STEP TO USE PARETO ANALYSIS

1.Identify and list all the problems

Write down the problem.
Done through surveys, brainstorming,
and focus groups.
Identify all the possible causes that
leading to the problem.
Example:
Problem: delay in the project.
Causes: machine breakdown.

2.Identify The Root Cause Of Each Problem

No
Problem (step 1 )
Root Cause (Step 2)
Total

Unskilled worker

Workforce problem

15

Machine breakdown

Technical failure

28

Weather

Environment problems

Absenteeism

Workforce problems

18

Legal procedure

Governmental problem

18

Supplier send wrong stock Raw material problems

16

Stock damages

Raw material problems

3. Group Problems Together By Root Cause

Put problem in the same group.
No

Root cause (step 3)

Frequenc
y (step 4)

Percentage
(%)

Cumulative
frequency
(%)

Workforce problems

33

30

30

Technical failure

28

25

55

Raw material problem

23

21

76

Government approval

18

16

92

Environmental problem

100

4. Add Up The Scores For Each Root Cause

Add up the scores for each root cause group.
Calculate percentage fro each root cause.
Sort it to descending order and accumulate the
percentage from top to bottom.
The group with the top scores should highest
workforce problem and the group with the
lowest priority.

5. Plot A Graph
Create a bar and line graph.
35

100.00
90.00

30

80.00
70.00

25
20

60.00
50.00
40.00

15

30.00
20.00

10
5
0

10.00
0.00

Column2
Percenta
ge

6. Take action
Draw 80% cut off line and find the intercept
point.
Left side area ( 80%): vital few
Right side (20%)
: trivial many
We should more focus on vital few.

Application Of Pareto Analysis In

Management Accounting
80% : problems
20% : fundamental causes
Objective : to identify the principal causes and
respond to them immediately, in
order to improve the overall
output
of a project or activity.

Pricing Of Product
For business that offer multi-products.
20% of products may lead to the 80%
of total sales revenue.
Hence, the top management can focus
and decide the price of 20% of product
which is more essential for the companys
survival and impose the pricing strategy of
80% of product to lower management.

Quality Control
Discover defect report or consumer complaints
which vital few causes are accountable for
most of the reported problems.
Concentrating to fix on 20% of the causes, it
can have the greatest immediate impact on
product quality.

ABC Analysis- Stock Control

20% of the total quantity of stock may account
for about 80% of its value.
Outcome: A business able to control the
monetary investment in stocks by
concentrating on small proportion of stock
item that lead to the 80% of the total value.

Customer Profitability Analysis

Customers can be analyzed for their relative
profitability to the organization.
20% of customers will generate 80% of the
profit.
There would be customers who are less
profitable than others.
Useful tool for evaluation of the portfolio of
customer profile and decision making.