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Pareto Analysis ...... The Vital Few

 

Article about Pareto Analysis by Graham Ross of Lean KaizenI would like to guide you through a technique that we often
use in kaizen workshops called Pareto Analysis or the 80/20 rule.

Why do we use this technique? - Because it is easy to use
and very effective.

 



Pareto Analysis - Where did it come from?

In 1897 an Italian economist called Vilfredo Pareto discovered that 80% of the wealth in his country was
owned by 20% of the population.

This was an interesting piece of research but I do not think that Vilfredo realised what a big impact he
would have on business management thinking in the years that followed.

In the 1930's and 40's Dr Edward Juran, a management guru, was doing a lot of ground breaking work on
Quality improvement.

During that period he came up with the idea of "the vital few, and the trivial many" and accredited this idea
back to Vilfredo Pareto.

Hence the Pareto Principle or 80:20 rule was born.

In a nutshell what the principles says is that in many instances 20% of ones efforts account for 80% of
your results.

In the same vain Peter F. Drucker, the writer, management consultant and university professor came up
with some similar thoughts and expressed them as follows.

"There is nothing so useless as doing efficiently that which should not be done at all."

So if we can identify the "vital few" things that have the biggest impact then we can use our
time and effort far more effectively.

Here are just a few examples of this phenomenon to get you thinking about how you could
apply this type of analysis to your own area of business.

80% of the delays in our process come from 20% of the possible causes.
Often 20% of our time during the day results in 80% of our results for that day.
80% of quality issues result from 20% of the types of known errors
20% of customers account for 80% of the turnover
People wear 20% of their wardrobe 80% of the time.
20% of criminals in the UK account for 80% of the crime
20% of customers account for 80% of complaints

So if we can target the "vital few" things that affect us then we can make a major impact on improving
our performance.


How do we identify the vital few?

Let me give you an example:-

Say we are working in an office and from time to time there are "errors" that prevent our work flowing
through the system, and require some sort of intervention.

I'm sure you would all agree that chronic errors like these leads to delays, disruption, backlogs of work,
and general "frustration" within the work place.

In this situation often we put a band aid on the problem and wait for the next fire to come along and
put out.

Using the Pareto Principle what should we do?

1. The very first thing we need to do is gather data about the issues we are trying to resolve.

 

Tally Chart


2. We then need to present that data in a bar chart form showing the highest frequency
occurrences down to less frequent occurrences for the particular issues identified

e.g. Errors occurring in the office

 

Pareto Chart

You can see from the information below that "wrong name" and "wrong form" are the vital few issues, and
account for 80% of our problems.

 

Pareto Chart

 

If we can concentrate all of our efforts on eliminating these two chronic errors then we can have a major
impact on our business efficiency.

In summary

Identifying the 20% of things that are really important can have many benefits in terms of deciding where
to concentrate our improvement efforts.

It's not just important to work smarter - it's important to work smarter on the right things or the "vital few"

The 80:20 rule can be applied to just about every aspect of your life both personal and business.

Try it on your finances some time!

Hope this helps.

Best regards,

Graham Ross

 

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