Quality & Quantity (2006) 40:697–719 © Springer 2006
Optimal Processes Management
for Over-Adjusted Process with Dependent Steps
on Bank Industry
Department of Insurance, Ling-Tung University, Taichung, 409, Taiwan. E-mail:
Abstract. Process management is important for a company. An over-adjusted process may
increase process quality variability, ultimately affecting the quality and cost of service or
products. A two special-cause economic over-adjustment model is developed for controlling
the service quality variation of the two-step process on a bank industry. The objective is to
determine the optimal management policy for the two-step process, which minimizes the ser-
vice quality variation and total quality control cost. A Markov chain approach is extended
to derive the economic adjustment model of the process, and the optimal management policy
is obtained from optimization techniques. Application of the two special-cause over-adjusted
model and the optimal management policy on the process management of a bank industry
is demonstrated through an example.
Key words: two-step process, management policy, special causes, over-adjustment
Control charts are important tool of statistical quality control. These
charts are used to monitor and maintain the variation of a process. In real-
ity, a production worker can mistakenly over-adjust or under-adjust a pro-
cess. Deming (1982) explains that the control chart provides “a rational
and economic guide to minimize loss from both mistakes”. Duncan (1956)
ﬁrst proposes the design of control charts from the economic viewpoint.
The pioneering work of Duncan is then extended by others. Montgomery
(1980), Vance (1983) and Ho and Case (1994) review the related literature.
The optimized cost model of the economic design considers the cost of
under-adjustment along with other cost; however it assumes that the search
for special causes is perfect.
Process over-adjustment is a common problem in statistical process con-
trol. Usually information about the process state is available only through