W5_YN_Pareto Priority Index

W5_YN_Pareto Priority Index

Opportunity Statement

The Spot Market in Oman is expected to go live by the year 2020. Currently, we are in the process of procuring an IT system for the market operation. As the number of functions for which the Spot Market department is responsible increases, it is imperative that new members are added to the team. In this blog, we shall compare between the different sources of hiring employees in order to choose an optimum source.

Feasible Alternatives

Three alternatives as to where to source the new employees from will be compared:

Option 1) External Recruitment: fresh graduate.

Option 2) External Recruitment: experienced.

Option 3) Internal Recruitment.

Outcomes of Feasible Alternatives

The feasible alternatives will be compared using Pareto Priority Index (PPI). The following four inputs are used in calculating the PPI of each alternative:

• Cost (USD): the cost of implementing the option. In our case, we’ll consider the salary of the new hire for a period of one year, in addition to the costs associated with the hiring process.
•  Saving (USD): the returns that the new hire is expected to present to the company in the form of savings during a period of one year.
• Time of completion (years): the time it takes to implement the option of hiring an employee.
• Probability of success: how likely the new hire is going to succeed in the company and perform his/her tasks and achieve the savings expected of them.

Selection Criteria

The option with the highest PPI shall be the main method of hiring employees for the department. The PPI depends on the inputs mentioned above and shall be calculated using the following equation:

Analysis and Comparison of the Alternatives

The following table 1 summarizes the value of the inputs used each of the alternatives and the resulting PPI.

Table 1: PPI Calculation

Option	Cost ($)	Savings ($)	Time (years)	Probability of success	PPI
1	30,000	32,000	0.4	60%	1.60
2	70,000	100,000	0.7	80%	1.63
3	45,000	55,000	0.2	90%	5.50

Preferred Alternative

The options are arranged in table 2 below according to their PPI values.

Table 2: The alternatives sorted as per their PPI

Option	-	PPI
3	Internal Recruitment	5.50
2	External Recruitment: experienced	1.63
1	External Recruitment: fresh graduate	1.60

As seen from the table above, the best alternative is hiring internally. However, there might be limited numbers when hiring from the inside of the company. The next best option is to hire experienced employees from the outside. However, the PPI of hiring fresh graduates is close to that of hiring experienced employees. Therefore, a combination of the two would work effectively.

Tracking and Reporting

When hiring new employees, we shall track them in terms of their costs, savings, time it took to hire them, and their probability of success. Then, a Pareto Priority Index analysis is to be performed on a repetitive basis in order to make the choice on how to hire future employees.

References

1)      MUNK, J. (2014, July 8). THE SIX SIGMA APPROACH TO PROJECT SELECTION. Retrieved from http://www.sixsigmadaily.com/the-six-sigma-approach-to-project-selection/

2)      Pareto priority index. (n.d.). Retrieved from https://ipfs.io/ipfs/QmXoypizjW3WknFiJnKLwHCnL72vedxjQkDDP1mXWo6uco/wiki/Pareto_priority_index.html

3)      Recruitment: Internal v External Recruitment. (n.d.). Retrieved from https://www.tutor2u.net/business/reference/recruitment-internal-v-external-recruitment

4)   W13_AL_Pareto Priority Index. (2014, May 21). Retrieved from https://kristalaace2014.wordpress.com/2014/05/21/w13_al_pareto-priority-index/