PARETO ANALYSIS

The idea that a few can determine an outcome is known as the Pareto analysis rule. This rule assumes that 80 percent of the effects are attributed to 20 percent of the causes. The Pareto chart illustrates the causes of effects.

The Pareto chart is a bar chart that highlights and differentiates the major cause from the minor causes. With the chart, you can address those causes with the highest frequency of occurrences instead of those with low frequency. In other words, you can dedicate time, resources, and effort to the most important causes, not the least important ones.

The Pareto analysis rule makes sense, as it did in the early part of this century when the great Italian economist Vilfredo Pareto developed the idea while studying crime and wealth concentration. Over eighty years later, the Pareto analysis rule has even greater relevance in other environments.

Pareto analysis offers several benefits. It helps to distinguish the actual causes and helps differentiate between what is and is not important. It is also easy to perform after the compilation of data.

for Performing Pareto Analysis

• Compile and sort the data according to some predetermined criteria.
• Draw an x-axis (horizontal line).
• Segment the line into parts for each type of criterion.
• Draw a y-axis (vertical line).
• Graduate the y-axis to reflect the cumulative frequency of occurrence (e.g., total number).
• Draw a vertical bar to reflect the cumulative frequency for each type of problem.
  • Note: For readability, draw the bars in descending order—that is, draw the bar with the highest frequency of occurrence first, then down to the least.