Use Pareto Analysis to Solve the Most Important Problems First

This TenStep guest blog post discusses one of the most high impact things you can apply: 80:20 thinking, albeit formalized somewhat as "Pareto Analysis". Opportunities abound with the use of Pareto Analysis, formally or informally.

My first observation of this post is that it focuses on formal methodology. It discusses using a formal technique to look at related problems in a logical way. As such, it talks about common problems with multiple causes, using the data in a simple two-step process:

  1. observing the problems and determining their frequency of occurrence
  2. use info to prioritize your effort to ensure you are spending your time where it will have the most positive impact

However, in using the technique, we need to keep the big picture in mind. The article summarizes instances of Pareto Analysis, or 80:20 analysis, as follows:

  • 20% of the problems cause 80% of the occurrences
  • 80% of the problems are caused by the top three causes

These two instances accurately reflect the Pareto Principle. However, we need also to use 80:20 thinking when looking at the impact by asking questions like these:

  • 20% of the occurrences account for 80% of the impact
  • 20% of the causes account for 80% of the impact

With that in mind, here is the TenStep post on using Pareto analysis to solve the most important problems first.

Pareto analysis can be used when you encounter multiple related problems or a common problem with multiple causes. The purpose of Pareto Analysis is to observe the problems and determine their frequency of occurrence. This, in turn, gives you the information you need to prioritize your effort to ensure you are spending your time where it will have the most positive impact.

Pareto Analysis is based on the classic 80/20 rule. That is, in many cases 20% of the problems cause 80% of the occurrences. For example, let’s say you have a problem with a product failure, based on a number of causes. Through observation and collecting metrics, you determine there are eight causes. Rather than attacking the causes randomly, a Pareto Analysis might show that 80% of the problems are caused by the top three causes. This gives you information to know which causes to solve first.

The tool associated with this problem solving technique is the Pareto Diagram. It is a chart, graph or histogram showing each problem and the frequency of occurrence. It is created as follows:

 

Role

Developing a Pareto Diagram

1

Project Manager, Team Members

Create a table listing all observed problems or causes.

For each problem, identify the number of occurrences over a fixed period of time.

Problem

Count

Problem 1

115

Problem 2

25

Problem 3

5

Problem 4

50

Problem 5

5

Problem 6

15

2

Project Manager, Team Members

Arrange the problems from highest to lowest, based on the number of occurrences.

3

Project Manager, Team Members

Create a new column for the cumulative total.

Problem

Count

Cumul % Total

Problem 1

115

53%

Problem 4

50

77%

Problem 2

25

88%

Problem 6

15

95%

Problem 3

5

98%

Problem 5

5

100%

You could add other columns such as the severity of the problems and the cost and effort to resolve the problem.

Notice that this gives you important information. Even though there are six total problems identified, you need to resolve problems #1 and #3 first (all things being equal). That is where you will achieve the most impact. If you decided to work on problems #4 and #5 instead, the result of your effort would be almost meaningless. This does not mean that you do not want to resolve the other problems. However, this Pareto Analysis gives you information to know the order in which the problems should be resolved. It also provides a sense as to the relative value you receive for resolving each problem. Of course, you may determine that problem #6 can be resolved quickly and you may choose to solve that one early. The Pareto Diagram does not tell you what to do. It provides information to you so that you can make the best decisions.

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