The Pareto Principle
Have you heard of the 80/20 Rule? This Rule is based upon the Pareto Principle. Watch this 2-minute video Links to an external site.to see how the Pareto Principle applies not only to business but also to your personal life.
VIDEO LINK: https://www.youtube.com/watch?v=zPoA6dzKmtg
The Pareto Principle is used for quality assurance and focuses on the 80/20 Rule. A Pareto Chart Analysis visually identifies the most important contributing factors, the most occurring defects, or the most common problems. We call these “the vital few.”
This Pareto Principle, or 80-20 Rule, says 80% of the effects stem from 20% of the causes. Although the actual numbers may be different from case-to-case, the Pareto Principle is a guiding principle used in business for the following:
- Customer Complaints (e.g., 80% of the complaints come from 20% of the customers)
- Management (e.g., 80% of the results come from 20% of the group)
- Sales (e.g., 80% of the profits come from 20% of the products)
- Quality Management for identifying the most important causes for defects (e.g., 80% of the problems come from 20% of the causes)
Refer to the chart pictured below. (WILL PLACE CHART IN ATTACHMENTS)
- A Pareto Chart is a bar chart with contributing factors ordered from most frequent to least frequent with a superimposed line graph showing the cumulative percentage contribution to the total number of instances.
- The line graph uses the secondary axis (the axis on the right side) with values between 0% and 100%.
- In a Pareto Analysis, you simply look at where the line graph crosses 80%.
- The contributing factors to the left of that point are your “vital few” or most significant factors.
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Pareto Chart Analysis
VIDEO : https://www.youtube.com/watch?v=ltBw6kwD3_o
Pareto Chart template WILL BE IN ATTACHMENTS
Assume you are working on an improvement project for a multi-faceted problem at your organization, and you want to develop a Pareto Chart to identify the most significant contributing factors for that problem. Follow the instructions in the template provided.
Your Pareto Chart document must include:
- Contributing Factors (minimum 10)
- Number of Instances for Each Contributing Factor
- Vital Few Contributing Factors
The Pareto Principle