PARETO ANALYSISPARETO ANALYSIS

Başak KarakayaBaşak Karakaya

Industrial Engineering Industrial Engineering DepartmentDepartment

Pareto analysis is a formal Pareto analysis is a formal technique useful where many technique useful where many possible courses of action are possible courses of action are competing for attention. competing for attention.

Pareto analysis is a creative way Pareto analysis is a creative way of looking at causes of problems of looking at causes of problems because it helps stimulate thinking because it helps stimulate thinking and organize thoughts. and organize thoughts.

This technique This technique

helps to identify helps to identify the top 20% of the top 20% of causes that needs causes that needs to be addressed to to be addressed to resolve the 80% of resolve the 80% of the problems. the problems.

The value of the Pareto Principle for a The value of the Pareto Principle for a

project manager is that it reminds you to project manager is that it reminds you to focus on the 20% of things that matter. Of focus on the 20% of things that matter. Of the things you do during your project, only the things you do during your project, only 20% are really important. Those 20% 20% are really important. Those 20% produce 80% of your results. Identify and produce 80% of your results. Identify and focus on those things first, but don't totally focus on those things first, but don't totally ignore the remaining 80% of causes.ignore the remaining 80% of causes.

History of Pareto AnalysisHistory of Pareto Analysis

The Pareto effect is named after The Pareto effect is named after Vilfredo Pareto, an economist and Vilfredo Pareto, an economist and sociologist who lived from 1848 to sociologist who lived from 1848 to 1923. 1923.

This method stems in the first place This method stems in the first place from Pareto’s suggestion of a curve from Pareto’s suggestion of a curve of the distribution of wealth in a book of the distribution of wealth in a book of 1896. Whatever the source, the of 1896. Whatever the source, the phrase of ‘the vital few and the trivial phrase of ‘the vital few and the trivial many’ deserves a place in every many’ deserves a place in every manager’s thinking. It is itself one of manager’s thinking. It is itself one of the most vital concepts in modern the most vital concepts in modern management. The results of thinking management. The results of thinking along Pareto lines are immense.along Pareto lines are immense.

HOW TO USE IT ?HOW TO USE IT ?

Step 1: Identify and List Problems Step 1: Identify and List Problems Step 2: Identify the Root Cause of Step 2: Identify the Root Cause of

Each ProblemEach Problem Step 3: Score ProblemsStep 3: Score Problems Step 4: Group Problems Together By Step 4: Group Problems Together By

Root CauseRoot Cause Step 5: Add up the Scores for Each Step 5: Add up the Scores for Each

GroupGroup Step 6: Take ActionStep 6: Take Action

The Pareto Chart The Pareto Chart

A Pareto A Pareto chart is a chart is a graphical graphical representatirepresentation that on that displays data displays data in order of in order of priority. priority.

This is a simple example of a Pareto diagram This is a simple example of a Pareto diagram using sample data showing the relative frequency using sample data showing the relative frequency of causes for errors on websites. It enables you to of causes for errors on websites. It enables you to see what 20% of cases are causing 80% of the see what 20% of cases are causing 80% of the problems and where efforts should be focused to problems and where efforts should be focused to achieve the greatest improvement.achieve the greatest improvement.

Some ProblemsSome Problems

Difficulties associated with pareto Difficulties associated with pareto analysisanalysis

Misrepresentation of the data. Misrepresentation of the data. Inappropriate measurements depicted. Inappropriate measurements depicted. Lack of understanding of how it should Lack of understanding of how it should

be applied to particular problems. be applied to particular problems. Knowing when and how to use Pareto Knowing when and how to use Pareto

Analysis. Analysis. Inaccurate plotting of cumulative Inaccurate plotting of cumulative

percent data. percent data.

Overcoming the difficultiesOvercoming the difficulties

Define the purpose of using the tool. Define the purpose of using the tool. Identify the most appropriate Identify the most appropriate

measurement parameters. measurement parameters. Use check sheets to collect data for the Use check sheets to collect data for the

likely major causes. likely major causes. Arrange the data in descending order of Arrange the data in descending order of

value and calculate % frequency and/or value and calculate % frequency and/or cost and cumulative percent. cost and cumulative percent.

Plot the cumulative percent through the Plot the cumulative percent through the top right side of the first bar. top right side of the first bar.

Carefully scrutiniCarefully scrutinizze the results. Has the e the results. Has the exercise clarified the situation?exercise clarified the situation?

Pareto Analysis ExamplePareto Analysis Example

AhmetAhmet has taken over a failing has taken over a failing service center, with a service center, with a llot of problems ot of problems that need resolving. His objective is that need resolving. His objective is to increase overall customer to increase overall customer satisfaction.satisfaction.

He decides to score each problem He decides to score each problem by the number of complaints that the by the number of complaints that the center has received for each one.center has received for each one.

##Problem Problem (Step 1 )(Step 1 )

Cause Cause (Step 2 )(Step 2 )

Score Score (Step 3 )(Step 3 )

11

Phones aren’t Phones aren’t answered answered quickly quickly enough.enough.

Too few Too few service center service center staff.staff. 1515

22

Staff seem Staff seem distracted and distracted and under under pressure.pressure.

Too few Too few service center service center staff.staff. 66

33

Engineers Engineers don’t appear don’t appear to be well to be well organized.Theorganized.They need second y need second visits to bring visits to bring extra parts.extra parts.

Poor Poor organization organization and and preparation.preparation.

44

4 4

Engineers Engineers don’t know don’t know what time what time they’ll they’ll arrive.This arrive.This means that means that customers may customers may have to be in have to be in all day for an all day for an engineer to engineer to visit.visit.

Poor Poor organization organization and and preparation.preparation.

22

55

Service center Service center staff don’t staff don’t always seem to always seem to know what know what they’re doing.they’re doing.

Lack of Lack of training.training.

3030

66

When When engineers engineers visit,the visit,the customer finds customer finds that the that the problem could problem could have been have been solved over the solved over the phone.phone.

Lack of Lack of training.training.

2121

AhmetAhmet then groups problems then groups problems

together (steps 4 and 5). He scores together (steps 4 and 5). He scores each group by the number of each group by the number of complaints, and orders the list as complaints, and orders the list as follows:follows:

1.1. Lack of training (items 5 and 6) – 51 Lack of training (items 5 and 6) – 51 complaints.complaints.

2.2. Too few service center staff (items Too few service center staff (items 1 and 42) – 21 complaints.1 and 42) – 21 complaints.

3.3. Poor organization and preparation Poor organization and preparation (items 3 and 4) – 6 complaints(items 3 and 4) – 6 complaints

Figure 1. Ahmet’s Pareto Figure 1. Ahmet’s Pareto AnalysisAnalysis

0

10

20

30

40

50

60

Lack of TrainingToo Few ServiceCenter Staff

PoorOrganization

and Preparation

It is the discipline of organiIt is the discipline of organizzing the ing the

data that is central to the success of data that is central to the success of using Pareto Analysis. Once calculated using Pareto Analysis. Once calculated and displayed graphically, it becomes and displayed graphically, it becomes a selling tool to the improvement team a selling tool to the improvement team and management, raising the question and management, raising the question why the team is focusing its energies why the team is focusing its energies on certain aspects of the problemon certain aspects of the problem..

THANKS FOR LISTENINGTHANKS FOR LISTENING