Wave Dynamics Articles 

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Pareto Analysis, An Indispensable Tool

        by Randy Ashbaugh

June 24, 2011

Pareto analysis is one of the most useful tools available to begin to narrow down where your focus should be placed. Vilfredo Pareto, an Italian economist, made the observation that 80% of the land in Italy was owned by 20% of the populace. He also noticed that this 80/20 rule applied to many things because things tend to be evenly distributed. Therefore, using this principle you can also infer that 20% of your customers buy 80% of your goods, 20% of your defect causes make up 80% of the negative impact, 20% of your work tasks take up 80% of your time and 20% of your downtime causes create 80% of the total downtime. Starting to get the picture? So if you can discover what these vital few things are, you can make the biggest possible impact by focusing your improvement activity on them. The graph below illustrates this principle. Cause 1 is clearly the cause we should focus on initially as it has the most occurrences. But keep in mind that we could look at each cause in several different ways which may dictate a different focus. We could for instance look at financial impact instead of the number of occurrences and receive a totally different picture. So it is important to pick a measurement unit that best describes what is most important to your business.

It is important to realize that in real life there are natural variations and the principle is only an initial guideline. Once you narrow the focus, it is essential to begin a deeper analysis of the vital few. This can be done using statistical tools like Statistical Process Control (SPC) charting, Design of Experiments (DOE), regression analysis and hypothesis testing. When all is said and done we need simple methods of narrowing our focus to what really matters. And this tool is one of the most useful to ensure we get the greatest impact from the work we do.