & Moving Range Chart: Exercise
The weekly debit outstanding (in K) is given in t he table below. Kindly device a
mechanism to ensure that the assignable causes are not acting on the process
Day Data Day Data
1 8.1 11 8.1
2 9.5 12 8.2
3 7.2 13 8.3
4 6.0 14 9.1
5 9.1 15 8.0
6 5.8 16 7.3
7 8.1 17 8.4
8 7.2 18 4.5
9 5.1 19 7.1
10 8.0 20 5.1
Control Charts for Defectives: np Chart
Used when sample size is constant
Example: The number of transactions audited each day is constant and is

equal to 1000. Construct control chart to ensure that the quality of
the process remain stable?
Day Number of Defectives
1 47
2 42
3 48
4 58
5 32
6 38
7 53
8 68
9 45
10 37
np Chart : Calculation of Control Limits
CL = Mean
UCL = Mean + 3 SD
LCL = Mean – 3 SD
pbar = Sum of Defectives / total Number Inspected
= 468 /(1000*10) = 0.0468
Mean = npbar = 1000 x 0.0468 = 46.8

SD = Önpbar(1-pbar) = Ö(1000 x (0.0468 x (1-0.0468))) = 6.67
CL = npbar = 1000 x 0.0468 = 46.8

UCL = Mean + 3 SD = 46.8 + 3 x 6.68 = 66.84
LCL = Mean - 3 SD = 46.8 - 3 x 6.68 = 26.76
np chart: Example
Plot the number of defectives in np chart as shown below:
np Chart
80
70
60
50
40
30
20
10
0
1 2 3 4 5 6 7 8 9 10
If any value is beyond Control Limits, Do Homogenization

Steps for monitoring Defectives using np Chart
1. Audit 1000 transactions every day

2. Count the number of defectives in 1000 transactions audited
3. Plot the number of defectives in the np chart given below
4. If the plotted value is beyond the limits, the process is not stable, take
actions to eliminate assignable causes. Otherwise continue
np chart
UCL = 66.84
CL=46.8
LCL=26.76
np Chart: Exercise
The following are the data on defectives in payment of dental insurance claims.
Device a mechanism to ensure the defectives is under control. Sample Size is 300
Sample Number of Sample Number of

Number Defectives Number Defectives
1 3 11 6
2 6 12 9
3 4 13 5
4 6 14 6
5 20 15 7
6 2 16 4
7 6 17 5
8 7 18 7
9 3 19 5
10 0 20 0
Control Charts for Defectives: p Chart
Used when sample size is not constant
Example: The daily report on Escalations are given below. Device a control
mechanism to ensure that the Escalations are kept under control
day by day ?
Day Number of Calls Number of Calls
Attended Escalated
1 500 5
2 550 6
3 700 8
4 625 9
5 700 7
6 550 8
7 450 10
8 600 6
9 475 9
10 650 6
p Chart : Calculation of Control Limits
CL = Mean
UCL = Mean + 3 SD
LCL = Mean – 3 SD
pbar = Sum of Defectives / Total Number Inspected
= 74 / 5800 = 0.0128
Mean = pbar = 0.0128

SD = Öpbar(1-pbar) / ni
p Chart : Calculation of Control Limits
Day Number Number of p LCL UCL

Inspected Defectives
1 500 5 0.010 0 0.028
2 550 6 0.011 0 0.027
3 700 8 0.011 0 0.026
4 625 9 0.014 0 0.026
5 700 7 0.010 0 0.026
6 550 8 0.015 0 0.027
7 450 10 0.022 0 0.029
8 600 6 0.010 0 0.027
9 475 9 0.019 0 0.028
10 650 6 0.009 0 0.026
p chart: Example
Plot the proportion of defectives in p chart as shown below:
p Chart
0.035
0.03
0.025
0.02
0.015
0.01
0.005
0
1 2 3 4 5 6 7 8 9 10

Steps for monitoring Escalations using this p Chart
1. Collect the data on number of calls attended and number of calls escalated
everyday
2. Calculate the proportion p of escalated calls
3. Plot this p value in the p chart constructed using the pbar =0.0128
4. If p chart is showing out of control, the process is not stable, search for
assignable causes and correct the process. Otherwise continue
p Chart
0.035
0.03
0.025
0.02
0.015
0.01
0.005
0
1 2 3 4 5 6 7 8 9 10
p Chart: Exercise
Daily inspection results for the purchase order processing are given in the table.
Construct a control chart to ensure that the defectives are kept under control day
by day?
Day Number Number of Day Number Number of

Inspected Defectives Inspected Defectives
1 171 31 11 181 38
2 167 6 12 115 33
3 170 8 13 165 26
4 135 13 14 189 15
5 137 26 15 165 16
6 170 30 16 170 35
7 45 3 17 175 12
8 155 11 18 167 6
9 195 30 19 141 50
10 180 36 20 159 26
Control Charts for Defects: c Chart
Used when sample size is constant

Example: A financial transaction process has compiled the data in the table
showing the count of nonconformities for 1000 accounting
transactions per day. Device a mechanism to ensure that the non
conformities are under control?
Day Number of nonconformities
1 8
2 19
3 14
4 18
5 11
6 16
7 8
8 15
9 21
10 8
c Chart : Calculation of Control Limits
CL = Mean
UCL = Mean + 3 SD
LCL = Mean – 3 SD
cbar = Average number of defects per 1000 transactions
= 13.8
Mean = cbar = 13.8

SD = Öcbar = Ö13.8 = 3.71
CL = cbar = 13.8
UCL = Mean + 3 SD = 13.8 + 3 x 3.71 = 24.93
LCL = Mean - 3 SD = 13.8 - 3 x 3.71 = 2.67
c chart: Example
Plot the number of nonconformities in c chart as shown below:
c Chart
30
25
20
15
10
5
0
1 2 3 4 5 6 7 8 9 10

Steps for monitoring Defects using c Chart
1. Audit 1000 Accounting transactions every day

2. Count the number of Errors in 1000 transactions audited
3. Plot the number of Errors in the c chart given below
4. If the plotted value is beyond the limits, the process is not stable, take
actions to eliminate assignable causes. Otherwise continue
c chart
UCL = 24.93
CL=13.8
LCL=2.67
c Chart: Exercise
100 transactions are inspected every day for fatal errors. The data for the past 20
days is given below. Construct a suitable control chart to ensure that the fatal errors
are under control?
Day Number of Fatal Day Number of Fatal
Errors Errors
1 22 11 15
2 29 12 10
3 25 13 33
4 17 14 23
5 20 15 27
6 16 16 15
7 34 17 17
8 11 18 17
9 31 19 19
10 29 20 22
Control Charts for Defects: u Chart
Used when sample size is not constant
Example: The inspection results of transaction monitoring is given below.

Construct a control chart to monitor the process and ensure that
errors are under control ?
Lot Number Number Inspected Number of Errors
1 10 45
2 10 51
3 10 36
4 9 48
5 10 42
6 10 5
7 10 33
8 8 27
9 8 31
10 8 22
u Chart : Calculation of Control Limits
CL = Mean
UCL = Mean + 3 SD
LCL = Mean – 3 SD
ubar = Sum of Defects / Total Number Inspected
= 340 / 93 = 3.66
Mean =ubar = 3.66

SD = Ö(ubar / ni)
U Chart : Calculation of Control Limits
Lot Number Number of u LCL UCL

Number Inspected Defects
1 10 45 4.5 2.80 5.47
2 10 51 5.1 2.86 5.47
3 10 36 3.6 2.70 5.47
4 9 48 5.3 2.83 5.57
5 10 42 4.2 2.77 5.47
6 10 5 0.5 1.09 5.47
7 10 33 3.3 2.66 5.47
8 8 27 3.4 2.56 5.69
9 8 31 3.9 2.63 5.69
10 8 22 2.8 2.44 5.69
u chart: Example
Plot the defects / unit (u) of in u chart as shown below:
u Chart
6
5
4
3
2
1
0
1 2 3 4 5 6 7 8 9 10

Steps for monitoring Errors using this u Chart
1. Collect the data on number of transactions audited and number of errors

detected everyday
2. Calculate the number of errors per transaction u
3. Plot this u value in the u chart constructed using the ubar =3.66
4. If p chart is showing out of control, the process is not stable, search for
assignable causes and correct the process. Otherwise continue
u Chart
6
5
4
3
2
1
0
1 2 3 4 5 6 7 8 9 10
u Chart: Exercise
Construct a suitable control mechanism to ensure that the errors in payoff process
is under control?
Sample Number of Number of Sample Number of Number of

Number Payoffs Defects Number Payoffs Defects
inspected inspected
1 40 45 11 52 55
2 40 40 12 52 74
3 40 33 13 52 43
4 40 43 14 52 61
5 40 62 15 40 43
6 52 79 16 40 32
7 52 60 17 40 45
8 52 50 18 40 33
9 52 73 19 40 50
10 52 54 20 52 28
Failure Mode & Effect Analysis
(FMEA)
What is FMEA ?
• Analytical technique and systemised group of activities.
• Used to identify the potential failure modes, the effect of failures and their
associated cause and mechanism,
• A tool for design and process engineers / managers.
• An interactive and never ending process.
• Technique of reducing risk or of avoiding risk.
• A living document.
• “Before-the-event” action; and NOT an “After-the-fact”
exercise.
Cases
Case 1 : To design or setting up of new process. This will make the
process from beginning itself defect free (Design FMEA)
Case 2 : To modify existing processes to make it defect free (Process
FMEA)
Benefits
• Identifies potential problems with customer point of

view.
• Predictive & Preventive. (A Pro-active Approach).
• Prioritizes the variables to be focused.

When ?
• FMEA can be done at
- Engagement level
- Process level
- Sub Process level
Application
Design FMEA Process FMEA
Purpose Design / set up processes To ensure processes meet

to meet client SLAs
requirements
Responsibility Design & Operations Operations
Objective Avoiding design failures Avoiding failures during

processing
Advantage of Cross functional team
• Benefit of more extensive knowledge and experience.
• Increasing creativity.
• Increasing acceptance.
• Simultaneous & not successive decision process.

Process FMEA
• An analytical technique.
• Identifies potential process failure modes.
• Customer normally is end user but can be next process too.
• Assesses the potential effects of the failures on the
customer.
• Identifies the causes and process variables
to focus on.
• Prioritize corrective actions
Potential Failure Mode & Effects Analysis (Process FMEA)
Title : _________________ FMEA Number _________________

Process Responsibility : _______________ Page__________of ________
Prepared by ______________
Core Team : __________________ FMEA Date (Orig)__________ (Rev.)_____________
Process Potential Potential S Potential O Current D R Recomme Responsibility Action Results
Function/ failure effect(s) E causes / C proces E P nded & target
mode of failure mechanism s action(s) completion Actions S O D
Requirements V C T N date
s of failure control RPN
U E
s Taken
R C
T
Process function / requirements
• Description of process / operation being analyzed

Potential Failure Mode
• Manner in which process could potentially fail to meet the process

requirements and / or design intent.
• Description of nonconformance at that specific operation.

Potential Effect(s) of Failure
• Effect of failure mode on the customer (s)
• Describe effects of failure in terms of what customer(s) might notice or

experience
Examples: Penalty, Client loss, Monitory loss, problems with next operation
etc.
Severity
• Assessment of the seriousness of the effect of potential failure mode to

the customer.
Potential Cause(s) of Failure
• Every conceivable cause assignable to each potential failure mode.
• Specific causes where remedial efforts can be aimed.
Occurrence
• How frequently the specific failure cause /

mechanism is projected to occur ?
• Only occurrence resulting in failure mode to be considered.
• If available, use statistical data to determine occurrence ranking.

Current Process Controls
Description of the controls that either prevent to the extent possible

the cause from occurring
or
Detect the cause when it occur
Types of Process Controls Effected Ranking
Prevent the cause / mechanism from occurring or Occurrence

reduce their rate of occurrence. Ranking
Detect the cause / mechanism & lead to corrective Detection Ranking

actions.
Detection
• Probability that the proposed process control will detect the presence
of potential cause / mechanism
• Use of statistical sampling is better to detect as compared to random

sampling.
Risk Priority Number (RPN)
• RPN = (S) x (O) x (D)
• RPN used for prioritizing the area of concern
• Regardless of RPN, special attention required when 'SEVERITY' is

high.
Recommended Action
• Intent is to reduce severity, occurrence and / or detection rankings.

• Design and / or process revisions are required to reduce severity
rankings.
• Improving detection control is costly & ineffective in general.
• Focus on permanent corrective action.
Action Taken
• Enter a brief description of the action

• Estimate and record the resulting O,S,D and RPN rankings.
• Repeat Columns 19 through 22 if further action is considered
necessary.
• This ensures FMEA is a living document.
• FMEA can also be updated as and when new failure modes are
discovered.
Process FMEA
Guideline for estimating severity (s)
Effect Criteria : Severity of Effect Ranking

Hazardous Loss of Client, Huge Penalty, loss of job etc 10
without
warning
Hazardous Penalty, Huge client dissatisfaction, Affects 9

with performance appraisal
warning
Very High Affects performance appraisal, entire transaction need 8
to be reworked
Process FMEA
High Client dissatisfaction, transactions need to be reworked 7

partially
Moderate Client experiences discomfort, partial rework or 6

changes to processed transactions
Process FMEA (Contd.)

Low Partial rework. 5
Very Minor rework 4

Low

Minor Minor rework 3
Very Minor rework 2

minor
None No effect 1
Process FMEA
Guideline for estimating detection (D)
Detection Criteria : Likelihood the existence of a defect will be detected by Ranking

Process Controls before next or subsequent process, or before
transaction leaves the operations.
Almost No known control(s) available to detect failure mode. 10
impossible
Very Very remote likelihood; current control(s) will detect failure mode. 9
Remote
Remote Remote likelihood; current control(s) will detect failure mode. 8
Very low Very low likelihood; current control(s) will defect failure mode. 7
Low Low likelihood; current control(s) will detect failure mode. 6
Moderate Moderate likelihood, current control(s) will detect failure mode. 5
Moderately Moderately high likelihood; current control (s) will detect failure 4
high mode.
Guideline for estimating detection (D)
Detection Criteria : Likelihood the existence of a defect will be Ranking

detected by Process Controls before next or
subsequent process, or before transaction leaves the
operations
High High likelihood; current control(s) will detect failure 3
mode.
Very High Very high likelihood; current control(s) will detect failure 2
mode.
Almost Current control(s) almost certain to detect the failure 1
certain mode. Reliable detection controls are known with
similar processes.
Potential Failure Mode & Effects Analysis (Process FMEA)
Exercise 1 : Carry out PFMA for one process
Title : _________________ FMEA Number _________________
Process Responsibility : _______________ Page__________of ________
Core Team : __________________ FMEA Date (Orig)__________ (Rev.)_____________
Process Potentia Potenti S Potential O Curren D R Recomme Responsibil Action Results

Function/ l failure al E causes / C t E P nded ity & target Actions S O D
Requireme mode effect(s V mechanis C proces T N action(s) completion RPN
nts ) of ms of s date Taken
U E
failure failure control
R s C
T

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Shiv Nadar University

School of Management and Entrepreneurship (SME)

ISM 101 – Introduction to Information Systems and Operations

Visiting Faculty: Ajit Saxena

1 11/14/19 © Nokia 2017

Class Topic Objective and Learning Outcomes

• What is Operation Management and economic sense behind OM

Quality Management • Fundamentals and Evolution of Lean

Class Topic Objective and Learning Outcomes

• Process flow concepts, Just in Time (JIT) and Toyota way of

• Define capacity, determine design capacity, effective capacity,

• What is project management?

Class Topic Objective and Learning Outcomes

• Describe labor planning policies

• Conduct an ABC analysis

The nine step approach includes:

1. Create Process Mission

Suppliers Inputs Process Outputs Customers

Input Measures Process Measures Output Measures

Measures That Are

Supplier Input Process Output Customer

Job Aid: Four-Eye 2.Sanity Check

Vendor folder P2P Arthur

Supplier Input Process Output Customer

4. Check terms & conditions Vs ABC standard terms & conditions

5. Create Contract Summary records

Number of App Assistance

An operational definition is a precise description of the specific criteria used

When developing an operational definition, it is important for the team to

Operational definitions may determine whether, a team is required to

the type of defects encountered on an invoice (to eliminate the most

Poor Operational Definition:

Good Operational Definition:

Write operational definitions for the following cases

1) Maximization the server availability

2) Reduction of the attrition rate in ABZ

3) Improving the quality percentage a process

4) Reduction of call handling time

5) Minimization of abandoned calls in a call center

§ The type/attributes of data determines

Binary Ordinal Count

Classified into two Measured on a continuous scale.

Has an employee Number of

Discrete Data Continuous Data

§ Can identify if a unit/situation is a problem § Apart from identifying whether there is a

§ Cant be measured to infinity § Can be measured to infinity

Identify the data types for the examples below

§ A data distribution is a frequency distribution (Histogram) for the data

§ The shape/distribution of the data provides more information about the

or the mode than by the mean.

§ Area: Total area under the normal curve is always equal to 1

§ Central Tendency (Mean, Median, Mode, etc)

§ Variation (Standard Deviation, Span, Range, etc)

§ Majority of measurements we see around us in commercials/reports are measures of central

§ Variation is an important statistical measure as it measures consistency and

An average without variation is of very little value!

Which river would you walk across?

§ Mode: The most common (frequent) value

§ Mean is popularly known as average and is representative of the center point

{Date must be sorted ascending before calculating Median}

§ Not a measurement in itself but used as a method to represent a specific

Mode is simply the most frequently occurring value in a

§ Not a measurement in itself but used as a method to represent a specific