Example: The Diagram shows how the analysis normally looks.

Tutorial #8
Solving Problems –
Business Excellence
Tool Tutorial
Pareto Analysis
When to use:
To identify the ‘significant few’ from the ‘trivial many’ causes of
problems. It is also known as Pareto analysis or the 80/20 rule.
Outcomes :
A visible representation of what the major issues are and an estimate of
the magnitude of the benefits. The most important items to tackle, are those 20% of the issues causing 80% of
Time : This will vary depending on the availability of information. the problems.
Number of people: Some examples: 20% of customers account for 80% of turnover. 20% of
This can be done individually, though it will reply on internal customers product range account for 80% of turnover. 80% of costs are tied up in 20% of
believing the data. It is important to involve them in the data collection business.
Equipment: Practice: Create a vital few analysis for the problem of a lot of scrap based on
Somewhere to capture the data and present it in a graphical format such the data shown below.
as MS Excel. Reason Cost of scrap ($) % of total Cumulative %
Methodology:
1. Identify all possible problems in a particular process. Material fault 78,150 78.6 78.6
2. Collect data on these problems. You can measure how frequently Machine 15,275 15.3 93.9
these problems occur and/or the costs associated with the problems. Setting error 3,500 3.5 97.4
3. Construct a table listing all of the problems from the greatest to the Operator error 1,250 1.4 98.8
smallest (see the exercise example). Tool breakage 1,150 1.2 100.0
4. Plot the data on a chart (see Tutorial 9: Histograms), placing the item Total 99,325 100.0 100.0
with the greatest cost/incidence in the furthest left column, then the
second-most important, etc. Key points: Pareto analysis is useful in a number of different areas including
5. Calculate the percentages of each of the items against the total then major problem identification, inventory control, forecasting, finance, marketing
plot the cumulative percentages on a line graph. and personnel. It can also be used to prioritise solutions and to show progress of
6. Draw a line from the 80% point on the y-axis, drawing this line down the before and after states.
to the x-axis will indicate the few issues which are causing 80% of the Additional Comments: This tool heavily relies on the quality of information fed
effects. The diagram shows you how the analysis normally looks. into it; therefore it is worth checking the accuracy of the information. It is
7. Focusing efforts on this small number of issues will address most of important to note that it is not always a simple split and to question the reasons
the causes of the problem. for the distribution before acting on it.
Resources: Richard Koch, The 80/20 Principle