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Pareto Analysis

The Tool and Why It’s Valuable

The Pareto Principle states that 80% of the impact can be attributed to 20% of the causes. In problem-solving, this means we should focus on the ‘critical few’ rather than the ‘trivial many.’ Once you have charted your data, there are two possible outcomes: clear Pareto effect and no Pareto effect.

When there is a clear Pareto effect, a few categories (~20%) will account for approximately 80% of the entire impacts or defects observed. Focus your improvement efforts on these ‘critical few’ categories to drive the greatest improvement in performance.

How to Apply It

  1. When observing a process for improvement opportunities, you should collect delay, error and/or defect data.
  2. Determine categories and gather data on the number of defects or delays in each category.
  3. Plot your data by category and arrange your highest frequencies from left to right. Add a line to show the cumulative percentage and to determine whether or not there is a clear Pareto effect.
  4. Consider plotting the same categories with another variable like time or cost required to fix the defect. Analyzing the results of the two graphs together will help you target the most frequent and highest impact defects.
Pearls and Pitfalls
  • Pareto analysis may fail to take into account recent policy changes, or issue.
  • Successful Pareto analysis lies in the accuracy of the scoring of each government regulations, which can lead to faulty decisions and inefficient allocation of resources.
  • Pareto analysis does not account for factors outside the scope of production, such as customer service and market considerations.
  • Ensure proper scoring to each factor on the Pareto chart to avoid inaccurate results.

Key Points:

  1. A Pareto Chart can be created in Excel (download a template from MS Office).
  2. Enter your data – be sure it is accurate and relevant to your problem.
  3. A few categories will account for approximately 80% of the entire impacts or defects observed, and this will be your focus area. In the example below, the first two problem areas account for approximately 80% of the cumulative percent of problems.

Example Data Used to Create Pareto Chart

PROBLEM AREA
OCCURRENCES
PERCENT OF TOTAL
CUMULATIVE PERCENT
Unable to Download
99
44.8%
44.8%
Can't Find the File
76
34.4%
79.2%
Opens as Read-Only
15
6.8%
86.0%
Can't Find the File
76
34.4%
79.2%
Can't Change the Background
8
3.6%
89.6%
Can't Find the File
76
34.4%
79.2%
Can't Open the File
7
3.2%
92.8%
Found a Bug
4
1.8%
94.6%
Links Don't Work
4
1.8%
96.4%
Can't Save Changes
4
1.8%
98.2%
Don't Have Excel
2
0.9%
99.1%
Doesn't Work in Google Docs
2
0.9%
100%

Example Pareto Chart

pareto chart

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