W13_AL_Pareto Priority Index


1. Problem Definition

In order to continuous improvement, company has cost reduction campaign. Define the alternatives for project cost reduction and specify the priority of project that will be execute.

2. Identify the Feasible Alternative

Feasible cost reduction project as follow:

a. Conversion diesel engine to gas engine

Company operate one (1) unit diesel engine capacity 1 kVA to supply power at alpha field, meanwhile, there are some associate gas flaring in that area. One of the planned is to utilize flare gas as fuel for turbine (replacing existing diesel engine generator)

b. Construct 10 km access road

Charlie field is located on remote area, can only accessible via sea transportation (estimate ±10 km distance). Charlie field is a new discovery oil field, in the future there will be a lot of projects activities will be execute. Instead of using sea transportation, management is preferred using land transportation with following considerations:

  • Increase Charlie area accessibility and time efficiency
  • Minimize sea transportation risk
  • Easier pipeline inspection & maintenance
  • High sea transportation cost for rental & fuel Cost

Imagec. Inventory reduction project

The Company has excess stock material in warehouse, to reduce the cost of renting warehouse company plans to move some stock material to the company’s warehouse in the respective field

Analysis of project priority will be conducted by Pareto Priority Index

3. Development of the Outcome for Alternative

a. Generate estimate cost, estimate saving and probability of success

Table 1 Comparison of project cost and estimate savings

Image

b. Calculate Pareto Priority Index (PPI), Equation that will be use is as follow:

ImageTable 2. PPI calculation result

Image

4. Selection Criteria
Cost reducing project that have biggest PPI will be selected

5. Analysis and Comparison of the Alternative
Access road construction project has biggest PPI value among other, according to table 2 the project ranking as follow:

Table 3. Cost reduction project priority

Image

6. Selection of the Preferred Alternative

Access road construction project is selected due to has biggest PPI (6.53)

7. Performance Monitoring and the Post Evaluation of Result

To select project more accurately, if it is available historical information can be use to estimate standard times and resources. Whenever update data is available, calculation should be re-run to validate selection.

 

Reference

  1. Six sigma daily (2014). The Six Sigma Approach to Project Selection. Retrieved from: http://www.sixsigmadaily.com/implementation/the-six-sigma-approach-to-project-selection
  2. Selecting Projects where Six-Sigma can add value (2014). Retrieved from: http://unpan1.un.org/intradoc/groups/public/documents/arado/unpan020936.pdf
  3. Choosing_a_project (2014). Retrieved from :http://pyzdek.mrooms.net/file.php/1/reading/bb-reading/choosing_a_project_02_reading_3rd_ed.pdf

10 thoughts on “W13_AL_Pareto Priority Index

  1. AWESOME, Andhy!! Really interesting case study and you picked a rather unique tool to use to make the comparison.

    Not often you see Pareto being applied this way……

    What would be really interesting is having used this tool/technique, would be to take the same 3 options, but this time, turn to Chapter 13 in Engineering Economy and see if you get the same results? (Pay special attention to sections 13,4 and 13.5)

    Keep on posting these interesting case studies, Pak Andhy!!

    BR,
    Dr. PDG, Jakarta

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