Pareto analysis

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Pareto analysis is a statistical technique in decision making that is used for selection of a limited number of tasks that produce significant overall effect. It uses the Pareto principle - the idea that by doing 20% of work you can generate 80% of the advantage of doing the entire job. Or in terms of quality improvement, a large majority of problems (80%) are produced by a few key causes (20%).

Pareto analysis is a formal technique useful where many possible courses of action are competing for your attention. In essence, the problem-solver estimates the benefit delivered by each action, then selects a number of the most effective actions that deliver a total benefit reasonably close to the maximal possible one.

Pareto analysis is a creative way of looking at causes of problems because it helps stimulate thinking and organize thoughts. However, it can be limited by its exclusion of possibly important problems which may be small initially, but which grow with time. It should be combined with other analytical tools such as Failure mode and effects analysis and Fault tree analysis for example.

[edit] Steps to identify the important causes using Pareto analysis

  • Step 1: Form a table listing the causes and their frequency as a percentage.
  • Step 2: Arrange the rows in the decreasing order of importance of the causes (i.e, the most important cause first)
  • Step 3: Add a cumulative percentage column to the table
  • Step 4: Plot with causes on x- and cumulative percentage on y-axis
  • Step 5: Join the above points to form a curve
  • Step 6: Plot (on the same graph) a bar graph with causes on x- and percent frequency on y-axis
  • Step 7: Draw line at 80% on y-axis parallel to x-axis. Then drop the line at the point of intersection with the curve on x-axis. This point on the x-axis separates the important causes (on the left) and trivial causes (on the right)

[edit] See also

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