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Pareto Analysis Step by Ste

By Duncan Haughey, PMP

Pareto Analysis is a statistical technique in decision making that is

used for the selection of a limited number of tasks that producesignificant overall effect. It uses the Pareto Principle (also knowas the 80!0 rule" the idea that by doing !0# of the work youcan generate 80# of the benefit of doing the whole $ob. %r interms of quality improvement& a large ma$ority of problems(80#" are produced by a few key causes (!0#". 'his is alsoknown as the vital few and the trivial many.

In the late )*0s quality management guru +oseph ,. +uran

suggested the principle and named it after Italian economist-ilfredo Pareto& who observed that 80# of income in Italy wentto !0# of the population. Pareto later carried out surveys on anumber of other countries and found to his surprise that a similardistribution applied.

'he 80!0 rule can be applied to almost anything

80# of customer complaints arise from !0# of your

products or services.

80# of delays in schedule arise from !0# of the possible

causes of the delays.

!0# of your products or services account for 80# of your

profit.

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!0# of your sales/force produces 80# of your company

revenues.

!0# of a systems defects cause 80# of its problems.

'he Pareto Principle has many applications in quality control. It isthe basis for the Pareto diagram& one of the key tools used intotal quality control and i1 igma.

In P,2%3 Pareto ordering is used to guide corrective action andto help the pro$ect team take action to fi1 the problems that arecausing the greatest number of defects first.

Pareto Analysis

even steps to identifying the important causes using ParetoAnalysis 4

. 5orm a table listing the causes and their frequency as a

percentage.

!. Arrange the rows in the decreasing order of importance of

the causes& i.e. the most important cause first.

6. Add a cumulative percentage column to the table.

*. Plot with causes on 1/a1is and cumulative percentage on y/

a1is.

7. +oin the above points to form a curve.

. Plot (on the same graph" a bar graph with causes on 1/a1is

and percent frequency on y/a1is.

9. :raw a line at 80# on y/a1is parallel to 1/a1is. 'hen drop

the line at the point of intersection with the curve on 1/a1is.

'his point on the 1/a1is separates the important causes on

the left and less important causes on the right.

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'his is a simple e1ample of a Pareto diagram using sample datashowing the relative frequency of causes for errors on websites.It enables you to see what !0# of cases are causing 80# of theproblems and where efforts should be focussed to achieve thegreatest improvement.

'he value of the Pareto Principle for a pro$ect manager is that itreminds you to focus on the !0# of things that matter. %f thethings you do during your pro$ect& only !0# are really important.

'hose !0# produce 80# of your results. Identify and focus onthose things first& but don;t totally ignore the remaining 80# ofcauses.