W8_Adi Nugroho_Statistical Process Control


Problem Statement

History of gold prices in recent decades have demonstrated price fluctuations, which looks like a roller coaster. This situation become a concern for the investors that use the intrinsic value  of  gold  to protect them from inflation.

to see if the gold price are classified as out of control or not, we need to analyze gold price data for a certain time period.

Development of alternatives

Two sets of data are used for alternatives in determining situation whether out of control or not out of control.
Set of data #1.
Gold Price of a Constant Value “CPI Basket”

Set of data #2.

Month By Month Averages For The Price of In 2011.

Selection Criteria

Using reference Memory Jogger 2, page 62, to determining if the process is out of control.

 

Analysis and Comparison of Alternatives

Set of data #1.

Gold Price of a Constant Value “CPI Basket” using data from year 1970
 

Ounce per USD 1000

series 1

series 2

series 3

series 4

series 5

series 6

5.09

1.42

2.08

0.62

2.98

0.69

Statistic Parameters

Value

Mean

2.46

Baseline

1.75

Difference

-0.71

Std Dev

1.33

Difference/ Std Dev

-0.53

ULC

7.23

Sigma +2

5.53

Sigma +1

3.84

Mean

2.15

Sigma -1

0.45

LLC

0.00

Set of data #2.

Month By Month Averages For The Price of In 2011.

USD per Ounce

Jan

Feb

Mar

Apr

May

1356.4

1372.72

1424.01

1473.81

1510.83

Mean

1427.55

Std Dev

65.49

ULC

1624.03

Sigma +2

1558.538

Sigma +1

1493.046

Mean

1427.554

Sigma -1

1362.062

Sigma -2

1296.57

LLC

1231.078

Set of data#1 can be determined as not out of control since all data is not fall outside of control limit and not violating the test for control on Memory Jogger 2 page 62, while Set of data#2 eventhough all data is not fall outside of control,but all of five consecutive points are increasing. Its violating test for control no 2.d. Hence Set of data#2 can be classified as Out of Control.

We can see that the Gold price in 2011 can be considered as Out of control, and is still increasing.

Performance Monitoring & Post Evaluation of Result

Monitor the data sequence and pay attention to the control limit and behaviour of point of data fall. If data is suspected to be outside of control limit, perform the root cause analysis to figure out what is happening and solve it.

Implementation to real life situation

World Crude Oil Price (average yearly)

 

USD per Barrel Crude Oil

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

22.73

23.47

27.11

34.62

49.87

60.32

69.19

95.62

60.07

77.68

105.83

(Taken from: US Energy Information Administration)

 

Mean

56.96

std dev

28.66545

ULC

142.95

Sigma +2

114.29

Sigma +1

85.62

Mean

56.96

Sigma -1

28.29

Sigma -2

-0.38

 LLC

-29.04

Sigma-2 and LLC are considered zero.

From the above control chart, we can conclude that the oil price in the last 11 years is Out of control since there are 8 consecutive point data increasing. There are several causes that affect to uncontrollable World oil price; 1. Instability of regional politics, 2. Increasing demand of fossil energy, 3. Interruption on daily oil production/operation.

References

Brassard, Michael & Ritter, Diane (2010), The Memory Jogger 2nd  edition, Tools for Continuous Improvement and effective planning, Canada:GOAL/QPC.Sullivan, William

G., Wicks, Elin M. & Koelling, C. Patrick (1942), Engineering Economy15th Edition, Singapore: Prentice Hall, Inc.

http://seekingalpha.com/article/262560-using-history-to-determine-gold-s-intrinsic-value

http://www.eia.doe.gov/dnav/pet/PET_PRI_WCO_K_W.htm

http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx


Advertisements
This entry was posted in Adi Nugroho, Week #8. Bookmark the permalink.

3 Responses to W8_Adi Nugroho_Statistical Process Control

  1. DrPDG says:

    EXCELLENT, Mas Adi!!! Nice work!!! (but LATE!!! Ya Ampyun!!)

    The only thing you didn’t include which would have been nice to see is WHY you think the price of oil is out of control? (Or gold or any other commodity?) Do you think is because of SUPPLY and DEMAND? Or is it because of SPECULATION? Or is it because of fears of INFLATION? Of perhaps a combination of all three are causing market distortions?

    It would be interesting (as well as valuable in your work) if you were to compare a longer time frame to see if over the past 30 years, the price of oil indicates a process that is or is not in control….??

    And for next week, I will be looking to see you actually using this data to project into the FUTURE…….. And an interesting experiment would be for you to project the price of OIL forward until 2020 and compare it against the forward projection of the price of gold until 2020? I wonder if the curves are parallel or not…….

    What do you THINK they might look like?

    Keep up the good work and PLEASE- Bu Lilly and David appear to be struggling with this so your help and mentoring would be greatly appreciated- not only by them but by me as well…..

    Again, great job and really looking forward to what you will do with next week’s assignement.

    BR,
    Dr. PDG, Jakarta

  2. DrPDG says:

    Coincidently, Adi……. This just came into my in box……

    http://blogs.forbes.com/robertlenzner/2011/05/14/exxon-mobil-ceo-says-oil-price-should-be-60-70-a-barrel/

    Be interesting to see next week’s posting…. 🙂

  3. DrPDG says:

    Whoops!!!! PS Adi, don’t use the 1970 reading of 5.09. It is an outlier….. Start only with the next readings and you will see your Mean drop way down (below 1.75) and your sigma will drop to a bit less than 1 ounce……

    This will make next week’s assignment much easier to do, with the narrower upper and lower control limits….. (The higher you set the ounces of gold = $1.000 in 2011 USD, the LESS risky, while the lower number of ounces of gold needed to purchase $1,000 worth of goods/services, the MORE risk you have of being on the low side.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s