Tuesday, March 19, 2013

03 . 18 . 13 | Principles of Economic Control

Nobi’s large statistical designs (to test which of 20+ changes improve a business quickly, and quantify by how much) are well understood. Less well known is the novel way we integrate economic control.

Economic control charts just plot the measurement we’re improving, then place limits (that look like tramlines) showing the extremes the process will normally confine to. Some examples will speak best.

The chart above ensured a “level playing field” when randomizing retail stores to a statistical design for testing 11 changes in stores and marketing, bringing a 9.8% “comps” increase from 2 of the 11 (see also homepage Case Studies: Retail Sales | Innovation During a Recession).

The next chart shows an inventory reduction project that started when it did.

Usually there are gaps to close in initial implementation, which typically take 1-2 meetings using the scientific method and economic control. Although little or no adherence monitoring is needed in general, it is used more to close implementation gaps, in order to know what’s been going on at all times and places. A small, random sample of transactions is inspected for the changes being implemented. The work is completed with people in the trenches. This is quite subtle in the details but with good business advantage.

Economic control is essential when using statistical designs for rapid improvement. It’s simple to use, though deceptively clever. It is important to managers in guiding economic decisions, and to scientists in providing objectivity in unstable business data (where the rules of statistics break down).

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