assignment - pm0010 - introduction to project management - set 2

Sikkim Manipal University - MBA - PM0010 - Introduction to Project Management

Semester: 3 - Assignment Set: 2

Question 1: List and explain in brief the inputs to the following processes.a) Acquiring a project teamb) Communication plan

Answer:

a) Inputs to the Acquiring a project team:

The members who belong to different groups and functions and are allocated to the activities of the same project, form a project team. A team can be divided into sub-teams if required. Generally, the project teams are only used for a defined period of time. However, they are disbanded when the project is complete. Sometimes, due to the nature of the specific formation and disbandment, project teams are usually agile in organizations.

Acquiring a project team is the process of acquiring the specific people needed to accomplish all phases of the given project. Ultimately the team members will bring all the specific qualifications and capabilities to the project team. However, the project management team has control over the selection process. Selection of team mates involves certain concerns which need to be evaluated.

Important factors that are considered during the process of acquiring the team are:

The project manager should efficiently discuss and induct others who are in a position to supply the required Human Resources in a project.

Failure to obtain the essential Human Resources for the project will affect project agenda, budgets, consumer satisfaction and quality. It declines the probability of success and eventually results in project cancellation.

The inputs for acquiring a project team are:

Enterprise environmental factors: Team members are available from internal and external sources. When selecting the team members, it is important to evaluate the following factors:

Availability Ability Experience Interests Costs

Assets of organizational process: Assets of organizational process covers reviewing the documented policies, procedures and guidelines governing staff assignments.

Roles and responsibilities:The roles and responsibilities document should be assessed to determine a team member’s roles, responsibilities, skills, levels of authority, and competencies.

Project organization charts:

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The project organization chart is an input/output device that serves a valuable role for the Project Management team and team leader in the process of keeping a thorough and careful organizational record of the project’s processes.

Staffing management plan: The staffing management plan with the project schedule is reviewed to ascertain when team members are needed.

b) Inputs to the Communication plan:

Planning communication is the process of ascertaining the information and communication needs of the project stakeholders.

Communication plan helps to communicate the right information, to the right people at the right time. It is a schedule of communication events used to make sure that the project stakeholders are kept properly informed. The various factors such as the time, effort and resources that are required to perform these planned communication activities are the part of the Project Management. The communication goals, strategies and stakeholders are described in the communication plan.

The best time for planning communication is at the start up phase of the project life cycle. It ensures that the plan includes the tasks needed to communicate effectively throughout the project cycle. The key features influencing the communication plan includes Project Management team structure, scope of the project and feedback from the stakeholders.

There are two ways of planning communication:

Constant communication:

Constant or regular communication involves communicating to the project team, managers and project stakeholders on a regular basis. These types of communication include regular status reports, project team meetings and monthly status updates about the project. The constant communication also includes the regular stakeholder report updates.

Event driven communication:

The event driven or one-time communication includes sessions discussing critical issues, stakeholder meetings, training schedules and wrap up sessions.

The advantages of planning communication are:

It facilitates team development. It makes it easier to update stakeholders. It saves creation of additional project documentations.

The inputs for planning communication are:

Stakeholder register:

Stakeholder records consist of stakeholder identification, assessment and classification documents.

Stakeholder management strategy:




Stakeholder management strategy describes the method to gain support and reduce dissatisfaction from the stakeholders throughout the entire project life cycle.

Enterprise environmental factors:

All environmental factors such as organizational culture, industry standards are considered as inputs for the planning communication process.

Organizational process aspects: All organizational process assets are applied while planning communications. The lessons learned and documented information is important as it gives an idea about the issues resolved.

Question 2: Write short notes on the following idea generation technique: a) Mind mappingb) Delphi techniquec) Brainstormingd) Nominal Group technique

Answer:

a) Mind mapping:

Generation of ideas takes place in any hierarchical level of a firm. A project idea is conceived from a search for promising project ideas. Certain broad considerations and guidelines are applied to help generate of project ideas. Some group creativity techniques to generate a large number of ideas to solve problem are discussed below.

Another way to look at the human levels of thinking is the mind mapping concept. Mind mapping exercise is aimed at increasing mental energy to utilize creative thinking skills, enabling the mind to track out ideas which normally lie in obscurity on the edge of thinking.

Following example is taken from the software Buzan‟s iMind Map which was chosen for the brainstorming session aimed at planning for the future of young and developing minds. The software replicates the organic shape, form and use of colors and images to convey a thought or idea – a graphic technique for stimulating creativity and unleashing the truth, often untapped potential of the mind. This was used in June 2008 at Petra, Jordan, where 30 Nobel Prize winners (scientists, entrepreneurs, academics, and humanitarians) participated in the conference focused on the theme „Reaching for New Economic, Scientific and Educational horizons”. Two of the many conclusions of the brainstorming session were - elimination of child poverty worldwide is essential to move forward with educational development; new and innovative learning tools are the foundation for a positive future for the next generation.

b) Delphi technique:




Generation of ideas takes place in any hierarchical level of a firm. A project idea is conceived from a search for promising project ideas. Certain broad considerations and guidelines are applied to help generate of project ideas. Some group creativity techniques to generate a large number of ideas to solve problem are discussed below.

The Delphi Technique was originally conceived as a way to obtain the opinion of experts without necessarily bringing them together face to face. In recent times, however, it has taken on an all new meaning and purpose.

The Delphi Technique is based on the Hegelian Principle of achieving Oneness of Mind through a three step process of thesis, antithesis, and synthesis. In thesis and antithesis, all present their opinion or views on a given subject, establishing views and opposing views. In synthesis, opposites are brought together to form the new thesis. All participants are then to accept ownership of the new thesis and support it, changing their own views to align with the new thesis. Through a continual process of evolution, Oneness of Mind will supposedly occur.

This is a systematic, interactive, forecasting method that relies on a panel whose members are carefully selected independent experts. It is based on the principle that forecasts from an unstructured group of individuals are comparatively inaccurate than forecasts from a structure group of experts. The experts answer prepared questionnaires in two or more rounds. After each round, a facilitator provides an overall summary of the experts‟ forecasts from the previous round as well as the reasons they provided for their judgments. The participants revise their earlier answers by knowing the responses of other members of the group. The process stops after a predetermined stop-criterion like number of rounds or achievement of consensus. Usually, participants maintain secrecy even after completion of the final report. The facilitator, who is the coordinator of the Delphi method, sends out the questionnaire, collects and analyses responses, and identifies common and conflicting viewpoints.

c) Brainstorming:

This method aims to give people freedom of mind and action to create and reveal new ideas. All spontaneous ideas from a group are gathered to find a solution for a specific problem. The rules followed during brainstorming are as follows:

No criticism of ideas Go for large quantity of ideas Build on each others ideas Encourage wild ideas

Brainstorming consists of a facilitator who composes the brainstorming panel and an idea collector to record the suggested ideas. Sometimes the facilitator is also the idea collector. Some of the leading questions that a facilitator asks during the session are “Can we combine these ideas?” and “How about looking from another perspective?” The idea collector also numbers each idea for future reference. When a participant exhausts all ideas, the creativity and experience of another participant is brought out. This often makes group brainstorming sessions enjoyable experiences. This also facilitates in bringing team members together. Individual brainstorming is effective in generating many ideas, but not at developing the ideas.

Brainstorming is used to generate ideas, for others to evaluate and select. The strategy is more effective when the brainstorming group evaluates and selects a solution to the


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problem proposed. In either case, the organization offers incentives so that participants maintain their brainstorming efforts. Brainstorming is a lateral thinking process. It is employed particularly when new ways of thinking are called for and when there is a need to break out of old established patterns of thinking. Some instances where brainstorming is used are when there is a need to look at new opportunities, when there is a need to improve the service offered, or when existing approaches are just not giving the right results.

d) Nominal Group technique:

Nominal group technique (NGT) is a structured method for group brainstorming that encourages contributions from everyone. This technique encourages all participants to have an equal say in the session. Participants are asked to write their ideas anonymously. The moderator collects the ideas and each idea is voted on by the group. The process of voting can be simply by show of hands. The top ranked ideas are sent back to the group or subgroups for further brainstorming. Each subgroup comes back to the whole group for ranking the listed ideas. Sometimes the group revaluates the ideas that were previously dropped. This method requires a trained facilitator.

The benefit of the technique is that the group shares and discusses all issues before evaluation, with each group member participating equally in evaluation. The evaluation works with each participant "nominating" his or her priority issues, and then ranking them on a scale of, say, 1 to 10.

Nominal Group Technique is just one group process for achieving consensus. Another group consensus technique is the Delphi Method, which is used among groups of experts to make complex decisions, usually without face-to-face meetings.

When to use Nominal Group Technique:

When some group members are much more vocal than others. When some group members think better in silence. When there is concern about some members not participating. When the group does not easily generate quantities of ideas. When all or some group members are new to the team. When the issue is controversial or there is heated conflict.

Question 3: Describe in brief the various sources of project financing.

Answer:

Sources of Project Financing:

The term ‘project finance’ is used loosely by academics, bankers and journalists to describe a range of financing arrangements. Often bandied about in trade journals and industry conferences as a new financing technique, project finance is actually a centuries-old financing method that predates corporate finance. However with the explosive growth in privately financed infrastructure projects in the developing world, the technique is enjoying renewed attention. The purposes of this note are to contrast project finance with traditional corporate financing techniques; to highlight the advantages and disadvantages of project finance and ; to




propose that a single structure underlies every project finance transaction; to explain the myriad of risks involved in these transactions; and, to raise questions for future research.

Project Financing is a unique financing technique that has been used on many high-profile corporate projects, including Euro Disneyland and the Euro Tunnel. Employing a carefully engineered financing mix, it has long been used to fund large-scale natural resource projects, from pipelines and refineries to electric-generating facilities and hydroelectric projects. Increasingly, project financing is emerging as the preferred alternative to conventional methods of financing infrastructure and other large-scale projects worldwide. Project Financing discipline includes understanding the rationale for project financing, how to prepare the financial plan, assess the risks, design the financing mix, and raise the funds. In addition, one must understand the cogent analyses of why some project financing plans have succeeded while others have failed. A knowledge-base is required regarding the design of contractual arrangements to support project financing; issues for the host government legislative provisions, public/private infrastructure partnerships, public/private financing structures; credit requirements of lenders, and how to determine the project's borrowing capacity; how to prepare cash flow projections and use them to measure expected rates of return; tax and accounting considerations; and analytical techniques to validate the project's feasibility.

Sources of Finance:

Just as financial instruments range from debt to equity and hybrids such as mezzanine finance, project finance can raise capital from a range of sources. Raising finance depends upon the nature and the structure of the project. Lender and investor interest will vary depending on the goals and risks related to the financing. In assembling project financing, all available financing sources should be evaluated. Following are some sources of capital used in project financing

Equity:

Equity is often raised in the stock markets and from specialized funds. Equity is generally more expensive than debt financing. Equity can be raised in the domestic capital markets as well as in the international capital markets. Delhi Metro Rail Corporation is form by the joint venture of Government of India (GOI) and Government of National Capital Territory of Delhi (GNCTD).Both GOI and GNCTD holds 50-50% equity. This 50% each of GOI and GNCTD equity holds only 30% of the project cost.

Developmental loan:

A developmental loan is debt financing provided during a projects developmental period to a sponsor with insufficient resources. Developmental lenders, who fund the project sponsor at very risky stage of the project, desire some equity rewards for the risk taken, hence, it is not unusual for developmental lender to secure rights to provide permanent financing for the project as part of the development financing agreement.

Subordinated loan:

Subordinated loans, also called mezzanine financing or quasi-equity, are senior to equity capital but junior to senior debt and secured debt. Subordinated debt usually has the advantage of being fixed rate, long. term, unsecured and may be considered as equity by senior lenders for purposes of calculating debt to equity ratio. They are usually used to cover over-runs during the construction stage.

Senior debt:




Commercial banks and institutional lenders are an obvious choice for financing needs of a project. Senior debt of project finance usually constitutes the largest portion of the financing. These loans usually format least 50% of the capital needs. The prime reason is that it is cheaper than equity financing. They fall into two categories secured and unsecured loans. Secured loans are loans where the assets securing the loan have value as collateral. Such assets are marketable and can readily be converted into cash. Unsecured loans basically depend on the borrower’s general creditworthiness, as opposed to perfected security arrangement. Nearly 60% of total estimated cost of Delhi metro project is finance by JBIC (Japan Bank of International Cooperation).Recently operational planning for Phase III is going on. JBIC appraisal team has given clearance for their next tranche for the Phase III.

Syndicated loan:

A syndicated loan is a loan that is provided to the borrower by two or more banks and is governed by a single loan agreement. The loan is arranged and structured by a lead arranger and is managed by an agent bank. The best part about a syndicated loan is that the funding can be gathered from the international lending market, which means such a lending can be used for projects which need enormous amounts of capital.

World Bank group financing sources:

Multilateral institutions such as the World Bank provide finds to infrastructure development projects worldwide. The scope and extent of involvement of such institutions in financing project is very limited. World banks provide funding through its (a) loan program; (b) guarantee program and (c) indirect support for projects.

Bonds:

In recent years the use of the bond markets as a vehicle for obtaining debt funds has increased. Bond financing is similar to commercial loan structure, except that the lenders are investors purchasing the borrowers bonds in a private placement or through the public debt market.

Investment funds:

Investment funds mobilize private sector funds for investment in infrastructure projects. E.g. asset funds or income funds, investment management companies, venture capital provider and money market funds.

Institutional lenders:

These include life insurance companies, pension plans, profit-sharing plans and charitable foundations. These entities can be a substantial source of funding.

Host government:

The host government can also be a direct or indirect source of financing. This is more evident in the emerging markets where the governments are usually eager to fund and support infrastructure projects. They provide indirect support through tax incentives. GOI and GNCTD have financed approximately 30% of project incurred cost.

Question 4: Explain the important concepts in Research design?




Answer:

The research designer understandably cannot hold all his decisions in his head. Even if he could, he would have difficulty in understanding how these are inter-related. Therefore, he records his decisions on paper or record disc by using relevant symbols or concepts. Such a symbolic construction may be called the research design or model. A research design is a logical and systematic plan prepared for directing a research study. It specifies the objectives of the study, the methodology and techniques to be adopted for achieving the objectives. It constitutes the blue print for the plan is the overall scheme or program of research. A research design is the program that guides the investigator in the process of collecting, analysing and interpreting observations. It provides a systematic plan of procedure for the researcher to follow elltiz, Jahoda and Destsch and Cook describe, “A research design is the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure.”

Components of Research Design: It is important to be familiar with the important concepts relating to research design. They are:

1. Dependent and Independent variables:

A magnitude that varies is known as a variable. The concept may assume different quantitative values, like height, weight, income, etc. Qualitative variables are not quantifiable in the strictest sense of objectivity. However, the qualitative phenomena may also be quantified in terms of the presence or absence of the attribute considered. Phenomena that assume different values quantitatively even in decimal points are known as “continuous variables. But, all variables need not be continuous. Values that can be expressed only in integer values are called” non-continuous variables. In statistical term, they are also known as „discrete variable. For example, age is a continuous variable; whereas the number of children is a non-continuous variable. When changes in one variable depends upon the changes in one or more other variables, it is known as a dependent or endogenous variable, and the variables that cause the changes in the dependent variable are known as the independent or explanatory or exogenous variables. For example, if demand depends upon price, then demand is a dependent variable, while price is the independent variable.

And if, more variables determine demand, like income and prices of substitute commodity, then demand also depends upon them in addition to the own price. Then, demand is a dependent variable which is determined by the independent variables like own price, income and price of substitute.

2. Extraneous variable: The independent variables which are not directly related to the purpose of the study but affect the dependent variable are known as extraneous variables. For instance, assume that a researcher wants to test the hypothesis that there is relationship between children’s school performance and their self-concepts, in which case the latter is an independent variable and the former, the dependent variable. In this context, intelligence may also influence the school performance. However, since it is not directly related to the purpose of the study undertaken by the researcher, it would be known as an extraneous variable. The influence caused by the extraneous variable on the dependent variable is technically called as an „experimental errors Therefore, a research study should always be framed in such a manner that the dependent variable completely influences the change in the independent variable and any other extraneous variable or variables.




3. Control:

One of the most important features of a good research design is to minimize the effect of extraneous variable. Technically, the term control is used when a researcher designs the study in such a manner that it minimizes the effects of extraneous independent variables. The term control is used in experimental research to reflect the restrain in experimental conditions.

4. Confounded relationship:

The relationship between dependent and independent variables is said to be confounded by an extraneous variable, when the dependent variable is not free from its effects.

Research hypothesis:

When a prediction or a hypothesized relationship is tested by adopting scientific methods, it is known as research hypothesis. The research hypothesis is a predictive statement which relates a dependent variable and an independent variable. Generally, a research hypothesis must consist of at least one dependent variable and one independent variable. Whereas, the relationships that are assumed but not be tested are predictive statements that are not to be objectively verified are not classified as research hypothesis.

Experimental and control groups:

When a group is exposed to usual conditions in an experimental hypothesis-testing research, it is known as „control group. On the other hand, when the group is exposed to certain new or special condition, it is known as an „experimental group. In the afore-mentioned example, the Group A can be called a control group and the Group B an experimental one. If both the groups A and B are exposed to some special feature, then both the groups may be called as „experimental groups. A research design may include only the experimental group or the both experimental and control groups together.

Treatments:

Treatments are referred to the different conditions to which the experimental and control groups are subject to. In the example considered, the two treatments are the parents with regular earnings and those with no regular earnings. Likewise, if a research study attempts to examine through an experiment regarding the comparative impacts of three different types of fertilizers on the yield of rice crop, then the three types of fertilizers would be treated as the three treatments.

Experiment:

An experiment refers to the process of verifying the truth of a statistical hypothesis relating to a given research problem. For instance, experiment may be conducted to examine the yield of a certain new variety of rice crop developed. Further, Experiments may be categorized into two types namely, absolute experiment and comparative experiment. If a researcher wishes to determine the impact of a chemical fertilizer on the yield of a particular variety of rice crop, then it is known as absolute experiment. Meanwhile, if the researcher wishes to determine the impact of chemical fertilizer as compared to the impact of bio-fertilizer, then the experiment is known as a comparative experiment.

Experiment unit:




Experimental units refer to the predetermined plots, characteristics or the blocks, to which the different treatments are applied. It is worth mentioning here that such experimental units must be selected with great caution.

Question 5: Explain the following:a) Project Vs. Program Vs. Portfoliob) Project work and Traditional functional work

Answer:

a) Project Vs. Program Vs. Portfolio:

Project Program PortfolioA temporary endeavor undertaken to create a unique product, service, or result.

A group of related projects managed in a coordinated way to obtain benefits and control not available from managing them individually.

A collection of projects or programs and other work that are grouped together to facilitate effective management of that work to meet strategic business objectives.

Hopefully we all know what a project is. PMBOK defines a project as “a temporary endeavour undertaken to create a unique product, service or result”. In my terms, a project has a specific start and end date with a clearly defined deliverable produced. Project management is the application of knowledge, skill, tools, techniques and processes to effectively manage a team towards this final deliverable.

In real life this means the management of a specific project (e.g. implementing a new accounting system). This project will start on a specific date and end according to our project plan with the delivery of your new accounting system.

This is where the confusion seems to start. A program is a group of related projects managed together to obtain specific benefits and controls that would likely not occur if these projects were managed individually. While project management focuses on delivering the specific objectives of the project – program management is focused on achieving the strategic objectives and benefits of the integrated program.

The implementation of an Enterprise Resource Planning (ERP) system is often performed as a program. The ERP system will include several specific individual projects (i.e. Finance, Purchasing, Materials Management, etc.). Each of these specific projects should be run by a project manager using a formal project management approach. The

A portfolio is a collection of projects or programs grouped together to facilitate effective management of efforts to meet strategic business objectives. These projects or programs are not necessarily interdependent or directly related. Portfolio management is the centralized management of multiple projects, programs and possibly portfolios. This typically includes identifying, prioritizing and authorizing projects and programs to achieve specific strategic business objectives.

The group of projects and programs within a specific business division could be an example of a portfolio. This might include the implementation of a Customer Relationship Management (CRM) program; Sales Data




overall grouping of these related projects will be run by a Program Manager.

The Program Manager will be responsible for the rolling up of information from each of the projects and ensuring the overall program is driving towards achieving the business objectives. This requires each of the project managers to manage their individual projects in a fashion that easily integrates into the overall program plan (easily said – more challenging in actual practice).

The Program Manager is also responsible for tracking and analysing across the entire program. This involves considering risk management strategies not only for each individual project but also analysing the ‘collective’ risk across the program. The same goes for quality management, schedule management, cost management, communications, etc.

Warehouse program; Commission Tracking project; And a project to launch a new product within the Sales & Marketing Division. In this case the Portfolio Manager is managing this broad range of somewhat unrelated programs and projects towards a specific set of strategic divisional business objectives.

The Portfolio Manager will become very involved in the frontend activities of identifying, prioritizing and initiating projects and programs. All of these activities will be within the context of achieving the strategic business objectives. ThePortfolio Manager will also track these projects/programs to ensure they continue to deliver towards the expected strategic outcome in terms of quality, cost, schedule and scope. They will also be responsible for analysing and tracking project management elements across the entire portfolio – looking for ways to leverage economies of scale, reduce risk and improve the probability of successfully delivering expected business results.

b) Project work and Traditional functional work:

Project work and traditional functional work differ in many ways. It is important to understand these differences.

Functional work is routine on-going work. Each day machine operators, car salesmen, secretaries, accountants, financial analysts and quality inspectors perform functional work that is routine, notwithstanding some variations from day to day. The functional worker gets training from a manager assigned to the specific function, and the manager supervises and manages the worker according to standards of productivity and quality set for the




particular function. In contrast to functional work, project work is a temporary endeavor undertaken to create a unique, non-routine product or service. A project manager manages a specific project with people and other resources assigned to him only for project management support on the specific project, and not on an ongoing basis. The project manager is responsible for the approved objectives of a project such as budget, schedule and specifications. Project terms are typically not organized in the same hierarchical structure as that of functional group.

Question 6: Describe the following quality control tools:a) Ishikawa diagramb) Flow chartc) Pareto chartd) Scatter diagram

Answer:

a) Ishikawa diagram:

Ishikawa diagrams (also called fishbone diagrams, cause-and-effect diagrams or Fishikawa) are causal diagrams that show the causes of a certain event -- created by Kaoru Ishikawa (1990). Common uses of the Ishikawa diagram are product design and quality defect prevention, to identify potential factors causing an overall effect. Each cause or reason for imperfection is a source of variation. Causes are usually grouped into major categories to identify these sources of variation. The categories typically include:

People: Anyone involved with the process Methods: How the process is performed and the specific requirements for doing it, such

as policies, procedures, rules, regulations and laws Machines: Any equipment, computers, tools etc. required to accomplish the job Materials: Raw materials, parts, pens, paper, etc. used to produce the final product Measurements: Data generated from the process that are used to evaluate its quality Environment: The conditions, such as location, time, temperature, and culture in which

the process operates

Ishikawa diagrams were first used in the 1940s, and are considered one of the seven basic tools of quality control. It is known as a fishbone diagram because of its shape, similar to the side view of a fish skeleton.

The Ishikawa Diagram resembles a fishbone (hence the alternative name "Fishbone Diagram") - it has a box (the 'fish head') that contains the statement of the problem at one end of the diagram. From this box originates the main branch (the 'fish spine') of the diagram. Sticking out of this main branch are major branches that categorize the causes according to their nature.




Mazda Motors famously used an Ishikawa diagram in the development of the Miata sports car, where the required result was "Jinba Ittai" or "Horse and Rider as One". The main causes included such aspects as "touch" and "braking" with the lesser causes including highly granular factors such as "50/50 weight distribution" and "able to rest elbow on top of driver's door". Every factor identified in the diagram was included in the final design.

b) Flow chart:

A flowchart is a diagrammatic representation that illustrates the sequence of operations to be performed to get the solution of a problem. Flowcharts are generally drawn in the early stages of formulating computer solutions. Flowcharts facilitate communication between programmers and business people. These flowcharts play a vital role in the programming of a problem and are quite helpful in understanding the logic of complicated and lengthy problems. Once the flowchart is drawn, it becomes easy to write the program in any high level language. Often we see how flowcharts are helpful in explaining the program to others. Hence, it is correct to say that a flowchart is a must for the better documentation of a complex program.

Flowcharts are usually drawn using some standard symbols; however, some special symbols can also be developed when required

The following are some guidelines in flowcharting: In drawing a proper flowchart, all necessary requirements should be listed out in logical

order. The flowchart should be clear, neat and easy to follow. There should not be any room for

ambiguity in understanding the flowchart. The usual direction of the flow of a procedure or system is from left to right or top to

bottom. Only one flow line should come out from a process symbol.




c) Pareto chart:

The Pareto Chart is named after Vilfredo Pareto, a 19th century economist who postulated that a large share of wealth is owned by a small percentage of the population. This basic principle translates well into quality problems. A Pareto Chart is a series of bars whose heights reflect the frequency or impact of problems. The bars are arranged in descending order of height from left to right. This means the categories represented by the tall bars on the left are relatively more significant than those on the right. This bar chart is used to separate the “vital few” from the “trivial many”. These charts are based on the Pareto Principle which states that 80 per cent of the problems come from 20 per cent of the causes. Pareto charts are extremely useful because they can be used to identify those factors that have the greatest cumulative effect on the system, and thus screen out the less significant factors in an analysis. Ideally, this allows the user to focus attention on a few important factors in a process.

A Simple Example:

A Pareto chart can be used to quickly identify what business issues need attention. By using hard data instead of intuition, there can be no question about what problems are influencing the outcome most. In the example below, XYZ Clothing Store was seeing a steady decline in business. Before the manager did a customer survey, he assumed the decline was due to customer dissatisfaction with the clothing line he was selling and he




blamed his supply chain for his problems. After charting the frequency of the answers in his customer survey, however, it was very clear that the real reasons for the decline of his business had nothing to do with his supply chain. By collecting data and displaying it in a Pareto chart, the manager could see which variables were having the most influence. In this example, parking difficulties, rude sales people and poor lighting were hurting his business most. Following the Pareto Principle, those are the areas where he should focus his attention to build his business back up.

Understanding the Pareto Principle (The 80/20 Rule):

Originally, the Pareto Principle referred to the observation that 80% of Italy’s wealth belonged to only 20% of the population.

More generally, the Pareto Principle is the observation (not law) that most things in life are not distributed evenly. It can mean all of the following things:

20% of the input creates 80% of the result 20% of the workers produce 80% of the result 20% of the customers create 80% of the revenue 20% of the bugs cause 80% of the crashes 20% of the features cause 80% of the usage

The Pareto Principle is an observation, not a law of nature.

d) Scatter diagram:

A scatter diagram is a tool for analysing relationships between two variables. One variable is plotted on the horizontal axis and the other is plotted on the vertical axis. The pattern of their intersecting points can graphically show relationship patterns. Most often a scatter diagram is used to prove or disprove cause-and-effect relationships. While the diagram shows relationships, it does not by itself prove that one variable causes the other. In addition to showing possible cause and-effect relationships, a scatter diagram can show that two variables are from a common cause that is unknown or that one variable can be used as a surrogate for the other.


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Scatter diagram is used to examine theories about cause-and-effect relationships and to search for root causes of an identified problem. It can also be used to design a control system to ensure that gains from quality improvement efforts are maintained.

In the above example, the points are plotted by assigning values of the independent variable X to the horizontal axis and values of the dependent variable Y to the vertical axis. The pattern made by the points plotted on the scatter diagram usually suggests the basic nature and strength of the relationship between two variables. The scatter diagram also shows that, subjects with large waist circumferences also have larger amounts of deep abdominal AT. These impressions suggest that the relationship between the two variables may be described by a straight line crossing the Y-axis below the origin and making approximately a 45-degree angle with the X-axis.


assignment - pm0010 - introduction to project management - set 2

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