Pareto Analysis

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Imagine that you've just stepped into a new role as head of department. Unsurprisingly, you've inherited a whole host of problems that need your attention.

Ideally, you want to focus your attention on fixing the most important problems. But how do you decide which problems you need to deal with first? And are some problems caused by the same underlying issue?

Pareto Analysis is a simple technique for prioritizing possible changes by identifying the problems that will be resolved by making these changes. By using this approach, you can prioritize the individual changes that will most improve the situation.

Pareto Analysis uses the Pareto Principle – also known as the "80/20 Rule" – which is the idea that 20 percent of causes generate 80 percent of results. With this tool, we're trying to find the 20 percent of work that will generate 80 percent of the results that doing all of the work would deliver.

Note:

The figures 80 and 20 are illustrative – the Pareto Principle illustrates the lack of symmetry that often appears between work put in and results achieved. For example, 13 percent of work could generate 87 percent of returns. Or 70 percent of problems could be resolved by dealing with 30 percent of the causes.
How to Use the Tool

Step 1: Identify and List Problems

Firstly, write a list of all of the problems that you need to resolve. Where possible, talk to clients and team members to get their input, and draw on surveys, helpdesk logs and suchlike, where these are available.

Step 2: Identify the Root Cause of Each Problem

For each problem, identify its fundamental cause. (Techniques such as Brainstorming Add to My Personal Learning Plan, the 5 Whys Add to My Personal Learning Plan, Cause and Effect Analysis Add to My Personal Learning Plan, and Root Cause Analysis Add to My Personal Learning Plan will help with this.)

Step 3: Score Problems

Now you need to score each problem. The scoring method you use depends on the sort of problem you're trying to solve.

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Step 4: Group Problems Together By Root Cause

Next, group problems together by cause. For example, if three of your problems are caused by lack of staff, put these in the same group.

Step 5: Add up the Scores for Each Group

You can now add up the scores for each cause group. The group with the top score is your highest priority, and the group with the lowest score is your lowest priority.

Step 6: Take Action

Now you need to deal with the causes of your problems, dealing with your top-priority problem, or group of problems, first.

Keep in mind that low scoring problems may not even be worth bothering with - solving these problems may cost you more than the solutions are worth.

Note:

While this approach is great for identifying the most important root cause to deal with, it doesn't take into account the cost of doing so. Where costs are significant, you'll need to use techniques such as Cost/Benefit Analysis Add to My Personal Learning Plan, and use IRRs and NPVs Add to My Personal Learning Plan to determine which changes you should implement.


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