Pareto Analysis -
Choosing the Most Important Changes To Make
Pareto analysis is a very simple technique that helps you to
choose the most effective changes to make.
It uses the Pareto principle - the idea that by doing 20% of work
you can generate 80% of the advantage of doing the entire job*.
Pareto analysis is a formal technique for finding the changes that
will give the biggest benefits. It is useful where many possible
courses of action are competing for your attention.
How to use tool:
To start using the tool, write out a list of the changes you could
make. If you have a long list, group it into related changes.
Then score the items or groups. The scoring method you use depends on the sort of problem you
are trying to solve. For example, if you are trying to improve profitability, you would score options
on the basis of the profit each group might generate. If you are trying to improve customer
satisfaction, you might score on the basis of the number of complaints eliminated by each
change.
The first change to tackle is the one that has the highest score. This one will give you the biggest
benefit if you solve it.
The options with the lowest scores will probably not even be worth bothering with - solving these
problems may cost you more than the solutions are worth.
Example:
A manager has taken over a failing service center He commissions research to find out why
customers think that service is poor.
He gets the following comments back from the customers:
1. Phones are only answered after many rings.
2. Staff seem distracted and under pressure.
3. Engineers do not appear to be well organized. They need second visits to bring extra
parts. This means that customers have to take more holiday to be there a second time.
4. They do not know what time they will arrive. This means that customers may have to be
in all day for an engineer to visit.
5. Staff members do not always seem to know what they are doing.
6. Sometimes when staff members arrive, the customer finds that the problem could have
been solved over the phone.
The manager groups these problems together. He then scores each group by the number of
complaints, and orders the list:
Lack of staff training: items 5 and 6: 51 complaints
Too few staff: items 1, 2 and 4: 21 complaints
Poor organization and preparation: item 3: 2 complaints
By doing the Pareto analysis above, the manager can better see that the vast majority of
problems (69%) can be solved by improving staff skills.
Once this is done, it may be worth looking at increasing the number of staff members.
Alternatively, as staff members become more able to solve problems over the phone, maybe the
need for new staff members may decline.
It looks as if comments on poor organization and preparation may be rare, and could be caused
by problems beyond the manager's control.
By carrying out a Pareto Analysis, the manager is able to focus on training as an issue, rather
than spreading effort over training, taking on new staff members, and possibly installing a new
computer system.
Key points:
Pareto Analysis is a simple technique that helps you to identify the most important problem to
solve.
To use it:
List the problems you face, or the options you have available
Group options where they are facets of the same larger problem
Apply an appropriate score to each group
Work on the group with the highest score
Pareto analysis not only shows you the most important problem to solve, it also gives you a score
showing how severe the problem is.
In the next article we look at Paired Comparison Analysis, a helpful tool for working out the
importance of different factors. To read this, click "Next article" below. Other relevant destinations
are shown in the "Where to go from here" list underneath.
