Pareto analysis
Encyclopedia
Pareto analysis is a statistical
technique in decision making
that is used for selection of a limited number of tasks that produce significant overall effect. It uses the Pareto principle
– the idea that by doing 20% of work, 80% of the advantage of doing the entire job can be generated. Or in terms of quality improvement, a large majority of problems (80%) are produced by a few key causes (20%).
Pareto analysis is a formal technique useful where many possible courses of action are competing for attention. In essence, the problem-solver estimates the benefit delivered by each action, then selects a number of the most effective actions that deliver a total benefit reasonably close to the maximal possible one.
Pareto analysis is a creative way of looking at causes of problems because it helps stimulate thinking and organize thoughts. However, it can be limited by its exclusion of possibly important problems which may be small initially, but which grow with time. It should be combined with other analytical tools such as failure mode and effects analysis
and fault tree analysis
for example.
This technique helps to identify the top 20% of causes that need to be addressed to resolve the 80% of the problems. Once the top 20% of the causes are identified, then tools like the Ishikawa diagram
or Fish-bone Analysis can be used to identify the root causes of the problems.
The application of the Pareto analysis in risk management allows management to focus on the 20% of the risks that have the most impact on the project.
Statistics
Statistics is the study of the collection, organization, analysis, and interpretation of data. It deals with all aspects of this, including the planning of data collection in terms of the design of surveys and experiments....
technique in decision making
Decision making
Decision making can be regarded as the mental processes resulting in the selection of a course of action among several alternative scenarios. Every decision making process produces a final choice. The output can be an action or an opinion of choice.- Overview :Human performance in decision terms...
that is used for selection of a limited number of tasks that produce significant overall effect. It uses the Pareto principle
Pareto principle
The Pareto principle states that, for many events, roughly 80% of the effects come from 20% of the causes.Business-management consultant Joseph M...
– the idea that by doing 20% of work, 80% of the advantage of doing the entire job can be generated. Or in terms of quality improvement, a large majority of problems (80%) are produced by a few key causes (20%).
Pareto analysis is a formal technique useful where many possible courses of action are competing for attention. In essence, the problem-solver estimates the benefit delivered by each action, then selects a number of the most effective actions that deliver a total benefit reasonably close to the maximal possible one.
Pareto analysis is a creative way of looking at causes of problems because it helps stimulate thinking and organize thoughts. However, it can be limited by its exclusion of possibly important problems which may be small initially, but which grow with time. It should be combined with other analytical tools such as failure mode and effects analysis
Failure mode and effects analysis
A failure modes and effects analysis is a procedure in product development and operations management for analysis of potential failure modes within a system for classification by the severity and likelihood of the failures...
and fault tree analysis
Fault tree analysis
Fault tree analysis is a top down, deductive failure analysis in which an undesired state of a system is analyzed using boolean logic to combine a series of lower-level events...
for example.
This technique helps to identify the top 20% of causes that need to be addressed to resolve the 80% of the problems. Once the top 20% of the causes are identified, then tools like the Ishikawa diagram
Ishikawa diagram
Ishikawa diagrams are causal diagrams that show the causes of a certain event -- created by Kaoru Ishikawa . Common uses of the Ishikawa diagram are product design and quality defect prevention, to identify potential factors causing an overall effect...
or Fish-bone Analysis can be used to identify the root causes of the problems.
The application of the Pareto analysis in risk management allows management to focus on the 20% of the risks that have the most impact on the project.
Steps to identify the important causes using Pareto analysis
- Step 1: Form an explicit table listing the causes and their frequency as a percentage.
- Step 2: Arrange the rows in the decreasing order of importance of the causes (i.e., the most important cause first)
- Step 3: Add a cumulative percentage column to the table
- Step 4: Plot with causes on x- and cumulative percentage on y-axis
- Step 5: Join the above points to form a curve
- Step 6: Plot (on the same graph) a bar graph with causes on x- and percent frequency on y-axis
- Step 7: Draw line at 80% on y-axis parallel to x-axis. Then drop the line at the point of intersection with the curve on x-axis. This point on the x-axis separates the important causes (on the left) and trivial causes (on the right)
- Step 8: Explicitly Review the chart to ensure that at least 80% of the causes are captured
See also
- Pareto distribution
- Pareto chart
- Pareto interpolationPareto interpolationPareto interpolation is a method of estimating the median and other properties of a population that follows a Pareto distribution. It is used in economics when analysing the distribution of incomes in a population, when one must base estimates on a relatively small random sample taken from the...
- Ishikawa diagramIshikawa diagramIshikawa diagrams are causal diagrams that show the causes of a certain event -- created by Kaoru Ishikawa . Common uses of the Ishikawa diagram are product design and quality defect prevention, to identify potential factors causing an overall effect...
- Kepner-TregoeKepner-TregoeKepner-Tregoe, Inc. is a multinational management consulting and training services company. It provides consultation and training to companies in industries such as manufacturing, electronics, chemical, pharmaceuticals, and financial services....