Project Smart ~ Exploring trends and developments in project management today

Not recorded

# Pareto Analysis Step by Step

~ 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:

• 80% of customer complaints arise from 20% of your products and services.
• 80% of delays in the schedule result from 20% of the possible causes of the delays.
• 20% of your products and services account for 80% of your profit.
• 20% of your sales force produces 80% of your company revenues.
• 20% of a systems defects cause 80% of its problems.

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.

## Pareto Analysis

Here are eight steps to identifying the principal causes you should focus on, using Pareto Analysis:

1. Create a vertical bar chart with causes on the x-axis and count (number of occurrences) on the y-axis.
2. Arrange the bar chart in descending order of cause importance that is, the cause with the highest count first.
3. Calculate the cumulative count for each cause in descending order.
4. Calculate the cumulative count percentage for each cause in descending order. Percentage calculation: {Individual Cause Count} / {Total Causes Count}*100
5. Create a second y-axis with percentages descending in increments of 10 from 100% to 0%.
6. Plot the cumulative count percentage of each cause on the x-axis.
7. Join the points to form a curve.
8. Draw a line at 80% on the y-axis running parallel to the x-axis. Then drop the line at the point of intersection with the curve on the x-axis. This point on the x-axis separates the important causes on the left (vital few) from the less important causes on the right (trivial many).

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.

Topic: Pareto Analysis Step by Step
4/5 (7)
24th November 2015 10:45am
G Williams (Swansea) says...
This is very useful, but treats all faults equally (if it's used in the same way as the example graph). If a website had hundreds of missing tags, it might not have much of an effect on the browsing experience, whereas a couple of broken links can massively undermine the user experience.

It might be better to quantify the actual losses caused by the faults. For example, making the Z-axis represent losses in terms of money or time. That way the incidents that end up doing the most damage (even though they may occus less frequently) get the attention they deserve.
31st January 2016 11:02pm
Shaun Storbakken (Edmonton) says...
This is exactly what I was taught to do at university. We plotted the causes of failure along the X-Axis in the exact fashion shown here. The difference is that on the Y-Axis we plotted the cumulative cost of each failure type and ordered the causes of failure based on this metric. That way the most expensive types of failures as a percentage of the total failures are identified.
3rd February 2015 1:51pm
J Yeates (Birmingham) says...
I had never heard of Pareto Analysis before. It is an interesting way to record the ways in which we spend our time. It may help me and others to manage our time in a more effective way.

(never displayed)

2000
Type the numbers for four hundred seventy-two.
Notify me of new comments via email.
Remember my form inputs on this computer.

## Project Management Maturity Model

The concept of a project management maturity model has evolved considerably from the software industry. Where does your organisation sit on the maturity model?

## Critical Path Mapping

The activity network diagram is a method of displaying the timelines of all the various sub-tasks that are involved in any project. So how do you create one?

## 10 Steps to Finding a Project Manager

Hiring a good project manager means you can sit back and relax knowing that the project tasks are being taken care of in a professional, productive and profitable manner.

## Project Cost Management

How do we know what a project will cost? We really don't until the project is complete because we can't accurately predict the future. What we can do is create an estimate.

PROJECT SMART is the project management resource that helps managers at all levels improve their performance. We provide an important knowledge base for those involved in managing projects of all kinds. With weekly exclusive updates, we keep you in touch with the latest project management thinking.

WE ARE CONNECTED ~ Follow us on social media to get regular updates and opinion on what's happening in the world of project management.

Paula commented on…
How to Deal with the People Factor of Change Management
- Thu 16 May 2:52am

Billy Rane commented on…
6 Success Factors for Managing Project Quality
- Tue 14 May 4:30am

Duncan Haughey commented on…
When is a Project Manager not a Project Manager
- Fri 10 May 3:10pm

### Latest tweets

In his short, but insightful article, A Thought-Provoking Idea on the Dangers of 'Nouns', Vishen Lakhiani looks atâ€¦ https://t.co/PZ7MgdRqzw about 1 day ago

General Project Management • Some advice on software https://t.co/VX5cy3IdLb about 6 days ago

General Project Management • Advice for Best Complimentary Qualification https://t.co/djava71tDD about 8 days ago