As you start to isolate problems within the manufacture process it is important to use analysis tools that help you verify solutions and identify possible courses of action. There are many tools or processes to do this but one of the most common tools used in the manufacturing world is Pareto Analysis. Pareto Analysis is based on the 80/20 principle. The idea is that 80% of a process or functions problems may be caused by 20% of certain scenarios or factors.

In the late 1940s, Romanian-born American engineer and management consultant, Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who observed that 80% of income in Italy went to 20% of the population. Pareto later carried out surveys in some other countries and found to his surprise that a similar distribution applied.

We can apply the 80/20 rule to almost anything:
80% of customer complaints arise from 20% of your products and services.
80% of delays in the schedule result from 20% of the possible causes of the delays.
20% of your products and services account for 80% of your profit.
20% of your sales force produces 80% of your company revenues.
20% of a systems defects cause 80% of its problems.

Pareto Analysis, at its core, enables the problem-solver to estimate the benefit delivered by different actions, then select a number of the most effective actions that deliver the most actualized or maximized total benefit.

When to Use a Pareto Chart

When analyzing data about the frequency of problems or causes in a process.

When there are many problems or causes and you want to focus on the most significant.

When analyzing broad causes by looking at their specific components.

When communicating with others about your data.

Creating a Pareto Chart

1.Decide what categories you will use to group items.

2.Decide what measurement is appropriate. Common measurements are frequency, quantity, cost and time.

3.Decide what period of time the Pareto chart will cover: One work cycle? One full day? A week?

4.Collect the data, recording the category each time, or assemble data that already exists.

5.Subtotal the measurements for each category.

6.Determine the appropriate scale for the measurements you have collected. The maximum value will be the largest subtotal from step 5. (If you will do optional steps 8 and 9 below, the maximum value will be the sum of all subtotals from step 5.) Mark the scale on the left side of the chart.

7.Construct and label bars for each category. Place the tallest at the far left, then the next tallest to its right and so on. If there are many categories with small measurements, they can be grouped as “other.”

Steps 8 and 9 are optional but are useful for analysis and communication.

8.Calculate the percentage for each category: the subtotal for that category divided by the total for all categories. Draw a right vertical axis and label it with percentages. Be sure the two scales match: For example, the left measurement that corresponds to one-half should be exactly opposite 50% on the right scale.

9.Calculate and draw cumulative sums: Add the subtotals for the first and second categories, and place a dot above the second bar indicating that sum. To that sum add the subtotal for the third category, and place a dot above the third bar for that new sum. Continue the process for all the bars. Connect the dots, starting at the top of the first bar. The last dot should reach 100 percent on the right scale.

Many of the Root Cause Analysis tools are designed to point your efforts in the right direction and narrow the scope of those efforts to be more effective faster. Another side effect or benefit of using these tools can come in the form of consensus building. Using these tools in a team environment can help build agreement and communication skills. We hope you use the Pareto Analysis to better your process and improve your profit.

Sample Pareto Analysis Chart

Pareto Analysis