W2.1_Al Moataz _Pareto Priority Index


  1. Problem Definition:

This blog will be applying PM tools on my personal life. In order to continuous improvement, I planned for cost reduction and prioritize my projects. Using Pareto tools I will prioritize my projects to execute [2]. The PPI tool will help me in scheduling my projects.

project

  1. Development of feasible alternative:

The three feasible cost reduction projects are as follows:

a. Project 1: Constructing an apartment instead of renting an apartment.

I am staying in an apartment for a year and I feel that I am wasting money instead of investing in constructing an apartment in my parents land. The initial plan was staying in an apartment for 10 years until I am able to build my future house.

b. Project 2: Renting a 3 Bedroom apartment for My Employees instead of Accommodation Allowance.

I own a Nutrition business and I have three employees working for me. Each Employee gets paid 120 OMR allowance accommodation per month. My plan is to deduct the accommodation allowance and rent a property for them.

c. Project 3: Buying a new car instead of repairing and maintaining a new car.

Maintaining fixing an old German car is very expensive in Oman. My project is replacing the old car with a new one, which will reduce maintenance cost. I preferred purchasing a new car with following consideration:

  • Maintenance of the car.
  • Minimize the risk of car stopping in the middle of the road.
  • At least 3 years warranty
  • At least 100,000 fee service package.
  1. Development of the outcome for the alternative:
    a. Generate estimated cost, estimated saving and probability of success:

–  Project 1: Constructing an apartment instead of renting an apartment.

* Cost*

–          Building 2 Bedroom Apartment = 120 OMR/m2 x 140m2 = 16,800 OMR.

–          Master Bedroom = 1200 OMR

–          Second Bedroom = 600 OMR

–          Living room = 1200 OMR.

–          Kitchen = 600 OMR.

–          Air conditioning = 300 OMR x 4 (No’s) = 1200 OMR.

–          Total Cost = 21,600 OMR

* Estimated Saving *

–          Rent Per Year = 450 (OMR/Month) x 12 (Months) = 5400 OMR.

* Total Net Saving * =  5400 OMR x 10 (years) =  54,000 OMR.

–  Project 2: Renting a 3 Bedroom apartment for My Employees instead of Accommodation Allowance. (2 year accommodation Plan)

*Cost*

–          Rent = 300 OMR

–          Electricity, Water and Gas = 10% x 300 OMR = 30 OMR

–          Renting Apartment Cost = 300 OMR + 30 OMR = 330 OMR Per Month.

–          Total Cost (For 2 years) = 330 OMR x 24 months = 7920 OMR

*Estimated Saving*:

–          Allowance Per month for each employee=  120

–          Allowance per month for the three employees = 120 OMR x 3 =360 OMR.

*Net Saving*

–          Total Net Saving for 2 years = 360 OMR x 24 = 8,640 OMR

– Project 3: Buying a new car instead of repairing and maintaining a new car.

*Cost*

–          Buying a Toyota FJ = 16,000 OMR

–          Insurance = 400 OMR.

–          Registration = 50 OMR.

–          Total Cost = 16,450 OMR

*Estimated Saving*

–          Maintaining an old car = 600 OMR/Yr.

–          Repairing some parts = 3000 OMR.

*Net Saving*

–          3000 OMR + (600 OMR x 10Yrs) = 9,000 OMR.

 b. Calculating Pareto Priority Index (PPI), the equation that will be used is as follows:

In this case my aim is to prioritize my above three projects, and according to the importance and using the PPI tool, I will prioritize my first project to execute. The Pareto Priority Index (PPI) is a simple way of prioritizing these opportunities. The PPI is calculated as follows [1]:

Image

 

– Project 1: Constructing an apartment instead of renting an apartment.

 Image

 Image

= 2

–  Project 2: Renting a 3 Bedroom apartment for My Employees instead of Accommodation Allowance. (2 year accommodation Plan).

 Image

 Image

= 9

–  Project 3: Buying a new car instead of repairing and maintaining a new car.

 Image

 Image

= 3.19

Project PPI
1 Constructing an apartment instead of renting an apartment. 2
2 Renting a 3 Bedroom apartment for My Employees instead of Accommodation Allowance. 9
3 Buying a new car instead of repairing and maintaining a new car. 3.19

Table 1. PPI Calculation Result

 

  1. Selection Criteria:

The project with the highest PPI will be selected to be the first project to start with.

  1. Analysis and comparison of the alternatives:

Project 2 has the biggest PPI value among the other projects, according to table 1 the project ranking. Project 3 is second one to start with and finally start with project 1.

 

  1. Selection of the preferred alternative:

Project 2 is the selected alternative due to the biggest PPI result.

  1.  Performance Monitoring and the Post Evaluation of Result

It’s advisable to use Pareto tool for scheduling the projects and it identifies which project should start first. But to ensure the accuracy of the tool, valuable input is needed to ensure that the results of PPI are accurate. Such tool should be used in scheduling by big organizations.

Reference

1-      Choosing a project (2014). Retrieved from :http://pyzdek.mrooms.net/file.php/1/reading/bb-reading/choosing_a_project_02_reading_3rd_ed.pdf

 

2-      Dr. Abhay V. Trivedi (2011). Six Sigma/PM Integration “Rules of Engagement” . [ONLINE] Available at: http://www.pmibaltimore.org/pmi/events/attachments/5227419.pdf. [Last Accessed 10 August 2014].

3-      Andhylaksono (2014). Pareto Priority Index. Retrieved from: http://kristalaace2014.wordpress.com/2014/05/21/w13_al_pareto-priority-index/

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2 thoughts on “W2.1_Al Moataz _Pareto Priority Index

  1. Sorry Al Moataz…… Actually, I am not exactly clear exactly what you did here….

    You picked three reasonably good alternatives, but then instead of analyzing each of them using the same tool/technique, it looks like you used a different tool to evaluate each of them?

    And exactly what does this have to do with Pareto? I don’t see any evidence that you actually used Pareto to analyze any of them…..

    And lastly, how do your references to Six Sigma support what you wrote?

    Bottom line- while it looks like you did a lot of work for this blog, as I cannot understand what you did or how you did it, I have no choice but to reject it.

    My best advice would be to find someone on your team who got 4 or 5 stars and ask them to mentor you a bit……???

    BR,
    Dr. PDG, Pensacola, Florida

    • I have updated my blog, and i hope this clarifies your concern. I’ve consulted some team members and went back to previous Indonesian Blog with five stars as requested by you.

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