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Pareto Analysis

Choosing the solution with the most impact.

By the Mind Tools Content Team

Imagine that you've just been promoted to head of department. You're brimming with ideas about how to improve things, so where do you start?

Ideally, you want to focus on fixing the problems that have the biggest impact. But how do you decide which one to tackle first?

Pareto Analysis is a simple decision-making technique for assessing competing problems and measuring the impact of fixing them. This allows you to focus on solutions that will provide the most benefit.

In this article, we'll show you how to carry out a Pareto Analysis, and explain how to use your findings to prioritize tasks that will deliver the greatest positive impact.

The 80/20 Rule

Pareto Analysis uses the Pareto Principle – also known as the "80/20 Rule" – which was coined by Italian economist, Vilfredo Pareto, in his 1896 book, "Cours d'économie politique." [1]

The Pareto Principle states that 80 percent of a project's benefit comes from 20 percent of the work. Or, conversely, that 80 percent of problems can be traced back to 20 percent of causes. Pareto Analysis identifies the problem areas or tasks that will have the biggest payoff. The tool has several benefits, including:

• Identifying and prioritizing problems and tasks.
• Helping people to organize their workloads more effectively.
• Improving productivity.
• Improving profitability.

The figures 80 and 20 aren't "set in stone," and should be taken as a guide. The Pareto Principle illustrates the lack of symmetry that often occurs between the work you put in and the results you achieve. For example, you might find that 13 percent of work could generate 87 percent of returns. Or that 70 percent of problems could be resolved by dealing with 30 percent of underlying causes.

Pareto Analysis Steps

Now, we'll take a look at how to carry out a Pareto Analysis:

1. Identify and List Problems

Write out a list of all of the problems that you need to resolve. Where possible, gather feedback from clients and team members. This could take the form of customer surveys, formal complaints, or helpdesk logs, for example.

2. Identify the Root Cause of Each Problem

Next, get to the root cause of each problem. Techniques such as the 5 Whys , Cause and Effect Analysis , and Root Cause Analysis are useful tools for this.

3. Score Problems

Now, score each problem that you've listed by importance. The scoring method that you use will depend on the sort of problem that you're trying to resolve.

For example, if you want to improve profits, you could score problems by how much they cost. Or, if you're trying to improve customer satisfaction, you might score them based on the number of complaints that you've received about each.

4. Group Problems Together

Use the root cause analysis that you carried out in Step 3 to group problems together by common cause. For example, if three of your problems are caused by lack of staff, you could put these into the same group.

5. Add up Scores for Each Group

Now, add up the scores for each group that you've identified. The one with the top score should be your highest priority, and the group with the lowest score your lowest priority.

6. Take Action

Finally, it's time to take action! Your highest scoring problem will likely have the biggest payoff once fixed, so start brainstorming ideas on how to solve this one first.

You may find that your lowest-scoring problems aren't worth bothering about, particularly if they are very costly to fix. Use your Pareto Analysis to save your energy and resources for what's important!

While this approach is great for identifying the most important root cause to deal with, it doesn't take into account the cost of doing so. Where costs are significant, you'll need to use techniques such as Cost/Benefit Analysis , and Net Present Value (NPV) and Internal Rate of Return (IRR) to determine which changes you should implement.

Pareto Analysis Example

Jack has taken over a failing computer service center, with a host of problems that need resolving. His objective is to increase overall customer satisfaction.

He decides to carry out a Pareto Analysis to assess and prioritize the biggest issues facing the center. He starts by listing these (see the Problem column in the table, below). He then identifies the underlying causes behind each (see the Causes column). Finally, he scores each item by the number of customer complaints that each has received (see the Score column).

Jack uses his analysis to group problems together by cause, then adds up the scores for each group identified. He is now able to order the main causes affecting the center, starting with the one that has attracted the highest number of customer complaints:

• Lack of training (items 5 and 6) – 51 complaints.
• Too few service center staff (items 1 and 2) – 21 complaints.
• Poor organization and preparation (items 3 and 4) – 6 complaints.

Figure 1. Pareto Analysis of Computer Services Center

As you can see from figure 1, above, the business will benefit most from giving staff more training, so Jack should tackle this first. He could also look to increase the number of staff in the call center. However, it's possible that this won't be necessary – the provision of further training may help to reduce customer complaints and increase staff productivity.

Jack's Pareto Analysis has enabled him to quickly identify the areas of the business that face the biggest challenges, so he can focus his efforts where they are needed most and prioritize issues that will provide the biggest payoff to the business. This will likely save him a great deal of time and money that he might otherwise have spent trying to fix a range of different issues, some of which may have provided very little benefit.

Pareto Analysis is a simple decision-making technique that can help you to assess and prioritize different problems or tasks by comparing the benefit that solving each one will provide.

It's based on the Pareto Principle (also known as the 80/20 Rule) – the idea that 80 percent of problems may be the result of as little as 20 percent of causes.

To use Pareto Analysis, you first need to identify and list the problems that you face, and their root causes. Then, score each problem according to its impact (the scoring system that you use will depend on the types of problems that you are attempting to fix).

Group the problems together by cause and add up scores for each group. This will allow you to identify the problems that will have the biggest benefits if resolved.

Finally, use your findings to prioritize your workload, so that your efforts can be directed toward issues that are the most impactful, and away from problems that are less impactful.

[1] Pareto, V. (1897). 'Cours d'économie politique,' Lausanne: l'Université de Lausanne.

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What Is Pareto Analysis?

Understanding pareto analysis, how to create a pareto chart.

• Pros and Cons

Special Considerations

The bottom line.

• Business Essentials

What Is Pareto Analysis? How to Create a Pareto Chart and Example

Julie Bang / Investopedia

Pareto analysis is a technique used for business decision making, but it also has applications in several different fields from welfare economics to quality control. A common part of such analysis is to graphically depict the occurrence of each variable being tracked. This depiction is called a Pareto chart.

Pareto analysis is based largely on the “80-20 rule.” It is premised on the idea that 80% of a project’s benefit can be achieved by doing 20% of the work—or, conversely, 80% of problems can be traced to 20% of the causes.

As a decision-making technique, Pareto analysis statistically separates a limited number of input factors—either desirable or undesirable—which have the greatest impact on an outcome. It is a powerful quality and decision-making tool. In the most general sense, it is a technique for getting the necessary facts to set priorities.

Key Takeaways

• As a decision-making technique, Pareto analysis statistically separates a limited number of input factors—either desirable or undesirable—which have the greatest impact on an outcome.
• Pareto analysis states that 80% of a project’s benefit or results are achieved from 20% of the work—or conversely, 80% of problems can be traced to 20% of the causes.
• With Pareto analysis, each problem or benefit is given a numerical score based on the level of impact on the company; the higher the score, the greater its impact.
• Modern-day applications of Pareto analysis are used to determine which issues cause the most problems within different departments, organizations, or sectors of a business.
• By allocating resources to issues with higher scores, companies can use Pareto analysis to solve problems more efficiently because they can target those problems that have a greater impact on the business.

In 1906, Italian economist Vilfredo Pareto discovered that 80% of the land in Italy was owned by just 20% of the people in the country. He extended his research and determined that this disproportionate wealth distribution was the same across Europe. The 80-20 rule was formally defined as follows: The top 20% of a country’s population accounts for an estimated 80% of the country’s wealth or total income .

Joseph Juran, a Romanian-American business theorist, discovered Pareto’s research in 1937, approximately 40 years after it was published. Juran proceeded to rename the 80-20 rule as “ Pareto’s Principle of Unequal Distribution .”

Juran extended Pareto’s principle to the business world in order to understand whether the rule could be applied to problems faced by businesses. He observed that in quality control departments, most production defects resulted from a small percentage of the causes of all defects. So, by extension, 80% of the problems are caused by 20% of the defects; Juran’s work implies that if you focus on fixing that 20%, you could have a big impact with minimal effort.

Joseph Juran, a Romanian-American engineer and management consultant, coined the terms “vital few,” “useful many,” and “trivial many” to refer to the few contributions that account for the bulk of the effect, and to the many other contributions that account for a smaller proportion of the effect.

Modern-day applications of Pareto analysis are used to determine which issues cause the most problems within different departments, organizations, or sectors of a business. Hence, Pareto analysis is so important to save the most scarce resource in the business, which is time, in the area of solving problems.

Typically, Pareto analysis is employed by business managers , whose approach typically involves conducting a statistical analysis, such as a cause-and-effect analysis, to produce a list of potential problems and the outcomes of these problems. Following the information provided by the cause-and-effect analysis, the 80-20 rule can be applied. Here are some scenarios relevant to businesses where Pareto analysis might be applicable:

• Sharing information about defects/errors with high-priority stakeholders
• Prioritizing defects or tasks according to their severity; i.e., according to their impact on a system or business
• Analyzing data or errors/defects

Steps of Pareto Analysis

By applying the 80-20 rule, problems can be sorted based on whether they affect profits, customer complaints, technical issues, product defects, or delays and backlogs from missed deadlines. Each of these issues is given a rating based on the amount of revenue or sales and time lost, or the number of complaints received.

Here is a basic breakdown of the steps of Pareto analysis:

• Identify the problem or problems.
• List or identify the cause of the issues or problems, noting that there could be multiple causes.
• Score the problems by assigning a number to each one that prioritizes the problem based on the level of negative impact on the company.
• Organize the problems into groups, such as customer service or system issues.
• Develop and implement an action plan, focusing on the higher-scored problems first, in order to solve the problems.

Not all problems will have a high score, and some smaller problems may not be worth pursuing initially. By allocating resources to high-impact issues or higher scores, companies can solve problems more efficiently by targeting the issues that have a major impact on profits, sales, or customers.

Pareto analysis shows that a disproportionate improvement can be achieved by ranking various causes of a problem and concentrating on the solutions with the largest impact.

A common part of Pareto analysis is to graphically depict the occurrence of each variable being tracked. This depiction is called a Pareto chart, and it organizes and displays information to show the relative importance of various problems or causes of problems. It is similar to a vertical bar graph in that it puts items in order (from the highest to the lowest) relative to some measurable effect of interest: frequency, cost, or time. Here is the process of making a Pareto chart.

• Develop a list of problems to be compared.
• Develop a standard measure for comparing the items—for example, how often it occurs: frequency (e.g., utilization, complications, errors); how long it takes (time); and how many resources it uses (cost).
• Choose a time frame for collecting the data.
• For each item, tally how often it occurred (or cost or total time). Then, add these amounts to determine the grand total for all items.
• Find the percent of each item in the grand total by taking the sum of the item, dividing it by the grand total, and multiplying by 100.
• List the items being compared in decreasing order of the measure of comparison; e.g., the most frequent to the least frequent. The cumulative percent for an item is the sum of that item’s percent of the total and that of all the other items that come before it in the ordering by rank.
• List the items on the horizontal axis of a graph from highest to lowest. Label the left vertical axis with the numbers (frequency, time, or cost).
• Label the right vertical axis with the cumulative percentages (the cumulative total should equal 100%).
• Draw in the bars for each item.
• Draw a line graph of the cumulative percentages. The first point on the line graph should line up with the top of the first bar.

The final step is analysis. You can now analyze a Pareto chart by identifying those items that appear to account for most of the difficulty. In the example below, the Institute for Healthcare Improvement identified three vital types of errors discovered during surgical setup.

Advantages and Disadvantages of Pareto Analysis

In the most general sense, the advantage of Pareto analysis is that it helps to identify and determine the root causes of defects or problems. It also helps to save time by focusing on the root causes of the problem at hand.

In business, the most important resource is time. Due to time, the goals usually are not to eliminate or maximize but rather to optimize. And the Pareto rule helps with optimization. Hence, businesses can resolve defects or errors with the highest priority first.

Pareto charts can specifically help determine the cumulative impact of a problem. Cumulative impact results from effects caused by a problem happening over a long period of time.

Pareto charts are especially useful for businesses or organizations because they can use them to plan the measures or actions that need to be taken in order to amend the problems. For this reason, Pareto charts can sharpen problem-solving and decision-making skills: Problems related to a defect or error can be distilled into cohesive facts.

Disadvantages

The main disadvantage of Pareto analysis is that it does not provide solutions to issues; it is only helpful for determining or identifying the root causes of a problem(s). In addition, Pareto analysis only focuses on past data. While information about past errors or problems is useful, there’s no guarantee that it will be relevant in future scenarios.

A final disadvantage of Pareto charts is that they can only show qualitative data that can be observed; they cannot be used to represent quantitative data. For example, Pareto charts cannot be used to calculate the mean, the standard deviation, or the average of the data, its variability, or changes in the measured attribute over time.

Helps to identify and determine the root causes of defects or problems

Organizations can eliminate or resolve defects or errors with the highest priority first

Determine the cumulative impact of a problem, where cumulative impact is defined as an effect that is being caused due to a problem happening over a long period of time

Organizations can use Pareto charts to plan what measures or actions need to be taken in order to amend problems

Pareto charts can sharpen problem-solving and decision-making skills

Does not provide solutions to issues; only helpful for determining or identifying the root causes of a problem(s)

Only focuses on past data

Pareto charts can only show qualitative data that can be observed; they cannot be used to represent quantitative data

Example of Pareto Analysis

The Department of Ecology for the state of Washington performed a study to identify why oil spills happen. They gathered information on 209 oil spill incidents, including internal peer review of the causes, and potentially factored in input from responsible parties.

In total, the Department of Ecology identified dozens of causes for oil spills. It identified the primary causes as:

• Inattention/distraction (38 times cited)
• Procedural error (31)
• Judgment (26)
• Mechanical failure (23)
• Structural failure (20)
• Unknown causes (11)

The total number of explanations above (six) represents a little bit more than 20% of the total causes identified (29 total casual factors). However, these six causes cumulatively were responsible for 71% (149 of 209 cases) of oil spills identified. In this example of Pareto analysis, only a few data items are primarily responsible for most causes of oil spills.

It’s important to note that Pareto analysis does not provide solutions to issues, but only helps businesses to identify and narrow down the most significant causes of the majority of their problems. Once the causes have been identified, the company must then create strategies to address those problems.

Pareto analysis will typically show that a disproportionate improvement can be achieved by ranking various causes of a problem and by concentrating on those solutions or items with the largest impact. The basic premise is that not all inputs have the same or even proportional impact on a given output. This type of decision making can be used in many fields of endeavor, from government policy to individual business decisions.

What Is Pareto Analysis Used for?

Pareto analysis is used to identify problems or strengths within an organization. As an overwhelming amount of impact is often tied to a relatively smaller proportion of a company, Pareto analysis strives to identify the more material issues worth resolving or the more successful aspects of a business.

What Is the Importance of Pareto Analysis?

Pareto analysis enables an entity to be more efficient with its resources. By quickly identifying a major issue or capitalizing on a major business success, the company can spend less time and resources focusing on less impactful aspects of the company.

How Is a Pareto Chart Different from a Standard Vertical Bar Graph?

A vertical bar graph is a type of graph that visually displays data using vertical bars going up from the bottom. In a vertical bar graph, the lengths are proportional to the quantities they represent. Vertical bar graphs are typically utilized when one axis cannot have a numerical scale.

A Pareto chart is a type of chart that contains both bars and a line graph, where individual values are represented in descending order by bars, and the cumulative total is represented by the line. A Pareto chart is different from a vertical bar graph because the bars are positioned in order of decreasing height, with the tallest bar on the left.

What Is Pareto Efficiency?

Pareto efficiency is a state of the economy where resources cannot be reallocated to provide more advantages for one individual without making at least one individual worse off. Pareto efficiency implies that resources are  allocated  in the most  economically efficient  manner. However, this state does not guarantee equality or fairness.

What Is an Example of Pareto Analysis?

Imagine a hypothetical example where a company is analyzing why its products are being shipped late. It comes up with 20 various reasons for what may be causing the delay.

Pareto analysis holds the claim that of those 20 various reasons, roughly four of those items will be the primary cause of roughly 80% of the shipping delays. The company undertakes an analysis to track how many instances of each reason occur.

Pareto analysis isn’t exact; the company may find that five reasons are causing 75% of the company’s delays. Still, in principle, the fact remains that only several items are the primary drivers for a majority of outcomes. The company must focus its resources on these five reasons to make the most impactful positive change to its delivery processes.

When there seem to be too many options to choose from or it is difficult to assess what is most important within a company, Pareto analysis attempts to identify the more crucial and impactful options. The analysis helps identify which tasks hold the most weight as opposed to which tasks have less of an impact.

By leveraging Pareto analysis, a company can more efficiently and effectively approach its decision-making process.

Vilfredo Pareto, via Google Books. “ Cours d’Économie Politique: Nouvelle édition par G.-H. Bousquet et G. Busino .” Librairie Droz, 1964. 

National Center for Biotechnology Information. “ Joseph Juran: Overcoming Resistance to Organisational Change .”

Institute for Healthcare Improvement, via Upstate Medical University, University Hospital Nursing. “ QI Essentials Toolkit: Pareto Chart .”

Washington State Department of Ecology, via Internet Archive Wayback Machine. “ Why Spills Happen .”

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Pareto Analysis explained plus example

Pareto Analysis: this article explains the theory of Pareto Analysis by Vilfredo Pareto in a practical way. After reading you will understand the basics of this problem solving tool. This article explains what the analysis is and which steps are needed to apply the analysis, along with an example.

What is the Pareto Analysis?

The Pareto Analysis, also known as the Pareto principle or 80/20 rule, assumes that the large majority of problems (80%) is determined by a few important causes (20%). This makes the tool very effective for determining where you should focus efforts to achieve improvements.

The founder of this analysis, Italian economist Vilfredo Pareto , discovered this when he was carrying out a study at the end of the 18th century in which he ascertained that 20% of the population owned 80% of the property.

This method was further developed by total quality management guru Joseph Juran (after 1940) and can be applied to various matters (for instance decision-making and other complex issues).

A few of the 80/20 rule examples from daily practice which are often correct are:

• 80% of the customer complaints ensue from 20% of the products or services delivered.
• 20% of the products or services yield 80% of the profits.
• 20% of the people responsible for sales generate 80% of the operational income.
• 80% of the system failures are caused by 20% of the system problems.

The principle of this method is based on the Zipf distribution (pattern in linguistics and a discrete probability distribution with parameters λ and N).

In addition to being a static technique, the Pareto Analysis is a creative and practical way of looking at the causes of problems. It stimulates ideas about thinking and organizing. This method helps identify the main causes (20%) that lead to 80% of the problems that need are to be solved.

As soon as the main causes have been identified, the diagnostic techniques such as the Ishikawa diagram or fishbone analysis can be used to identify and address the deeper causes of the problems.

Practice of the Pareto Analysis

In order to apply the analysis in practice some basic steps have been defined which can be followed to arrive at a thorough analysis.

Step 1: Measuring – identify the problems and document them in a table

Based on observations, interviews and reports, data can be collected from which problems can be deduced. Subsequently, these problems are documented in a table and grouped if possible.

It is important to apply the ‘cause-effect’ theory to each item so that the source of each documented problem can be found. There are several techniques that can help in this such as for example the Root Cause Analysis (RCA) .

Step 2: Determine their order of importance

Organize the inventoried problems in ranking order from the most important down to the least important in descending order. Make sure that the most important cause is documented first.

Step 3: Mark or score each recorded problem

Now that the problems have been identified, deduced and been put in order of importance, it is essential to link these to a mark or score. The way in which a score must be calculated depends on the type of problem that needs to be solved.

For example a financial approach (improvement of profits) will focus on how the score relates to what costs are involved with solving these problems. Is the focus on customer-orientation (improving customer satisfaction), then the focus is on the number of complaints that need to be solved.

Pareto Analysis example

An example is a computation of the cumulative percentages of problem costs, in other words, the number of times a department is faced with this problem or the opportunities of how a department can increase sales.

Step 4: Group the identified problem and add the marks or scores

The identified problems are grouped based on their causes. If, for example, there are five problems that lead to dysfunctional employees then put them together in one group. Now that all problems have been grouped, the marks or scores are added.

The group with the highest score must be given the highest priority in order so that they can be dealt with. This is where the most results can be obtained in terms of optimization.

Figure 1 – Pareto Analysis Example

Pareto Analysis diagram

Figure 2 – Plotted Pareto Analysis Diagram

Step 5: Time to act, based on the Pareto Analysis

Using the information from step 4, an action plan can be drawn up in which performance improvement actions can be formulated.

It’s Your Turn

What do you think? Are you familiar with the Pareto Analysis or PA Diagram? Do you recognize the practical explanation or do you have more suggestions? What are your success factors for the good problem analysis and approach?

Share your experience and knowledge in the comments box below.

More information

• Fotopoulos, C., Kafetzopoulos, D., & Gotzamani, K. (2011). Critical factors for effective implementation of the HACCP system: a Pareto analysis . British Food Journal, 113(5), 578-597.
• Karuppusami, G., & Gandhinathan, R. (2006). Pareto analysis of critical success factors of total quality management: A literature review and analysis . The TQM magazine , 18(4), 372-385.
• Kaliszewski, I. (1994). Quantitative Pareto analysis by cone separation technique . Kluwer Academic Publishers .

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Patty Mulder

Patty Mulder is an Dutch expert on Management Skills, Personal Effectiveness and Business Communication. She is also a Content writer, Business Coach and Company Trainer and lives in the Netherlands (Europe). Note: all her articles are written in Dutch and we translated her articles to English!

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One response to “pareto analysis explained plus example”.

Btw, I think it is: “80% of the system problems/defects are caused by 20% of the system failures “

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A Guide to Pareto Analysis With Pareto Charts

Pareto analysis is a decision-making method widely used by analytics teams across disparate industries. It attributes the majority of a given problem to a top percentage of cases. Specifically, it’s based on the idea that 20 percent of causes result in 80 percent of problems. In practice, the 80/20 split is a guideline that generally suggests that a small minority of causes are responsible for the majority of problems. As such, the exact values don't have to precisely align with the 80/20 rule as the split in practice may be 75/25, 90/10, or 85/15. The heuristic is meant to be a guide for distinguishing the vital few factors that are pertinent to a problem from the insignificant many that aren’t. 

Extremely versatile, Pareto analysis can identify impactful subsets of data in a wide variety of industries including retail, information technology, marketing, and healthcare. 

The ability to create these charts from data is a valuable skill for data scientists and data analysts . Python provides a variety of tools and visualization libraries that allow you to easily create pretty Pareto charts that clearly communicate the top underlying causes of most problems in a system. 

In this post, we will generate Pareto charts using synthetic emergency room patient readmission data. In our analysis, we will walk through the steps of generating a Pareto plot in Python. Using this data, we will analyze specific, real-world emergency room readmission scenarios. For our purposes, we will work with the Synthetic Healthcare Emergency Room Readmission data available on DataFabrica . The  free tier is free to download, modify, and share under the Apache 2.0 license .

What is Pareto Analysis? 

Pareto analysis is a decision-making method widely used by analytics teams across disparate industries. I t’s based on the idea that 20 percent of causes result in 80 percent of problems. This heuristic is meant to be a guide for distinguishing the vital few factors that are pertinent to a problem from the insignificant many that aren’t. Extremely versatile, Pareto analysis can identify impactful subsets of data in a wide variety of industries including retail, information technology, marketing, and healthcare.

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Steps of Pareto Analysis

A thorough Pareto analysis follows several steps.

• Define your problem and the associated causes. For example, in the case of prescription errors, the problem is the incorrect prescription of high blood pressure drugs and potential causes are “white coat hypertension” and  “inaccurate readings.”
• Calculate the frequency of each cause within a problem. 
• Sort the frequencies from highest to lowest.
• Plot a bar chart of the frequencies. 
• Calculate the cumulative sum of the unit of measure through each cause. For example, calculate the total cumulative percentage of hypertension misdiagnosis across each cause.
• Create a line plot of the cumulative percentage. 
• Label the left side of the y-axis with “Frequency” and the right side with “Cumulative Percentage.”
• Label the x-axis with the “Problem Causes” for the prescription error label “Prescription Error Causes.” 
• Title the plot “Pareto Chart of Problem,” i.e., “Pareto Chart of Prescription Errors”
• Analyze Pareto Chart – Inspect the top few causes that contribute to most of the problems. 

What Is a Pareto Chart? 

A Pareto chart is a dual plot of a bar chart and a line plot. The bar chart corresponds to descending frequencies in an event, usually denoted by a category. Examples of events include a product selling, a customer churning, a patient returning to the emergency room, or any event that impacts a business, whether positively or negatively. The line plot corresponds to the cumulative sum in a specified unit of measure across events. 

For example, in the case of a patient returning to the emergency room, also called patient readmission, the values in the line plot would be the cumulative sum of the number of readmission occurrences across all causes of readmission. 

Pareto Chart Examples 

Healthcare is an interesting application of Pareto analysis since it can improve patient outcomes, optimize resource allocation, facilitate disease management and more. Specifically, Pareto analysis can identify the causes of medical prescription errors, evaluate diagnostic accuracy, and identify the top causes of patient readmissions. 

For example, in the context of identifying causes of prescription errors, you can use Pareto analysis to determine if the issue is incorrect dosages, patient mismatching, or duplicate prescriptions. Identifying the causes of prescription errors allows healthcare providers to focus resources on addressing the most impactful causes of these errors. 

Below is a Pareto chart of prescription errors and their causes. From the plot, you can see that 80 percent of prescription errors are solely due to wrong dosage and wrong time. 

In terms of diagnostics, healthcare providers can identify the top causes of misdiagnoses. For example, common misdiagnoses include abnormal blood pressure readings due to white coat hypertension, improper cuff size, and more. These errors can also lead to prescription errors like prescribing hypertension medication to someone with normal blood pressure. 

In the Pareto chart below, we see that 80 percent of high blood pressure misdiagnoses are due to white coat hypertension and cuff size errors. 

You can also use Pareto analysis to identify prevalent factors driving readmission. Identifying the vital few causes of readmission among the insignificant many can significantly improve parient outcomes because providers can allocate resources toward prevention. By preventing readmission, hospitals can save money, reduce mortality rates, and ultimately provide better care to more patients. 

How to Create a Pareto Chart 

To start, let’s read our data into a Pandas DataFrame and display the first five rows of data:

Next, let’s filter our data to only include readmitted patients:

We can then use this filtered DataFrame to count the number of times a cause appears in the readmitted patient data:

Next, we can calculate the cumulative sum of readamission_cause counts and divide by the total count of readmissions to get the cumulative percentage in cause counts:

Next, to be able to generate our Pareto chart, we need to define a Matplotlib subplot object, which we will call ax1 :

The subplot object will allow us to generate a dual plot, containing a line plot and a bar chart. It will also allow us to format our chart with axis labels, legends and titles. 

Next, let’s use ax1 to plot our bar chart of cause frequencies:

And we can label our x and y axes:

Format the values to be frequency, color to be cyan for the y-ticks on the y-axis, and format the plot legend to be located on the upper left of the chart:

Next, we will create a secondary y-axis, which is where the values for the cumulative percentages will reside:

This step will enable us to overlay two plots, a bar chart for frequencies and a line plot for cumulative percentages. 

Next, we generate a line plot of our cumulative percentages:

And format the y-axis label to be cumulative percentage, y-ticks to be red, and legend to be on the upper right:

  We can further format our chart by including a title:

Also, let’s format the x-axis such that the readmission cause values are angled by 30 degrees. This makes the readmission cause values more readable as they would otherwise overlap each other:

We can also format with the tight layout method, which makes the plot easier to read by tightening the figure:

We see from the chart that 80 percent of readmissions in our data are due to sepsis and falls. Further, very few readmissions in our data are due to the wrong time of administration, lack of patient education and prescription errors. A few lines of Python code can generate an insightful Pareto chart that clearly distinguishes the most impactful causes of a problem from the other many trivial causes. 

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Pareto Analysis Best Practices 

Pareto analysis is most effective when done with best practices in mind. So, you should always consider the following factors when generating Pareto charts and performing analysis on them:

• Make sure you have sufficient data.  Although there is no exact cutoff, take measures to ensure that you have a large enough sample size. Many statisticians use n=100 as the minimum sample size required to generate meaningful statistical results, though this is not always possible in practice. Generally, the more data available per cause, the better. 
• Clearly label axes.  In order to gain the most insights from your Pareto chart, you should ensure that axes are clearly labeled and easy to understand. Given that Pareto charts are dual plots, failing to provide clear labels is bound to cause confusion. 
• Choose contrasting colors for the line plot and bar chart.  This helps to clearly differentiate the line plot from the bar chart. 
• Clearly label root causes.  The causes should be easy to interpret. Although you may not have complete control over them, if the cause descriptions are long or complicated, try to simplify them so that they are easy for the chart reader to understand. 
• Limit the number of causes.  Focus on the most important contributing causes. This also helps prevent the Pareto chart from becoming overcrowded, especially with causes that rarely occur in the data. 
• Strive for method transparency.  Clearly articulate the methods used to gather the data. This step can clearly communicate any biases in the data and can help ensure the reproducibility of results. 

Advantages of Pareto Analysis 

Pareto analysis is advantageous because it allows business decision-makers to identify the top underlying causes contributing to the bulk of a given problem. This knowledge helps prevent businesses from wasting resources on causes that rarely contribute to a problem. Knowing which cause to prioritize has tremendous business value as it can significantly improve the efficiency of services. 

In the context of readmission, hospitals can filter down a potentially long list of causes of readmission. In our early example, we saw 80 percent of readmissions in our data are due to sepsis and falls, while very few are due to the wrong time of administration, lack of patient education or prescription errors. Hospitals can use this type of information to optimally allocate resources to patients who suffer from sepsis and falls instead of other, less common causes. Healthcare providers can analyze the initial visits for sepsis and fall injury victims and determine if there are any actions that can be taken with future patients to prevent future readmissions. 

For example, consider a patient readmitted for sepsis after having a coronary artery bypass grafting surgery. Readmission prevention measures can be taken to prevent future occurrences with similar patients. This includes patient education on how to care for surgical wounds post-surgery, pre-surgery antibiotic administration (prophylaxis), understanding patient health history and more. By knowing which contributors to focus on, decision-makers can save time and resources. 

Generally, Pareto analysis has the following advantages:

• Easy to understand 
• Clear communication of problems and root causes 
• Identification and prioritization of high-impact causes
• Optimization of resource allocation 
• Risk minimization

Disadvantages of Pareto Analysis 

Although Pareto analysis is a powerful tool for decision-makers it has its disadvantages. One disadvantage is that it requires sufficient data for results to be meaningful, which isn’t always possible in practice. It also assumes that the causes are independent, meaning that one cause doesn’t influence another. 

This assumption is not very realistic in practice. For example, in the case of readmission, lack of patient education can interact with adverse drug reactions. If a patient is unaware of the side effects of a drug, they may return to the emergency room unnecessarily due to these side effects. 

Another disadvantage is that we are limited to the known causes available in the data. Additional causes might be more impactful but unavailable in the data and therefore escape the analysis. 

Finally, this method assumes that each cause has the same impact. In practice, however, certain causes may be more critical than others when considering readmission. For example, readmission for high blood sugar levels may not be as critical, regardless of frequency, as readmission for sepsis after surgery. 

Generally, Pareto analysis has the following disadvantages:

• Dependent on available data 
• Assumes causes are independent  
• Limited to known causes 
• Causes are equally weighted 

Applications of Pareto Analysis 

Pareto analysis has many applications across industries. Here are a few known applications of Pareto analysis. Note that these are just illustrative examples and don’t necessarily reflect ground truth.

• Identify the top 20 percent of causes for 80 percent of readmissions. For example, sepsis and falls account for 80 percent of readmissions. 
• Identify the top 20 percent of causes for 80 percent of misdiagnoses. For example, white coat hypertension accounts for 80 percent of high blood pressure misdiagnoses.
• Identify the top 20 percent of causes for 80 percent of fraud instances. For example, x-ray imaging accounts for 80 percent of fraudulent health insurance claims.
• Identify the top 20 percent of products that account for 80 percent of company revenue. For example, you could determine the top 100 SKUs from a retailer that accounts for 80 percent of revenue.
• Identify the top 20 percent of customers that account for 80 percent of company revenue. For example, the top 100 SKUs from a retail business account for 80 percent of its revenue.
• Identify the top 20 percent of inventory that accounts for 80 percent of company revenue. For example, you could identify the top 100 SKUs from a retail line that account for 80 percent of revenue.

The code in this post is available on GitHub . 

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Use Pareto Analysis

Although Pareto analysis has its limitations, it is an invaluable tool for businesses and decision-makers. Identifying the most impactful causes of a problem can aid in resource allocation, cause prioritization and prevention, and increase the efficiency of business services. In the context of hospital readmission, this means decreasing readmission rates by allocating resources to the most impactful causes of a problem, improving patient outcomes, which consequently decreases emergency room patient mortality, and more. Many business tasks that involve an event and its causes can be made more efficient through Pareto analysis. 

The free version of the synthetic emergency room patient readmission is here . The full data set can be found here .

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Pareto Analysis

What is Pareto Analysis

Pareto Analysis (also referred to as Pareto Chart or Pareto Diagram) is one of the Seven Basic Quality Tools [1] for process improvement.

These seven basic tools form the fixed set of visual exercises most helpful in troubleshooting issues related to quality. They are called “basic” because they require little formal training in statistics and can effectively address most quality-related problems.

This article will focus comprehensively on the Pareto Analysis, its origin, how a Pareto Chart is constructed and its relevance in modern-day problem-solving.

Origin of Pareto Analysis

Pareto Analysis traces its roots to the Pareto Principle, first observed by the Italian sociologist and economist Vilfredo Pareto. [2] While studying income distribution across Italy in 1986, Vilfredo showed that 80% of income in the country was owned by 20% of the population.

Vilfredo’s work was extended by Joseph Juran [3] , an American engineer and well-known quality management advocate.

Juran theorized that losses are never uniformly distributed over the quality characteristics. Rather they are always maldistributed in such a way that a small percentage of the quality characteristics always contributes a high percentage of the quality loss.

This forms the basis of the Pareto Principle, which, in simple words, means “for many outcomes, roughly 80% of consequences come from 20% of causes” .

This principle is also known as The 80/20 Rule (most common), The Law of the Vital Few or The Principle of Factor Sparsity , which all interchangeably mean the same.

It is important to note that although many systems tend to follow an approximate 80-20 pattern, this is not an absolute or obligatory rule. The distribution can vary, such as 90-10 or 70-30, while still adhering to the underlying principle that many outcomes are a result of a few causes.

Why use Pareto Analysis?

Organizations have diverse goals and aspirations but in most cases, are constrained by resources (money, manpower, machines, technology etc.).

Under such limitations, Pareto Analysis can help create maximum impact with the least amount of effort. This enables teams to work more efficiently on specific initiatives. Targets can be achieved faster simply by prioritizing initiatives in the right order.

Other benefits include:

• Setting clear priorities for the organization
• Increased daily productivity
• Ability to portion work into manageable segments
• Focused strategy

Pareto Analysis optimizes the overall organization’s performance by pointing to the highest return activities that can be pursued for maximum benefits.

When to use a Pareto Analysis?

The most compelling use case of a Pareto Analysis is to optimize the utilization of an organization’s resources by focusing them on a few key areas rather than spreading them over many others that have little impact on results.

Pareto Analysis helps identify patterns that highlight the main reasons behind most of the challenges an organization is trying to solve.

But, to perform a Pareto Analysis, the process data must fulfill two criteria:

1) It must be possible to arrangeable the data into categories

The core part of the analysis involves breaking down complex issues into their constituent root causes so that the repeating causes can be prioritized according to the number of occurrences.

For example, if an automobile assembly manager wants to analyze failures in the production line, it must be possible to classify them into categories such as equipment failures, material shortages, worker absenteeism, and quality defects.

Without this classification, it will not be possible to prioritize one category over another.

2) The ranking of the categories should matter

If the ranking of categories does not matter, the data frequency is no longer relevant for decision-making.

For example, if the assembly line manager determines that addressing the top two categories, equipment-related issues, and material-related issues, will have the most significant impact on reducing delays, the exact frequency difference between these two categories becomes less important. The focus is on resolving both categories as they are the primary contributors to the delays.

In this case, the data frequency becomes less relevant because the primary goal is to address the critical categories and minimize their impact, regardless of the precise order between them.

A Pareto Analysis will not add value in such a case.

Components of a Pareto Chart

A Pareto Chart is a combination of a bar graph and a line graph. It consists of four major components:

Constructing a Pareto Chart

To demonstrate the components and process of building a Pareto diagram, consider the example of a company that is facing delays in shipping products due to various problems in its production line.

The company has limited resources to spare and cannot focus on all the root causes. It must judiciously allot resources (manpower, management attention, funds etc.) such that chances of on-time delivery are maximized.

By performing a Pareto Analysis, the resulting Pareto Chart can help the company make the best use of its resources. The process involves the following steps:

Step 1 – Decide on the categories

Categories are the list of causes/events that contribute to a problem being addressed. This could be gathered through feedback from employees, clients, or customers.

It is important that the list of causes identified accurately reflect the issue. An analytical approach to preparing a root cause list could be by using a Five-Whys analysis.

In the case of the example considered, the company has identified a total of 12 causes that have led to the delays, which are:

Step 2 – Establish a measurement metric

The next step is to identify a measurement metric that is most appropriate to the grouped categories.

These could range from the number of product defects per batch to the frequency of customer complaints, to how many resources it takes to manufacture a product to how long it takes to resolve customer complaints, etc.

In the case of the above example, the number of times a particular root cause was responsible for the delay is a good metric to consider.

Step 3 – Choose a timeframe to collect the data

This can be one work cycle, a sprint, one full day, one week, one month etc. In the case of the example, the company has chosen to record one week’s data.

It is important to choose a sufficiently broad timeframe to even out the impact of rare events and aberrations. For example, in the example’s case, if a day was selected instead of a week, it may not accurately capture the trends in material shortages or transportation delays. This could lead to misleading results.

Step 4 – Record the data over the selected timeline

Gather data on the number of times each chosen category was responsible for the delay. The measurement metric in this example case is the frequency, which was selected in Step-2. It could vary depending on the choice.

The recorded data must then be organized in a table according to the categories and timelines selected. In the case of the company’s example, the selected timeline is one week with 12 categories. Hence, the data tabulation will look as below:

Step 5 – Organize the data

The output of this step is a table with categories sorted in descending order as per their occurrence over the selected period.

In the example case considered, the steps would involve aggregating the occurrences by adding totals to each category, constructing a smaller table (or hiding the daily data) and then sorting the data in descending order based on occurrences of each root cause.

The same is shown in the figure below:

Step 6 – Calculate cumulative percentages

Cumulative percentages can be calculated using any of the spreadsheet applications. In the figure below, cumulative percentages are calculated for the example case using Google Sheets. The formula used can be seen in the image.

Step 7 – Construct the graph

This step involves graphing the data. A spreadsheet tool can be conveniently used to plot a bar graph (occurrences) and a line graph (commutive percentage).

In Google Sheets, this can be performed using a Combo Chart [4] , with achieves both objectives with the following steps:

• Select the data in the table
• Go to Insert -> Chart
• From the Chat Editor, change the chart type to Combo Chart [4]
• Set X-axis data as a category – In the example case “Reason for Delay”
• Set left Y-axis data as the frequency of occurrence – In the example case “Reason for Delay”
• Set the right Y-axis data as the cumulative percentage

With this, the Pareto chart will be ready and will look as under:

Interpreting a Pareto Chart

Once a Pareto Chart is constructed, clarity emerges on which few out of the many occurrences have the most impact on the results.

The Cumulative percentage curve makes it easier to visually answer the question – “Which 20% of the causes are responsible for 80% of the results?”

It can be seen from the example case chart above that out of 12 identified causes, just 3 contribute to over 80% of the delays.

With this, the company has a clearer picture of where to focus its efforts and deploy resources.

Limitations of Pareto Analysis

Although Pareto Analysis is a potent visual problem-solving tool, it does have certain limitations, such as:

Data quality – if the data is compromised by errors, inconsistencies, biases, or missing values, results can be misleading or inaccurate, leading to wrong decisions.

Root cause analysis : Pareto analysis helps to identify the frequency and impact of different causes of a problem, but it does not provide any insight into the underlying reasons or mechanisms behind them.

For example, a Pareto chart may show that half of all problems occur in shipping and receiving, but it does not explain why that is the case. To find out the root causes, additional tools such as the 5 Whys or Fishbone diagrams are needed.

Qualitative aspects : Pareto analysis focuses on quantitative data, such as the number of occurrences or the percentage of the impact of different causes. However, it does not account for qualitative aspects, such as the severity, urgency, or complexity of the causes.

For example, a Pareto chart may show that equipment failures are the most frequent cause of delays, but it does not indicate how severe or difficult to fix those failures are. Qualitative aspects may affect the priority and feasibility of addressing different causes.

Future scenarios : Pareto analysis is based on past or present data, which may not reflect future scenarios or changes in parameters.

For example, a Pareto chart may show that supplier issues are a minor cause of delays, but that may change if the supplier changes its policies or prices. Pareto analysis does not account for uncertainty or variability in the data or the environment. Therefore, it should be updated regularly and supplemented with other tools such as scenario analysis or risk analysis.

Varied Applications of Pareto Analysis

Pareto Analysis, with its versatile nature, finds applications across diverse industries and sectors. It aids in identifying critical issues, prioritizing tasks, and allocating resources effectively.

Some examples use cases of Pareto Analysis are:

Pareto Analysis can even be applied at an individual level to identify the vital few factors that significantly impact personal productivity, thus aiding in effective time management, focused improvements, and better decision-making.

1. “THE 7 BASIC QUALITY TOOLS FOR PROCESS IMPROVEMENT”. American Society for Quality (ASQ) , https://asq.org/quality-resources/seven-basic-quality-tools . Accessed 29 Jun 2023

2. “Vilfredo Pareto”. Britannica, https://www.britannica.com/biography/Vilfredo-Pareto#ref37223 . Accessed 01 Jul 2023

3. ” Dr. Joseph M. Juran”. Juran.com, https://www.juran.com/about-us/dr-jurans-history/ . Accessed 01 Jul 2023

4. “Combo chart”. Google, https://support.google.com/docs/answer/9142593?sjid=5335603720602667500-AP#combo_chart&zippy=%2Ccombo-chart . Accessed 30 Jun 2023

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Mastering Pareto Analysis: Problem Solving & Process Optimization Guide

Pareto Analysis  is a powerful problem-solving tool and process improvement technique that helps businesses and organizations identify the most significant problems and prioritize their efforts for maximum impact. This academic blog post will explore the meaning, application, and benefits of Pareto Analysis and delve into various examples and case studies from different industries. As a result, organizations can achieve more efficient and effective outcomes by leveraging the Pareto Principle, also known as the 80/20 rule or Pareto's Rule.

Understanding Pareto Analysis and the Pareto Principle

Pareto Analysis Definition: Pareto Analysis  is a decision-making technique to identify the most critical factors, issues, or problems. This method involves the application of the Pareto Principle, which states that approximately 80% of effects result from 20% of causes.

Pareto Principle: The 80/20 Rule

The Pareto Principle, or the 80/20 rule, was first introduced by Italian economist Vilfredo Pareto in the early 20th century. The principle emphasizes that a small number of inputs (20%) contribute to a large percentage (80%) of outcomes. In problem-solving, this translates to the idea that focusing on the most significant problems first can lead to significant improvements.

Pareto Analysis Meaning and Purpose

Pareto Analysis prioritizes issues, identifies root causes, and allocates resources efficiently. As a result, organizations can substantially improve with limited resources by focusing on the most significant problems, making Pareto Analysis a valuable tool for continuous process improvement.

The Process of Conducting Pareto Analysis

Pareto Chart Analysis: Pareto Analysis often uses a Pareto Chart, a graphical representation of the distribution of problems, causes, or issues. A Pareto Chart consists of a bar chart and a line graph, with the bars representing the frequency or magnitude of problems and the line indicating the cumulative percentage.

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Pareto Analysis Steps

Identify the problems or issues: Begin by compiling a comprehensive list of the issues that must be addressed.

Collect data and categorize: Gather relevant data on the problems, then categorize and quantify them based on their impact or frequency.

Rank the issues: Rank the problems in descending order based on their magnitude, impact, or frequency.

Create the Pareto Chart: Plot the data on a Pareto Chart, illustrating the distribution and cumulative percentage of the issues.

Analyze and prioritize: Use the Pareto Chart to identify the most significant problems and prioritize your efforts accordingly.

Implement solutions and monitor progress: Address the prioritized issues, implement solutions, and continuously monitor the progress and impact of these efforts.

Pareto Analysis Examples and Case Studies

Pareto Analysis Example in Manufacturing: In a manufacturing setting, Pareto Analysis can identify the root causes of defects or issues in the production process. By collecting data on the frequency and impact of each deficiency, a Pareto Chart can be created to visualize the distribution of problems. Focusing on the top 20% of issues, which typically contribute to 80% of the overall defects, allows the organization to prioritize and allocate resources effectively.

Example of a Pareto Chart Analysis (Table):

Imagine a software company is experiencing a high number of customer-reported bugs. They collect data on the frequency of each bug category and create the following table:

In this example, the software company can see that User Interface and Performance bugs account for 62.5% of all reported issues. The company can significantly reduce the number of customer-reported bugs by addressing these two categories. The table forms the basis for creating a Pareto Chart, which visually represents the distribution of issues and helps prioritize problem-solving efforts.

Pareto Chart Example with Explanation

Consider a software development company that wants to reduce the number of customer-reported bugs. By collecting data on the frequency of different bug categories, the company can create a Pareto Chart to identify the most significant issues. For example, the chart might reveal that 80% of customer complaints result from 20% of bug categories. By prioritizing these categories and addressing their root causes, the company can significantly improve the customer experience and reduce the overall number of reported issues.

Pareto Law 20/80 in Problem-Solving

The Pareto Law 80/20 concept can be applied to various industries and scenarios in problem-solving. For example, in sales, it is often observed that 80% of revenue is generated by 20% of customers. Therefore, businesses can optimize their sales strategies and achieve better results by focusing on these top customers and understanding their needs and preferences.

Root Cause Pareto Analysis

Root cause Pareto Analysis involves identifying the underlying causes of the most significant problems, as highlighted by the Pareto Chart. By addressing these root causes, organizations can achieve long-term improvements and prevent future issues from arising.

Pareto Analysis Case Study

Consider a healthcare organization experiencing long patient wait times in its emergency department. By conducting a Pareto Analysis, the organization identifies the primary factors contributing to the delays, such as inefficient patient triage and understaffing during peak hours. By focusing on these critical issues and implementing targeted solutions, the organization can significantly reduce wait times and improve patient satisfaction.

Key Takeaways and Best Practices

A. pareto analysis benefits.

Prioritization: Pareto Analysis helps organizations prioritize issues and focus on the most significant problems first.

Resource allocation: By concentrating on the top 20% of issues, organizations can allocate resources more efficiently and achieve better results.

Continuous improvement: Pareto Analysis is a valuable tool for ongoing process improvement, as it enables organizations to identify and address problems consistently.

Root cause analysis : Identifying and addressing the root causes of issues ensures long-term improvements and reduces the likelihood of recurring problems.

Best Practices for Conducting Pareto Analysis

Use accurate and reliable data: The quality of your Pareto Analysis depends on the data quality used. Ensure that you collect accurate and reliable data from relevant sources.

Regularly update your analysis: Review your Pareto Analysis to account for changes in your organization, industry, or market.

Involve stakeholders: Ensure stakeholders' perspectives and expertise are considered during the analysis.

Implement and monitor solutions: After prioritizing issues, implement targeted solutions and continuously monitor progress to assess their effectiveness.

Communicate results: Share the findings and insights from your Pareto Analysis with relevant stakeholders to foster a culture of continuous improvement and data-driven decision-making.

Pareto Analysis  is a powerful problem-solving and process improvement technique that leverages the Pareto Principle to enable organizations to focus on the most critical issues and achieve significant improvements. By understanding and applying Pareto Analysis, businesses can prioritize their efforts, allocate resources efficiently, and implement data-driven solutions to drive success. Whether in manufacturing, healthcare, or software development, Pareto Analysis offers a valuable and versatile approach to tackling complex problems and achieving meaningful results.

What is the primary purpose of Pareto Analysis?

The primary purpose of Pareto Analysis is to prioritize issues, identify root causes, and allocate resources efficiently by focusing on the most significant problems. This approach helps organizations achieve substantial improvements with limited resources.

How does the Pareto Principle, or the 80/20 rule, apply to problem-solving?

The Pareto Principle, also known as the 80/20 rule, states that approximately 80% of effects result from 20% of causes. In problem-solving, this translates to the idea that focusing on the most significant problems first can lead to substantial improvements with limited resources.

What are some benefits of conducting Pareto Analysis in an organization?

Some benefits of conducting Pareto Analysis include prioritizing issues, enabling efficient resource allocation, promoting continuous improvement, and identifying root causes of problems for long-term improvements and prevention of future issues.

Pia Prebensen is a personal growth expert who helps people identify and overcome their limiting beliefs. She has been featured in various online and print publications, including Elite Daily and The Huffington Post.

Born and raised in Denmark, Pia has always been fascinated by human behavior and the inner workings of the mind.

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Understanding the Pareto principle (The 80/20 rule)

The Pareto principle (also known as the 80/20 rule) is a phenomenon that states that roughly 80% of outcomes come from 20% of causes. In this article, we break down how you can use this principle to help prioritize tasks and business efforts.

When you get into the office in the morning, what's the first thing you do? Most people grab their caffeinated beverage of choice, check their email, and prioritize their tasks for the day. But what techniques do you use to identify what needs to get done first?

One common technique is called the Pareto principle, also known as the 80/20 rule. This technique can help you determine and prioritize your highest-impact tasks, increasing your productivity throughout the day.

What is the Pareto principle?

The Pareto principle states that for many outcomes, roughly 80% of consequences come from 20% of causes. In other words, a small percentage of causes have an outsized effect. This concept is important to understand because it can help you identify which initiatives to prioritize so you can make the most impact.

Where does the Pareto principle come from?

The Pareto principle was developed by Italian economist Vilfredo Pareto in 1896. Pareto observed that 80% of the land in Italy was owned by only 20% of the population. He also witnessed this happening with plants in his garden—20% of his plants were bearing 80% of the fruit. This relationship is best mathematically described as a power law distribution between two quantities, in which a change in one quantity results in a relevant change into the other.

This phenomenon also goes by a couple of different names:

Pareto principle

The 80/20 rule (most common)

Law of the vital few

Principle of factor sparsity 

The 80/20 rule is not a formal mathematical equation, but more a generalized phenomenon that can be observed in economics, business, time management, and even sports.

General examples of the Pareto principle:

20% of a plant contains 80% of the fruit

80% of a company’s profits come from 20% of customers

20% of players result in 80% of points scored

How you can use the 80/20 rule

While the 80/20 rule applies to almost every industry, the Pareto principle is commonly used in business and economics. This is because the 80/20 rule is helpful in determining where you can focus your efforts to maximize your output. 

The basis of the Pareto principle states that 80% of results come from 20% of actions. If you have any kind of work that can be segmented into smaller portions, the Pareto principle can help you identify what part of that work is the most influential.

Here are a few examples of how to use the tool in practice.

Productivity

You can use the 80/20 rule to prioritize the tasks that you need to get done during the day. 

The idea is that out of your entire task list, completing 20% of those tasks will result in 80% of the impact you can create for that day. So in order to get the most impact done, identify which tasks have the most impact for your team and focus on those for the day.

To do this, list out all of the things that you need to get done that day. Then identify which of those tasks have the highest impact. Do any of your tasks involve collaborating with other teammates? Are there any tasks on your plate that are blocking projects from moving forward? These tasks may be simple in execution, but they can make a large impact to the rest of the team by allowing the process to keep flowing. 

Decision making

The Pareto principle can help you to make the best decisions during the problem-solving process. When there are many different causes to one problem, the Pareto principle can help you prioritize solutions. Here are a few steps to how this works:

Identify the problems that your team is experiencing. These are the problems that you're trying to find a solution to within this decision making process.

Categorize your problems into similar groups. If some of the causes of the problems you're trying to solve can fall into similar categories, use this as an opportunity to group them together. This can help you decide if one solution can resolve multiple issues. 

Assign a value to each of these problems based on the impact to the business. The value can be as simple as a number between 1-10, or actual monetary value to indicate the importance.

Develop a plan to focus on the top 20% of the problems that impact the business. The idea is that one solution can resolve multiple problems. Based on the values you assigned to each problem, calculate which ones are in the top 20%. Once you’ve identified the main problem, develop a plan to create a solution that can result in 80% of the results using problem-solving strategies .

Example of how to use the 80/20 rule for decision making: 

Imagine you work at an ecommerce company. You take a look at 100 of your most recent customer service complaints, and notice that the bulk of the complaints come from the fact that customers are receiving damaged products. Your team calculates the amount of refunds given for your damaged products and finds that approximately 80% of refunds given were for damaged products. Your company wants to avoid processing refunds for broken products, so you make this problem a priority solution. 

Your team decides to update packaging to protect your products during shipping, which resolves the issue of customers receiving damaged products.

Quality control

The Pareto analysis and the Pareto chart are key tools used within the Six Sigma quality control methodology. 

In the Six Sigma methodology, using a Pareto chart can help you visualize your data to identify how to prioritize actions. Six Sigma’s main goal is to reduce the amount of variation in a process with the goal of increasing the amount of production. Pareto charts are common in Six Sigma methodology because you can quickly identify what the majority of the variations are in a process. 

Benefits of using the Pareto principle

The biggest advantage of using the Pareto principle is that you can create the maximum amount of impact with the least amount of work. This can allow your team to work more efficiently and stay focused on specific initiatives. 

The 80/20 rule can help your metrics increase in less time, simply by prioritizing initiatives in the right order.

Other benefits of using the Pareto principle:

Clear priorities both for you and your team

Increased daily productivity

Ability to portion your work into manageable segments

More focused strategy

Disadvantages of using the 80/20 rule

​​There's a common misinterpretation of the Pareto principle that with 20% of effort, you can achieve 80% of the results. This is not necessarily the case. The 20 and 80% numbers don’t refer to the amount of effort you’re putting in, but the causes and consequences you’re working on. The goal is not to minimize the amount of effort, but to focus your effort on a specific portion of work to create a bigger impact. You still have to put 100% of effort into that 20% of focus to achieve 80% of results.

Another downside of the 80/20 rule is that sometimes team members can get too focused and lose sight on other tasks. If you only focus on the important tasks and put aside the less important tasks, like email and other correspondence, things can get lost. The challenge is finding the right balance of using the 80/20 rule, and getting through the rest of your tasks—even if they don't result in 80% of results. To combat this, you can use techniques like timeboxing or the Getting Things Done (GTD) method. 

Connect tasks to goals with Asana

Finding different ways to help your team achieve productivity is an important part about being a team leader. Using a work management tool like Asana can help organize all your team projects and tasks, share files, leave comments and feedback all in one location, while saving you time. 

Related resources

Write better AI prompts: A 4-sentence framework

How to track utilization rate and drive team profitability

Fix these common onboarding challenges to boost productivity

How to align your team with a work schedule template

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What Is a Pareto Analysis?

The Pareto analysis, also known as the 80/20 rule, is useful when many decisions need to be made.

Table of Contents

Those in charge always have many decisions to make. The question is, which should be tackled first? Many business leaders conduct a Pareto analysis to answer that question. The Pareto analysis helps prioritize decisions by which ones will have the greatest influence on overall business goals and which ones will have the least impact.

The Pareto analysis, or Pareto principle, is also known as the 80/20 rule because it is based on the idea that 80% of a project’s benefit can come from doing 20% of the work. Conversely, 80% of a situation’s problems can be traced to 20% of the causes.

The technique is named after Italian economist Vilfredo Pareto, who observed in 1895 that 80% of Italy’s wealth belonged to only 20% of the population .

While the Pareto principle is primarily used in business contexts, it exists in others. ResumeLab offers examples of the Pareto principle in the era of the COVID-19 pandemic, marketing and business, time management , computing, and online dating.

These are some business and marketing examples:

• 80% of complaints come from 20% of customers.
• 80% of profits come from 20% of the company’s effort.
• 80% of sales come from 20% of products or services.
• 80% of sales are made by 20% of sellers.
• 80% of clients come from 20% of marketing activities.

[Related: How to Deal With Difficult Customers ]

The benefits of using a Pareto analysis

Here are some of the top benefits of using a Pareto analysis:

• It increases organizational efficiency. The Pareto analysis allows you to shift your company’s focus, prioritize your problems, and identify the root causes of those problems. Companies are more efficient when they focus efforts in the places where they will see the greatest ROI .
• It enhances problem-solving skills. The Pareto analysis lets you organize work-related problems into a clear set of causes and effects, which you can then address individually.
• It improves decision-making. Employees and businesses can use a Pareto analysis to decide which practices are most effective and how to improve current operations. Learn how benchmarking can help improve operations .
• It improves time and change management. You can use the Pareto analysis to look deeper into the effectiveness of any changes you make or need to make in order to improve your business practices. This helps you manage these changes and any time you spend implementing them.
• It helps in planning, analysis and troubleshooting. You can use the Pareto analysis for planning and troubleshooting any changes you will make to your business practices.
• It shows the cumulative impact of issues on business. Because the Pareto analysis is versatile and applicable to multiple areas of business, it provides a look at the overall impact of challenges across the entire organization. This helps you and your company’s other decision-makers identify which problems to resolve first.

How to make a Pareto chart

There are several ways to conduct a Pareto analysis, and they all revolve around the same guiding principles. According to the website Mind Tools, these are the six steps to conduct a Pareto analysis:

• Identify and list the problems. Write a list of all the problems you need to resolve.
• Identify the root causes. Determine the fundamental cause of each problem.
• Score the problems. The scoring method used will depend on the type of problem. If the problem revolves around improving profits, then the scoring might center on how much each problem is costing your business. If you are trying to boost customer satisfaction, you might score the problems on the number of complaints that would be eliminated if the problem were solved.
• Group the problems. Organize the problems by root cause.
• Tally the scores. Add up the scores for each cause group. The group with the top score should be the highest priority, while the one with the lowest score should be the lowest priority.
• Take action. Start tackling the causes of the problems. Deal with the top-priority problem or group of problems first.

If you want a graphical representation of the problems, the Process Excellence Network says to divide each problem’s score by the grand total of all of the scores to get a percentage. Then, draw a chart with a horizontal axis and two vertical axes. Mark the left vertical axis in increments from zero to the grand total of all the problem scores. On the other side, mark the right vertical axis in increments from 0% to 100%. [Read related article: What Is a Decision Matrix? Definition and Examples ]

Next, construct a vertical bar diagram, with the highest percentage score on the left and lowest on the right. According to the Process Excellence Network, the height of each bar should correspond with the value on the left axis and the percentage of the total on the right axis.

Finally, add a line graph to the top to figure out what percentage of the total problems will be solved when more than one are addressed.

“Beginning at the left zero point, plot a line showing the cumulative percentage total reached with the addition of each problem classification,” writes Steven Bonacorsi on the Process Excellence Network website. “The line should end at the 100% mark on the right axis.”

How businesses use Pareto analysis

The Pareto analysis helps managers to focus on what is most important and urgent for their business. Here are some examples of how businesses use this tool:

• 20% of marketing efforts represent 80% of the results. While marketing and communications efforts are hard to measure, this is a critical principle for anyone who wants to achieve the maximum results with less marketing effort. By identifying which 20% is the most valuable, you can double down on those efforts and reduce resource expenditure on the other 80% of marketing operations.
• 20% of posts generate 80% of traffic. If you work with social media and content marketing , you can use the Pareto principle to analyze which posts were most effective, discover their similarities, and use them in future content. This can also help you optimize your other posts.
• 80% of the quality failures originate from 20% of the tasks. If you work in process management, you can use the Pareto analysis to establish critical tasks and determine which tasks fall into the 80% of quality failures. Then, model the process to make those tasks more efficient.

Pareto analysis case study

There are many ways for businesses to use a Pareto analysis to their advantage. For example, if a company wants to improve customer service at a call center , the first thing they need to do is survey customers to find out why they were unhappy with the call center’s service.

After getting customer responses back, the call center can divide the information by complaint category, which may include “too long on hold,” “no evening or weekend staff,” “not knowledgeable,” “not courteous,” “transferred too many times,” “could not locate file,” “no phone payment options,” “hard to understand representative,” and “charged more than promised.”

From there, they would total the number of complaints in each category and determine the percentage of each complaint compared against the total amount. Then, they would find the cumulative percentage of the categories by adding them together. Based on this data, they can determine which issues account for 80% of the problems. In our call center example, the primary culprits might be “too long on hold,” “no evening or weekend staff” and “not knowledgeable,” as they account for approximately 80% of the total complaints. [Related: The Best Call Center Services ]

In light of the analysis, it is easy to determine that the call center needs to concentrate their efforts on those three complaints to improve their overall customer service.

Other examples are available online:

Chad Brooks contributed to the writing and research in this article.

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The Pareto Chart: How to Solve Problems & Make Informed Decisions

I’ve just finished watching this Netflix docuseries and I can’t stop thinking about it.

The Last Dance .

It’s ten juicy episodes, full of massive egos, incredible basketball, and a banging 90’s hip-hop soundtrack. It’s a fantastically brutal account of how the Chicago Bulls came to dominate the basketball scene throughout the 1990s.

The team was led to countless victories by three key players: Michael Jordan, Scottie Pippen, and Dennis Rodman.

This, coincidentally, demonstrates the concept behind the Pareto chart, and this Process Street post perfectly.

I’ll explain what I mean by this later. First, let me go through what we’ll cover in this post:

What is a Pareto chart?

Where did the pareto chart come from, how to read a pareto chart, when to use a pareto chart, how to create a pareto chart with process street.

I’m excited to get started. So, my cagers, let’s take it to the hole!

I admit. I may have googled “ basketball terms ” for that sentence… what I’m basically saying is; C’mon you lot! Let’s go!

Remember math lessons as a kid? I mean before it began to get tricky with trigonometry and algebra. When it was working through straightforward sums and creating graphs? The ‘fun’ stuff.

Well, keep hold of that memory as it will come in handy for this post.

Because the Pareto chart is, essentially, a plain old bar graph.

A Pareto chart, in its simplest form, is a bar chart that arranges the bars from largest to smallest, from left to right. The bigger bars on the left are more important than the smaller bars on the right.

Like a lot of bar charts.

However, this simple little bar chart is different from the bar charts you created when you were six. This bar chart is used by organizations, in almost every industry, for root cause analysis . In other words, it’s a vital quality management tool .

A Pareto chart enables organizations to make decisions on where to focus their efforts so they get as much bang for their buck as possible.

How does a humble bar chart do that?! I hear you ask.

Well, it’s so simple it almost sounds silly.

By graphically separating the aspects of a problem, an organization can instantly see where to direct its improvement efforts. Focusing its efforts on reducing the largest bars in the chart, will do more for overall improvement than reducing the smaller ones.

Take this Pareto chart below as an example.

With a quick glance, we can instantly see that a lack of training and inadequate pay cause the highest number of customer service complaints.

The Pareto chart theory suggests that if the organization prioritized training and increasing pay, they would see the biggest improvement in customer service.

It’s a tool that’s been used for decades by problem solvers to separate the vital few factors from the trivial many and prioritize actions.

For those that are familiar with the 80/20 rule, the phrase ‘ separating the vital few from the trivial many ’ may have rung a few bells?

That’s because the Pareto chart is a visual representation of the 80/20 rule.

The 80/20 rule states that 80% of the results are determined by 20% of the causes. The Pareto chart displays the few, most significant defects, that make up most of the overall problem.

By ordering the bars from the largest to the smallest, a Pareto chart helps you to visualize which factors comprise the 20% that are the vital few, and which factors make up the trivial many.

“ The significant few things will generally make up 80% of the whole, while the trivial many will make up about 20% ” – Pareto Diagram , PQ Systems

While we’re on the subject of the 80/20 rule, for those of you who don’t know, the 80/20 rule is also referred to as the ‘Pareto principle’. This leads me, quite nicely, to talk about where the Pareto chart came from.

You’re going to love this.

This is the story behind where the Pareto chart came from.

The Pareto chart takes its name from a 19th-century Italian called Vilfredo Pareto, and as we touched on earlier, the concept is based on the 80/20 rule.

Pareto, a philosopher, economist, and keen gardener, had an epiphany one day, while out picking peas.

He noticed that roughly 20% of his pea plants seemed to generate around 80% of the peas.

Now, most of us might’ve thought; “ Hah! Well, would you look at that! ” and carried on with our daily lives.

But not Vilfredo Pareto.

This observation led him to think about uneven distribution , and where better to start with that concept than by looking at wealth.

He discovered that around 80% of the land in Italy was owned by 20% of the population.

He then investigated different industries and found that 80% of production typically came from only 20% of companies.

Although he researched and wrote papers on this theory, he never took it further than wealth and prosperity.

It was the “ Father of Quality Management ” Dr. Joseph M. Juran, who extended this theory into the business world.

Juran, while detecting manufacturing problems at Western Electric , noticed that a small number of defects in parts and machines seemed to cause most of the issues he found in quality.

He came across Pareto’s earlier work and found it made a lot of sense.

He recognized that “ the vital few and the trivial many ” pattern was a universal principle that could be applied to almost all organizations, in any industry, to help them make decisions on what to focus on to improve quality.

This theory is proven when you look at examples like these:

• 80% of web traffic comes from 20% of your site’s pages
• One search engine (Google) receives 64% of search queries
• 80% of the logic of a software program is run using 20% of the classes or code
• 3% of Guatemalans own 70% of the land in Guatemala
• 80% of the software errors are caused by 20% of the bugs
• 20% of your wardrobe is worn 80% of the time
• 80% of crimes are committed by 20% of criminals
• 80% of wins in sport are produced by 20% of the players on a given team (remember this one for later!)

So that’s how the Pareto principle came about.

The Pareto chart, being a visual representation of the Pareto principle, was developed to allow companies to see where the major causes of a problem were. This enabled them to focus their time and efforts on the greatest potential for improvement .

“ It’s common sense to focus on the ‘vital few’ factors. In the quality improvement arena, Pareto charts help teams direct their efforts where they can make the biggest impact ” – When to Use a Pareto Chart , The Minitab Blog

We all know how to look at a bar chart and work out what it’s telling us, but there’s a little more to interpreting a Pareto chart than meets the eye.

As we’ve previously covered, in its simplest form, a Pareto chart is a bar graph that shows where the biggest opportunities for quality and process improvement lie.

It’s simple, easy to read and there’s nothing wrong with using this method to decide where to focus your efforts.

However, there is another, arguably more accurate, way of interpreting a Pareto chart.

We can take the simple bar chart a step further by adding in a line.

The line, like the one in the example above, is a cumulative percentage line.

Ok, I know. Earlier I urged you to remember the ‘fun’ math. I don’t remember line graphs and cumulative percentages being much fun either, but stick with me. It’s nowhere near as bad as Algebra or Pythagoras.

To understand how to read a Pareto chart, like the one above, we first need to understand the components of a Pareto chart and the relationship between each one.

So let’s start by looking at the basic structure of a Pareto chart, using the below ‘shirt defect’ chart as an example.

We can see that there are three axes in this chart: X, Y, and Z which represent the following:

• X-axis shows the different types, or categories, of defects
• Y-axis shows how often these defects occur

We’ll talk about the third axis in a second.

We can see that each vertical bar in the chart represents a type of defect and the height of each bar represents the frequency in which that type of defect occurs.

So, from the example above, we can see that button defects occur 23 times, whereas sleeve defects happen only three times.

We can also see that the bars are presented in descending order (from tallest to shortest) so we can instantly see which defects are most frequent at a glance.

Now we understand that bit, let’s bring in the third axis.

• Z-axis represents the cumulative percentage

The cumulative percentage indicates what percentage of all defects can be removed if the most important types of defects are resolved.

To plot the cumulative percentage line, you’ll need to get your calculator out and work out the cumulative percentage for each defect using this formula:

Total frequency of all defects / The frequency of each defect x 100.

Plot these percentages as you would on any normal graph and then join them up with a line.

Now you have your cumulative percentage line, using the Pareto principle, find the 80% mark on the Z-axis, and draw a dotted line across until you hit your cumulative percentage line.

Then, immediately drop your dotted line downwards.

The defects to the left of this dotted line, on the X-axis, are the defects that, if addressed, will deliver the greatest benefit. These are the ‘vital few’ defects, out of the ‘trivial many’, to focus on.

Let’s go back to our shirt defect example. According to the Pareto principle, if we focused our efforts on resolving the pocket and button defects, we should see the biggest improvement in the quality of our shirts.

It’s worth noting that, in any Pareto chart, when the cumulative percentage line is steep, the types of defects are likely to have a significant effect. When the cumulative percentage line starts to flatten, the types of defects aren’t likely to influence the outcome as much, so they don’t deserve as much attention.

Once you’ve used a Pareto chart to decide what to focus your efforts on, it’s a great time to then bring something like the PDCA cycle into your organization to help you manage the changes you need to implement.

In fact, Process Street has created a few change management templates that you can access, for free, to help you with this.

PDCA Cycle Change Management Model Process Checklist

Click here to access the PDCA Cycle Change Management Model Process Checklist!

Satir Change Management Model Process Checklist

Click here to access the Satir Change Management Model Process Checklist

I’ve only given you two change management templates in this post, but we have heaps more for you to use. Take a look at this post .

My word. I have steam coming from my ears. I’ve had enough of math, fancy a game of basketball instead?

As we’ve already established, Pareto charts are used by organizations to figure out where the problems are and decide what to focus on to get the best results.

“ Pareto charts are most useful for identifying what the biggest issues regarding your business are. They also help you analyze how to present the issues that need tackling in a simpler, more understandable manner. In addition, they also help to guide where to look in terms of figuring out the frequency of a certain problem in your company ” – How to Do Pareto Chart Analysis , Tallyfy

Below are a few ways you might use a Pareto chart to make key decisions in your organization:

• You could use it to work out which top 20% of your company’s processes are causing 80% of the problems and focus on refining those processes.
• You could use it to establish which 20% of your clients are responsible for 80% of your sales and create a high-touch program for them.
• You could use it to assess all your upcoming projects, decide which ones will make the most difference, and start those first.
• You could use it to decide which tasks to prioritize , like the CEO of Dell does. He uses a Pareto chart on a daily basis to make sure he spends 80% of his time on the 20% of tasks that will generate the biggest results.

Speaking of daily tasks, once you’ve used the Pareto chart to decide what to focus on, you could use this Remote Daily Work Schedule Template to help keep you on track:

Although the checklist is for remote workers, you can adapt it if you’re office-based. I’ll tell you how to do that in a second.

So you can see that the Pareto chart can be been applied in all sorts of settings. And as it turns out…

“ It also applies to both the NBA and the WNBA. Specifically, in general, about 80% of a team’s wins are produced by a team’s top three players ” – The Pareto Principle Sheds Light On The WNBA’s Western Conference Contenders , Forbes

If you were a basketball coach, you could use a Pareto chart to determine which 20% of the team contribute to 80% of the wins, and focus your time and efforts on improving those players.

Kind of like what possibly happened between 1991 and 1998 with the Chicago Bulls.

As I touched on earlier, the Netflix mini docuseries ‘The Last Dance’ shows how the Chicago Bulls became unbeatable in the ’90s.

The team won the NBA championship six times over the course of eight years thanks to three players (Micheal Jordan, Scottie Pippen, and Dennis Rodman), and some sound decisions, made by head coach, Phil Jackson.

**Conspiracy alert!**

Surprisingly, the Netflix series doesn’t state whether Phil Jackson utilized the Pareto chart to make the critical decision to focus his coaching efforts on Jordan, Pippen, and Rodman. But I’d like to think it had a part to play in the Bull’s success.

( Maybe a 20% part ?!)

Now we know what the Pareto chart is, where it came from, how to read it, and when to use it, let’s talk about how to create one.

As we’ve discussed, one of the greatest uses for the Pareto chart is in quality control and process improvement.

This is something that Process Street is expert in.

Process Street is super-powered checklists .

Our state of the art business process management (BPM) software allows you to create templates, run individual checklists , and manage recurring tasks faultlessly.

Watch this introductory video to get a better idea about who we are and what we do:

So as you can see, you can check tasks off as you work through them, set deadlines, request approval from colleagues, assign tasks , and track each team member’s progress . You can also connect to thousands of apps through Zapier , webhooks, or API integration.

How can all this help you create a Pareto chart though?

Glad you asked.

You could create a template, and, each time you want to create a new Pareto chart, run a new checklist from this template.

It’s super easy.

All you’d need to do is create a new template and add the following 12 steps into your template, as tasks, that you can then work through:

Step 1: Identify the problem Define the problem as accurately as you can so you can work out all the various factors that may be contributing to it, in the next step.

Step 2: List the contributing factors Determine what root causes are contributing to the problem and put them into categories.

Step 3: Decide on the measurement Establish how you will measure the impact of each contributing factor or category. This is usually the number of occurrences or cost.

Step 4: Establish a time period Decide what period of time the Pareto chart will cover: One sprint? One full day? A week?

Step 5: Collect the data Collect the data for each of the categories you have chosen and place it into a table so you can work out your cumulative percentages easily.

Step 6: Draw the Y-axis and X-axis Label the Y-axis with the measurement and the X-axis with the categories.

Step 7: Construct and label bars for each category Place the tallest at the far left, then the next tallest to its right, and so on.

Step 8: Draw Z-axis Once you’ve drawn the right vertical axis, label it with percentages.

Step 9: Calculate your cumulative percentages Use this calculation to work out your cumulative percentages: Total frequency of all categories / The frequency of each category x 100.

Step 10: Plot and draw your cumulative percentage line Make sure that the last dot reaches 100% on the Z-axis (as all cumulative percentage must reach 100%)

Step 11: Establish what your focus should be Find 80% on the Z-axis and draw a horizontal line until it hits the cumulative percentage line. Whatever lies to the left of that point is your ‘vital few’.

Step 12: Implement the changes Using change management processes like the Lewins Change Management Model, or the ADKAR Model start to implement the changes that will cause the most affect.

That’s it! Simple.

If you’re a little unsure, don’t worry. To help get you used to the software, below are some similar problem solving, root cause analysis templates that you could use to get started:

FMEA Template: Failure Mode and Effects Analysis

Click here to access the FMEA Template: Failure Mode and Effects Analysis Template!

Root Cause Analysis Template

Click here to access the Root Cause Analysis Template!

SWOT Analysis Template

Click here to access the SWOT Analysis Template!

If you’re feeling a bit braver, you could edit the existing templates so they suit your organization better, or even create your own Pareto chart process template.

If you’re planning to go down this road, try adding some of these features into your template:

• Dynamic due dates
• Task permissions
• Conditional logic
• Approval tasks
• Embed widget
• Role assignments

These features will help you to automate your newly created processes.

I can’t even begin to tell you how much time and effort automating your business processes will save you. But I know a man who can.

Blake Bailey.

He ran the below Process Street webinar on advanced workflow automation. Watch it. It’ll explain everything there is to know about workflow automation, and I guarantee you’ll never create a manual, laborious process even again!

Or, check out these great articles on how you could automate your business:

• 24 Best apps & software to automate your small business
• Small Business Automation: A Guide To Getting Things Done
• 40 Marketing Automation Tools: The Best Software for Growing Your Business
• Add value to your firm with process automation services
• Top 5 Benefits of Business Automation in 2020

Speaking of great articles , we’ve written tonnes on quality management, process management , root cause analysis, and the like.

Check out a few of them below.

Pareto chart related articles

• How to Perform a Root Cause Analysis (Free Template)
• Best QMS Software for Quality Management Systems: Which is Right for You?
• What is ISO 9000? The Beginner’s Guide to Quality Management System Standards (Free ISO 9001 QMS Template)
• What is Quality Management? The Definitive QMS Guide (Free ISO 9001 Template)
• What is a Quality Management System? The Key to ISO 9000
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When you’re trying to get the most bang for your buck , focusing on the critical 20% is a huge time-saver. See what activities generate the most results and give them the appropriate attention.

So, my cagers, that’s it! But before I shoot my last shot, if a Pareto chart seems a bit basic, well, it is.

However…

“ Its very simplicity makes the Pareto chart applicable to a very wide range of situations, both within and beyond quality improvement ” – When to use a Pareto Chart , Minitab

Do you use the Pareto chart in your organization? If so, how do you find it? We’d love to hear your thoughts in the comments below. Who knows? You may even get featured in an upcoming article!

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Amanda Greenwood

Amanda is a content writer for Process Street. Her main mission in life is to write content that makes business processes fun, interesting, and easy to understand. Her background is in marketing and project management, so she has a wealth of experience to draw from, which adds a touch of reality and a whole heap of depth to the content she writes.

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By Denis G.

Pareto Analysis (The 80/20 Rule)

In this article:

Pareto analysis is a problem solving and decision-making tool that can help you choose the appropriate course of action when many options are available, and there aren’t enough resources to pursue all options.

Imagine you are the Leader of a small startup. You have to make important decisions about how to invest your time and money. You want to invest wisely. How do you know which of your many ideas will lead your startup to the fastest growth?

In this situation, it would be useful to perform a Pareto analysis. Your Pareto analysis will help you prioritize which actions to take, by showing you which actions will bring the fastest growth to your business.

Pareto analysis is known by several other names, including:

• The law of the vital few.
• The principle of factor sparsity.
• The Pareto principle.
• The 80/20 rule.

The Pareto Principle is named after Italian economist Vilfredo Pareto, who observed in the 19th century that 80% of outcomes come from 20% of causes.

Examples of the Pareto principle include that:

• 80% of results come from 20% of the work.
• 80% of the land is owned by 20% of the people.
• 80% of sales are attributed to 20% of customers.
• 80% of wealth belongs to 20% of the people.

When to use a Pareto Analysis?

Daily life requires us to make multiple decisions. Some of these decisions are easy to make because it’s obvious which course of action to take.

Other decisions are more complicated, particularly when we don’t have the resources to pursue all options. In this situation, using a Pareto analysis can give you the information you need to prioritize, so you make the best decision.

Factor Sparsity

The 80/20 rule seeks to identify which 20% of actions will realize 80% of outcomes, but it’s important to realize it works under a specific condition called factor sparsity.

Factor sparsity is simply another way of saying that you have limited resources.

For example, in business, you will typically have more opportunities than you have resources to pursue. When investing, you will have more investment opportunities than you have financial means.

These constraints on your resources (factor sparsity) mean you have to prioritize. It is in situations such as these, where factor sparsity is present, and the correct path to take isn’t clear that conducting a Pareto analysis can be useful.

Using the Pareto Analysis

To solve a problem using Pareto analysis, you can follow this five-step process.

Step 1: Identify and list all the problems.

Create a list of all your problems.

Step 2: Identify the root causes

Identify the root cause of each problem. By identifying the root cause it will help you direct your effort where it is most needed and prevent you from only superficially solving problems.

A 5 Whys analysis can be a useful tool to help you find the root cause of each problem.

Step 3: Score each of the options using some relative measure.

For example, you might use a scale like 1 to 10, where problems ranked 1 have the lowest impact, and those ranked 10 have the highest impact.

Step 4: Rank the items.

Now add up your total scores for each of the root causes you identified.

Step 5: Take action

Create a plan to address those root causes that are causing you the biggest problem.

Pareto Analysis Examples

Let’s take a moment to look at two examples of how to perform a Pareto analysis. This will help bring the 5-step process above to life.

Example One: Investigating IT Problems

In this example, imagine that you are the new manager of an IT department within a small firm. Your biggest problem is that your customer-facing server keeps crashing. When this happens, the company is generating zero revenue.

Obviously, it’s essential that this is rectified as soon as possible. Unfortunately, there are many reasons why the server keeps crashing. Because of this, you decide to perform a Pareto analysis to determine the order in which to fix issues.

Your first step is to get a list of reasons the server is crashing. These are shown below:

Next, you will want to find the root cause for each incident. To do this, you use the 5 Whys technique and identify the following root causes.

Next, you’ll want to score each row in some way. You decide to score each row from 1 to 10 based on how much negative impact this problem resulted in. 10 represents the most impact and 1 the least. This is shown below.

The next step is to add the scores together for each of the root causes. This results in a table that looks like this.

As you can see, the obvious first step in addressing your server problems is actually to invest in more robust processes and possibly some employee training to ensure that everyone knows how to follow those processes. By addressing this root cause first, you’ll be addressing 55% of your negative impact.

Representing your analysis as a bar chart you can clearly see that improved processes and training will have the biggest impact on the problem.

Example Two: Creating a Study Plan

If the previous example was quite complicated, this example is very simple. Remember that 80% of the results come from 20% of the efforts? Well, this is the reason why in this example we’ll just perform a rough and ready mentally calculated Pareto analysis – because it will give you 80% of the results for 20% of the effort.

In this scenario, you are a student. You have an exam tomorrow morning, and so far you have not studied at all. You don’t have enough time to revise everything. How do you decide which elements to study first?

You guessed it! You’re going to use a Pareto analysis.

You will perform your Pareto analysis by comparing the last three years of exam papers and ranking the most common topics. You will now revise for your exam in order of how likely a topic is to appear in your exam tomorrow.

Now, this approach might not result in you achieving an A grade, but it will give you the best possible grade given the very limited time you have available to study.

Advantages & Disadvantages

There are several advantages and disadvantages to a Pareto analysis which you should know about.

• It can help decision-makers rank and understand which options to pursue when resources are limited.
• A useful tool to help visualize the root causes of a problem and take action.
• Prioritizes specific measures to ensure maximal benefit in an organization.

Disadvantages

• The methodology provides no guidance on how to find the root causes of problems.
• The 80/20 rule is a principle only and not an immutable law. In practice, you might find the 40% of the causes result in 60% of the results, for example.
• Data inputs to the Pareto analysis capture a snapshot in time, not what’s happening in real-time. This lagging effect can result in choices that impact the quality of your decision-making.

Pareto Analysis Summary

Sometimes we need a tool to help us with our decision-making to ensure we are applying effort in the most useful way.

Pareto analysis can be used to help you identify the appropriate course of action to take when resources are limited but there are many options available.

Cite this article

Minute Tools Content Team, Pareto Analysis (The 80/20 Rule), Minute Tools, Jun, 2019 https://expertprogrammanagement.com/2019/06/pareto-analysis-the-80-20-rule/

Originally hailing from Dublin, Denis has always been interested in all things business and started EPM in 2009. Before EPM, Denis held a leadership position at Nokia, owned a sports statistics business, and was a member of the PMI's (Project Management Institute’s) Global Executive Council for two years. Denis now spends his days helping others understand complex business topics.

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Everything You Need to Know About the Pareto Analysis and More

Table of Contents

Imagine being able to identify all the underlying causes of failure concerning your productivity, business, or personal matters. 

As a matter of fact, you can — by employing a problem-solving technique that uses statistics to pinpoint issues causing most of the damage — the Pareto analysis.

But how does the Pareto analysis work? 

To get to the bottom of this enigmatic principle, I tested the Pareto principle, too, and made sure I covered the following matters:

What is the Pareto analysis?

• What is the Pareto analysis used for?
• Steps on how to conduct the Pareto analysis and create a Pareto chart,
• The pros and cons of the Pareto analysis,
• The Pareto principle and time management, and
• The overall rating of the Pareto analysis.

The Pareto analysis, or Pareto principle, is based on the 80/20 rule — 20% of the input results in 80% of the output. For instance, 20% of products are making 80% of a company’s profit.

The Pareto analysis helps single out the vital few that cause the trivial many . In other words, the Pareto analysis helps identify both issues or strengths that cause impact on something, whether business or personal life .

Originally, the Pareto analysis was established by Vilfredo Pareto in the late 19th century, who noticed that 80% of the land in all of Italy was owned by 20% of the population. He then started noticing similar patterns elsewhere. Later on, his research and work were adapted by Joseph M. Juran, a management consultant, and the Pareto principle and analysis were born.

In practice, with proper implementation of the Pareto analysis, individuals can use it to boost their personal productivity by focusing on the vital few or to help them prioritize their tasks.

On the other hand, companies can use this method to determine the most impactful problems or strengths related to their operations. For instance, when they are aware of the most relevant issues that cause most of the damage, they can act on them by concentrating on the solutions and allocating the right resources to solve those issues.

💡 Clockify Pro Tip

Make a clear distinction between productivity and efficiency by reading the following blog post on the matter, and also, learn how to calculate them to achieve better results:

• Productivity vs efficiency: what is the difference and why it matters

Pareto analysis examples

Modern usages of the Pareto analysis further show that 80% of the problems within a project can often be traced back to 20% of the causes.

In other words, by focusing on the crucial 20% of the problem causes, you’ll subsequently be able to deal with the 80% of the issues that stem from them.

Let’s put this statement into perspective.

The Hard Rock Hotel conducted a guest survey and got 75 complaints in total, which were later grouped into 5 categories (room service, check-in issues, pool hours, minibar, and misc). It seemed like 20% of the guest complaint categories, room service and check-in issues, make up 80% of the total complaints.

This principle can be used in any other area of life, too: 

• You wear 20% of your clothes 80% of the time.
• 80% of the air pollution comes from 20% of all factories in a city.
• 20% of the employees make 80% of a company’s profit.
• Only 20% of the students in a classroom have grades of 80% or higher.

Learn more about resource allocation and how to track it in this blog post:

• How to track resource allocation

How to make a Pareto chart (+ steps)

As explained above, the Pareto analysis can be your ally in sorting out problems and their impact on business operations (or your personal matters).

Now, take a look at the steps on how you can conduct the Pareto analysis and see what’s standing between you and success (I’ve also tested Pareto analysis and included my observations for better understanding).

Step #1: Collecting and grouping the issues 

The first step in performing the analysis is forming a list of the issues that you want to evaluate . Whether it’s business or personal, create a list of the problems that will be your cornerstone for the future development of the analysis. 

As a writer, I write huge blocks of text daily, and like any other job, mistakes are inevitable. When it’s time to review the text, a number of issues come to the surface, and I’ve collected and grouped some of the most frequent ones:

• Spelling mistakes — typos, misspelled words,
• Structural mistakes — unclear phrases, long headings, lack of transition words,
• Punctuation mistakes — run-on sentences, missing commas or quotation marks, 
• Citation mistakes — missing references, outdated resources, or unnecessary citations, 
• Formatting mistakes — different fonts used, double spacing, and
• Repeating mistakes — using certain words or phrases frequently.

Bear in mind that if the problems you discover concern your team too, you’ll need to include your team members in brainstorming potential issues.

Learn about the importance of team collaboration and effective strategies for building collaborative teams here: 

• Team collaboration: why it’s important and how to foster it

Step #2: Identifying the causes

Now comes the hard part — i.e., the main point of the analysis.

This step requires you to think carefully and identify the root causes of an issue or issues at hand. Don’t forget that multiple underlying causes could be the main culprits for the ongoing issues.

To pinpoint your issues you could create a list of all the previously identified problems and connect them to the causes that may come to your mind.

For this purpose, I proofread one of my new texts and added up my writing mistakes, which totaled 98 .

Look at the table below for a breakdown of problems, causes, and number of issues related to my writing: 

The next step is to create the Pareto chart, where you will use your data to visually represent the connection between the total count of issues, their frequency, and final outcomes.

Step #3: Finalizing the Pareto chart

The Pareto chart contains bars showing problems, horizontal and vertical axes, together with a red line that represents the cumulative percentage of problems. The bars are shown in descending order, each representing an issue.

First, to get a graphical picture of the identified problems, you need to obtain the total count of the issues you’ve listed. In my case, that would be 98.

Then, you need to use a specific formula to obtain the exact percentages for each issue (to be able to represent the issues on a graph better): 

(Frequency of occurrences) / (sum of total occurrences) * 100

In the substep below, we will use the above formula to calculate and determine each stop of your cumulative line on the chart. 

Creating the cumulative line on your Pareto chart

Here’s how you will use the above formula to create the cumulative line on your chart.

So, the total count of all my issues is 98 — the sum of total occurrences. 

I made Structural mistakes 26 times — that’s the frequency of my issue.

26 / 98 * 100 = 26,53%

Next, you need to create the route for each stop at your cumulative line. 

Remember that the start of your cumulative line is at 26.53% .

To know the next stop of your cumulative line, you need to add up Structural mistakes with Citation mistakes, using the above given formula (the same formula that you will use to calculate each stop at your cumulative line) which is:

(26 + 21) \ 98 * 100 = 47,95%

Therefore, the 2nd stop of your cumulative line is at 47.95% .

The calculation for the 3rd stop is adding Structural, Citation, and Repeating mistakes:

(26 + 21 + 17) \ 98 * 100 = 65,30%

Your 3rd stop of the cumulative line is at 65,30% .

To know the 4th stop of your cumulative line, add up Structural, Citation, Repeating, and Spelling mistakes:

(26 + 21 + 17 + 15) \ 98 * 100 = 80,61%

The 4th stop of your cumulative line is at 80,61% .

Up next is the 5th stop, and add up Structural, Citation, Repeating, Spelling, and Formatting mistakes:

(26 + 21 +17 +15 +10) \ 98 * 100 = 90,81%

The 5th stop at your cumulative line is at 90,81% .

Your final, 6th stop requires you to add up all mistakes together — Structural, Citation, Repeating, Spelling, Formatting, and Punctuation mistakes: 

(26 + 21 + 17 + 15 + 10 + 9) \ 98 * 100 = 100%

So, the last stop at your cumulative line is at 100% .

Now, let’s finalize the diagram by creating a y-axis (vertical axis) that represents the number of occurrences and drawing a straight, horizontal line (x-axis) that represents your mistakes.

Now we can see that three lines connected at the same spot, making a distinction between the crucial 20% (Structural and Citation mistakes) and the rest, 80% of mistakes that are marked as trivial .

According to the Pareto principle, only 20% of the mistakes make up 80% of the damage in my writing.

Pareto analysis pros and cons

If you want to carry out the Pareto analysis yourself, you must be aware of its advantages and disadvantages. 

Among many advantages you may have already discovered up to this point , the Pareto analysis also helps you with:

• Identifying the problems and their root causes that slow you down,
• Sorting out errors and damages with the highest priority,
• Recognizing where you should be focusing more of your efforts (especially during your biological prime time ),
• Analyzing data and presenting results in a visual graph for a deeper understanding of your issues, and
• Improving overall performance by detecting time wasters .

On the other hand, Pareto analysis comes with its share of disadvantages . As a matter of fact, this method may:

• Fail to provide solutions to the identified problems and causes,
• Rely solely on past data and cannot be used to predict future challenges,
• Be somewhat time-consuming since it took me a while to carry out the whole analysis and get data, and
• Demonstrate qualitative data rather than quantitative data.

Want to know how to predict the future of your projects together with time, budget, and estimates? Take a look at Clockify’s handy feature for project forecasting here: 

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How to use the Pareto analysis to manage time more effectively

You may be surprised, but the Pareto principle can be used as a very effective tool for time management. Take a look at the following tips that will help you implement the Pareto principle into your everyday life and boost your time management skills.

Tip #1: Use the Pareto analysis to prioritize your issues better  

The Pareto analysis is a great prioritization method as it helps you see the problems that have higher priority and that need to be addressed first. As you can see from the example above, problems with the highest scores ended up causing most of the damage, so Pareto may help you or your business resolve top priority issues one by one.

For instance, after careful analysis, you found out that the causes for low product demand have to do with bad marketing. The Pareto analysis showed that poor marketing strategies are some of the main causes for the decrease in your product’s demand. Therefore, it’s time you question your marketing strategies to boost your sales.   

Talking about prioritization, take a look at the following blog post that may help you focus on work priorities:

• How to (re-)prioritize your tasks

Tip #2: Make use of the Pareto analysis to beat distractions

Normally, after you identify the problems that are causing the damage (in this case, time wasting), you will be able to reduce them and increase your focus. 

For instance, you’ve implemented the Pareto analysis to see why you can’t seem to finish your work tasks. It turns out that you do your chores during work hours rather than after work, so you end up working long hours .

Remember, the Pareto principle won’t help you find solutions to your problems but rather identify and make sure you are aware of them. 

Tip #3: Combine the Pareto analysis with the Pomodoro technique

If your analysis shows that you spend 80% of your work hours taking breaks and sipping coffee with your colleague, you may want to consider trying out the Pomodoro technique .

While you can make use of the Pareto principle to help you identify time wasters, why not implement another time management method that will save you from overworking , such as the Pomodoro itself!  

For this purpose (and to spare you from setting your alarm on and off each time), try using the Clockify’s Pomodoro timer . 

The process is simple:

• Write what you are working on,
• Start a timer for 25 minutes,
• Focus on your work for those 25 minutes,
• When the alarm goes on, stop working, and
• Take a 5-minute break.

Repeat this cycle, as it will help you ensure that you finish your work and take regular breaks along the way, while the Pareto analysis will help you identify your most common time wasters that are draining your productivity. Combined together, the Pareto principle and the Pomodoro technique can be your ally in effective time management.   

My overall rating of the Pareto analysis

Although it took me a while to figure it out (and to carry out the analysis itself), I must admit this technique truly works.

Once I looked back, I realized that the crucial 20% of the problems that Pareto pointed out were the ones I struggled with the most in general.

While it cannot solve problems per se, the Pareto analysis can definitely help individuals or businesses identify the causes that affect a particular outcome.

While I was testing out the method, my first thought was: “Obviously I know the reasons behind my writing mistakes!” But somehow, the mistakes would creep up on me every time I sat behind my keyboard. As it turned out, I wasn’t really aware that my formal knowledge wasn’t on such a high level as I thought it was. That’s why the Pareto analysis really had me put on my thinking cap.

Even though the whole process is a bit drawn-out, this method is great, effective, and truly makes you wonder — How did I not realize this sooner? 

I certainly recommend it to everyone that struggles with determining the causes that make their workdays harder, and my final rating for this technique is:

FINAL RATING: ⭐⭐⭐⭐

Use Clockify to better implement the Pareto analysis and improve your time management skills 

If you are struggling with time management, by implementing the Pareto principle into your everyday life, you’ll spend more time focusing on priorities and eliminating time wasters.

By using both Clockify and the Pareto analysis to boost up your time management skills, you may achieve peak performance.

Jelena is a productivity author and researcher who enjoys doing extensive research on proven time management techniques and skills. Writing about time management helped Jelena master her skills, and now she is more than eager to bring personal experience into her writing and help people sharpen their skills.

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How To Complete A Pareto Analysis: A Step-By-Step Guide

A Pareto analysis is a statistical tool used to identify the most important factors in a process or system.

A Pareto analysis helps determine which factors have the greatest cumulative effect and should therefore be prioritized for improvement.

What is a Pareto Analysis?

A Pareto analysis in project management involves ranking factors by their frequency or impact.

The purpose is to identify the “vital few” causes that should be addressed versus the “trivial many”.

This technique helps corporate trainers to focus efforts on the 20% of causes that produce 80% of the problems or defects.

10 Characteristics of a Pareto Analysis

• Focuses on the most impactful factors.
• Shows relative importance of factors.
• Highlights root causes of problems.
• Allows prioritization of issues to address.
• Uses the 80/20 rule as a guideline.
• Relies on data collection and analysis.
• Presents data visually in a bar chart.
• Bars are arranged in descending order of frequency/impact.
• Cumulative line shows combined effect.
• Identifies cut-off for vital few factors.

10 Ways Pareto Analysis is Used at Work

• Identifying product defects and quality issues.
• Diagnosing equipment failures and downtime.
• Reducing customer complaints and returns.
• Improving manufacturing productivity.
• Streamlining processes to reduce costs.
• Prioritizing risk factors and mitigation strategies.
• Focusing improvement and Kaizen events.
• Targeting causes and effects of accidents and injuries.
• Concentrating on most profitable products/services.
• Optimizing marketing and sales efforts.

Features, Benefits and Challenges of Pareto Charts

• Visual bar graph format.
• Bars arranged by descending frequency/impact.
• Highlights vital few factors to focus on.
• Easy to understand graphical format.
• Helps guide data-driven decisions.
• Allows prioritization of issues.
• Identifies cut-off for actionable factors.

Challenges:

• Dependent on accurate data collection.
• Open to bias in classification of factors.
• Does not consider cost/effort to address factors.
• Can oversimplify root cause analysis.

Tips and Techniques for Pareto Analysis

• Clearly define the problem or issue being analyzed.
• Identify all potential factors related to the issue.
• Collect accurate data on the frequency or impact of each factor.
• Carefully categorize the factors for analysis.
• Arrange the factors in descending order of frequency/impact.
• Identify the cut-off for the vital few factors.
• Focus efforts on the top 20% of factors identified.
• Continually collect data to re-analyze and validate results.
• Use Pareto analysis along with other problem-solving tools.

Example Uses of Pareto Analysis at Work

• Analyzing reasons for customer churn to identify key retention strategies.
• Examining equipment downtime to prioritize maintenance efforts.
• Reviewing injury reports to develop targeted safety programs.
• Studying product returns to improve quality processes.
• Evaluating sales data to focus marketing on best-selling items.
• Assessing workflow interruptions to improve processes.
• Reviewing project risks to prioritize mitigation plans.
• Analyzing employee training needs to target key development areas.

Here are the key steps involved in conducting a Pareto analysis:

Define the problem or issue to analyze

• Clearly identify the specific problem, defect, error, or issue that you want to analyze with Pareto.

Identify the potential causes or factors

• Brainstorm all the possible factors, causes, or variables that could be contributing to the problem.

Collect data on the frequency or impact

• Gather data on how often each cause occurs or its relative severity or impact.

Categorize the causes

• Group related causes into distinct categories for analysis. Avoid overlapping categories.

Arrange the categories in descending order

• Sort the categories from most frequent or highest impact to least.

Create a bar chart

• Make a bar chart with the causes on the x-axis and the frequency or impact on the y-axis.

Add a cumulative line

• Add a cumulative percentage line to show the cumulative effect.

Analyze the chart and identify the vital few

• Look for the big drop-offs in frequency/impact to identify the “vital few” causes.

Focus efforts on the vital few

• Target the top 20% of causes for solutions to have the biggest impact.

Continue to measure and monitor results

• Collect ongoing data and redo the Pareto analysis to assess improvements.

Following these steps will allow you to leverage Pareto analysis to focus your attention on the factors that matter most for solving problems.

The key is concentrating efforts on the vital few causes that drive the majority of the impact.

Pareto analysis is a simple but powerful tool that focuses efforts on the most impactful factors to drive improvement. By visually ranking causes, it identifies the vital few drivers to address.

Pareto analysis leads to data-driven decision making, more efficient resource allocation, and better results.

With its focus on leveraging the 80/20 rule, Pareto analysis encourages focusing efforts where they will have the greatest effect.

By continually applying this statistical technique, organizations can consistently identify and prioritize the root causes of problems.

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Mastering Efficiency: How To Conduct a Pareto Analysis

• 1 Understanding the Pareto Principle
• 2 Identifying the Area of Focus
• 3 Gathering Data
• 4 Performing Pareto Analysis
• 5 Developing an Action Plan
• 6 Applying Pareto Analysis for Personal Productivity
• 7 Applying Pareto Analysis in Business
• 8 Steps to Create a Pareto Chart
• 9 Tips for Effective Use of Pareto Charts
• 10 Understanding the Obstacles in Pareto Analysis
• 11 Strategies to Overcome Obstacles
• 12 Case Studies: Real-World Examples of Overcoming Obstacles
• 13 Conclusion

In today’s fast-paced world, maximizing productivity has become a top priority for individuals and organizations alike. We are constantly seeking ways to streamline our efforts, eliminate inefficiencies, and make the most of our limited resources. One technique that has gained significant attention in the productivity realm is the Pareto Analysis, also known as the 80/20 rule.

Understanding the Pareto Principle

Before we dive into the details of Pareto Analysis, let’s take a moment to understand the concept and its origins. Named after Italian economist Vilfredo Pareto, the Pareto Principle, commonly known as the 80/20 rule, states that approximately 80% of the outcomes are a result of 20% of the inputs or causes. This principle can be applied to several areas of life, including productivity.

For example, in business, it is often found that 80% of a company’s profits come from 20% of its clients. Similarly, in personal time management, 80% of our results come from 20 percent of our efforts. Understanding and leveraging this principle can be incredibly valuable in boosting productivity .

Identifying the Area of Focus

The first step in conducting a Pareto Analysis is to identify the specific goal or problem that you want to address. It could be a project with numerous tasks, a business process causing bottlenecks , or even personal time management issues. Once you have identified the area to focus on, you can move on to the next step.

Next, assess the different areas that are affected by the identified goal or problem. For example, if you are looking to improve productivity in a business process , consider all the stages and factors involved. This could include technology, human resources , communication, or any other relevant areas. By gaining a holistic understanding of the situation, you can accurately pinpoint the areas that have the most significant impact on productivity.

Finally, prioritize the areas you have identified based on their potential impact. Focus on those areas that, if improved, would produce the most substantial results. These are the areas where the Pareto Principle can be effectively applied, as they have the potential to yield the greatest returns with minimal effort.

Unleash your true potential by harnessing the power of the 80/20 rule. Boost your productivity and transform your life! Check out this mind-blowing blog post:  #ParetoAnalysis #ProductivityBoost

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Gathering Data

Once you have identified the area to focus on and prioritized the relevant factors, it’s time to gather the necessary data. Look for relevant data sources that can provide insights into the identified areas. This could include sales reports, time-tracking tools, customer feedback, or any other data that can shed light on the situation.

Sort and organize the data into manageable categories. This step is crucial to ensure that you are working with structured and easily accessible information. Depending on the nature of the data, you may find it helpful to create graphs, tables, or other visual representations that make the analysis process more efficient.

Performing Pareto Analysis

With the data organized, it’s time to perform the actual Pareto Analysis. One useful tool for this purpose is the Pareto chart. A Pareto chart visually represents the frequency or impact of different factors, allowing you to identify the significant contributors more easily.

Plot the data on a Pareto chart, arranging the factors in descending order based on their frequency or impact. This will help you visualize which factors are the most significant and warrant immediate attention.

Now comes the analysis part. Examine the Pareto chart to identify the vital few factors that contribute the most to the identified goal or problem. These are the 20% of inputs or causes that have an 80% impact. By focusing your efforts on these vital few factors, you can make the most efficient use of your resources and achieve significant productivity improvements.

Developing an Action Plan

Armed with the knowledge of the vital few factors, it’s time to develop an action plan. Formulate strategies that prioritize and address these factors head-on. Depending on the nature of the factors, this could involve implementing specific changes, investing in additional resources, or reallocating existing resources for maximum impact.

Implement the identified corrective measures and closely monitor and track progress. This will help you evaluate the effectiveness of the action plan and make any necessary adjustments along the way. By regularly reviewing and measuring your progress, you can ensure that your efforts are on track and that you are continuously improving productivity.

Applying Pareto Analysis for Personal Productivity

The Pareto Analysis is not limited to business or organizational settings; it can be equally effective in personal time management . Consider identifying personal time-wasting habits and analyzing how often these habits occur and their impact on productivity.

For instance, if you find that excessive time spent scrolling social media is one of your major time-wasters, you can develop strategies to cut back on this habit. By targeting the vital few time-wasters, you can reclaim valuable hours in your day and focus on activities that contribute to your overall goals and productivity.

Applying Pareto Analysis in Business

In a business context, Pareto Analysis can be instrumental in pinpointing inefficiencies in workflows or processes. By identifying the vital few factors causing delays or bottlenecks, you can make targeted improvements, resulting in enhanced overall productivity and efficiency.

For example, if you notice that a particular stage in your project management process consistently delays progress, you may want to investigate and address the root causes behind it. This could involve implementing software solutions, providing additional training, or reorganizing responsibilities to minimize the impact of these bottlenecks.

Steps to Create a Pareto Chart

Creating a Pareto chart may seem daunting at first, but fear not! Follow these simple steps, and you’ll be a Pareto chart pro in no time.

1. Identify the problem or process to be analyzed

Begin by clearly defining the problem or process you want to address. This step sets the foundation for your Pareto chart and ensures you stay focused on the objectives.

2. Collect and organize relevant data for analysis

Next, gather the necessary data to understand the problem better. This data should be factual, accurate, and relevant to the specific issue at hand. Organize the information in a way that is easily accessible for analysis.

3. Calculate the frequency or occurrence of each factor

In this step, determine the frequency or occurrence of each factor contributing to the problem. Focus on quantifiable data to ensure objective analysis. This information will be used to establish the basis of your Pareto chart.

4. Sort the factors in descending order of significance

Once you have the frequency data, sort the factors in descending order based on their significance. The most significant factor should be at the top, while the least significant should be at the bottom. This arrangement enables you to prioritize your efforts effectively.

5. Generate a bar chart to visually represent the Pareto chart

With the sorted data in hand, it’s time to create your Pareto chart. One of the most common ways to represent this chart is through a bar graph. The height of each bar corresponds to the frequency or occurrence of each factor, while the bars are arranged in descending order.

6. Add cumulative percentages for effective analysis

Enhance your Pareto chart by including cumulative percentages. These percentages represent the total contribution of each factor to the overall problem. They allow for a clearer understanding of the combined impact of the top few factors.

Tips for Effective Use of Pareto Charts

Now that you know how to create a Pareto chart, here are some essential tips for getting the most out of this powerful tool:

First, choose a clear and concise title for your chart. This title should accurately reflect the problem or process you’re addressing, making it easier to communicate and understand.

Next, use appropriate labels for the axes of your chart. Clearly indicate what each axis represents to provide context and ensure the chart is easily interpreted.

Accurate data collection and calculation are vital for a reliable Pareto chart. Double-check your data sources and calculations to ensure the chart’s integrity and validity.

Regularly update and reassess your Pareto chart as you gather new data or address specific factors. This will keep your analysis current and help you stay on top of any changes or improvements.

Finally, communicate your findings and motivate change using the Pareto chart. Use it as a visual aid to demonstrate the significance of the problem and the need for action, inspiring others to join the efforts for improvement.

Understanding the Obstacles in Pareto Analysis

Lack of data accuracy and completeness.

One common obstacle in Pareto Analysis is the lack of accurate and complete data. Without reliable data, it becomes challenging to identify the key issues and prioritize them effectively. To overcome this obstacle, it is crucial to establish data collection protocols and ensure that all data sources are trustworthy and up-to-date. By investing in data management tools and techniques, organizations can streamline the process of data collection, verification, and analysis, enabling more accurate Pareto Analysis results.

Difficulty in categorizing and prioritizing issues

Categorizing and prioritizing issues can be a daunting task, especially when there are multiple factors to consider. To overcome this obstacle, it is essential to establish clear criteria for categorization. By defining specific categories and guidelines, organizations can ensure consistency and accuracy in the classification of issues. Additionally, developing a framework for priority setting helps in identifying the most critical problems that require immediate attention. By involving cross-functional teams in this process, a broader perspective can be gained, leading to better categorization and prioritization.

Resistance to change and fear of accountability

Resistance to change and fear of accountability are common obstacles that can hinder the successful implementation of Pareto Analysis. Some employees may feel uncomfortable with the idea of change, fearing that it might expose their weaknesses or lead to increased scrutiny. Overcoming this obstacle requires creating an environment of employee engagement and buy-in. By involving employees in the problem-solving process and clearly communicating the benefits of Pareto Analysis, organizations can alleviate fears and foster a culture of continuous improvement. Providing necessary training and resources for skill development further encourages employees to embrace change and be accountable for their actions.

Strategies to Overcome Obstacles

To overcome the obstacle of data accuracy and completeness, organizations should implement data collection protocols. These protocols should define the methods, tools, and frequency of data collection, ensuring consistency and reliability. Additionally, investing in data management tools can streamline the process and provide real-time access to accurate and complete data. By prioritizing data quality, organizations can enhance their Pareto Analysis results and make informed decisions.

Enhancing categorization and prioritization processes

Establishing clear guidelines for categorization is key to overcoming this obstacle. By defining specific criteria for each category, organizations can eliminate ambiguity and ensure consistent classification of issues. Furthermore, engaging cross-functional teams in the categorization process brings different perspectives and expertise, leading to a more comprehensive understanding of the problems at hand. By prioritizing issues based on their impact and urgency, organizations can effectively allocate their resources and address critical areas first.

Fostering a culture of accountability and change

To overcome resistance to change and fear of accountability, organizations need to create a supportive environment. This can be achieved by providing employees with the necessary training and resources to develop the skills required for successful problem-solving and decision-making. Recognizing and rewarding successful outcomes reinforces the importance of taking ownership and being accountable for the results. By nurturing a culture that values continuous improvement, organizations can overcome this obstacle and fully leverage the power of Pareto Analysis.

Case Studies: Real-World Examples of Overcoming Obstacles

Case study 1: improving customer satisfaction ratings.

In our first captivating case study, we encounter a company grappling with persistently low customer satisfaction ratings. Frustration rippled through the organization as they were left puzzled by the root causes behind the dissatisfaction. Thankfully, Pareto Analysis came to the rescue!

Through careful examination of customer feedback and data, the team applied Pareto Analysis to identify the main drivers of discontent. They discovered that a small fraction of issues, such as prolonged response times and incorrect product shipments, were responsible for a significant portion of the negative feedback.

Empowered with this knowledge, the company equipped itself with actionable insights to tackle the problem head-on. They prioritized addressing these vital factors by implementing measures like streamlining customer service processes, enhancing training programs, and optimizing order fulfillment procedures.

Fast forward a few months, and the results spoke for themselves. Thanks to the targeted interventions guided by Pareto Analysis, customer satisfaction ratings soared, transforming disgruntled customers into loyal brand advocates.

Case Study 2: Reducing Production Line Defects

Our next thrilling case study takes us to a bustling manufacturing company plagued by a high volume of defects in their production line. The impact of these defects was detrimental, resulting in wasted resources, customer complaints, and decreased profitability. Frustrated by the mounting losses, the company turned to Pareto Analysis for a lifeline.

The diligent team meticulously audited their production line, collecting data on potential causes of defects. Armed with this data, they employed Pareto Analysis to identify the critical few factors triggering the majority of the defects. Surprisingly, they discovered that a handful of issues, such as machine calibration errors and inadequate quality control processes, were at the root of their woes.

Energized by these revelations, the company engineered specific actions to address these key problem areas. They recalibrated machinery, implemented advanced quality control measures, and invested in comprehensive training programs for their workforce.

The results were astounding. Production line defects dwindled, leading to fewer customer complaints, improved product quality, and increased profitability. Pareto Analysis had once again proven its extraordinary ability to create impactful change.

Case Study 3: Optimizing Inventory Management

In this final riveting case study, we venture into the retail industry, where a company faced challenges with excessive inventory levels and frequent stockouts. Prodigiously, they sought guidance from the ever-reliable Pareto Analysis to regain control over their inventory management.

With determination, the company gathered a trove of data relating to its inventory imbalances. Armed with this information, they employed Pareto Analysis to discern the most influential factors contributing to the issue. To their astonishment, they discovered that a small portion of their products accounted for the majority of their stockouts and excess inventory.

With clarity in sight, the company set forth to tackle these vital few factors. They implemented strategies such as demand forecasting, inventory optimization algorithms, and strategic vendor partnerships to address the root causes of their inventory management challenges.

The outcomes were remarkable. The company experienced a substantial reduction in stockouts, resulting in improved customer satisfaction and increased profitability. Furthermore, their excess inventory diminished, leading to reduced storage costs and improved cash flow. Pareto Analysis had yet again proven its potency in unlocking efficiency and profitability.

By incorporating the Pareto Analysis into our lives, both personally and professionally, we can achieve enhanced productivity by focusing our efforts on the vital few factors that yield the greatest results. Understanding and leveraging the power of the Pareto Principle allows us to streamline our activities, eliminate inefficiencies, and make the most of our resources. Armed with this knowledge, we can make informed decisions, prioritize effectively, and ultimately boost our productivity, leading to improved outcomes in all areas of life.

  TEC 5970/INT 5970 Problem Solving Problem-Solving Tool VI: Pareto Analysis

The Pareto analysis or Pareto chart is a bar graph that ranks problems in decreasing order of occurrence frequency. The concept was originated by Italian economist Vifredo Pareto. Its principle states that the comparative distribution of certain economic factors, such as wealth, follows an inverse relationship. Pareto discovered and theorized that 80 percent of the wealth in his country in the early 1900's was concentrated in 20 percent of the population.

The Pareto's concept was introduced to solve manufacturing quality problems by Dr. Joseph M. Juran. He discovered that the 80 percent - 20 percent split also occurs in manufacturing and quality problems. Eighty percent of the scrap is caused by 20 percent of the problems, and 80 percent of the dollar loss caused by poor quality is concentrated in 20 percent of the quality problems. Of course, in reality the 80 percent - 20 percent split is not exact; the percentages vary quite a bit. A more precise statement is that a few of manufacturing process characteristics (vital few) cause most of the problems on the line, whereas most process characteristics (trivial many) account for very little of the problems on manufacturing line. The important outcome of a Pareto chart is its assessment of process problem priorities. It separates the vital few problems from the trivial many. It is one of the most widely used and effective problem solving tools in manufacturing.

When a problem analysis is performed for a Pareto chart, data are gathered that give the number of occurrences for each problem and the dollar loss associated with it. When all the data have been collected, percentages can be tabulated for both the number data and the dollar loss data.

The procedure for making a Pareto chart is as follows:

1. Decide on the subject of the chart. Usually the need to set data priorities suggests the use of a Pareto analysis. Determine what data are to be collected.

-Where is the problem? -What are the categories? Where should the data be gathered? -Should they come directly off a line? -Should they come from a bin of nonconformities that have accumulated in the specified time period?

2. Be sure the time period for all the categories is the same: Use the number of nonconformities per hour, per shift, or per week.

3. What type of chart is needed? Should you tract the numbers in each category, the percent in each category, or the costs in each category? A cost chart is usually included with either a number chart of a percent chart.

4. Make a table by gathering the data and tallying the numbers in each category. Make a cost of nonconformities column and a cumulative percent column.

5. Arrange the table of data from the largest category to the smallest. List the category of others after the smallest for those causes that could not be identified.

6. Set the scale and draw a Pareto chart.

7. Include all pertinent information on the chart. Are the categories clear? Has the time frame been specified?

8. Analyze the chart. The largest bars represent the vital few. The cumulative percent line levels off and emphasizes the trivial many. If the chart does not show a vital few, check to see if it is possible to re-categorize for another analysis.

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An analysis of nonconforming shirts in a week's production revealed the following causes. The nonconforming shirts were discounted according to defect and sold to Bargain Bin Incorporated and the dollar loss noted.

The data have been organized in the table according to the number of defects in each category. The percentages were calculated as follows:

1 . Add the values in the number of defective shirts column to get the total number of defects.

2. Divide each number of defects by the total from step 1 and multiply by 100 to get the percent of the total number of defects.

The percents of defective shirts with loose threads or hemming problems, for example, are calculated according to the two steps:

Loose threads: 2300/5000*100 = 46%

Hemming: 1650/5000*100 = 33%

The percents were totaled in the last column.

Pareto Charts:

Theareto chart can be formed in a few different ways. Figure 1 shows the basic chart with the number of defective shirts on the vertical scale and the different categories on the horizontal scale. Figure 2 shows the dollar loss on the vertical axis and the categories as the charted values go from largest to smallest. Figure 3 is a combination of two Pareto charts. The left scale tracks the number of defects per category with the bar graph, and the right scale tracks the accumulated percent of all defects with a line graph. It is common practice to combine a cummulative percent chart with a percent of defects chart and also with a dollar loss chart.

In all cases, the culmulative percent line levels off at the trivial many.

Figure 1. A Preto chart for the example of the number of nonconforming shirts per week with the number of defects per category per week.

Figure 2 . A Pareto chart for the example showing the dollar loss per category per week.

Figure 3 . A Pareto chart for the example showing the number of defects and the cumulative percent.

WORKING EXAMPLE

The aerospace firm has identified the following defect categories for the tanks manufactured.

Perform Pareto analysis to identify the major causes for improving the product quality.

Harnessing the Power of the Pareto Principle

"A clinic used the Pareto diagram to improve its insurance billing process" by Marti BBfflJamin and James 6. Shaw

Like many other small and midsized businesses, San Jose Medical Group in California needed to upgrade its computer system to keep up with increasing computer needs. So, in the summer of 1990, new software and hardware were installed The system interfaced with many of the clinic's key administrative processes, such as patient scheduling, patient registration, charge entry, insurance claims submission, and collections.

In the months following the upgrade, the process of billing insurance companies for payment deteriorated rapidly. The seriousness of the situation emerged when, after 120 days on the new system, accounts receivable had climbed by almost $1 million. By the 180-day point, accounts receivable had more than doubled compared to the pre-upgrade level. Shortly after that, reduced cash flow began to threaten the clinic's existence.

Management had to act quickly to avert disaster. It already had a process improvement effort under way to resolve an unrelated, but equally critical, situation involving the movement of medical records between the main clinic and eight branch offices. A quality improvement team (QFT) was formed to solve the problem. Within 60 days, the medical records situation began to improve dramatically.1 Since the same techniques that improved the movement of medical records could also be applied to the deteriorating cash flow situation, management decided to form a second QFT.

The second QFT consisted of executives, middle managers, and One personnel. The team met for 90 minutes each week. Since the team members weren't proficient in applying quality improvement techniques, an outside quality improvement expert was retained to facilitate team meetings, provide statistical quality control support, perform analyses, and train team members as needed.

The problem

Prior to upgrading the computer system, an in-house data entry department scrutinized claims before sending mem to the insurance companies for payment. After the upgrade, the clinic contracted with a clearinghouse to perform this task. The clinic now sends its claims electronically to the clearinghouse, which validates each data field on the claims by applying tests to the data. The claims that pass the tests are forwarded to the appropriate insurance carrier for payment. The ones that fail are returned to the clinic within a day or two along with a note indicating why they were rejected. If the clinic were to submit an erroneous claim directly to an insurance carrier, three to four weeks would likely pass before the clinic would be notified of the error. By using the clearinghouse, the entire process of reworking errors is accelerated.

Management believed however, that the clearinghouse was rejecting an abnormally high number of insurance claims. Therefore, the QIT's initial meeting focused on the reasons why payment claims were being rejected. A Pareto diagram was constructed showing the main reasons for payment rejections over a two-week period (see Figure I). The team concentrated on the "vital few" causes displayed to the left of the 80/20 line (i.e., the causes of 80% of the rejections) and concluded that the principal problem was incorrect patient insurance information (e.g., wrong policy number, wrong member number, or incorrect social security number). Since this information was entered during the patient registration process, the team's corrective action initially focused on improving the registration process.

Figure1. Initial Pareto Diagram of Reasons for payment Claim Rejections by the Clearinghouse

In hindsight, the registration process was an obvious starting point in the improvement effort. There are literally thousands of insurance companies, preferred provider organizations, and health maintenance organizations (payers). Each provides its members with identification cards displaying the insurance information in creative, nonstandard-ized formats. Given the wide variety of identification card formats, it is difficult for the person registering the patient to obtain the proper information. Therefore, the clinic had come to routinely expect registration errors.

Prior to converting to the new computer wct*m the clinic believed its claim rejection rate was about 4%. The new computer system, however, did not generate reports regarding the clearinghouse's claim rejection rate. Thus, the QIT had to estimate the current rejection rate by manually tallying several weeks' worth of claims. That exercise indicated that the clearinghouse rejection rate was about 20%. Assuming the rejection rate of the tallied claims was generally accurate for all claims submitted for payment, it meant the clinic was experiencing a fivefold increase in claim rejections compared to the pre-upgrade average.

The team members decided their initial goal should be to get the rejection rate back down to the pre-upgrade average of 4%. They also decided that the process should be continuously monitored to verify that each change made by the QIT resulted in an improvement. The QIT contemplated developing a run control chart to distinguish special cause variation from common cause variation, but the computer runs were too sporadic, and the necessary computer-generated data were not routinely available.3 (Sometimes certain key programs weren't run for a week or more because of the computer's slow processor speed and lack of disk space.) Rather than manually gathering the data, the team opted to continue using only the Pareto diagram coupled with an occasional manual calculation of the claim rejection rate. This approach meant revising the Pareto diagram before each meeting so that it reflected only the output errors related to the payment rejections received since the last meeting.

Since any one of more than 70 employees might enter patient information at any one of more than 100 different terminals, the QIT collected the payment rejections on a "by reason by location" basis. Location information was tracked only at the branch level because the computer software wasn't capable of cracking data entry information by user identification or terminal identification. A check sheet was manually constructed and completed to summarize each week's claim rejections. (Computer-generated reports showing such information were not readily available.) The total listing of rejections by reason was then displayed in a Pareto diagram at the team's weekly meeting. During the meeting, the team would brainstorm and prioritize the possible causes for the various rejections. Action items were developed, given due dates, and assigned to team members.

The stacked-bar Pareto diagram

At first, team members used only a single bar in the Pareto diagram. It wasn't long, however, before they wanted more information displayed. This was understandable because the basic Pareto diagram shows only one aspect of the data being tracked on the check sheet. Only a count of rejections by location or a count of rejections by reason could be shown—not both.

Since the team members had quickly grasped how to interpret the Pareto diagram, the facilitator introduced them to the stacked-bar Pareto diagram. Whereas the basic Pareto diagram ranks only one factor, the stacked-bar Pareto diagram ranks two. The team readily grasped how to interpret this chart and found it much more useful than the single-bar version because it showed both the count of rejections by location and the count of rejections by reason.

The stacked-bar Pareto diagram became the primary tool for monitoring the process's performance. It was easy to construct using the available personal computer (PC) spreadsheet software. In fact, a macro was developed that allowed a clerk with no knowledge of spreadsheets to transfer the most recent check sheet counts to the PC spreadsheet and print the stacked-bar Farcco diagram prior to each QIT meeting.

Unintentionally, one stacked-bar Pareto diagram was printed in color. The team members reacted positively; they felt that the use of color made it much easier to understand the displayed data. Co-workers also seemed to like the colored chart better; they paid much more attention to it than they did the black-and-white ones that were previously hung in their work areas. From then on, the charts were always printed in color.

Improving the process

During the first few months of its existence, the team developed and implemented more than 100 action items. The initial action items focused on getting the new computer system to better validate the information at the time of data entry. Although the data were entered on-line, the new computer system wasn't able to check the data for much more than numeric or alphanumeric content. Instead of verifying the data in real time, the system depended on the clearinghouse to detect errors. Thus, no one in the clinic was notified of data errors until several days after data entry. By then the patient was gone, and it was not easy to correct the suspected information.

The team felt that, ideally, the software should have provided data validation feedback at the time the patient was being registered. That way, if errors occur, they can be corrected while the patient (and the patient's insurance card) are at the terminal and still readily accessible. The fact that the new system didn't have this capability proved disappointing to the team members because it increased the difficulty of their task.

Once the team members accepted that the computer system could not be modified, they decided that the quickest way to improve was to make every user an expert in the system's limitations and possible circumventions. Therefore, the next phase of improvement action items was targeted at intensely training computer users. Early in this phase, the process was flow-charted as shown in Figure 3. A training nmcrmm for employees was then developed. The program was pilot tested in one location and then phased in at other locations. Revisions were common during the early stages, and the training manual quickly grew to more than 50 pages. This training program proved to be significantly better than the initial one provided by the software supplier.

Figure 3. Flowchart of the Clinic's claim for Payment Submission Process.

Verifying success

Team members were eager to see results, so each weekly meeting began with a review of the most recent stacked-bar Pareto diagram. The team brainstormed the main causes for the prior week's rejections and developed action assignments designed to prevent the problems' recurrence. The team also reviewed the status of each open action item at least every third meeting.

Collecting data to prove conclusively that the process was improving was difficult since the computer software would intermix payment resubmissions with first-time submissions (see Figure 3). In addition, the computer system reports, when available, did not distinguish between rejections of the resubmissions and rejections of the first-time submissions. The team was able to satisfy itself that incorrect patient insurance information was no longer the leading reason for payment failure by manually screening the rejections based on date of service and by using the stacked-bar Pareto diagram.

By the 12th week, the team began focusing its attention on some of the original "useful many" causes of rejection (i.e., the causes that initially accounted for only 20% of the rejections). By this time, the useful many causes had moved up in the stacked-bar Pareto diagram because the other leading causes were eliminated or controlled.

A plot of the clearinghouse's total number of rejections during the first five months of the improvement effort showed a distinct downward trend (see Figure 4). In fact, the total errors per month had fallen by more than half of what they had been at the beginning of the improvement effort. Since this total count of rejections included payment claims that were being reprocessed a second or third time, the clinic's first-time error rate was presumed to be even lower.

Figure 4. Montly Trend in Total Payment Claim Rejections by the Clearinghouse, Including Rejections of Resubmissions.

The stacked-bar Pareto diagram produced for the QIT's 20th meeting, however, displayed a sudden reversion back to the original causes for rejection, but only within one branch. Investigation revealed that the source of the errors was a part-time employee who was on vacation when the training was conducted. A crash course for that person prevented the problems from recurring.

Throughout the improvement effort, an occasional manual calculation was performed to track the rejection rate. By the 22nd week, these calculations indicated that the rejection rate had indeed been reduced to 4%. The team members had achieved their goal. They did not, however, terminate their efforts. Instead, they set a new goal: reduce the rejection rate to 2% or less. As Figure 5 shows, the team eventually achieved that objective, and as a result, the clinic achieved its lowest-ever rejection rate.

Figure 5. Montly Trend in Payment Claim Rejections by Insurance Companies.

Pareto principle prevents disaster

Although the clinic's computer system upgrade almost meant disaster for the organization, the quality improvement team was able to turn the tables by using the stacked-bar Pareto diagram and other quality tools and techniques. Not only did the team reach its initial goal of getting the rejection rate back to the preupgrade status, it also reduced the rate to an all-time low.

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1. James Shaw. "Making Quality Improvement Work." Group Practice Journal, January/February 1992, pp. 5-23. 2. Ronald D. Moen and Thomas W, Nolan. "Process Improvement" Quality Progress. September 1987, pp. 62-68. 3- Howard Gitlow, Shelly Gitlow, Alan Oppenheim, and Rosa Oppenheim. Tools and Methods for the Improvement of Quality (Boston, MA: Richard D. Irwin, Inc., 1989), pp. 460-462. Marti Bemjamin was the director of marketing at San Jose Medical Group, Inc. in San Jose. CA. She currently is a manager of ambulatory care at Lucile Salter Packard Children's Hospital in Stanford, CA. She received a bachelor's degree In management from Marylhurst College in Marylhurst, OR. James G. Shaw is the principal of Shaw Resources in Cupertino, CA. He received a master's degree in business administration from the University of California at Berkeley. Shaw is a member of ASQC- © 1993 by Shaw Resources, Cupertino, CA. All rights reserved.

Class Resources School of Technology College of Business & Applied Sciences Eastern Illinois University

Table of Contents

What is a pareto chart, pareto principle explained, when to use a pareto chart, steps of pareto analysis, pareto chart procedure: how to create a pareto chart, advantages of pareto analysis, disadvantages of pareto analysis, example of pareto analysis, understanding pareto chart: analysis and interpretation.

With the ability to visualize and prioritize issues based on how frequent or serious they are, a Pareto chart is an amazing tool for anyone involved in problem-solving or decision-making processes . It can be particularly beneficial for managers, analysts, engineers, and anyone else within various domains such as business management, quality control, project management, or process improvement.

Deriving from the Pareto Principle, i.e., 20% of the causes give 80% of the impact, this chart represents the data in descending order by emphasis on the most significant factors. The power of the Pareto Principle lies in the fact that because of the clear graphical representation, individuals can concentrate mostly on really important issues. 

A Pareto chart is a composite chart that uses bar graphs to convey the major factors causing a problem or issue. It mixes up the bar graph and line chart, with the bars showing individual category factors separately and the line showing the number of parts out of the total.

The idea behind the Pareto chart is rooted in the Pareto Principle, the 80*20 rule. The Pareto chart starts with data collection and decomposition, which refers to the major causes of the problem. Now, factors are placed into the scale of the following ranking system: 

• The higher the position is, the more essential the factor is. 

As for the Rule of Plurality, the one leading in the rating system becomes the first factor. The frequency for each group is illustrated in a bar graph and a line graph.

Pareto charts enable decision-makers to identify the most crucial problems or improvement opportunities quickly. This pattern allows them to prioritize different programs or projects and allocate resources effectively, thereby producing more targeted and effectively implemented solutions.

The concept of the Pareto Principle is such that according to it, the effects of 80% of the results are caused by 20% of their causes. The 'Pareto 80/20 Principle' was named after Vilfredo Pareto, an Italian economist, who noticed that almost 80% of the earth was enjoyed by 20% of the population in Italy. This principle becomes equally relevant to many observed facts at different edges of science.

In business or economic matters, the Pareto Principle highlights that a small percentage of input or efforts can frequently yield a large proportion of results or outcomes. For example, it could help the management understand that 80% of a company will bring in 20% of the profits or that 80% of the problems are caused by 20% of the causes.

The rule also works outside the economy; for example, in time management, it helps us prioritize activities by demonstrating that 80% of productive efforts are devoted to only 20% of the tasks done consistently. 

While the exact percentages may vary in different contexts, the main idea remains consistent: most often, a minority of inputs or, sometimes, only many forces are forcing the majority of results or outcomes.

A Pareto chart is best used when you need to:

• Identify Priorities: A Pareto chart is useful when many factors are contributing to the final result. Having this tool from day one will equip you with knowledge of what factors hold the highest priority and where resources should be applied. 
• Communicate Effectively: Pareto charts offer a graphical way of displaying data , making it easier to tell the management what was found. 
• Track Progress: Providing continuous updates to the chart with new data, you will have a chance to evaluate whether the activities targeting the most potent factors are giving the desirable outcomes and to adjust strategies if needed.
• Problem-Solving: Very complex problems require dissection into simpler parts, which is where Pareto charts are important. By recognizing the main drivers of the problem, it will be possible to plan and develop plans that target the hidden causes.

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The technique of Pareto analysis is applied to determine what leads to a certain situation and which issue needs to be focused on the most. The rule of Pareto is also known as the 80/20 rule, indicating that the majority of an effect is obtained from the minority of its causes. Here are the steps of Pareto analysis:

Define the Problem

Start by defining the problem you are trying to solve. It might be related to customer complaints, production process inefficiencies, or equipment malfunctions. Ensure that the selected issue is tangible enough and can be measured properly, thereby facilitating the process of collecting and analyzing data.

Collect Data

Gather information about the problem you knew about from the existing sources. This might include customer feedback, reports, process logs, or other data sources that provide insights into the issue. Ensure that the data is accurate , complete, and representative of your problem.

Categorize the Data

Grouping or categorizing the data based on the different factors that impact the problem could be encouraged. For example, when working with customer complaints, classify them by type of complaint to determine which issue is the most important, such as poor product quality, delayed delivery, or customer service problems.

Calculate Frequencies

Figure out the end frequency for every category by the number of factors in the data set. This step enables us to define the dimensional nature of every problem factor.

Calculate Cumulative Frequencies

Sum up the table entries where each category represents the most significant to the least significant factor for the cumulative frequency. This part helps you identify the extent of the whole problem, which each factor is monitoring.

Calculate Percentages

Calculate the percentages of each category's total problem by dividing each category's respective frequencies by their total frequency and multiplying by 100. This action eliminates biases and simplifies the comparison accuracy of each attribute.

Create a Pareto Chart

Create a Pareto chart using the categories and the amounts or percentages next to them. Plot the categories on the x-axis (horizontal line) and their frequency or percentages (vertical line). Classify the categories by the order in which they are displayed in line with their occurrence or size.

Identify the Important Ones

Know what categories of the total problem to be explained account for the biggest amount of the problem. These are the “vital few” coupled with the most significant factors. Like the Pareto Principle, your goal is to focus on the top 20 percent of the problem for about 80 percent of what was mentioned.

Analyze Root Causes

After the important step, when you’ve found the key problems, discover how they are deeply interconnected with the root cause. Conduct root cause analysis to uncover underlying issues or systemic problems that need to be addressed to mitigate the problem effectively.

Develop Action Plans

Based on the outcome of your analysis , design action plans to address the Pareto principle factors. By allocating resources and prioritizing interventions that address these factors, much more can be accomplished in delivering results.

Implement Solutions

Implement the identified actions to support the few key factors. Track the progress and take corrective measures to avoid duplication of efforts. In this case, your solutions should effectively solve the problem.

Monitor and Evaluate

Continuously monitor and assess the effectiveness of the measures implemented and react in case of problems or issues. Apply the data-driven approach to assess performance and to determine if the problem is being addressed satisfactorily. Make the needed adjustments or additions to the mechanism to complete the targets.

• To conduct a Pareto analysis, acquire data connected to the problem from various sources and put them into classes known as factors of the problem. Work out the frequency of the category appearance and get the cumulative frequencies. 
• Next, determine the percentage of each category for the problem as a whole. The highest percentage to the lowest are plotted on the x-axis, while their corresponding frequencies or percentages are shown on the y-axis. 
• Label the right vertical axis with the cumulative percentages (Note that the cumulative total should equal 100%).
• Draw in the bars for each item.
• Next, draw a line graph of the cumulative percentages. Ensure that the first point on the line graph lines up with the top of the first bar.

With the chart prepared, the final step is analysis. Identify the items that appear to account for most of the difficulty. 

The importance of Pareto analysis includes the following aspects: 

• Pareto analysis helps identify the important factors or issues that contribute the most to a problem. By focusing on the vital few factors, organizations can allocate resources and efforts more efficiently, targeting areas where they must address the issues most importantly.
• Pareto charts provide a clear visual representation of data, making it easier to understand complex relationships and prioritize actions. 
• Pareto analysis is based on empirical data, enabling data-driven decision-making processes. 
• Pareto analysis helps in problem-solving . Instead of addressing every aspect of a problem equally, organizations can prioritize the root causes or key drivers.
• Pareto analysis can be used as part of a continuous improvement process to monitor progress. 
• It provides a common language for communicating findings and priorities to stakeholders.

While Pareto analysis offers several benefits, it also has some disadvantages: 

• Pareto analysis depends on selecting appropriate data categories to represent the problem. The nature of categorization can introduce bias and influence the results.
• Pareto analysis focuses on quantitative data, like counts or frequencies of occurrences. This numerical data emphasis may overlook the problem's qualitative aspects, such as root causes, context, or underlying dynamics. 
• Static representation of problems at a specific point in time, but they do not capture changes or trends over time. Continuous monitoring and updating of Pareto charts are necessary to ensure their relevance and effectiveness.
• Pareto analysis assumes that factors contributing to the problem are independent. However, in reality, factors may be interconnected.
• Pareto analysis focuses on identifying the vital few factors that contribute the most to the problem, which leads to neglecting minority factors that may still have significant implications. 

An example of Pareto analysis includes a case where a manufacturing company is experiencing product quality issues. The company decides to conduct a Pareto analysis to identify the most significant defects contributing to the overall quality problems. 

• Define the Problem: The company defines the problem as quality issues affecting its products, leading to customer complaints and decreased satisfaction.
• Collect Data: Data is collected from various sources, including defect reports, customer complaints, and quality control records. The data includes information on the types and frequency of defects observed in the products.
• Categorize the Data: The collected data is categorized into different types of defects, such as manufacturing defects, design flaws, material issues, and packaging errors.
• Calculate Frequencies: The frequency of occurrence for each defect type is calculated by counting the number of occurrences in the data set. For example, the data might show that there were 50 instances of manufacturing defects, 30 instances of design flaws, 20 instances of material issues, and 10 instances of packaging errors.
• Create a Pareto Chart: A Pareto chart is constructed, with the defect types plotted on the x-axis and their frequencies on the y-axis. The defect types are arranged in descending order of frequency, with the most common defect type appearing first.
• Identify the Vital Few: The Pareto chart reveals that manufacturing defects account for most quality issues, representing 50% of the total defects. Design flaws and material issues account for 30% and 20% of the defects, respectively, while packaging errors have a minimal impact.
• Analyze Root Causes: Further analysis is conducted to understand the root causes behind the manufacturing defects. This may involve examining production processes, equipment performance, training procedures, and quality control measures to identify areas for improvement.
• Develop Action Plans: Based on the analysis, action plans address the root causes of manufacturing defects. This might include implementing process improvements, enhancing quality control measures, providing additional training to staff, and refining product designs.
• Implement Solutions: The action plans are implemented, and changes are made to production processes, quality control protocols, and other relevant areas to reduce the occurrence of manufacturing defects.
• Monitor and Evaluate: Progress is monitored closely to assess the effectiveness of the implemented solutions. Key performance indicators, such as defect rates, customer satisfaction scores, and product returns, are tracked to measure improvement and identify areas needing further attention.

Pareto charts are invaluable tools for decision-making, offering a systematic approach to identifying and addressing key issues. Organizations can achieve maximum impact and drive continuous improvement by focusing efforts on the vital few factors. Simplilearn offers AI and machine learning courses that empower professionals to use advanced technologies for business transformation. Explore Simplilearn's courses on Generative AI for business transformation and Applied AI to gain the skills needed to thrive in today's data-driven world.

1. What are the components of a Pareto Chart?

Components of a Pareto Chart include bars representing categories and a line graph showing cumulative percentages.

2. What does the Pareto Diagram include?

The Pareto Diagram includes categories of factors contributing to a problem and their respective frequencies or percentages.

3. What is the 80/20 rule in Pareto charts?

The 80/20 rule in Pareto charts states that roughly 80% of effects come from 20% of causes.

4. Can Pareto charts be used for all types of data?

Pareto charts can be used for most data types, including categories, frequencies, or percentages.

5. What are the limitations of using Pareto charts?

Limitations of Pareto charts include subjectivity in data selection, overemphasis on quantitative data, and neglect of minority factors.

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7 Powerful Root Cause Analysis Tools and Techniques

By Sebastian Traeger

Updated: April 21, 2024

Reading Time: 5 minutes

1. The Ishikawa Fishbone Diagram (IFD)

2. pareto chart, 4. failure mode and effects analysis (fmea), 5. proact® rca method, 6. affinity diagram, 7. fault tree analysis (fta).

With over two decades in business – spanning strategy consulting, tech startups and executive leadership – I am committed to helping your organization thrive. At Reliability, we’re on a mission to help enhance strategic decision-making and operational excellence through the power of Root Cause Analysis, and I hope this article will be helpful!  Our goal is to help you better understand these root cause analysis techniques by offering insights and practical tips based on years of experience. Whether you’re new to doing RCAs or a seasoned pro, we trust this will be useful in your journey towards working hard and working smart.

Root Cause Analysis (RCA) shines as a pivotal process that helps organizations identify the underlying reasons for problems, failures, and inefficiencies. The goal is simple: find the cause, fix it, and prevent it from happening again. But the process can be complex, and that’s where various RCA techniques come into play. 

Let’s dive into seven widely utilized RCA techniques and explore how they can empower your team’s problem-solving efforts.

Named after Japanese quality control statistician Kaoru Ishikawa, the Fishbone Diagram is a visual tool designed for group discussions. It helps teams track back to the potential root causes of a problem by sorting and relating them in a structured way. The diagram resembles a fishbone, with the problem at the head and the causes branching off the spine like bones. This visualization aids in categorizing potential causes and studying their complex interrelationships.

The Pareto Chart, rooted in the Pareto Principle, is a visual tool that helps teams identify the most significant factors in a set of data. In most situations, 80% of problems can be traced back to about 20% of causes. By arranging bar heights from tallest to shortest, teams can prioritize the most significant factors and focus their improvement efforts where they can have the most impact.

The 5 Whys method is the epitome of simplicity in getting to the bottom of a problem. By repeatedly asking ‘why’ (typically five times), you can delve beneath the surface-level symptoms of a problem to unearth the root cause. This iterative interrogation is most effective when answers are grounded in factual evidence.

When prevention is better than cure, Failure Mode and Effects Analysis (FMEA) steps in. This systematic, proactive method helps teams identify where and how a process might fail. By predicting and examining potential process breakdowns and their impacts, teams can rectify issues before they turn into failures. FMEA is a three-step process that involves identifying potential failures, analyzing their effects, and prioritizing them based on severity, occurrence, and detection ratings.

The PROACT ® RCA technique is a robust process designed to drive significant business results. Notably used to identify and analyze ‘chronic failures,’ which can otherwise be overlooked, this method is defined by its name:

PReserving Evidence and Acquiring Data: Initial evidence collection step based on the 5-P’s – Parts, Position, People, Paper, and Paradigms.

Order Your Analysis Team and Assign Resources: Assembling an unbiased team to analyze a specific failure.

Analyze the Event: Reconstructing the event using a logic tree to identify Physical, Human, and Latent Root Causes.

Communicate Findings and Recommendations: Developing and implementing solutions to prevent root cause recurrence.

Track and Measure Impact for Bottom Line Results: Tracking the success of implemented recommendations and correlating the RCA’s effectiveness with ROI.

PROACT® RCA excels in mitigating risk, optimizing cost, and boosting performance, making it a valuable addition to any RCA toolkit.

The Affinity Diagram is a powerful tool for dealing with large amounts of data. It organizes a broad range of information into groups based on their natural relationships, creating a clear, visual representation of complex situations. It’s particularly beneficial for condensing feedback from brainstorming sessions into manageable categories, fostering a better understanding of the broader picture.

Fault Tree Analysis (FTA) is a top-down, deductive failure analysis that explores the causes of faults or problems. It involves graphically mapping multiple causal chains to track back to possible root causes, using a tree-like diagram. FTA is particularly useful in high-risk industries, such as aerospace and nuclear power, where preventing failure is crucial.

Each RCA technique provides a unique approach for viewing and understanding problems, helping you pinpoint the root cause more effectively. The key is to understand when and how to use each tool, which can significantly enhance your team’s problem-solving capabilities.

Power up your RCA analysis with our EasyRCA and revolutionize your problem-solving process. Start Your Free Trial.

In conclusion, the techniques presented offer a diverse set of tools to help organizations address problems and inefficiencies effectively. From visual representations like the Ishikawa Fishbone Diagram and Pareto Chart to more proactive approaches such as the 5 Whys and Failure Mode and Effects Analysis (FMEA), each technique provides a unique perspective on identifying and mitigating root causes.

The PROACT® RCA Method stands out for its comprehensive process, particularly suited for chronic failures. Additionally, the Affinity Diagram and Fault Tree Analysis (FTA) contribute valuable insights by organizing data and exploring causal chains, respectively. Leveraging these techniques strategically enhances a team’s problem-solving capabilities, enabling them to make informed decisions and drive continuous improvement.

I hope you found these 7 techniques insightful and actionable! Stay tuned for more thought-provoking articles as we continue to share our knowledge. Success is rooted in a thorough understanding and consistent application, and we hope this article was a step in unlocking the full potential of Root Cause Analysis for your organization. Reliability runs initiatives such as an online learning center focused on the proprietary PROACT® RCA methodology and EasyRCA.com software. For additional resources, visit our Reliability Resources .

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Kaizen is about changing the way things are. If you assume that things are all right the way they are, you can’t do kaizen. So change something! —Taiichi Ohno

Inspect and Adapt

Inspect & adapt: overview.

The Inspect and Adapt (I&A) is a significant event held at the end of each PI, where the current state of the Solution is demonstrated and evaluated. Teams then reflect and identify improvement backlog items via a structured problem-solving workshop.

The Agile Manifesto emphasizes the importance of continuous improvement through the following principle: “At regular intervals, the team reflects on how to become more effective, then tunes and adjusts its behavior accordingly.”

In addition, SAFe includes ‘relentless improvement’ as one of the four SAFe Core Values as well as a dimension of the Continuous Learning Culture core competency. While opportunities to improve can and should occur continuously throughout the PI (e.g., Iteration Retrospectives ), applying some structure, cadence, and synchronization helps ensure that there is also time set aside to identify improvements across multiple teams and Agile Release Trains .

All ART stakeholders participate along with the Agile Teams in the I&A event. The result is a set of improvement backlog items that go into the ART Backlog for the next PI Planning event. In this way, every ART improves every PI. A similar I&A event is held by Solution Trains .

The I&A event consists of three parts:

PI System Demo

• Quantitative and qualitative measurement
• Retrospective and problem-solving workshop

Participants in the I&A should be, wherever possible, all the people involved in building the solution. For an ART, this includes:

• The Agile teams
• Release Train Engineer (RTE)
• System and Solution Architects
• Product Management ,  Business Owners , and other stakeholders

Additionally, Solution Train stakeholders may also attend this event.

The PI System Demo is the first part of the I&A, and it’s a little different from the regular system demos after every iteration. This demo shows all the Features the ART has developed during the PI. Typically the audience is broader; for example, Customers or Portfolio representatives are more likely to attend this demo. Therefore, the PI system demo tends to be a little more formal, and extra preparation and setup are usually required. But like any other system demo, it should be timeboxed to an hour or less, with the level of abstraction high enough to keep stakeholders actively engaged and providing feedback.

Before or as part of the PI system demo, Business Owners collaborate with each Agile Team to score the actual business value achieved for each of their Team PI Objectives , as illustrated in Figure 1.

The achievement score is calculated by separately totaling the business value for the plan and actual columns. The uncommitted objectives are not included in the total plan. However, they are part of the total actual. Then divide the actual total by the planned total to calculate the achievement score illustrated in Figure 1.

Quantitative and Qualitative Measurement

In the second part of the I&A event, teams collectively review any quantitative and qualitative metrics they have agreed to collect, then discuss the data and trends. In preparation for this, the RTE and the Solution Train Engineer are often responsible for gathering the information, analyzing it to identify potential issues, and facilitating the presentation of the findings to the ART.

Each team’s planned vs. actual business value is rolled up to create the ART predictability measure, as shown in Figure 2.

Reliable trains should operate in the 80–100 percent range; this allows the business and its external stakeholders to plan effectively. (Note: Uncommitted objectives are excluded from the planned commitment. However, they are included in the actual business value achievement, as can also be seen in Figure 1.)

Retrospective

The teams then run a brief (30 minutes or less) retrospective to identify a few significant issues they would like to address during the problem-solving workshop . There is no one way to do this; several different Agile retrospective formats can be used [3].

Based on the retrospective and the nature of the problems identified, the facilitator helps the group decide which issues they want to tackle. Each team may work on a problem, or, more typically, new groups are formed from individuals across different teams who wish to work on the same issue. This self-selection helps provide cross-functional and differing views of the problem and brings together those impacted and those best motivated to address the issue.

Key ART stakeholders—including Business Owners, customers, and management—join the retrospective and problem-solving workshop teams. The Business Owners can often unblock the impediments outside the team’s control.

Problem-Solving Workshop

The ART holds a structured, root-cause problem-solving workshop to address systemic problems. Root cause analysis provides a set of problem-solving tools used to identify the actual causes of a problem rather than just fixing the symptoms. The RTE typically facilitates the session in a timebox of two hours or less.

Figure 3 illustrates the steps in the problem-solving workshop.

The following sections describe each step of the process.

Agree on the Problem(s) to Solve

American inventor Charles Kettering is credited with saying that “a problem well stated is a problem half solved.” At this point, the teams have self-selected the problem they want to address. But do they agree on the details of the problem, or is it more likely that they have differing perspectives? To this end, the teams should spend a few minutes clearly stating the problem, highlighting the ‘what,’ ‘where,’ ‘when,’ and ‘impact’ as concisely as possible. Figure 4 illustrates a well-written problem statement.

Perform Root Cause Analysis

Effective problem-solving tools include the fishbone diagram and the ‘5 Whys.’ Also known as an Ishikawa Diagram , a fishbone diagram is a visual tool to explore the causes of specific events or sources of variation in a process. Figure 5 illustrates the fishbone diagram with a summary of the previous problem statement written at the head of the ‘fish.’

For our problem-solving workshop, the main bones often start with the default categories of people, processes, tools, program, and environment. However, these categories should be adapted as appropriate.

Team members then brainstorm causes that they think contribute to solving the problem and group them into these categories. Once a potential cause is identified, its root cause is explored with the 5 Whys technique. By asking ‘why’ five times, the cause of the previous cause is uncovered and added to the diagram. The process stops once a suitable root cause has been identified, and the same process is then applied to the next cause.

Identify the Biggest Root Cause

Pareto Analysis, also known as the 80/20 rule, is used to narrow down the number of actions that produce the most significant overall effect. It uses the principle that 20 percent of the causes are responsible for 80 percent of the problem. It’s beneficial when many possible courses of action compete for attention, which is almost always the case with complex, systemic issues.

Once all the possible causes-of-causes are identified, team members then cumulatively vote on the item they think is the most significant factor contributing to the original problem. They can do this by dot voting. For example, each person gets five votes to choose one or more causes they think are most problematic. The team then summarizes the votes in a Pareto chart, such as the example in Figure 6, which illustrates their collective consensus on the most significant root cause.

Restate the New Problem

The next step is to pick the cause with the most votes and restate it clearly as a problem. Restating it should take only a few minutes, as the teams clearly understand the root cause.

Brainstorm Solutions

At this point, the restated problem will start to imply some potential solutions. The team brainstorms as many possible corrective actions as possible within a fixed timebox (about 15–30 minutes). The rules of brainstorming apply here:

• Generate as many ideas as possible
• Do not allow criticism or debate
• Let the imagination soar
• Explore and combine ideas

Create Improvement Backlog Items

The team then cumulatively votes on up to three most viable solutions. These potential solutions are written as improvement stories and features, planned in the following PI Planning event. During that event, the RTE helps ensure that the relevant work needed to deliver the identified improvements is planned. This approach closes the loop, thus ensuring that action will be taken and that people and resources are dedicated as necessary to improve the current state.

Following this practice, problem-solving becomes routine and systematic, and team members and ART stakeholders can ensure that the train is solidly on its journey of relentless improvement.

Inspect and Adapt for Solution Trains

The above describes a rigorous approach to problem-solving in the context of a single ART. If the ART is part of a Solution Train, the I&A event will often include key stakeholders from the Solution Train. In larger value streams, however, an additional Solution Train I&A event may be required, following the same format.

Due to the number of people in a Solution Train, attendees at the large solution I&A event cannot include everyone, so stakeholders are selected that are best suited to address the problems. This subset of people consists of the Solution Train’s primary stakeholders and representatives from the various ARTs and Suppliers .

Last update: 22 January 2023

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The Practical Value of Studying Philosophy

Posted in: Why Study Philosophy?

Transferable Skills

By studying philosophy, students develop cognitive transferable skills that pay off in a variety of professions—transferable skills such as Logical Reasoning • Analysis • Abstract Conceptualization • Problem-Solving • Creative Thinking • Clear and Persuasive Writing • Mental Dexterity • An Ability to Assess Different Perspectives and Frameworks • Information Management.

Earning Potential

The national median salary of Philosophy graduates is higher than nearly every other major in the social sciences, humanities, and higher than many other majors—higher than Psychology, Criminology, Communication, Special Education, Early Childhood Education, Business Management, Political Science, History, English, and so on (data source:  payscale.com ).

Which professions do philosophy graduates pursue? • Technology • Business • Law • Publishing • Government • Advertising • Journalism • Teaching • Sales • Human Resources • Public Relations • Activism • Public Policy, and so on.

Read about the practical value of studying philosophy

• Forbes  (2017) – “ A Case For Majoring In Philosophy ”

“Every year, college students choose their majors with an eye toward the return on investment. Among the usual lucrative suspects like finance and engineering, one liberal arts field stands out: philosophy. It turns out that philosophy majors earn significantly more than most majors, especially over the long term.”

“The surprisingly robust ROI [return on investment] for philosophy majors can be traced to its intellectual rigor. Philosophers are taught to seek out the pressure points in arguments and to reason for themselves. They dive into highly technical conversations, construct their own positions and arguments, and analyze relevant problems from multiple perspectives.”

“Beyond finances, the study of philosophy can also help students learn for themselves how they define the good life and how to go about living it.”

• U.S. News & World Report  (2020) – “ What You Can Do With a Philosophy Degree ”

“Philosophy students learn how to question conventional thinking, which is a marketable skill.”

“A Wall Street Journal analysis of the long-term earning potential of people with various college majors revealed that philosophy majors tend to get raises and promotions more quickly than individuals with other majors, and a result of this rapid career progression is that philosophy majors’ mid-career earnings are usually double the size of their starting salaries.”

• CNBC  (2018) – “ Mark Cuban says studying philosophy may soon be worth more than computer science—here’s why ”

“’I’m going to make a prediction’, Cuban told AOL in 2017. ‘In 10 years, a liberal arts degree in philosophy will be worth more than a traditional programming degree’…He views previously lucrative jobs in industries like accounting and computer programming as subject to the powers of automation. To remain competitive, Cuban advises ditching degrees that teach specific skills or professions and opting for degrees that teach you to think in a big picture way, like philosophy.”

• Times Higher Education  (2019) – “ What Can You Do with a Philosophy Degree? ”

“Philosophy graduates have highly transferable skills that are valuable to employers.”

“Graduates secure work in a variety of disciplines after their degree, such as teaching, PR or politics. Communications, publishing, HR and advertising can be attractive options for philosophy graduates, as well as law, banking, the civil service, business and science. Others go on to further study, research, academia and/or lecturing in philosophy or a related field.”

• Entrepreneur Magazine  (2017) – “ 5 Reasons Why Philosophy Majors Make Great Entrepreneurs ”

“When accomplished entrepreneurs like Reid Hoffman, Peter Thiel and Carly Fiorina credit their philosophy backgrounds for their success, you have to wonder if they’re on to something.”

• New York Times  (2018) – “ A Wall Street Giant Makes a $75 Million Bet on Academic Philosophy ”

“Philosophy, he [Bill Miller] added, ‘has made a huge difference both to my life outside business, in terms of adding a great degree of richness and knowledge, and to the actual decisions I’ve made in investing’.”

“Mr. Miller, 67, is not the only old-guard Wall Street figure with a background in philosophy. George Soros was heavily influenced by the Austrian philosopher Karl Popper. Carl Icahn was a philosophy major at Princeton . . . (On the watchdog side of the street, Sheila Bair, the former chair of the Federal Deposit Insurance Corporation, was also a philosophy major.)”

• Harvard Business Review  (2014) – “ How Philosophy Makes You a Better Leader ”

“A CEO client . . . found that contemplating the teachings of an ancient philosopher (Socrates) and a 20th century philosopher (Habermas) empowered him to implement an enhanced process of dialogue, consensus building, and ‘communicative rationality’ with his leadership team.”

• National Bureau Of Economic Research  (2017) – “ The Costs Of And Net Returns To College Major ”

“Health and Engineering majors, where earnings returns are large on a per graduate basis, have per-dollar returns similar to those observed in education, math, philosophy , and language degrees. .  .”

Graduate Study

Some philosophy majors go on to graduate studies in philosophy in order to pursue an academic career. The philosophy major is also exceptional training for many other post-graduate paths, such as law school. In fact, statistics indicate that philosophy majors perform very well on standardized tests for post-graduate and professional study.

• The GRE (“the SAT for graduate school”) – Philosophy majors come out on top.

“When students are compared by major on how far above average they do on the Graduate Record Examinations (GRE), a standardized test used in many disciplines to assess applicants to graduate programs, philosophy majors come out on top , according to a new look at test score data over the past few years.” (Daily Nous)

• Our philosophy department and Montclair State’s Feliciano School of Business have partnered for a “4 + 1” Philosophy BA/MBA program .
• The LSAT (the entrance exam for law school admissions) – Philosophy majors tie for first place with Economics majors.
• Medical School – The Philosophy major is a solid path to medical school. Consider the data and facts as explained by Paul Jung, M.D: “ If you think biochemistry is your ticket into medical school, think again. “