Pareto Analysis
Pareto analysis is a statistical technique in decision-making used for the selection of a limited number of tasks that produce significant overall effect. It uses the Pareto Principle (also known as the 80/20 rule) the idea that by doing 20% of the work you can generate 80% of the benefit of doing the entire job
Why is it used?
-The tool has several benefits, including:
-Identifying and prioritising problems and tasks.
-Helping people to organise their workloads more effectively.
-Improving productivity.
-Improving profitability.
When is it helpful?
Imagine that you’ve just started a new job. You’re brimming with ideas about how to improve things, so where do you start?
Ideally, you want to focus on fixing the problems that have the biggest impact. But how do you decide which one to tackle first?
Pareto Analysis is a simple decision-making technique for assessing competing problems and measuring the impact of fixing them. This allows you to focus on solutions that will provide the most benefit.
How is it applied?
1. Identify and List Problems
Write out a list of all of the problems that you need to resolve. Where possible, gather feedback from clients and team members. This could take the form of customer surveys, formal complaints, or help desk logs, for example.
2. Identify the Root Cause of Each Problem
Next, get to the root cause of each problem. Techniques such as the 5 Whys , Cause and Effect Analysis , and Root Cause Analysis are useful
tools for this.
3. Score Problems
Now, score each problem that you’ve listed by importance. The scoring method that you use will depend on the sort of problem that you’re trying to resolve.
For example, if you want to improve profits, you could score problems by how much they cost. Or, if you’re trying to improve customer satisfaction, you might score them based on the number of complaints that you’ve received about each.
4. Group Problems Together
Use the root cause analysis that you carried out in Step 3 to group problems together by common cause. For example, if three of your problems are caused by lack of staff, you could put these into the same group.
5. Add up Scores for Each Group
Now, add up the scores for each group that you’ve identified. The one with the top score should be your highest priority, and the group with the lowest score your lowest priority.
6. Take Action
Finally, it’s time to take action! Your highest scoring problem will likely have the biggest payoff once fixed, so start brainstorming ideas on how to solve this one first.
You may find that your lowest-scoring problems aren’t worth bothering about, particularly if they are very costly to fix. Use your Pareto Analysis to save your energy and resources for what’s important!”
Altruistic Ventures Ltd
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