Authentic Learning Task (ALT) #4: Basic Statistical Variation Charts

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Overview

In this Authentic Learning Task (ALT), you are introduced to another means of analyzing a company’s financial status across time: using run charts and statistical process control (SPC) charts. Unlike cumulative summary (CS) charts which track the cumulative effect of a sequence of data, run charts and SPC charts track the individual data values as they occur in time. A run chart allows a project manager to visually pinpoint unusual sequence patterns, individual data points, or trends. An SPC chart is a run chart that contains both high and low control limits that provide the project manager data regarding the statistical abnormality of a pattern or trend.

In this ALT, you use run and SPC charts to track the patterns and trends of credit card balances. You experience firsthand how run and SPC charts are valuable tools for the financial management of a project.

After completing this ALT, you should be able to demonstrate the following competencies:

• Recognize the basic elements of financial reporting
  (Comp. 1).
• Interpret basic financial data and reports (Comp. 2).
• Provide input to and use the results of activity based accounting and/or financial tracking systems (Comp. 3).
• Use financial principles to manage projects, budgets, and processes (Comp. 4).

Materials and Equipment
No materials or equipment are needed to complete this ALT.

Safety and Disposal
No special safety or disposal procedures are required.

Pre-Activity

Histogram
To grasp an understanding of what Statistical Process Control (SPC) is, you need to collect data which goes into a histogram or a run chart.

Each piece of data is placed into a frequency table range as an individual data point. As more and more data points are collected and placed into a frequency range, a histogram takes place. This histogram website automatically then gives the mean and standard deviation of the total data points collected.

Click here to access an interactive histogram, then follow the directions below.

Select the data set – “College SAT Scores”, look at the histogram, and pull down the “Show Frequency Table.” The frequency table show how data items were collected and recorded for each interval. The frequency ranges appear along with the number of hits (individual data points collected).

In the middle of screen labeled, “Internal Size,” move the slide from the smallest interval size of 3.82 to the right for the largest size of 68.283. What is happening to the histogram? Does increasing the interval distort the histogram making the histogram not a true picture of the data collected? While changing the interval size watch how the mean stays at 507.17 and the standard deviation stays at 68.28. The mean, or data center for histograms or centerline for run charts, is where the most hits occur for all data recorded. Data on both sides of the mean is the variation from this data center (centerline).

Run Chart
The Run Chart uses the individual data collected like in a histogram. However, the data is not usually placed into an interval range like the histogram. Instead, it is an individual point located above or below the centerline (mean or µ). (Note: To determine a centerline, you should first create a histogram and establish the mean or centerline.)

Self Assessment

Using the interactive histogram, go to “Select a Data Set” to “My Data.” Hit the “Clear” key across from “Enter your data below, one per line.” Next enter your data points, (example – 34, 55, 37, 55, 44, 41, 43, 49) and hit “Update Histogram”. With this data you will find the mean (centerline) is 44.75 with a standard deviation of 7.26.

Using the standard deviation and adding/subtracting 7.26 to each side of the mean gives 52.01 (7.26 + 44.75) and 37.49 (44.75 – 7.26). The 52.01 is upper control limit (UCL) while the 37.49 is the lower control limit (LCL) for one standard deviation(s). In business, the normal practice is to set the UCL and LCL to 3s or (3 X 7.26 = 21.78) for the UCL of 66.53 (21.78 + 44.75) and the LCL of 22.97 (44.75 -21.78).

With the above information, a run chart can be developed with UCL and LCL. By looking at the trends, data can be found suggesting a change might be necessary to stay on the target plan (mean).

Activity

In your team, peform the following step to complete the activity:

1. In your team, complete Data Sheet: Tracking with an SPC Chart.

Your team should now post its results from the activity to the Discussion Board.

Assignment
To prepare for Transfer Activity: Financial Management at RGI, read Information Sheet: Financial Management at RGI in your Financial Management Participant Journal.

Assessment
Your facilitator may use Assessment Sheet: Basic Statistical Process Control Charts to evaluate your results from the activity and your posting to the Discussion Board.

Go to Transfer Activity

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