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Pareto analysis

From Wikipedia, the free encyclopedia

Pareto analysis is a statistical technique in decision making that is used for selection of a
limited number of tasks that produce significant overall effect. It uses the Pareto principle –
the idea that by doing 20% of work, 80% of the advantage of doing the entire job can be
generated. Or in terms of quality improvement, a large majority of problems (80%) are
produced by a few key causes (20%).

Pareto analysis is a formal technique useful where many possible courses of action are
competing for attention. In essence, the problem-solver estimates the benefit delivered by
each action, then selects a number of the most effective actions that deliver a total benefit
reasonably close to the maximal possible one.[citation needed]

Pareto analysis is a creative way of looking at causes of problems because it helps stimulate
thinking and organize thoughts. However, it can be limited by its exclusion of possibly
important problems which may be small initially, but which grow with time. It should be
combined with other analytical tools such as failure mode and effects analysis and fault tree
analysis for example.[citation needed]

This technique helps to identify the top 20% of causes that needs to be addressed to resolve
the 80% of the problems. Once the top 20% of the causes are identified, then tools like the
Ishikawa diagram or Fish-bone Analysis can be used to identify the root causes of the
problems.

The application of the Pareto analysis in risk management allows management to focus on the
20% of the risks that have the most impact on the project.[1]

[edit] Steps to identify the important causes using Pareto


analysis
[citation needed]

• Step 1: Form an explicit table listing the causes and their frequency as a percentage.
• Step 2: Arrange the rows in the decreasing order of importance of the causes (i.e., the
most important cause first)
• Step 3: Add a cumulative percentage column to the table
• Step 4: Plot with causes on x- and cumulative percentage on y-axis
• Step 5: Join the above points to form a curve
• Step 6: Plot (on the same graph) a bar graph with causes on x- and percent frequency
on y-axis
• Step 7: Draw line at 80% on y-axis parallel to x-axis. Then drop the line at the point of
intersection with the curve on x-axis. This point on the x-axis separates the important
causes (on the left) and trivial causes (on the right)
• Step 8: Explicitly Review the chart to ensure that at least 80% of the causes are
captured
Pareto Analysis
Now that the team has analyzed the causes of long waiting times, they need to choose the
most important causes to solve. One way to do this is by using a Pareto Analysis.

Step 1: Frequency Analysis

The first step of the Pareto Analysis is to gather data on the frequency of the causes. Looking
over all the data they gathered when they were describing the problem, and the list of causes
they created in the Cause-and-Effect Diagram, the team decides that they need to gather some
more data on the frequency of the different possible causes. They interview a sample of 50
users and 20 staff members of the health center to determine which of the possible causes
happen most frequently in the Santa Rosa Health Center.

Here are the results of the survey, in a table:

Possible Causes of Long Wait Time Percent of Total


Policies require excess information on users 1
Policies require complicated procedures 1
Too much paperwork 2
Not enough funding 2
Inadequate schedules 13
Inadequate policies 2
Clinic personnel have too many chores at home 2
Clinic personnel have other jobs 2
Clinic personnel lack punctuality 6
Clinic personnel have insufficient training 2
Clinic personnel aren't motivated 1
Clinic personnel are careless 1
Clinic personnel don't follow the schedule 16
Users forget ID cards 1
Users don't keep appointments 2
Users are uncooperative 1
Delay in handing over lab results to doctors 14
Outdated methods 12
Lack of automation 9
Procedures take too long 11

The next step of the Pareto Analysis is to identify the "vital few" causes of the problem.

The Pareto Principle states that a problem can be solved by focusing on solving the most
frequently occuring causes. Usually, there are four to six causes that lead to 80% of the
problems. These are called the "vital few" causes.
Step 2: Ranking Causes

To identify the "vital few" causes, the team ranks the causes based on the frequencies they
found in their survey. Mrs. Alvarez helps the team calculate the cumulative percentage (each
percentage added to the one before it) so they can build a pareto graph.

The team constructs a chart with the cause, percentage, and cumulative percentage:

Cause Percentage Cumulative Percentage


Clinic personnel don't follow the schedule 16% 16%
Delay in handing over lab results to doctors 14% 30%
Inadequate schedules 13% 43%
Outdated methods 12% 55%
Procedures take too long 11% 66%
Lack of automation 9% 75%
Clinic personnel lack punctuality 6% 81%

Making the chart brings a lot of tension out into the open. Mrs. Alvarez decides to stop here
and use some of the Team Building Tools to alleviate the stress arising between the quality
team and the staff, as well as within the quality team itself.

Step 3: Pareto Graph

Now the team is ready to draw the pareto graph. They draw a horizontal axis (x) that
represents the different causes, ordered from the most to least frequent. Next, they draw a
vertical axis (y) with percentages from 0 to 100%.

Now, they construct a bar graph based on the percentage of each cause. They construct a line
graph of the cumulative percent. Finally, they draw a line from 80% on the y-axis to the line
graph, and then drop the line down to the x-axis. This line separates the important causes
from the trivial ones.
Now it is easy to see that approximately six factors are responsible for 80% of the waiting
time problem. The other 14 factors are responsible for only 20%. Mrs. Alvarez decides to
focus her attention on the most important (most frequently occurring) causes and begins
working toward choosing the interventions that will be effective and cost-effective at solving
this problem.