Risk-Calibrated Process Capability Approval with Finite Samples

TL;DR

This paper introduces a risk-calibrated framework for process capability approval that accounts for estimation uncertainty, improving decision stability and reducing operational loss near thresholds.

Contribution

It develops a unified, cost-sensitive decision rule for process capability approval that explicitly incorporates uncertainty and asymmetry in operational loss.

Findings

Risk calibration improves approval stability near thresholds.

The framework reduces expected operational loss in cost-sensitive scenarios.

Simulation and case study validate the effectiveness of the proposed method.

Abstract

Process capability indices such as $C_{pk}$ are widely used in manufacturing to support supplier qualification, pilot-build release, and production approval. In practice, approval decisions are often based on deterministic threshold rules of the form $\widehat{C}_{pk} \ge C_0$. Because $\widehat{C}_{pk}$ is estimated from finite samples, however, such decisions are inherently stochastic, especially when the true capability lies near the approval threshold. This paper develops a risk-calibrated decision framework for process capability approval that explicitly accounts for estimation uncertainty and asymmetric operational loss. Capability approval is formulated as a binary statistical decision problem, leading to a rule of the form $\widehat{C}_{pk} \ge C_0 + k\,SE(\widehat{C}_{pk})$, where the calibration constant $k$ is determined either by a tolerable failure probability or by a false-accept/false-reject cost ratio. The resulting formulation unifies several commonly used procedures, including deterministic thresholding, lower confidence bound rules, and probability-based approval rules, and naturally extends them to cost-sensitive decision rules derived from asymmetric operational loss. Simulation experiments and an industrial case study show that risk calibration primarily affects near-threshold decisions, improves approval stability, and can substantially reduce expected operational loss when false acceptance is more costly than false rejection.