W.9_Lilly Wasitova_Statistical Process Control Analysis


W.9_Lilly Wasitova_Statistical Process Control Analysis

 

Problem Statement

 

Observing the fluctuation of the gold value especially in the past decade is the perfect case to do the exercise and to increase my skills in working out the statistical process control analysis, which is at first to study the variation and its source of the process and/or performance over time.

 

In order to do so, two sets of data of the Gold Price Statistics from Seeking Alpha α [3] and Kitco [4] will be analyzed.

 

 

Alternative Solutions

 

The charts to be used from [3] for the Gold Price Reference from the year 1790 to date and [4] for the monthly Gold Price in 2011 are captured as below:

 


Figure 1 : Gold Price of a constant Value “CPI Basket” [3]

 

 


Figure 2 : 2011 Monthly Gold Price [4]

 

 

 

Selection Criteria

 

To be analyzed from the two charts are the performance of the processes shown based on the statistical calculation of their:

  • Mean Values
  • Upper and Lower Control Limits
  • Probabilities / “Comfort Levels” of the 1.78 ounce baseline

 

 

Selection of the preferred alternatives

 

The statistical calculation for both data sets are as per below table:

 


Table 1 : Calculated Statistical Parameters

 

* Data # 1 from [3] since the Market determined Gold Price from 1970 to date, using the given values.

** Data # 2 from [4] for the 2011 monthly Gold Price

 

Using the steps to determine if the process is “Out of Control” from [2], will have to draw the zones between the LCL to UCL for both data sets, as shown in the Figure 3 and Figure 4 below.

 

 


Figure 3 : Control Chart of Gold Price of a constant Value “CPI Basket” [3]

 


Figure 4 : Control Chart of 2011 Monthly Gold Price [4]

 

 

Analysis and Comparison of Alternatives

From the control charts we can make the analysis of “Out of Control Process” for both data sets using reference [2] p.62, as follows:

  • For Figure 3, there is no statement of “Out of Control Process” is meet. Therefore we can say that the data taken is not out of control
  • For Figure 4, there are two statements describing the “Out of Control Process”, namely:
    • Point 2.d à There are six consecutive point increasing or decreasing
    • This will give the statement that the Gold Price in 2011, which is in continuous increase, is Out of Control.

 

 

Selection of the preferred alternatives

 

In the similar Situation concerning currency exchange fluctuation, I have actual data from 2009 when purchasing US Dollar from Indonesian Rupiah for business purposes as below listed in the below Table with its statistical parameter calculation and plotted as per Figure 5.

 


Table 2 : Historical Currency Exchange USD to IDR in 2009 with its Calculated Statistical Parameters

Figure 5 : Control Chart of the Historical Currency Exchange in 2009

 

Performance Monitoring & Post Evaluation of Results

From the control chart, with reference to [2] it is showing that the currency exchange is not out of control despite almost 10% standard deviation from the average rate and a big difference for over 26% for the range to average rate, statistically it is under control, however the fluctuation especially in the first 5 months of that year has brought some uncertainty in the market back then.

 

 

 

References:

  1. Sullivan, William G., Wicks, Elin M. & Koelling, C. Patrick (1942), Engineering Economy 15th Edition, Singapore: Prentice Hall, Inc.
  2. Michael Bassard & Diane Riter (2010), The Memory Jogger 2nd Edition, Canada, GOAL/QPC

  3. Seeking Alpha α

    http://seekingalpha.com/article/262560-using-history-to-determine-gold-s-intrinsic-value
  4. Kitco http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx
  5. XE, The World’s Favorite Currency Site

About Lilly Wasitova

Goal oriented professional who like to have fun
This entry was posted in Lilly Wasitova, Week #9. Bookmark the permalink.

One Response to W.9_Lilly Wasitova_Statistical Process Control Analysis

  1. DrPDG says:

    Excellent, Bu Lilly…….

    Nice set up of the data and nice assessment and analysis!!!

    My only follow on question is what implication does it have that at least short term, that the price of gold is out of control? First, do we (does anyone?) have control over this process? So if there is a process we have little or no control over, and it is out of control, what would or should be the strategy from a management perspective?

    Asked another way, knowing this information, (large variances, process unstable or out of control) how should management use this information in making better, safer, more responsible decisions?

    My only other comment would be too bad you did not collaborate with David, so BOTH of you could have gotten credit……. “Two for One Deal”………. Work SMART, don’t work hard!!

    Now the challenge is how to get this down so you can do all this in 105 minutes or less……??

    Keep up the good work… You are on the right track and will get there by W26….

    BR,
    Dr. PDG, Jakarta

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