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Quantitative Techniques:
Techniques in Managerial Decision Making

UPDATED
November 01, 2019
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Module Objective
By the end of the module the participants
will be able to understand:

Quantitative Techniques Quantitative Techniques

› Variation › Define and calculate Yield
› Voice of Customer » First Time Yield (FTY)
» Rolled Throughput Yield (RTY)
› Concept of Measure
› Data Collection › Identify the “hidden
› Sampling Plan factory” or “hidden
› Importance of Metrics process”
› Defect Metrics
» Defects Per Unit (DPU)
» Opportunity Counting
» Defects Per Million Opportunities (DPMO)
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Voice of Customer
November 01, 2019
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Gather VOC
Translate to needs
Identify customer Gather verbatim VOC &
statement
segments Determine Service Quality
& develop a CTQ -
that need to be targeted Issue
Project Y metric output
characteristic

Review existing VOC data

Decide what to collect
Use appropriate tools to gather VOC
Surveys
Interviews
Be a customer
Focus Group
Customer Observation
Listening Posts
Competitive Comparison
Collect data

Customers Requirements determines quantifiable Process Metrics “CTQ’

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Determine CTQ’s from VOC
Translate to needs
Identify customer Gather verbatim VOC &
statement
segments Determine Service Quality
& develop a CTQ -
that need to be targeted Issue
Project Y metric output
characteristic

➢ Organize all customer data

➢ Translate VOC to specific needs

➢ Define CTQs for needs

➢ Prioritize CTQs

➢ Contain problem if necessary

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Translation of VOC to CTQ’s

VOC CTQs

Translate to needs
Identify customer Gather verbatim VOC &
statement
segments Determine Service Quality
& develop a CTQ -
that need to be targeted Issue
Project Y metric output
characteristic

Customers Requirements determines quantifiable Process Metrics “CTQ’

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Example of Translation of VOC to CTQ’s
Verbatim

“ You take too much time in getting back to me!”

“ These forms are too cumbersome!”

Specific
Needs
- Quick Response
- User Friendly Forms

Validate
CTQ
with customer CTQs - Process Turn Around Time not more than
10 min.
- Form < 2 pages & < 10 minutes to
complete
What gets measured gets managed….ensure measurable CTQs 7
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Concept of Measure
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Understanding Measures
Measure : Any element relating to the process under study which is operationally definable &
quantifiable.
Measures can be understood better by classifying them in the following ways.

Classification
of Measures

Based on SIPOC Based on Focus Based on Statistics

Input Efficiency Continuous

Process Effectiveness Discrete
Output
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Based on SIPOC

INPUT PROCESS OUTPUT

Garbage in Garbage out How good is my process Accurate?? Timely??

Y = f(X1, X2, X3…………………. Xn) Productive??

Output Y is a function of various Inputs and Process Steps

Measures can be classified as Input, Process or Output Measures

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Based on Focus
Measures for looking at Process Performance :
Customer Focussed Process Focussed

Effectiveness Efficiency

The degree to which customer CTQs are The amount of resources allocated in
met and exceeded
meeting and exceeding customer CTQs

Some examples:
Some examples:
❑ Percent defective
❑ Cost per transaction
❑ Response time
❑ Turnaround time
❑ Billing accuracy
❑ Time per activity

❑ Amount of rework
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Based on Statistics
Continuum of
Data
Types

Discrete Continuous

Binary Ordered Count

categories

Description Classified Rankings Counted Measured

into one of or ratings discretely on a
two categories continuous
scale
Classification of the group into
categories based on distance
Example Is this group ready to each travels daily to reach office Number of people Actual distance
travel 100 km daily to Categories : (0 - 2 Kms) who have come late traveled by
to reach office (2- 5 Kms) today each in this group
(5-10 Kms) measured
Yes or No
(10-20 Kms) in Kms
Decision of Group
(20-50 Kms)
(50-100 Kms) 12
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Data Collection
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Plan for Data Collection

• Data collection occurs multiple times throughout the business

• The data collection plan can be used as the guide for data collection
regardless of where you are in project or what type of data you are
collecting

• Using data collection model will help ensure that you collect useful,
accurate data that is needed to answer your process
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Plan for Data Collection

The customer`s of ACME credit card company have

complained that the Turn Around Time taken to
process a new application is too long and is a source
of discontentment for them ……… The company has
noticed that this is also the chief reason that
prospective customers are saying they are
discouraged from applying for the credit
cards……The sales manager has kicked of a project
to solve this problem with the customer CTQ as TAT
reduction
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Process Map

Sales agent meets Client fills application Sales agent posts application Application received
client at mailroom

Applicant receives Rejection couriered

rejection letter to applicant

Yes

Credit Risk ??? Underwriter does credit Application entered

No evaluation on main frame

Credit card couriered Applicant receives

to applicant the card
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Plan for Data Collection

Establish Develop Ensure Data Collect Data

Operational
1 Data Collection
Goals 2 Definitions And
Procedures
3 Consistency
And Stability 4 And Monitor
Consistency

▪ Clarify purpose of ▪ Test and validate ▪ Train data collectors

▪ Write and pilot
data collection operational definitions measurement systems ▪ Pilot process and
▪ Identify what data to make adjustments
▪ Establish a sampling plan
collect ▪ Collect data
▪ Develop and pilot data
collection forms and ▪ Monitor data accuracy
procedures and consistency

Data Collection Is The First Step To Understanding

The Variation The Customer Feels
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Purpose

To determine the Turn around time taken for a

prospective applicant to receive a credit card -
Project Y

To proactively collect data on possible X`s in

the process that could be causing the
increased TAT
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Identify What Data to Collect

• Credit card applications that were made over the last 6 months -
(a) Date/ Time on which the application was signed
(b) Date / Time receipt stamp

• Client record on mainframe -

(a) Date/Time on which client record was created
(b) Date/Time on which the underwriter approved / rejected

• Mail room records -

(a) Date/Time on which the card was couriered

• Courier records -
(a) Date/Time of receipt by the card holder
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Write & Pilot Operational Definitions

Definition:
(a) Precise description that tells how to get a value for the
characteristic (CTQ) you
are trying to measure.
(b) It includes “What Something Is” and “How to Measure It”
Purpose:
(a) To Remove Ambiguity so that Everyone has the same understanding
(b) To provide a clear way to measure the characteristic
- Identifies what to measure
- Identifies how to measure it
- Makes sure that no matter who does the measuring, the results are same
- Must be useful to both you and the customer
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Write & Pilot Operational Definitions

How will you measure time ?

E.g.
(a) 23rd July to 29th July - 6 days OR 7 days ?
(b) List the months that have 30/31 days and 28/29 days for February

(c) 12 noon 23rd July to 24th July 5.19 p.m. 32 seconds -

29hrs 19 min 32 seconds OR 29.5 hrs OR 29 hrs
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Sampling Plan
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Sampling Plan

Sampling is the process of:

Collecting only a portion of the data that is available or could be
available, and drawing conclusions about the total population
(statistical inference)

Population Sample

x x x
x x x x
x x x x x x
x x x x x
x x x x
N = 5,000 n = 100

What is the From the sample,

average TA T ? we infer that the
average TAT is
18 days

Representative sample:

(a) All parts of the target population are represented

(i.e., selected for measurement) equally

(b) The customer’s view is captured

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Sampling Plan - Random Sampling

Population Study - ACME credit Cards are sold in North / South & Central India

Population Sample Description

N n Each unit (“X”) has

an equal probability
of being selected in
N N N a sample
N N NNN
NNS
SSSSS S S
CCCCC
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Sampling Plan - Stratified Random Sampling

Population Study - ACME credit Cards are sold in North / South & Central India

Description
Population Sample
Segments Units
n Randomly sample
Central CCCCC within a stratified
C category or group
NNN
North NNN
NNNN
NNN n Sample sizes for
NNN SS
each group are
SSSS generally proportional
South SSSS to the relative size of
SS the group
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Sampling Plan - Systemic Sampling

Process Study- ACME credit Cards are sold in North / South & Central India

Process Sample Description

Sample every nth
N N N S S N N N C C C N N N N NN
one (e.g., 4th one)

Must select sampling frequency

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Sampling Plan - Rational Subgrouping

Process Sampling -ACME credit Cards are sold in North / South & Central India

Process
Day1 Day 1 Day 1 Sample
Subgroup of
NNNNNNNNNNNNNN SSSSSSSSSSS CCC C CCCCCC samples
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Concept of Metrics
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Why are Metrics Important?

Metrics :
• are consistent with customer value
expectations
• control and evaluate performance
• communicate conformance to standards
• identify improvement opportunities

Y = f(X)
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Defect Metrics
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Defectives Versus Defect?

n Defect is a single instance of nonconformance

to a customer requirement

n Defective is a unit containing one or more

defects
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A Few Terminologies

• Defect : Any non-conformity in a product or service

– e.g. Late delivery or no. of tubes rejected
• Units : The nos. checked or inspected
– 100 deliveries were monitored for being late, no. of units
are 100
– 1000 tubes were checked for oversize dia., no. of units
are 1000
• Opportunity : Anything that you measure or check for.
– Finished refrigerator is checked for 25 defects at final
inspection, the no. of opportunities is 25
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What is a Defect?
◆ A defect is any variation of a required
characteristic of the product (or its parts) or
services which is far enough from its target value
to prevent the product from fulfilling the physical
and functional requirements of the customer, as
viewed through the eyes of your customer.

◆ A defect is also anything that causes the processor

or the customer to make adjustments.

◆ ANYTHING THAT DISSATISIFIES YOUR

CUSTOMER
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Defects Per Unit (DPU)

The ratio of defects to unit, defects per unit (DPU), is
the universal measure of quality. DPU is calculated as:

Number of Defects
= DPU
Total Units
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DPU Example
2 Late Deliveries
Example: = 0.2 DPU
10 Routes Delivered

• Calculated for single acceptance point or summed for an overall

acceptance stage or area

• When summed, DPU is referred to as Total Defects Per Unit or TDU

• Count of all defects and not a measure of the consequences

of the defect
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DPU Exercise
A store ships customer orders. Each order, containing several items,
is a complete unit.
10 orders are randomly selected prior to shipment and inspected.
Two items are incorrect, another item is damaged. Two other items
have incorrect quantities.

• How many units are being inspected? ____

• How many defects are there? ____
• Calculate the DPU? ____

Note that DPU is not necessarily the same as the quality impact to the
customer - some defects are worse than others
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The Concept of Opportunity

• Every possibility of making an error is called an opportunity
• The total opportunities available for an error to take place are
Nos.Chkd. x Opp
E.g. a sheet is checked for thickness, length & width and can be
rejected for either.Hence the opp. is 3

DPMO = Defects x 106

Units chkd. x Opp.
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Opportunity Counting
The opportunity count is the number of operations in the
process which add value to the customer
• Consider 10 orders each having 1 item (10 Units)

• Opportunity per item ordered:

– Quantity correct?
– Correct item?
– Damaged?
– Correct price?
• Total number of opportunities (TOP) = Units x Opportunities = _____

Indicates complexity of process…Each opportunity is

independent…Measurable
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Opportunity & Total Opportunity (TOP)

❖No. of opportunities = No. of points checked

TOP = NO. OF UNITS CHECKED x

NO. OF OPPORTUNITIES OF FALIURE

e.g. If in final inspection 100 refrigerators, each having

25 opportunities are checked

TOP = 25 x 100 =2500

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Defects Per Unit Opportunity (DOP)

DPO = DEFECTS
TOP

e.g. If in the above e.g. there were found 25 defects

DPO = 25 = 0.01
2500
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Defects Per Unit (DPU)

DPU = NO. OF DEFECTS

NO. OF UNITS CHECKED

e.g. In the above example DPU = 25 = 0.25

100
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Defects Per Million

Opportunities (DPMO)
• The DPMO considers total opportunities for defect occurrence existing
in a process
• DPMO can be directly converted into a sigma value

Total Defects x 1,000,000

DPMO =
Total Units x Total Opportunities Per Unit
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Defect Per Million Opportunities (DPMO)

DPMO = NO. OF DEFECTS x 106

NO. OF UNITS x OPP.

e.g. In the above example DPMO = 25 x 106 = 10000

100 x 25
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Defect Per Million Opportunities Example

❖ We checked 500 Purchase Orders (PO) and PO had 10

defects then,
d.p.u. = d/u = 10/500 = 0.02

◆ In a P.O. we check for the following:

a) Supplier address/approval
b) Quantity as per the indent
c) Specifications as per the indent
d) Delivery requirements
e) Commercial requirements

❖ Then there are 5 opportunities for the defects to occur.

Then, The total no. of opportunities = m u = 5x500 = 2500
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Defect Per Million Opportunities Example

❖Defects per opportunity, d.p.o. = d/(m u) = 10/2500 = 0.004

❖If expressed in terms of d.p.m.o. (defects per million

opportunities) it becomes
d.p.m.o . = d.p.o. x 106 = 4000 PPM
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DPMO Example / Industrial

• An inspection of 200 components at an
industrial facility revealed a total of 10
defects.
• Each component has 10 characteristics and
each is considered an opportunity.
• What are the DPU and TOP statistics?
10 x 1,000,000
• How
DPMO do = we convert these statistics =into
(200 x 10)
5,000
a
DPMO statistic?
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DPMO Exercise / Business Process

“Corporate” wants all findings closed in 90 days or less. Any finding
taking more than 90 days is “not acceptable.” There is one
opportunity per finding.

Audit Results: 92, 62, 40, 30, 52, 82, 24, 60, 61, 20, 85, 68, 96, 68,
25, 55, 49, 97, 46, 54, 36, 65, 34, 99, 78, 36, 102,
70, 58, 46

Defect Definition = __________ Opportunity Count = __________

Defect Count = __________ DPMO = __________

DPU = __________

How is the process performing?

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Business Process Solution

“Corporate” wants all findings closed in 90 days or less. Any finding
taking more than 90 days is “not acceptable.”

Audit Results: 92, 62, 40, 30, 52, 82, 24, 60, 61, 20, 85, 68, 96,
68, 25, 55, 49, 97, 46, 54, 36, 65, 34, 99, 78, 36,
102, 70, 58, 46

> 90 Days
Defect Definition = __________ 1
Opportunity Count = __________

Defect Count 5
= __________ DPMO 167,000
= __________

DPU .167
= __________

How is the process performing?

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Concept of Yield
FTY, RTY
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First Time Yield & Rolled Throughput Yield

ARE BOTH THE PROCESSES EQUALLY EFFICIENT?

Input
Output
100 98
stage 1 stage 2 stage 3 stage 4 stage 5

Input Output
100 98
stage 1 stage 2 stage 3 stage 4 stage 5

YES!
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ARE BOTH THE PROCESSES EQUALLY EFFICIENT?

Input
PROCESS 1 Output
100 stage 1 stage 2 stage 3 stage 4 stage 5 98
1 1
Reject Reject

Input Reject PROCESS 2 Output

1
100 stage 1 stage 2 stage 3 stage 4 stage 5 98
1
6 2 15 3 Reject
Rework Rework Rework Rework

NO!
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IN BOTH THE CASES THE OUTPUT/INPUT

RATIO IS THE SAME.
WHAT THEN IS THE DIFFERENCE ?
• In the first case the output/input ratio is the only measure
of the process efficiency & is called the CLASSICAL
YIELD (YFT) or FIRST TIME YIELD.
• In the second case the extent of rework that the process
generates can also be a measure of the efficiency of the
process & is known as ROLLED THROUGHPUT
YIELD(YRT).
• Rework would mean additional cost of
manpower,material, handling, creating excess capacity etc.
and many a times it is preferred to use rolled yield rather
than the classical yield.
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HOW DO WE DETERMINE THE ROLLED YIELD ?

METHOD 1:

100 97 96 91
stage 1 stage 2 stage 3

Y1 = 0.97 Y2 = 0.99 Y3 = 0.95

YRT = YFT1 x YFT2 xYFT3 = 0.91 or 91%

This means that 91 % of the items will pass through

without any rejection or rework
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Final Yield

Final Yield (FY) Yield at the end of the process excluding scrap

100 Units Step 1 Step 2 Step 3 70 Units

Scrap 10 Units 10 Units 10 Units

Final Yield, FY = U/S = Units Passed/Units Submitted

FY = (100-30)/100 = .70 or 70%
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The Hidden Factory

Classical Yield Ignores the Role of Hidden Factory

Scrap

Rework HIDDEN FACTORY

Operation Verify Product

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Final Yield Ignores the Hidden Factory

Final Yield Ignores the Hidden Factory

HIDDEN FACTORY
Rework 10 Units 10 Units 10 Units

100 Units Step 1 Step 2 Step 3 70 Units

Scrap 10 Units 10 Units 10 Units

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Rolled Throughput Yield

Product of Throughput Yields across
Rolled Throughput Yield (RTY) the entire process

HIDDEN FACTORY
Rework 10 Units 10 Units 10 Units = 30 Units

100 Units Step 1 90 Units Step 2 80 Units Step 3 = 100 Units

Scrap 10 Units 10 Units 10 Units = 30 Units

FTY 90 % FTY 88.9 % FTY 87.5 % FTY 70 %

TPY 80 % TPY 77.8 % TPY 75.0 %

RTY .80 X RTY .778 X RTY .75 = 46.7 %

Probability of Zero Defects

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Rolled Throughput Yield

Product of Throughput Yields across
Rolled Throughput Yield (RTY) the entire process

HIDDEN FACTORY How long can we

Rework 10 Units 10 Units 10 Units sustain
= this
30 Units
situation

100 Units Step 1 90 Units Step 2 80 Units Step 3 How =

much100isUnits
this
performance
level costing us
Scrap 10 Units 10 Units 10 Units = 30 Units

Where should we
focus to improve
FTY 90 % FTY 88.9 % FTY 87.5 % the
FTYprocess
70 %

TPY 80 % TPY 77.8 % TPY 75.0 %

RTY .80 X RTY .778 X RTY .75 = 46.7 %

Probability of Zero Defects