1. Variation and Control Charts A Leadership Perspective
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2. How Do We Look at Data? Sales (000) in Jan-10: $11,229
A number by itself has little meaning. So, we naturally want to compare it to something. But to what?
Budget for Jan-10: $10,000
Sales in Jan-09: $7,997
Typical comparisons include:
This month’s result to last year’s result
This month’s result to budget
YTD result to last year’s YTD
YTD result to budget

3. Financial Reports First Quarter Sales: 1Q 2010 Budget Variance 2Q 209
30,148
30,000
148
23,823
6,325
Second Quarter Sales:
2Q 2010
Budget
Variance
2Q 2009
Sales $
27,460
30,000
(2,540)
33,545
(6,085)
YTD Sales:
2010 YTD
Budget
Variance
2009 YTD
Sales $
57,608
60,000
(2,392)
57,368
240

4. Variation in Metrics
Sales in Jan-10: $11,229
Sales in Feb $10,016
Are these two numbers the same?
The measurements we take reflect the variation in the process.
The problem with measurement systems that compare one time frame to another (like the financial report) is that the actual performance (variation) of the process is hidden – we don’t know if there are special causes or just common causes.

5. Measurements and the Underlying Process
Let’s return to the financial report from before – things did not look too good – especially in the second quarter.
Let’s explore another method of examining the data that reveals the “voice of the process” – the true performance.
2010 YTD
Budget
Variance
2009 YTD
Sales $
57,608
60,000
(2,392)
57,368
240

6. Measurements and the Underlying Process
The table below shows the monthly data used to make the earlier tables.
What does this data tell you?
Often, it is difficult to understand the process by looking at a table of numbers.
Month
Sales
Jan-09
7997
Jul-09
8133
Jan-10
11229
Feb-09
9132
Aug-09
7215
Feb-10
10016
Mar-09
6694
Sep-09
8278
Mar-10
8903
Apr-09
10005
Oct-09
11117
Apr-10
9617
May-09
12055
Nov-09
6481
May-10
8190
Jun-09
11485
Dec-09
6897
Jun-10
9653

7. It is often better to examine the data as a time series chart.
No major change in monthly sales - some months better than others
Financial report indicated a problem (2Q 2004)
Time series tells a different story
There is a problem though – sales aren’t increasing

8. Adding the average line helps with interpreting the process behavior
Nine points above, nine points below
Monthly sales fairly predictable
Range from about $600,000 to about $1,200,000
Can provide an early warning of problems

9. Control Limits
The time series charts can be further enhanced by adding control limits
These limits define the boundaries for common causes of variation
With common cause of variation:
The upper control limit (UCL) is the largest value you can expect
The lower control limit (LCL) is the smallest value you can expect
As long as the all the points are within the limits and there are no patterns, only common cause of variation is present
The process is said to be “in control”
To improve it, you must fundamentally change the process
UCL
LCL

10. Sales chart with control limits
Process is “in control”
Can predict what will happen in the future
It is not the limits, but the story that the chart tells
Provides feedback on whether the process is changing or staying the same

11. Interpreting Time Series Charts
Points beyond the limits
UCL
Avg
LCL
Special cause

12. Zones Test
The zone tests are valuable tests for enhancing the ability of control charts to detect small shifts quickly.
The first step in using these tests is to divide the control chart into zones.
The chart is divided into six equal zones: three above the average and three below the average.
UCL
LCL
Avg A B C

13. Test for Zone A
X= Out of Control Point
UCL
LCL
Avg A B C X
A special cause of variation exists if there are two out of three consecutive points in zone A or beyond (on one side of the average).

14. Test for Zone B
X= Out of Control Point
UCL
LCL
Avg A B C X
A special cause of variation exists if there are four out of five consecutive points in zone B or beyond (on one side of the average).

15. Test for Zone C
X = Out of Control Point
UCL
LCL
Avg A B C X
A special cause of variation exists if there are seven or more consecutive points in zone C or beyond (on one side of the average).

16. Rule of Seven Tests UCL Avg LCL
Seven Points in a Row Above the Average
Seven Points in a Row Below the Average
Seven Points in a Row Trending Down
Seven Points in a Row Trending Up

17. In Control or Out of Control?

18. Summary
Special or
Common?