PARETO ANALYSIS

Description

The Pareto principle is also known as the 80-20 rule. Joseph Juran discovered that the 80-20 ratio is applicable to many aspects and generalised the rule by stating that 80 per cent of the outcomes can be explained by 20 per cent of the causes. For example, in a school classroom, 20 per cent of the children may cause 80 per cent of the noise, while in the chemical industry, 20 per cent of the processes cause 80 per cent of the emissions. By knowing this, one can increase the efficiency of problem management by immediately focusing on that 20 per cent.

When

In the Analyse Problem phase.

Goals

The Pareto principle is used in most cases to set priorities. By analysing which pursuits produce quick results, it helps in making the right choices. Pareto analysis helps set priorities in a given situation enabling efficiency in solving a 'problem'.

Steps

You can do a Pareto analysis manually or using a statistical programme such as Minitab or Excel. For a detailed explanation, watch the following video: https://www.youtube.com/watch?v=F-I-BVqMiNI.

Tips:

The ratio of 80-20 should not be taken literally and can therefore be 30-70 or 18-92 in practice. It varies from subject to subject and is mainly about the principle. The 80-20 rule is thus a simplification of the

Examples

20 per cent of the population owns 80 per cent of the wealth in Italy (Pareto's conclusion in 1906).
20 per cent of workers provide 80 per cent of total output (the principle of imbalance).
20 per cent of the goods and services offered provide 80 per cent of total sales.
In 20 per cent of the time, you deliver 80 per cent of your work results (the principle of least effort when it is assumed that the right priorities are set. Perfecting takes 80 per cent of the time and delivers only 20 per cent of the final result).

Incidentally, the Pareto principle is not only used in (business) economic contexts. With a little imagination, draw up your own 80-20 rule that applies to everyday topics: