~ By Duncan Haughey
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. Take quality improvement, for example, a vast majority of problems (80%) are produced by a few key causes (20%). This technique is also called the vital few and the trivial many.
In the late 1940s Romanian-born American engineer and management consultant, Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who observed that 80% of income in Italy went to 20% of the population. Pareto later carried out surveys in some other countries and found to his surprise that a similar distribution applied.
We can apply the 80/20 rule to almost anything:
The Pareto Principle has many applications in quality control. It is the basis for the Pareto diagram, one of the key tools used in total quality control and Six Sigma.
In PMBOK, Pareto ordering is used to guide corrective action and to help the project team take steps to fix the problems that are causing the greatest number of defects first.
Here are eight steps to identifying the principal causes you should focus on, using Pareto Analysis:
Here is a simple example of a Pareto diagram, using sample data showing the relative frequency of causes for errors on websites. It enables you to see what 20% of cases are causing 80% of the problems and where efforts should be focussed to achieve the greatest improvement. In this case, we can see that broken links, spelling errors and missing title tags should be the focus.
The value of the Pareto Principle for a project manager is that it reminds you to focus on the 20% of things that matter. Of the things you do for your project, only 20% are crucial. That 20% produces 80% of your results. Identify, and focus on those things first, but don't entirely ignore the remaining 80% of the causes.
Download our free Pareto Analysis Template