Explained: How do I use the Pareto Analysis tool?

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What is Pareto Analysis?

Pareto Analysis is a technique for prioritising problems and their causes from the most to the least important. The data gathered is scored and displayed in a bar chart. It is based on the Pareto Principle where it is said that 80% of problems are caused by 20% of causes, or, only 20% of work is needed to fix 80% of problems. Pareto Analysis is often used along with other root cause analysis tools.

Why I should use Pareto Analysis?

Pareto Analysis displays the most important problem to solve as well as showing a score of how severe the problem is. When Pareto Analysis is used, time can be spent effectively on solving the biggest problems rather than spreading effort over many different tasks. When the most important problems are dealt with first it reduces the time needed in correcting issues, as the problems that are lower priority may have been solved as a result.

When to use Pareto Analysis?

Pareto Analysis should be used when a company is presented with many problems and is unsure which one to prioritise and whether, or not, all need to be dealt with, and in which order. It helps to determine if some problems are caused by the same underlying issue.

How to complete Pareto Analysis

  1. Identify and list all the problems that need a resolution – gather this information from all areas of the business;
  2. Identify the root cause of each problem – other root cause analysis tools such as the ‘Five Whys’ and ‘Fishbone Analysis’ are useful;
  3. Score the problems – the scoring system depends on the problems you are trying to solve, if for example, you are trying to improve profits you could score each problem by how much it is costing. If it is customer service based you could score each problem on the amount of complaints received;
  4. Group the problems together by their root causes – if three problems are caused by lack of staff training group them together;
  5. Add up the scores for each group – display them in a bar chart with the highest scoring group on the left;
  6. Take action to deal with the causes of the problems – the group with the highest score is the top priority and the group with the lowest score is the least priority.

Let us know how you conduct your Pareto Analysis and any tips or advice that others may benefit from.

Pareto Analysis Example

Business XYZ has been taken over; the new owner has inherited many problems along with the business. His objective is to improve overall customer service.  In order to identify which problem to prioritise he has employed Pareto Analysis. He scores each problem on the number of complaints his customer service staff have received. Once he has identified the problems and their root cause, scored them, grouped them and added up the score for each group he can create a bar chart with the data. The biggest benefits will come from providing the staff with more training. If this has not solved all the issues raised then the number of staff can be increased!

If you want to see more problem solving tool explanations, visit our related posts below:

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