The Pareto principle, most commonly known as the 80-20 rule, is known by business owners as the simple fact that 80% of your problems are caused by 20% of the people. Really the theory was about wealth and power distribution, but the general premise applies. Most of your issues can be attributed to a fairly small distribution of root causes.
What does it look like?
What does it do?
A Pareto Charts work in levels to help you identify the root cause of the tallest bar (the biggest issue).
How do I use it?
The trick with Pareto is to start high and whittle away. What does that mean? It means that when you find out department A is supplying department b with all of the material that ends up in their rework, don’t go to department b and shut everything down. I know that it seems counterintuitive, but jumping the gun before you find out why that material ends up in the rework pile, leads to rework on department a’s part, causing more defects.
What doesn’t it do?
Pareto doesn’t provide an instant Ah-ha moment, it’s a method that requires patience and adherence to the process to be effective. If you need the answer now, it may not be the method for you. You may be better suited to process mapping or the 5 Why’s which will point you in a direction immediately. I have to say however, if you want the right answer validated by numbers then Pareto is right for you.
In 6Sigma the devil is in the details and a successful improvement initiative depends heavily on the selection of the right tool for the engagement. A successful selection depends heavily on the knowledge and skill of your belt, so use that library of knowledge and if that belt isn’t asking you a thousand questions about your end goal-move on!
You hear about this rule all the time from management, human resources and just about any business guru you can think of, so what exactly is it and how do you use it? The Pareto Chart, based on the Pareto Rule (commonly called the 80/20 rule), is an economic distribution principle named after Italian engineer Vilfredo Pareto, which showed 80% of land wealth was held by 20. Business has adopted this principle to say that 80% of the problems are caused by 20% of the people.
What you need to know
The Pareto Chart measures specific data in broad concepts and puts the information into a summary you can interpret a little easier. If you want to measure how often a process stalls or how many times red comes up in a sea of blue, then this is the method for you. When you use this method, before you begin you should decide how you want to group the items you’re measuring and how that measurement will happen. Ask yourself, am I measuring by weeks, days or hours? This distinction will make a difference in your results so you will need to find the most appropriate one.
When you should use it?
You should use the Pareto Chart when you are trying to find the frequency of something, say how often customers return a specific product or the reasons why the product is delivered late.
What a Pareto Chart looks like:
When you’ve gathered your data, you will use that information to create a Pareto Chart. An example of what a Pareto Chart might look like is below.
There are more steps involved in creating a Pareto Chart, but this post should give you some insight into what it is used for and why it is used.