Pareto Analysis :: Overview Click here to go to the homepage
What is it?
A bar graph used to arrange information in such a way that priorities for process improvement can be established. Click here for a sample.

The 80-20 theory was first developed in 1906, by Italian economist, Vilfredo Pareto, who observed an unequal distribution of wealth and power in a relatively small proportion of the total population. Joseph M. Juran is credited with adapting Pareto's economic observations to business applications.
Why is it important?
Pareto charts provide a tool for visualising the Pareto principle, which states that a small set of problems (the "vital few") affecting a common outcome tend to occur much more frequently than the remainder (the "useful many"). A Pareto chart can be used to decide which subset of problems should be solved first, or which problems deserve the most attention. Pareto charts are often constructed to provide a before-and-after comparison of the effect of control or quality improvement measures.
When to use it?
The Pareto Chart is used to illustrate occurrences of problems or defects in a descending order. It is used for making decisions at critical points in different processes, which means it can be used both during the development process as well as when products are in use, e.g. customer complaints.
How to use it?
Step by step process to address an issue:
1 List all elements of interest
2 Measure the elements, using same unit of measurement for each element.
3 Order the elements according to their measure
4 Calculate the percentage for each element out of the total measurement
5 Accumulate the percentage from top to bottom to equal 100%.
6 Create a bar and line graph, line representing cumulative percentage.
7 Work on the most important element (or elements) first.
Pareto charts are a key improvement tool because they help us identify patterns and potential causes of a problem. One trick often overlooked is to create several Pareto charts out of the same set of data - this can help you quickly scan a number of factors that might contribute to a problem and focus on those with the greatest potential payback for your efforts. Pareto Analysis is also used in inventory management through an approach called "ABC Classification". The ABC classification system is grouping items by annual sales volume. This helps identify the small number of items that will account for most of the sales volume and that are the most important ones to control for effective inventory management.
Food for Thought !
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