pareto problem solving

The Pareto Chart: How to Solve Problems & Make Informed Decisions

I’ve just finished watching this Netflix docuseries and I can’t stop thinking about it.

The Last Dance .

It’s ten juicy episodes, full of massive egos, incredible basketball, and a banging 90’s hip-hop soundtrack. It’s a fantastically brutal account of how the Chicago Bulls came to dominate the basketball scene throughout the 1990s.

The team was led to countless victories by three key players: Michael Jordan, Scottie Pippen, and Dennis Rodman.

This, coincidentally, demonstrates the concept behind the Pareto chart, and this Process Street post perfectly.

I’ll explain what I mean by this later. First, let me go through what we’ll cover in this post:

What is a Pareto chart?

Where did the pareto chart come from, how to read a pareto chart, when to use a pareto chart, how to create a pareto chart with process street.

I’m excited to get started. So, my cagers, let’s take it to the hole!

I admit. I may have googled “ basketball terms ” for that sentence… what I’m basically saying is; C’mon you lot! Let’s go!

Remember math lessons as a kid? I mean before it began to get tricky with trigonometry and algebra. When it was working through straightforward sums and creating graphs? The ‘fun’ stuff.

Well, keep hold of that memory as it will come in handy for this post.

Because the Pareto chart is, essentially, a plain old bar graph.

A Pareto chart, in its simplest form, is a bar chart that arranges the bars from largest to smallest, from left to right. The bigger bars on the left are more important than the smaller bars on the right.

Like a lot of bar charts.

However, this simple little bar chart is different from the bar charts you created when you were six. This bar chart is used by organizations, in almost every industry, for root cause analysis . In other words, it’s a vital quality management tool .

A Pareto chart enables organizations to make decisions on where to focus their efforts so they get as much bang for their buck as possible.

How does a humble bar chart do that?! I hear you ask.

Well, it’s so simple it almost sounds silly.

By graphically separating the aspects of a problem, an organization can instantly see where to direct its improvement efforts. Focusing its efforts on reducing the largest bars in the chart, will do more for overall improvement than reducing the smaller ones.

Take this Pareto chart below as an example.

With a quick glance, we can instantly see that a lack of training and inadequate pay cause the highest number of customer service complaints.

The Pareto chart theory suggests that if the organization prioritized training and increasing pay, they would see the biggest improvement in customer service.

It’s a tool that’s been used for decades by problem solvers to separate the vital few factors from the trivial many and prioritize actions.

For those that are familiar with the 80/20 rule, the phrase ‘ separating the vital few from the trivial many ’ may have rung a few bells?

That’s because the Pareto chart is a visual representation of the 80/20 rule.

The 80/20 rule states that 80% of the results are determined by 20% of the causes. The Pareto chart displays the few, most significant defects, that make up most of the overall problem.

By ordering the bars from the largest to the smallest, a Pareto chart helps you to visualize which factors comprise the 20% that are the vital few, and which factors make up the trivial many.

“ The significant few things will generally make up 80% of the whole, while the trivial many will make up about 20% ” – Pareto Diagram , PQ Systems

While we’re on the subject of the 80/20 rule, for those of you who don’t know, the 80/20 rule is also referred to as the ‘Pareto principle’. This leads me, quite nicely, to talk about where the Pareto chart came from.

You’re going to love this.

This is the story behind where the Pareto chart came from.

The Pareto chart takes its name from a 19th-century Italian called Vilfredo Pareto, and as we touched on earlier, the concept is based on the 80/20 rule.

Pareto, a philosopher, economist, and keen gardener, had an epiphany one day, while out picking peas.

He noticed that roughly 20% of his pea plants seemed to generate around 80% of the peas.

Now, most of us might’ve thought; “ Hah! Well, would you look at that! ” and carried on with our daily lives.

But not Vilfredo Pareto.

This observation led him to think about uneven distribution , and where better to start with that concept than by looking at wealth.

He discovered that around 80% of the land in Italy was owned by 20% of the population.

He then investigated different industries and found that 80% of production typically came from only 20% of companies.

Although he researched and wrote papers on this theory, he never took it further than wealth and prosperity.

It was the “ Father of Quality Management ” Dr. Joseph M. Juran, who extended this theory into the business world.

Juran, while detecting manufacturing problems at Western Electric , noticed that a small number of defects in parts and machines seemed to cause most of the issues he found in quality.

He came across Pareto’s earlier work and found it made a lot of sense.

He recognized that “ the vital few and the trivial many ” pattern was a universal principle that could be applied to almost all organizations, in any industry, to help them make decisions on what to focus on to improve quality.

This theory is proven when you look at examples like these:

• 80% of web traffic comes from 20% of your site’s pages
• One search engine (Google) receives 64% of search queries
• 80% of the logic of a software program is run using 20% of the classes or code
• 3% of Guatemalans own 70% of the land in Guatemala
• 80% of the software errors are caused by 20% of the bugs
• 20% of your wardrobe is worn 80% of the time
• 80% of crimes are committed by 20% of criminals
• 80% of wins in sport are produced by 20% of the players on a given team (remember this one for later!)

So that’s how the Pareto principle came about.

The Pareto chart, being a visual representation of the Pareto principle, was developed to allow companies to see where the major causes of a problem were. This enabled them to focus their time and efforts on the greatest potential for improvement .

“ It’s common sense to focus on the ‘vital few’ factors. In the quality improvement arena, Pareto charts help teams direct their efforts where they can make the biggest impact ” – When to Use a Pareto Chart , The Minitab Blog

We all know how to look at a bar chart and work out what it’s telling us, but there’s a little more to interpreting a Pareto chart than meets the eye.

As we’ve previously covered, in its simplest form, a Pareto chart is a bar graph that shows where the biggest opportunities for quality and process improvement lie.

It’s simple, easy to read and there’s nothing wrong with using this method to decide where to focus your efforts.

However, there is another, arguably more accurate, way of interpreting a Pareto chart.

We can take the simple bar chart a step further by adding in a line.

The line, like the one in the example above, is a cumulative percentage line.

Ok, I know. Earlier I urged you to remember the ‘fun’ math. I don’t remember line graphs and cumulative percentages being much fun either, but stick with me. It’s nowhere near as bad as Algebra or Pythagoras.

To understand how to read a Pareto chart, like the one above, we first need to understand the components of a Pareto chart and the relationship between each one.

So let’s start by looking at the basic structure of a Pareto chart, using the below ‘shirt defect’ chart as an example.

We can see that there are three axes in this chart: X, Y, and Z which represent the following:

• X-axis shows the different types, or categories, of defects
• Y-axis shows how often these defects occur

We’ll talk about the third axis in a second.

We can see that each vertical bar in the chart represents a type of defect and the height of each bar represents the frequency in which that type of defect occurs.

So, from the example above, we can see that button defects occur 23 times, whereas sleeve defects happen only three times.

We can also see that the bars are presented in descending order (from tallest to shortest) so we can instantly see which defects are most frequent at a glance.

Now we understand that bit, let’s bring in the third axis.

• Z-axis represents the cumulative percentage

The cumulative percentage indicates what percentage of all defects can be removed if the most important types of defects are resolved.

To plot the cumulative percentage line, you’ll need to get your calculator out and work out the cumulative percentage for each defect using this formula:

Total frequency of all defects / The frequency of each defect x 100.

Plot these percentages as you would on any normal graph and then join them up with a line.

Now you have your cumulative percentage line, using the Pareto principle, find the 80% mark on the Z-axis, and draw a dotted line across until you hit your cumulative percentage line.

Then, immediately drop your dotted line downwards.

The defects to the left of this dotted line, on the X-axis, are the defects that, if addressed, will deliver the greatest benefit. These are the ‘vital few’ defects, out of the ‘trivial many’, to focus on.

Let’s go back to our shirt defect example. According to the Pareto principle, if we focused our efforts on resolving the pocket and button defects, we should see the biggest improvement in the quality of our shirts.

It’s worth noting that, in any Pareto chart, when the cumulative percentage line is steep, the types of defects are likely to have a significant effect. When the cumulative percentage line starts to flatten, the types of defects aren’t likely to influence the outcome as much, so they don’t deserve as much attention.

Once you’ve used a Pareto chart to decide what to focus your efforts on, it’s a great time to then bring something like the PDCA cycle into your organization to help you manage the changes you need to implement.

In fact, Process Street has created a few change management templates that you can access, for free, to help you with this.

PDCA Cycle Change Management Model Process Checklist

Click here to access the PDCA Cycle Change Management Model Process Checklist!

Satir Change Management Model Process Checklist

Click here to access the Satir Change Management Model Process Checklist

I’ve only given you two change management templates in this post, but we have heaps more for you to use. Take a look at this post .

My word. I have steam coming from my ears. I’ve had enough of math, fancy a game of basketball instead?

As we’ve already established, Pareto charts are used by organizations to figure out where the problems are and decide what to focus on to get the best results.

“ Pareto charts are most useful for identifying what the biggest issues regarding your business are. They also help you analyze how to present the issues that need tackling in a simpler, more understandable manner. In addition, they also help to guide where to look in terms of figuring out the frequency of a certain problem in your company ” – How to Do Pareto Chart Analysis , Tallyfy

Below are a few ways you might use a Pareto chart to make key decisions in your organization:

• You could use it to work out which top 20% of your company’s processes are causing 80% of the problems and focus on refining those processes.
• You could use it to establish which 20% of your clients are responsible for 80% of your sales and create a high-touch program for them.
• You could use it to assess all your upcoming projects, decide which ones will make the most difference, and start those first.
• You could use it to decide which tasks to prioritize , like the CEO of Dell does. He uses a Pareto chart on a daily basis to make sure he spends 80% of his time on the 20% of tasks that will generate the biggest results.

Speaking of daily tasks, once you’ve used the Pareto chart to decide what to focus on, you could use this Remote Daily Work Schedule Template to help keep you on track:

Although the checklist is for remote workers, you can adapt it if you’re office-based. I’ll tell you how to do that in a second.

So you can see that the Pareto chart can be been applied in all sorts of settings. And as it turns out…

“ It also applies to both the NBA and the WNBA. Specifically, in general, about 80% of a team’s wins are produced by a team’s top three players ” – The Pareto Principle Sheds Light On The WNBA’s Western Conference Contenders , Forbes

If you were a basketball coach, you could use a Pareto chart to determine which 20% of the team contribute to 80% of the wins, and focus your time and efforts on improving those players.

Kind of like what possibly happened between 1991 and 1998 with the Chicago Bulls.

As I touched on earlier, the Netflix mini docuseries ‘The Last Dance’ shows how the Chicago Bulls became unbeatable in the ’90s.

The team won the NBA championship six times over the course of eight years thanks to three players (Micheal Jordan, Scottie Pippen, and Dennis Rodman), and some sound decisions, made by head coach, Phil Jackson.

**Conspiracy alert!**

Surprisingly, the Netflix series doesn’t state whether Phil Jackson utilized the Pareto chart to make the critical decision to focus his coaching efforts on Jordan, Pippen, and Rodman. But I’d like to think it had a part to play in the Bull’s success.

( Maybe a 20% part ?!)

Now we know what the Pareto chart is, where it came from, how to read it, and when to use it, let’s talk about how to create one.

As we’ve discussed, one of the greatest uses for the Pareto chart is in quality control and process improvement.

This is something that Process Street is expert in.

Process Street is super-powered checklists .

Our state of the art business process management (BPM) software allows you to create templates, run individual checklists , and manage recurring tasks faultlessly.

Watch this introductory video to get a better idea about who we are and what we do:

So as you can see, you can check tasks off as you work through them, set deadlines, request approval from colleagues, assign tasks , and track each team member’s progress . You can also connect to thousands of apps through Zapier , webhooks, or API integration.

How can all this help you create a Pareto chart though?

Glad you asked.

You could create a template, and, each time you want to create a new Pareto chart, run a new checklist from this template.

It’s super easy.

All you’d need to do is create a new template and add the following 12 steps into your template, as tasks, that you can then work through:

Step 1: Identify the problem Define the problem as accurately as you can so you can work out all the various factors that may be contributing to it, in the next step.

Step 2: List the contributing factors Determine what root causes are contributing to the problem and put them into categories.

Step 3: Decide on the measurement Establish how you will measure the impact of each contributing factor or category. This is usually the number of occurrences or cost.

Step 4: Establish a time period Decide what period of time the Pareto chart will cover: One sprint? One full day? A week?

Step 5: Collect the data Collect the data for each of the categories you have chosen and place it into a table so you can work out your cumulative percentages easily.

Step 6: Draw the Y-axis and X-axis Label the Y-axis with the measurement and the X-axis with the categories.

Step 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.

Step 8: Draw Z-axis Once you’ve drawn the right vertical axis, label it with percentages.

Step 9: Calculate your cumulative percentages Use this calculation to work out your cumulative percentages: Total frequency of all categories / The frequency of each category x 100.

Step 10: Plot and draw your cumulative percentage line Make sure that the last dot reaches 100% on the Z-axis (as all cumulative percentage must reach 100%)

Step 11: Establish what your focus should be Find 80% on the Z-axis and draw a horizontal line until it hits the cumulative percentage line. Whatever lies to the left of that point is your ‘vital few’.

Step 12: Implement the changes Using change management processes like the Lewins Change Management Model, or the ADKAR Model start to implement the changes that will cause the most affect.

That’s it! Simple.

If you’re a little unsure, don’t worry. To help get you used to the software, below are some similar problem solving, root cause analysis templates that you could use to get started:

FMEA Template: Failure Mode and Effects Analysis

Click here to access the FMEA Template: Failure Mode and Effects Analysis Template!

Root Cause Analysis Template

Click here to access the Root Cause Analysis Template!

SWOT Analysis Template

Click here to access the SWOT Analysis Template!

If you’re feeling a bit braver, you could edit the existing templates so they suit your organization better, or even create your own Pareto chart process template.

If you’re planning to go down this road, try adding some of these features into your template:

• Dynamic due dates
• Task permissions
• Conditional logic
• Approval tasks
• Embed widget
• Role assignments

These features will help you to automate your newly created processes.

I can’t even begin to tell you how much time and effort automating your business processes will save you. But I know a man who can.

Blake Bailey.

He ran the below Process Street webinar on advanced workflow automation. Watch it. It’ll explain everything there is to know about workflow automation, and I guarantee you’ll never create a manual, laborious process even again!

Or, check out these great articles on how you could automate your business:

• 24 Best apps & software to automate your small business
• Small Business Automation: A Guide To Getting Things Done
• 40 Marketing Automation Tools: The Best Software for Growing Your Business
• Add value to your firm with process automation services
• Top 5 Benefits of Business Automation in 2020

Speaking of great articles , we’ve written tonnes on quality management, process management , root cause analysis, and the like.

Check out a few of them below.

Pareto chart related articles

• How to Perform a Root Cause Analysis (Free Template)
• Best QMS Software for Quality Management Systems: Which is Right for You?
• What is ISO 9000? The Beginner’s Guide to Quality Management System Standards (Free ISO 9001 QMS Template)
• What is Quality Management? The Definitive QMS Guide (Free ISO 9001 Template)
• What is a Quality Management System? The Key to ISO 9000
• What is Porter’s Five Forces Model? Competitive Position Analysis Explained
• What is FMEA? A Practical Guide to Failure Analysis (Free Checklist)
• What is Process Mining? 9 Tools to Optimize Your Process Management

When you’re trying to get the most bang for your buck , focusing on the critical 20% is a huge time-saver. See what activities generate the most results and give them the appropriate attention.

So, my cagers, that’s it! But before I shoot my last shot, if a Pareto chart seems a bit basic, well, it is.

However…

“ Its very simplicity makes the Pareto chart applicable to a very wide range of situations, both within and beyond quality improvement ” – When to use a Pareto Chart , Minitab

Do you use the Pareto chart in your organization? If so, how do you find it? We’d love to hear your thoughts in the comments below. Who knows? You may even get featured in an upcoming article!

Get our posts & product updates earlier by simply subscribing

Amanda Greenwood

Amanda is a content writer for Process Street. Her main mission in life is to write content that makes business processes fun, interesting, and easy to understand. Her background is in marketing and project management, so she has a wealth of experience to draw from, which adds a touch of reality and a whole heap of depth to the content she writes.

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Save my name, email, and website in this browser for the next time I comment.

Take control of your workflows today

Strategy Peeps: Streamlining Processes, Maximizing Efficiency - Bringing Order to Chaos

• Aug 5, 2023

Mastering Problem Solving with Pareto Analysis (80/20 rule)

Pareto Analysis is one of the most interesting guiding principle to efficiently allocate resources and address the most critical issues. Named after Italian economist Vilfredo Pareto, this technique helps organizations focus their efforts where they matter most. Want to understand Pareto Analysis, its significance, methodologies, and real-world applications? Let's see what we can do

What is Pareto Analysis?

Pareto Analysis, also known as the 80/20 rule, is a decision-making tool that suggests that a significant portion of results (80%) is usually derived from a small number of causes (20%). In other words, by identifying and addressing these vital few causes, organizations can achieve maximum impact and improve efficiency.

The Power of the 80/20 Rule

The Pareto Principle holds immense importance across various fields:

Business Management : Focus efforts on areas that yield the most substantial returns and prioritize resource allocation accordingly.

Quality Improvement : Identify and address the most significant factors contributing to defects or errors in a process.

Time Management : Concentrate time and energy on tasks that contribute the most to personal or organizational goals.

Steps to Conduct Pareto Analysis

Define the Problem : Clearly define the problem you want to analyze. This could be related to product defects, customer complaints, process inefficiencies, or any other relevant issue.

Data Collection : Gather data related to the problem. This could include quantities, frequencies, or impacts of various factors.

Create a Frequency Chart : Develop a frequency chart or histogram to visualize the occurrences of each factor.

Rank the Factors : Order the factors from highest to lowest based on their frequency or impact.

Calculate Cumulative Percentages : Calculate the cumulative percentage of each factor by adding up the percentages from the highest ranked factor.

Plot the Pareto Chart : Plot a bar chart with factors on the x-axis and their cumulative percentages on the y-axis.

Analyze the Chart : Identify the point at which the curve starts to level off. This is the point where diminishing returns occur.

Focus on the Vital Few : Concentrate your efforts on addressing the factors that contribute to the majority of the problem.

Real-Life Application of Pareto Analysis

Let's consider a practical example: A restaurant is receiving customer complaints about its service.

Problem : Customer Complaints

Factors : Rude Staff, Slow Service, Incorrect Orders, Cold Food, Noise

By conducting Pareto Analysis, the restaurant discovers that 80% of the complaints are attributed to just two factors: Slow Service and Incorrect Orders. By focusing on improving these areas, the restaurant can significantly enhance the overall customer experience.

Benefits of Pareto Analysis

Efficient Resource Allocation : Allocate resources, time, and efforts to areas that will yield the most substantial improvements.

Informed Decision-Making : Make informed decisions based on data and prioritize actions for maximum impact.

Problem Prioritization : Focus on addressing the most critical issues, leading to enhanced quality and efficiency.

Continuous Improvement : Implement targeted solutions to continuously refine processes and outcomes.

Pareto Analysis is more than just a mathematical/economical concept; it's a guiding principle for smart decision-making and impactful problem-solving. By identifying the vital few factors that contribute to the majority of a problem, organizations can achieve significant improvements with focused efforts.

Embrace the power of Pareto Analysis and unlock a world of insights that will empower you to make strategic choices, drive efficiencies, and achieve remarkable results. Apply the 80/20 rule and watch your efforts generate disproportionate success!

Recent Posts

Unveiling Customer-Centric Success: Generate Value through Lean Project Management

What is Lean Project Management?

What is Value Stream Mapping (VSM)? - 6 Steps to Leverage VSM for Optimal Process Performance

Pareto Analysis

What is Pareto Analysis

Pareto Analysis (also referred to as Pareto Chart or Pareto Diagram) is one of the Seven Basic Quality Tools [1] for process improvement.

These seven basic tools form the fixed set of visual exercises most helpful in troubleshooting issues related to quality. They are called “basic” because they require little formal training in statistics and can effectively address most quality-related problems.

This article will focus comprehensively on the Pareto Analysis, its origin, how a Pareto Chart is constructed and its relevance in modern-day problem-solving.

Origin of Pareto Analysis

Pareto Analysis traces its roots to the Pareto Principle, first observed by the Italian sociologist and economist Vilfredo Pareto. [2] While studying income distribution across Italy in 1986, Vilfredo showed that 80% of income in the country was owned by 20% of the population.

Vilfredo’s work was extended by Joseph Juran [3] , an American engineer and well-known quality management advocate.

Juran theorized that losses are never uniformly distributed over the quality characteristics. Rather they are always maldistributed in such a way that a small percentage of the quality characteristics always contributes a high percentage of the quality loss.

This forms the basis of the Pareto Principle, which, in simple words, means “for many outcomes, roughly 80% of consequences come from 20% of causes” .

This principle is also known as The 80/20 Rule (most common), The Law of the Vital Few or The Principle of Factor Sparsity , which all interchangeably mean the same.

It is important to note that although many systems tend to follow an approximate 80-20 pattern, this is not an absolute or obligatory rule. The distribution can vary, such as 90-10 or 70-30, while still adhering to the underlying principle that many outcomes are a result of a few causes.

Why use Pareto Analysis?

Organizations have diverse goals and aspirations but in most cases, are constrained by resources (money, manpower, machines, technology etc.).

Under such limitations, Pareto Analysis can help create maximum impact with the least amount of effort. This enables teams to work more efficiently on specific initiatives. Targets can be achieved faster simply by prioritizing initiatives in the right order.

Other benefits include:

• Setting clear priorities for the organization
• Increased daily productivity
• Ability to portion work into manageable segments
• Focused strategy

Pareto Analysis optimizes the overall organization’s performance by pointing to the highest return activities that can be pursued for maximum benefits.

When to use a Pareto Analysis?

The most compelling use case of a Pareto Analysis is to optimize the utilization of an organization’s resources by focusing them on a few key areas rather than spreading them over many others that have little impact on results.

Pareto Analysis helps identify patterns that highlight the main reasons behind most of the challenges an organization is trying to solve.

But, to perform a Pareto Analysis, the process data must fulfill two criteria:

1) It must be possible to arrangeable the data into categories

The core part of the analysis involves breaking down complex issues into their constituent root causes so that the repeating causes can be prioritized according to the number of occurrences.

For example, if an automobile assembly manager wants to analyze failures in the production line, it must be possible to classify them into categories such as equipment failures, material shortages, worker absenteeism, and quality defects.

Without this classification, it will not be possible to prioritize one category over another.

2) The ranking of the categories should matter

If the ranking of categories does not matter, the data frequency is no longer relevant for decision-making.

For example, if the assembly line manager determines that addressing the top two categories, equipment-related issues, and material-related issues, will have the most significant impact on reducing delays, the exact frequency difference between these two categories becomes less important. The focus is on resolving both categories as they are the primary contributors to the delays.

In this case, the data frequency becomes less relevant because the primary goal is to address the critical categories and minimize their impact, regardless of the precise order between them.

A Pareto Analysis will not add value in such a case.

Components of a Pareto Chart

A Pareto Chart is a combination of a bar graph and a line graph. It consists of four major components:

Constructing a Pareto Chart

To demonstrate the components and process of building a Pareto diagram, consider the example of a company that is facing delays in shipping products due to various problems in its production line.

The company has limited resources to spare and cannot focus on all the root causes. It must judiciously allot resources (manpower, management attention, funds etc.) such that chances of on-time delivery are maximized.

By performing a Pareto Analysis, the resulting Pareto Chart can help the company make the best use of its resources. The process involves the following steps:

Step 1 – Decide on the categories

Categories are the list of causes/events that contribute to a problem being addressed. This could be gathered through feedback from employees, clients, or customers.

It is important that the list of causes identified accurately reflect the issue. An analytical approach to preparing a root cause list could be by using a Five-Whys analysis.

In the case of the example considered, the company has identified a total of 12 causes that have led to the delays, which are:

Step 2 – Establish a measurement metric

The next step is to identify a measurement metric that is most appropriate to the grouped categories.

These could range from the number of product defects per batch to the frequency of customer complaints, to how many resources it takes to manufacture a product to how long it takes to resolve customer complaints, etc.

In the case of the above example, the number of times a particular root cause was responsible for the delay is a good metric to consider.

Step 3 – Choose a timeframe to collect the data

This can be one work cycle, a sprint, one full day, one week, one month etc. In the case of the example, the company has chosen to record one week’s data.

It is important to choose a sufficiently broad timeframe to even out the impact of rare events and aberrations. For example, in the example’s case, if a day was selected instead of a week, it may not accurately capture the trends in material shortages or transportation delays. This could lead to misleading results.

Step 4 – Record the data over the selected timeline

Gather data on the number of times each chosen category was responsible for the delay. The measurement metric in this example case is the frequency, which was selected in Step-2. It could vary depending on the choice.

The recorded data must then be organized in a table according to the categories and timelines selected. In the case of the company’s example, the selected timeline is one week with 12 categories. Hence, the data tabulation will look as below:

Step 5 – Organize the data

The output of this step is a table with categories sorted in descending order as per their occurrence over the selected period.

In the example case considered, the steps would involve aggregating the occurrences by adding totals to each category, constructing a smaller table (or hiding the daily data) and then sorting the data in descending order based on occurrences of each root cause.

The same is shown in the figure below:

Step 6 – Calculate cumulative percentages

Cumulative percentages can be calculated using any of the spreadsheet applications. In the figure below, cumulative percentages are calculated for the example case using Google Sheets. The formula used can be seen in the image.

Step 7 – Construct the graph

This step involves graphing the data. A spreadsheet tool can be conveniently used to plot a bar graph (occurrences) and a line graph (commutive percentage).

In Google Sheets, this can be performed using a Combo Chart [4] , with achieves both objectives with the following steps:

• Select the data in the table
• Go to Insert -> Chart
• From the Chat Editor, change the chart type to Combo Chart [4]
• Set X-axis data as a category – In the example case “Reason for Delay”
• Set left Y-axis data as the frequency of occurrence – In the example case “Reason for Delay”
• Set the right Y-axis data as the cumulative percentage

With this, the Pareto chart will be ready and will look as under:

Interpreting a Pareto Chart

Once a Pareto Chart is constructed, clarity emerges on which few out of the many occurrences have the most impact on the results.

The Cumulative percentage curve makes it easier to visually answer the question – “Which 20% of the causes are responsible for 80% of the results?”

It can be seen from the example case chart above that out of 12 identified causes, just 3 contribute to over 80% of the delays.

With this, the company has a clearer picture of where to focus its efforts and deploy resources.

Limitations of Pareto Analysis

Although Pareto Analysis is a potent visual problem-solving tool, it does have certain limitations, such as:

Data quality – if the data is compromised by errors, inconsistencies, biases, or missing values, results can be misleading or inaccurate, leading to wrong decisions.

Root cause analysis : Pareto analysis helps to identify the frequency and impact of different causes of a problem, but it does not provide any insight into the underlying reasons or mechanisms behind them.

For example, a Pareto chart may show that half of all problems occur in shipping and receiving, but it does not explain why that is the case. To find out the root causes, additional tools such as the 5 Whys or Fishbone diagrams are needed.

Qualitative aspects : Pareto analysis focuses on quantitative data, such as the number of occurrences or the percentage of the impact of different causes. However, it does not account for qualitative aspects, such as the severity, urgency, or complexity of the causes.

For example, a Pareto chart may show that equipment failures are the most frequent cause of delays, but it does not indicate how severe or difficult to fix those failures are. Qualitative aspects may affect the priority and feasibility of addressing different causes.

Future scenarios : Pareto analysis is based on past or present data, which may not reflect future scenarios or changes in parameters.

For example, a Pareto chart may show that supplier issues are a minor cause of delays, but that may change if the supplier changes its policies or prices. Pareto analysis does not account for uncertainty or variability in the data or the environment. Therefore, it should be updated regularly and supplemented with other tools such as scenario analysis or risk analysis.

Varied Applications of Pareto Analysis

Pareto Analysis, with its versatile nature, finds applications across diverse industries and sectors. It aids in identifying critical issues, prioritizing tasks, and allocating resources effectively.

Some examples use cases of Pareto Analysis are:

Pareto Analysis can even be applied at an individual level to identify the vital few factors that significantly impact personal productivity, thus aiding in effective time management, focused improvements, and better decision-making.

1. “THE 7 BASIC QUALITY TOOLS FOR PROCESS IMPROVEMENT”. American Society for Quality (ASQ) , https://asq.org/quality-resources/seven-basic-quality-tools . Accessed 29 Jun 2023

2. “Vilfredo Pareto”. Britannica, https://www.britannica.com/biography/Vilfredo-Pareto#ref37223 . Accessed 01 Jul 2023

3. ” Dr. Joseph M. Juran”. Juran.com, https://www.juran.com/about-us/dr-jurans-history/ . Accessed 01 Jul 2023

4. “Combo chart”. Google, https://support.google.com/docs/answer/9142593?sjid=5335603720602667500-AP#combo_chart&zippy=%2Ccombo-chart . Accessed 30 Jun 2023

• PEST & PESTEL Analysis
• SWOT Analysis - How to Do It Properly
• Value Chain Analysis
• SWOT analysis of Amazon 2023

Leave a Comment Cancel reply

Save my name and email in this browser for the next time I comment.

Pareto Principle (The 80-20 Rule): Examples & More

Olivia Guy-Evans, MSc

Associate Editor for Simply Psychology

BSc (Hons) Psychology, MSc Psychology of Education

Olivia Guy-Evans is a writer and associate editor for Simply Psychology. She has previously worked in healthcare and educational sectors.

Learn about our Editorial Process

Saul McLeod, PhD

Editor-in-Chief for Simply Psychology

BSc (Hons) Psychology, MRes, PhD, University of Manchester

Saul McLeod, PhD., is a qualified psychology teacher with over 18 years of experience in further and higher education. He has been published in peer-reviewed journals, including the Journal of Clinical Psychology.

On This Page:

Key Takeaways

• The Pareto Principle, also known as the “80/20” rule, states that for many events, roughly 80% of effects come from 20% of the causes.
• The Pareto Principle can be applied to a variety of situations, including business, economics, and quality control.
• The Pareto principle is named after economist Vilfredo Pareto, who discovered this pattern in his studies of wealth distribution in societies.
• The Pareto Principle is often touted as a powerful tool for productivity and business management; however, it has received a great amount of criticism for likely being more the result of statistical manipulation than a “universal law.”
• If not used correctly, the Pareto Principle can lead to an excessive focus on short-term gains over long-term planning and stability.
• When used correctly, the Pareto Principle can help prioritize tasks, optimize resources, and improve overall efficiency. It provides a useful framework for understanding complex systems and identifying key areas for improvement.

What is the Pareto Principle?

The Pareto Principle, also known as the 80-20 rule, is a concept that many have adopted for their life and time management. It is the idea that 20% of the effort, or input, leads to 80% of the results or output. The point of this principle is to recognize that most things in life are not distributed evenly.

The key to the Pareto Principle is to identify that around 20% of one’s actions on the most productive tasks lead to the most success. This principle requires and enables us to spot the few important things that are happening and ignore the mass of unimportant things.

Essentially, if we spend a short amount of time on what is really important, this will yield greater results than focusing on as many things as possible.

The Pareto Principle is a concept that has shown to be powerful when applied to many areas of life, including in business, relationships, learning, and marketing, to name a few.

For example, in any retail organization, the Pareto Principle states that 80% of the sales will be accounted for by 20% of the customers.

What is the idea behind the Pareto Principle?

The Pareto Principle was named after Italian economist Vilfredo Pareto who, in the late 19th Century observed that 80% of the wealth in Italy was owned by 20% of the people.

When testing this principle, he also found that 80% of the wealth and land in almost all countries was controlled by 20% of the people (Pareto, 1906). He also found this to be true when he observed his garden, finding that 20% of the pea pods yielded 80% of the peas.

In the early 1950s, the psychologist Joseph Juran expanded on this idea, arguing that it could also be applied to management and even as a “universal principle”.

He believed that 80% of a company’s revenue would come from 20% of its customers, and that 80% of production problems would be caused by only 20% of all possible sources of error.

Juran (2005) also coined the terms “vital few” and “useful many” or “trivial many” to refer to those few contributions that result in the bulk of the effect, and the many that have only a small impact.

The term Pareto Principle was not coined by Pareto, but by Dr Joseph Juran in the 1940s. Juran found that through applying Pareto’s observations to his field of operations management, he could help businesses improve their production by noticing that 80% of the production problems were caused by 20% of the production methods.

Through this observation, Juran could focus on reducing the 20% of problems to increase production quality. This strategy he named the Pareto Principle while also noting that one should focus on the ‘vital few’ and ignore the ‘trivial many’ to have the greatest success.

Over time, many other organizations and individuals have further developed and refined this principle, leading to its widespread use today in fields from business to agriculture to healthcare.

While there is still some debate over exactly how the Pareto Principle should be applied in different situations, it remains a popular and powerful tool for understanding complex systems.

Whether someone is trying to understand why their sales numbers are not meeting their targets or trying to optimize an agricultural system for maximum yield, understanding and applying the Pareto Principle can often help them identify key areas for improvement.

Some examples of the Pareto Principle could involve:

• 80% of profits come from 20 % of the products or services a company sells.
• Fixing the top 20 % of the most reported bugs in a software program also eliminates 80 % of related errors and crashes.
• Wearing 20 % of one’s clothes 80 % of the time

Time management

Time management is the most common use of the Pareto Principle. Many people tend to thinly spread out their time instead of focusing on the most important task.

Likewise, there is the idea that people must work excessively long hours to produce good outcomes. This type of thinking can create an unequal work-life balance, resulting in burnout and overall decreased productivity.

With the Pareto Principle, you can save time on work tasks and get more done in a shorter span of time.

For instance, you could spend some time at the start of the week planning out what you are going to focus on during the workdays, usually the most important tasks.

While this may feel like a waste of time, in the long run it can help you to focus and cut down work time.

You may find that you have more time to devote to other activities outside of work such as personal development, relaxation, mental health, and building relationships.

Relationships

With relationships, many people may want to have as many friends as possible, but they find they become overwhelmed with trying to maintain these relationships or find they don’t have high quality friendships with anyone.

Using the Pareto Principle, you can look at the friends you have and work out how much time you spend with each of them compared to the amount of value they give you.

Through this analysis, determine which 20% of your relationships are valuable and supportive of you. According to the Pareto Principle, if you spend 80% of your time socializing with this 20%, your personal gains will be greater.

In a relationship with a partner, it may be helpful to consider that 80% of the problems faced in the relationship are likely caused by 20% of the couple’s actions or behaviors.

The Pareto Principle can be used to identify the root causes of your conflicts with your partner, communicate about them, and focus on improving them together.

Goal setting

Often, people have never-ending to-do lists or they end up doing the least important tasks on their lists first, then find they are not motivated to complete the more important tasks.

A way to use the Pareto Principle is to write down all your goals you want to complete on a given day. Ask yourself, if you could only accomplish one of the goals on that list today, which one would have the greatest positive impact on your life?

It may be helpful to think of the consequences that can come as a result of not completing that task today. Next, pick the second most important goal, and so on.

What you will find is that you will have determined the most important 20% of your goals that will help you the most. You can then ensure you focus on completing this 20% before moving onto any other goals.

Problem-solving

The Pareto Principle can be used to help you make the best decision in problem-solving circumstances.

To help to prioritize solutions, you can follow the below steps:

Identify the problems that you are trying to find a solution to.

Identify what the causes of these problems are.

Categorize your problems into similar groups based on which ones have similar root causes. This can help you decide if one solution can resolve multiple problems.

Assign a value to each of the problems based on their impact if they were or were not resolved. You could rate them between 1-10 if this helps.

Develop a plan to focus on the top 20% of the problems that will result in 80% of the results.

Social Interactions

The Pareto Principle can also be seen in everyday situations, such as work meetings. , imagine that a work meeting has 10 attendees.

It is likely that only a few people will do most of the talking, while the rest will listen or say very little.

In this case, the 80:20 rule applies, with 80% of the talking being done by 20% of the people in the room.

Similarly, this principle can also be applied to decision-making.

In any group decision-making situation, it is often true that 80% of the decisions are made by 20% of the people involved.

This is because some people are naturally more vocal and opinionated than others, and their opinions tend to hold more sway.

The Pareto Principle is often used as a way to help students focus on their studying.

The idea is that if a student can identify the 20% of material that will be on the test, they can focus their studying on that 20% and still get a good grade.

This principle can be applied in a number of ways. For example, a student might look at their past tests and quizzes to see which topics were covered most often.

They could also ask their teacher or classmates what they think will be on the upcoming test. Once the student has a list of topics, they can start to focus their studying on those areas.

The Pareto Principle can also be applied to individual questions on a test.

For example, if a multiple choice question has four possible answers, it might be worth spending more time studying that question if you have identified that one of the answers is correct 80% of the time.

Overall, the key to implementing the Pareto Principle successfully involves taking an analytical approach and focusing on those topics or questions that are most likely to matter.

This can help students study more efficiently and improve their performance as a result.

The effectiveness of this principle has been widely studied, and there is some evidence that it can be quite effective in helping students prepare for tests.

For example, a 2014 study found that when students used a computer program based on the Pareto Principle to choose which material they would study, they performed better on a test compared to students who did not use the program.

Given these results, it seems likely that the Pareto Principle can help students improve their performance in school by helping them focus their studying on key areas of the curriculum.

By identifying and understanding the material that is most important to learn, students can spend less time reviewing concepts they already know and more time on those that need improvement (Dunnford, Su, & Tamang, 2014).

Income Inequality

Pareto’s initial 1906 observation that 80% of Italy’s land was controlled by 20% of people mirrors today’s estimate that 20% of the world’s population controls 82.7% of wealth.

This phenomenon, known as income inequality, is a major concern for policy makers and social scientists around the world.

One potential explanation for this disparity is that the wealthy 20% are better able to take advantage of opportunities and resources than their less fortunate counterparts.

For example, they may have greater access to education or better job prospects due to family connections or networks of influence.

In addition, those in the top quintile may be more likely to engage in tax avoidance strategies and other financial maneuvers that help them accrue even more wealth (Bommier & Zuber, 2012).

Another possible factor influencing income inequality is structural changes in the economy over time.

For example, technological advances such as automation and artificial intelligence have led to an increased demand for highly-skilled workers who can operate these new technologies, while displacing low-skilled workers who are unable to keep up with the pace of change.

As a result, those with higher education levels and skills tend to enjoy higher wages and greater economic stability than those without.

As this gap widens, those in the top quintile accumulate a greater and greater percentage of the world’s net wealth (Bommier & Zuber, 2012).

Implementing the Pareto Principle

There are many ways in which you can apply the Pareto Principle to any situation. Success can be found in many aspects of life if you plan and apply the 80-20 rule.

It often begins with having a goal and living with feeling limited. To live without limits, try applying the three Cs: clarity, competence, and concentration, to any situation.

Having clarity means that you have a clear idea of who you are, what you want and where you are going.

You ensure you write down your goals and make plans to achieve them, with the more progress made, the greater confidence you will gain. Having this clarity can help you to remain focused on your goals.

Many people try to become competent at many things at once but because they are spreading themselves so thinly, they may never become highly skilled at any one thing.

Applying competence means that you can become skilful in the key areas of your choice through applying the Pareto Principle to a few select skills.

You can become outstanding in the 20% of tasks that contribute to 80% of your results.

Concentration

This entails having the self-discipline to stay focused on one task until completion. Persevering, without distraction, towards accomplishing your goals can help to live a life without limitations.

You can help to concentrate by abandoning the activities that are taking up too much of your time and are not valuable.

As you focus on doing what you are passionate about and become skilled in those areas, you can make a big difference in your life. You begin to think in terms of possibilities rather than impossibilities.

Understand your constraints

With any goal that you have, there is always likely to be a constraint which has potential to stop you being productive.

Spend some time considering what is standing between you and your goals – is it your environment or skill level? Or are you making excuses?

Once you identify what your constraints are, you can exert energy into alleviating this constraint. When you have done this, you can maximise the time where you are actually going to engage in a high priority task and the process should be a lot smoother.

Re-organize your to-do list

While to-do lists are definitely useful, try not to let anything and everything onto the list. Be more ruthless with what is higher priority and what doesn’t need to be on the list.

An endless list can feel overwhelming and is likely to be unachievable.

Determine what items need to be completed that day or week and take off items which can wait until a later time.

Prioritize tasks based on their perceived impact.

This can be measured by estimating how much of the overall goal each task will contribute to, as well as how long it is likely to take (Backhaus, 1980).

Perhaps put these items on a separate list titled ‘low priority’ and reach for this list when you have spent enough time on your high priority tasks and when your motivation is lower.

The next step involves focusing on completing the most impactful tasks first, using techniques like time boxing and focusing on one thing at a time (known as “single-tasking”).

This may require initially setting aside less important tasks, which can be frustrating. However, in the long run, this approach is more likely to lead to successful completion of goals and a better use of time (Backhaus, 1980).

Specifically, to the workplace, the Pareto Principle can be used to increase effective leadership. Leaders can prioritize tasks to ensure their team is working most effectively and staying focused on specific initiatives.

Resources such as time, money, supplies, and efforts are less likely to be wasted in areas where it will have least output.

The Pareto Principle can also help to increase profits since workplace leaders can reassign high-performing employers to the biggest accounts or high-priority tasks and boost their skills through training to increase revenue.

The Pareto Principle can also highlight the 20% of products or services that generate 80% of revenue, so these can be focused on and offered more.

In general, some other advantages of using the Pareto Principle include:

Greater productivity

Efficient use of energy

Better problem-solving skills

Improved decision-making skills

Being able to create the maximum amount of impact with least amount of work

Increased self-confidence

Clearer prioritizes

Can portion work into manageable segments

More time to do the things you enjoy

Less likely to feel burnt out

Can be informed on what needs fixing

The Pareto Principle is not a mathematical law, rather it is an observation. This means that it is not true for every case and shouldn’t be taken as absolute.

Variations of the Pareto Principle can occur such as 30% of employers being responsible for 60% of sales, so the 80-20 rule does not always apply.

A common misconception of the Pareto Principle is that with 20% effort, you can gain 80% results, which is not necessarily the case.

The percentages do not refer to the effort applied, but the causes and consequences you are working on. To achieve 80% results, you still need to put in 100% effort into that 20% focus.

The Pareto Principle can be easy to misinterpret. Some may think that they should focus all their attention on the 20% that is high priority and forget about the rest of their tasks.

However, you shouldn’t neglect the 80% of smaller tasks such as responding to work emails, as this can build up and become a bigger problem overtime.

The challenge is to find the right balance when it comes to the Pareto Principle. Perhaps you can do the least important tasks at times when you feel less productive to do priority tasks.

Lastly, the Pareto Principle can only apply to the past. Meaning, it reflects data from the past and can be useful for planning what you could do, but it will not make predictions for the future.

Circumstances can change and evolve meaning that the Pareto Principle may not always be useful for designing future strategies.

Critics have also pointed out that the principle can lead to an overemphasis on a small number of critical factors at the expense of others.

In business, for example, this might mean focusing too much on improving sales from existing customers rather than exploring new markets or products.

Others argue that the Pareto Principle reinforces inequalities by giving more power and influence to those who already hold a disproportionate share of wealth or influence (Backhaus, 1980).

Time Management Tactics

Track your time.

A useful technique to establish where all your time is being spent is to log everything you do on a typical day or week.

Go about your time as normal and log everything you do without judgement. After doing this, you may find that you have a lot of gaps where nothing gets done or you spend a lot of energy on tasks that are of low value.

Look at how many hours in your day are dedicated towards tasks that are going to help you achieve your goals. You may find that you spend a short amount of time on achieving your goals, but you often get distracted by other tasks.

Having a log of your time is valuable data you can use to make better use of your day or week.

Start with the most important tasks first

Once you have identified what you should spend 20% of your time on, you can then ensure that you get this done at a time of day when you find you are most productive.

For many people, their most productive time is first thing in the morning. Instead of spending the first part of your day doing low value tasks such as answering emails, it may be more helpful to dedicate this time to your high priority task.

You should find that if you start with the hardest but most rewarding task in the morning, everything else in your day is easier to complete.

Eliminate distractions

With all the distractions or interruptions, the working day can end before you know it. While this may be of benefit to people, you might find that you have finished the day having not been productive at all.

Try to decipher what your main distractions are, whether they be your phone or other non-work-related tasks and put these aside.

This does not only need to be put to one side during your 20%, but for the whole of your workday, if possible, so the whole day goes smoothly without interruption.

To help you manage the time you want to work on a high priority task, enter a block of time in your calendar that you will use to dedicate only to this task.

This is called timeboxing. This box of time can be treated like a scheduled event which must be stuck to and not postponed or canceled.

You can proactively decide how much time will be spent on the task and you can schedule it for a time of day when you feel the most motivated.

You should put aside any distractions during this timebox and dedicate the time only for deep work on the most important tasks.

This can help people who find they procrastinate a lot. It may help you to stop worrying about getting the difficult task done if you know that you have a dedicated timebox coming up in which you can complete the task.

96-minute rule

A similar time management technique to timeboxing is the 96-minute rule. A typical workday is around 8 hours, so 20% of this workday is 96 minutes, however you can adjust the times if the length of your workday differs.

Using the Pareto Principle, you can spend 20% of your workday focused on a high value task. During this time, you remove distractions and put in high effort and intentional focus for the whole of that 20%.

The idea is that you will have completed around 80% of what you wanted to achieve that day in just 20% of the time.

This does not necessarily mean you should end your workday after 96 minutes, but that you can use the remainder of your time on the smaller, less important tasks that you want to get done.

Further Information

Piantadosi, S., Byar, D. P., & Green, S. B. (1988). Dunford, R., Su, Q., & Tamang, E. (2014). The pareto principle.

Brynjolfsson, E., Hu, Y., & Simester, D. (2011). Goodbye pareto principle, hello long tail: The effect of search costs on the concentration of product sales. Management Science, 57(8), 1373-1386.

Backhaus, J. (1980). The pareto principle. Analyse & Kritik, 2 (2), 146-171.

Bommier, A., & Zuber, S. (2012). The Pareto principle of optimal inequality. International Economic Review, 53 (2), 593-608.

Dunford, R., Su, Q., & Tamang, E. (2014). The pareto principle.

Juran, J., Taylor, F., Shewhart, W., Deming, E., Crosby, P., Ishikawa, K., … & Goldratt, E. (2005). Quality control. Joseph M. Juran: Critical Evaluations in Business and Management , 50.

Pareto, V. (1906). L”ofelimità nei cicli non chiusi. Giornale degli economisti , 33, 15-30.

• Memberships

Pareto Analysis explained plus example

Pareto Analysis: this article explains the theory of Pareto Analysis by Vilfredo Pareto in a practical way. After reading you will understand the basics of this problem solving tool. This article explains what the analysis is and which steps are needed to apply the analysis, along with an example.

What is the Pareto Analysis?

The Pareto Analysis, also known as the Pareto principle or 80/20 rule, assumes that the large majority of problems (80%) is determined by a few important causes (20%). This makes the tool very effective for determining where you should focus efforts to achieve improvements.

The founder of this analysis, Italian economist Vilfredo Pareto , discovered this when he was carrying out a study at the end of the 18th century in which he ascertained that 20% of the population owned 80% of the property.

This method was further developed by total quality management guru Joseph Juran (after 1940) and can be applied to various matters (for instance decision-making and other complex issues).

A few of the 80/20 rule examples from daily practice which are often correct are:

• 80% of the customer complaints ensue from 20% of the products or services delivered.
• 20% of the products or services yield 80% of the profits.
• 20% of the people responsible for sales generate 80% of the operational income.
• 80% of the system failures are caused by 20% of the system problems.

The principle of this method is based on the Zipf distribution (pattern in linguistics and a discrete probability distribution with parameters λ and N).

In addition to being a static technique, the Pareto Analysis is a creative and practical way of looking at the causes of problems. It stimulates ideas about thinking and organizing. This method helps identify the main causes (20%) that lead to 80% of the problems that need are to be solved.

As soon as the main causes have been identified, the diagnostic techniques such as the Ishikawa diagram or fishbone analysis can be used to identify and address the deeper causes of the problems.

Practice of the Pareto Analysis

In order to apply the analysis in practice some basic steps have been defined which can be followed to arrive at a thorough analysis.

Step 1: Measuring – identify the problems and document them in a table

Based on observations, interviews and reports, data can be collected from which problems can be deduced. Subsequently, these problems are documented in a table and grouped if possible.

It is important to apply the ‘cause-effect’ theory to each item so that the source of each documented problem can be found. There are several techniques that can help in this such as for example the Root Cause Analysis (RCA) .

Step 2: Determine their order of importance

Organize the inventoried problems in ranking order from the most important down to the least important in descending order. Make sure that the most important cause is documented first.

Step 3: Mark or score each recorded problem

Now that the problems have been identified, deduced and been put in order of importance, it is essential to link these to a mark or score. The way in which a score must be calculated depends on the type of problem that needs to be solved.

For example a financial approach (improvement of profits) will focus on how the score relates to what costs are involved with solving these problems. Is the focus on customer-orientation (improving customer satisfaction), then the focus is on the number of complaints that need to be solved.

Pareto Analysis example

An example is a computation of the cumulative percentages of problem costs, in other words, the number of times a department is faced with this problem or the opportunities of how a department can increase sales.

Step 4: Group the identified problem and add the marks or scores

The identified problems are grouped based on their causes. If, for example, there are five problems that lead to dysfunctional employees then put them together in one group. Now that all problems have been grouped, the marks or scores are added.

The group with the highest score must be given the highest priority in order so that they can be dealt with. This is where the most results can be obtained in terms of optimization.

Figure 1 – Pareto Analysis Example

Pareto Analysis diagram

Figure 2 – Plotted Pareto Analysis Diagram

Step 5: Time to act, based on the Pareto Analysis

Using the information from step 4, an action plan can be drawn up in which performance improvement actions can be formulated.

It’s Your Turn

What do you think? Are you familiar with the Pareto Analysis or PA Diagram? Do you recognize the practical explanation or do you have more suggestions? What are your success factors for the good problem analysis and approach?

Share your experience and knowledge in the comments box below.

More information

• Fotopoulos, C., Kafetzopoulos, D., & Gotzamani, K. (2011). Critical factors for effective implementation of the HACCP system: a Pareto analysis . British Food Journal, 113(5), 578-597.
• Karuppusami, G., & Gandhinathan, R. (2006). Pareto analysis of critical success factors of total quality management: A literature review and analysis . The TQM magazine , 18(4), 372-385.
• Kaliszewski, I. (1994). Quantitative Pareto analysis by cone separation technique . Kluwer Academic Publishers .

How to cite this article: Mulder, P. (2012). Pareto Analysis . Retrieved [insert date] from Toolshero: https://www.toolshero.com/problem-solving/pareto-analysis/

Original publication date: 08/12/2013 | Last update: 05/22/2024

Add a link to this page on your website: <a href=”https://www.toolshero.com/problem-solving/pareto-analysis/”>Toolshero: Pareto Analysis</a>

Did you find this article interesting?

Your rating is more than welcome or share this article via Social media!

Average rating 4.2 / 5. Vote count: 13

No votes so far! Be the first to rate this post.

We are sorry that this post was not useful for you!

Let us improve this post!

Tell us how we can improve this post?

Patty Mulder

Patty Mulder is an Dutch expert on Management Skills, Personal Effectiveness and Business Communication. She is also a Content writer, Business Coach and Company Trainer and lives in the Netherlands (Europe). Note: all her articles are written in Dutch and we translated her articles to English!

Related ARTICLES

Convergent Thinking: the Definition and Theory

Vilfredo Pareto biography, quotes and books

Root Cause Analysis (RCA): Definition, Process and Tools

Soft Systems Methodology (SSM) by Peter Checkland

Artificial Intelligence (AI) explained

CATWOE Analysis: theory and example

Also interesting.

PDCA Cycle by Deming: Meaning and Steps

Straw Man Proposal: The basics and template

TRIZ Method of Problem Solving explained

One response to “pareto analysis explained plus example”.

Btw, I think it is: “80% of the system problems/defects are caused by 20% of the system failures “

Leave a Reply Cancel reply

You must be logged in to post a comment.

BOOST YOUR SKILLS

Toolshero supports people worldwide ( 10+ million visitors from 100+ countries ) to empower themselves through an easily accessible and high-quality learning platform for personal and professional development.

By making access to scientific knowledge simple and affordable, self-development becomes attainable for everyone, including you! Join our learning platform and boost your skills with Toolshero.

POPULAR TOPICS

• Change Management
• Marketing Theories
• Problem Solving Theories
• Psychology Theories

ABOUT TOOLSHERO

• Free Toolshero e-book
• Memberships & Pricing

Mastering Pareto Analysis: Problem Solving & Process Optimization Guide

Pareto Analysis  is a powerful problem-solving tool and process improvement technique that helps businesses and organizations identify the most significant problems and prioritize their efforts for maximum impact. This academic blog post will explore the meaning, application, and benefits of Pareto Analysis and delve into various examples and case studies from different industries. As a result, organizations can achieve more efficient and effective outcomes by leveraging the Pareto Principle, also known as the 80/20 rule or Pareto's Rule.

Understanding Pareto Analysis and the Pareto Principle

Pareto Analysis Definition: Pareto Analysis  is a decision-making technique to identify the most critical factors, issues, or problems. This method involves the application of the Pareto Principle, which states that approximately 80% of effects result from 20% of causes.

Pareto Principle: The 80/20 Rule

The Pareto Principle, or the 80/20 rule, was first introduced by Italian economist Vilfredo Pareto in the early 20th century. The principle emphasizes that a small number of inputs (20%) contribute to a large percentage (80%) of outcomes. In problem-solving, this translates to the idea that focusing on the most significant problems first can lead to significant improvements.

Pareto Analysis Meaning and Purpose

Pareto Analysis prioritizes issues, identifies root causes, and allocates resources efficiently. As a result, organizations can substantially improve with limited resources by focusing on the most significant problems, making Pareto Analysis a valuable tool for continuous process improvement.

The Process of Conducting Pareto Analysis

Pareto Chart Analysis: Pareto Analysis often uses a Pareto Chart, a graphical representation of the distribution of problems, causes, or issues. A Pareto Chart consists of a bar chart and a line graph, with the bars representing the frequency or magnitude of problems and the line indicating the cumulative percentage.

Unlocking Problem Solving Skills: Bertrand Russell's Habits

How Darwin Cultivated His Problem-Solving Skills

The Wisdom of Jefferson: Moving, Doing, Thinking

Critical Chain Project Management: Enhancing Efficiency in Task Execution

Pareto Analysis Steps

Identify the problems or issues: Begin by compiling a comprehensive list of the issues that must be addressed.

Collect data and categorize: Gather relevant data on the problems, then categorize and quantify them based on their impact or frequency.

Rank the issues: Rank the problems in descending order based on their magnitude, impact, or frequency.

Create the Pareto Chart: Plot the data on a Pareto Chart, illustrating the distribution and cumulative percentage of the issues.

Analyze and prioritize: Use the Pareto Chart to identify the most significant problems and prioritize your efforts accordingly.

Implement solutions and monitor progress: Address the prioritized issues, implement solutions, and continuously monitor the progress and impact of these efforts.

Pareto Analysis Examples and Case Studies

Pareto Analysis Example in Manufacturing: In a manufacturing setting, Pareto Analysis can identify the root causes of defects or issues in the production process. By collecting data on the frequency and impact of each deficiency, a Pareto Chart can be created to visualize the distribution of problems. Focusing on the top 20% of issues, which typically contribute to 80% of the overall defects, allows the organization to prioritize and allocate resources effectively.

Example of a Pareto Chart Analysis (Table):

Imagine a software company is experiencing a high number of customer-reported bugs. They collect data on the frequency of each bug category and create the following table:

In this example, the software company can see that User Interface and Performance bugs account for 62.5% of all reported issues. The company can significantly reduce the number of customer-reported bugs by addressing these two categories. The table forms the basis for creating a Pareto Chart, which visually represents the distribution of issues and helps prioritize problem-solving efforts.

Pareto Chart Example with Explanation

Consider a software development company that wants to reduce the number of customer-reported bugs. By collecting data on the frequency of different bug categories, the company can create a Pareto Chart to identify the most significant issues. For example, the chart might reveal that 80% of customer complaints result from 20% of bug categories. By prioritizing these categories and addressing their root causes, the company can significantly improve the customer experience and reduce the overall number of reported issues.

Pareto Law 20/80 in Problem-Solving

The Pareto Law 80/20 concept can be applied to various industries and scenarios in problem-solving. For example, in sales, it is often observed that 80% of revenue is generated by 20% of customers. Therefore, businesses can optimize their sales strategies and achieve better results by focusing on these top customers and understanding their needs and preferences.

Root Cause Pareto Analysis

Root cause Pareto Analysis involves identifying the underlying causes of the most significant problems, as highlighted by the Pareto Chart. By addressing these root causes, organizations can achieve long-term improvements and prevent future issues from arising.

Pareto Analysis Case Study

Consider a healthcare organization experiencing long patient wait times in its emergency department. By conducting a Pareto Analysis, the organization identifies the primary factors contributing to the delays, such as inefficient patient triage and understaffing during peak hours. By focusing on these critical issues and implementing targeted solutions, the organization can significantly reduce wait times and improve patient satisfaction.

Key Takeaways and Best Practices

A. pareto analysis benefits.

Prioritization: Pareto Analysis helps organizations prioritize issues and focus on the most significant problems first.

Resource allocation: By concentrating on the top 20% of issues, organizations can allocate resources more efficiently and achieve better results.

Continuous improvement: Pareto Analysis is a valuable tool for ongoing process improvement, as it enables organizations to identify and address problems consistently.

Root cause analysis : Identifying and addressing the root causes of issues ensures long-term improvements and reduces the likelihood of recurring problems.

Best Practices for Conducting Pareto Analysis

Use accurate and reliable data: The quality of your Pareto Analysis depends on the data quality used. Ensure that you collect accurate and reliable data from relevant sources.

Regularly update your analysis: Review your Pareto Analysis to account for changes in your organization, industry, or market.

Involve stakeholders: Ensure stakeholders' perspectives and expertise are considered during the analysis.

Implement and monitor solutions: After prioritizing issues, implement targeted solutions and continuously monitor progress to assess their effectiveness.

Communicate results: Share the findings and insights from your Pareto Analysis with relevant stakeholders to foster a culture of continuous improvement and data-driven decision-making.

Pareto Analysis  is a powerful problem-solving and process improvement technique that leverages the Pareto Principle to enable organizations to focus on the most critical issues and achieve significant improvements. By understanding and applying Pareto Analysis, businesses can prioritize their efforts, allocate resources efficiently, and implement data-driven solutions to drive success. Whether in manufacturing, healthcare, or software development, Pareto Analysis offers a valuable and versatile approach to tackling complex problems and achieving meaningful results.

What is the primary purpose of Pareto Analysis?

The primary purpose of Pareto Analysis is to prioritize issues, identify root causes, and allocate resources efficiently by focusing on the most significant problems. This approach helps organizations achieve substantial improvements with limited resources.

How does the Pareto Principle, or the 80/20 rule, apply to problem-solving?

The Pareto Principle, also known as the 80/20 rule, states that approximately 80% of effects result from 20% of causes. In problem-solving, this translates to the idea that focusing on the most significant problems first can lead to substantial improvements with limited resources.

What are some benefits of conducting Pareto Analysis in an organization?

Some benefits of conducting Pareto Analysis include prioritizing issues, enabling efficient resource allocation, promoting continuous improvement, and identifying root causes of problems for long-term improvements and prevention of future issues.

Pia Prebensen is a personal growth expert who helps people identify and overcome their limiting beliefs. She has been featured in various online and print publications, including Elite Daily and The Huffington Post.

Born and raised in Denmark, Pia has always been fascinated by human behavior and the inner workings of the mind.

What is Problem Solving? How to Do It? Step-by-Step Techniques

Mastering SCAMPER for Enhanced Creativity & Innovation

Unraveling Edward de Bono's Six Thinking Hats Technique

A Comprehensive Guide to Decision Matrices

A Comprehensive Guide to Root Cause Analysis

SWOT Analysis: Meaning, Examples and Personal Applications

Mind Mapping 101: Mapping the Path to Success

Definition of Problem-Solving With Examples

• Product overview
• All features
• Latest feature release
• App integrations

CAPABILITIES

• project icon Project management
• Project views
• Custom fields
• Status updates
• goal icon Goals and reporting
• Reporting dashboards
• workflow icon Workflows and automation
• portfolio icon Resource management
• Capacity planning
• Time tracking
• my-task icon Admin and security
• Admin console
• asana-intelligence icon Asana AI
• list icon Personal
• premium icon Starter
• briefcase icon Advanced
• Goal management
• Organizational planning
• Campaign management
• Creative production
• Content calendars
• Marketing strategic planning
• Resource planning
• Project intake
• Product launches
• Employee onboarding
• View all uses arrow-right icon
• Project plans
• Team goals & objectives
• Team continuity
• Meeting agenda
• View all templates arrow-right icon
• Work management resources Discover best practices, watch webinars, get insights
• Customer stories See how the world's best organizations drive work innovation with Asana
• Help Center Get lots of tips, tricks, and advice to get the most from Asana
• Asana Academy Sign up for interactive courses and webinars to learn Asana
• Developers Learn more about building apps on the Asana platform
• Community programs Connect with and learn from Asana customers around the world
• Events Find out about upcoming events near you
• Partners Learn more about our partner programs
• Asana for nonprofits Get more information on our nonprofit discount program, and apply.

Featured Reads

• Productivity |
• Understanding the Pareto principle (The ...

Understanding the Pareto principle (The 80/20 rule)

The Pareto principle (also known as the 80/20 rule) is a phenomenon that states that roughly 80% of outcomes come from 20% of causes. In this article, we break down how you can use this principle to help prioritize tasks and business efforts.

When you get into the office in the morning, what's the first thing you do? Most people grab their caffeinated beverage of choice, check their email, and prioritize their tasks for the day. But what techniques do you use to identify what needs to get done first?

One common technique is called the Pareto principle, also known as the 80/20 rule. This technique can help you determine and prioritize your highest-impact tasks, increasing your productivity throughout the day.

What is the Pareto principle?

The Pareto principle states that for many outcomes, roughly 80% of consequences come from 20% of causes. In other words, a small percentage of causes have an outsized effect. This concept is important to understand because it can help you identify which initiatives to prioritize so you can make the most impact.

Where does the Pareto principle come from?

The Pareto principle was developed by Italian economist Vilfredo Pareto in 1896. Pareto observed that 80% of the land in Italy was owned by only 20% of the population. He also witnessed this happening with plants in his garden—20% of his plants were bearing 80% of the fruit. This relationship is best mathematically described as a power law distribution between two quantities, in which a change in one quantity results in a relevant change into the other.

This phenomenon also goes by a couple of different names:

Pareto principle

The 80/20 rule (most common)

Law of the vital few

Principle of factor sparsity 

The 80/20 rule is not a formal mathematical equation, but more a generalized phenomenon that can be observed in economics, business, time management, and even sports.

General examples of the Pareto principle:

20% of a plant contains 80% of the fruit

80% of a company’s profits come from 20% of customers

20% of players result in 80% of points scored

How you can use the 80/20 rule

While the 80/20 rule applies to almost every industry, the Pareto principle is commonly used in business and economics. This is because the 80/20 rule is helpful in determining where you can focus your efforts to maximize your output. 

The basis of the Pareto principle states that 80% of results come from 20% of actions. If you have any kind of work that can be segmented into smaller portions, the Pareto principle can help you identify what part of that work is the most influential.

Here are a few examples of how to use the tool in practice.

Productivity

You can use the 80/20 rule to prioritize the tasks that you need to get done during the day. 

The idea is that out of your entire task list, completing 20% of those tasks will result in 80% of the impact you can create for that day. So in order to get the most impact done, identify which tasks have the most impact for your team and focus on those for the day.

To do this, list out all of the things that you need to get done that day. Then identify which of those tasks have the highest impact. Do any of your tasks involve collaborating with other teammates? Are there any tasks on your plate that are blocking projects from moving forward? These tasks may be simple in execution, but they can make a large impact to the rest of the team by allowing the process to keep flowing. 

Decision making

The Pareto principle can help you to make the best decisions during the problem-solving process. When there are many different causes to one problem, the Pareto principle can help you prioritize solutions. Here are a few steps to how this works:

Identify the problems that your team is experiencing. These are the problems that you're trying to find a solution to within this decision making process.

Categorize your problems into similar groups. If some of the causes of the problems you're trying to solve can fall into similar categories, use this as an opportunity to group them together. This can help you decide if one solution can resolve multiple issues. 

Assign a value to each of these problems based on the impact to the business. The value can be as simple as a number between 1-10, or actual monetary value to indicate the importance.

Develop a plan to focus on the top 20% of the problems that impact the business. The idea is that one solution can resolve multiple problems. Based on the values you assigned to each problem, calculate which ones are in the top 20%. Once you’ve identified the main problem, develop a plan to create a solution that can result in 80% of the results using problem-solving strategies .

Example of how to use the 80/20 rule for decision making: 

Imagine you work at an ecommerce company. You take a look at 100 of your most recent customer service complaints, and notice that the bulk of the complaints come from the fact that customers are receiving damaged products. Your team calculates the amount of refunds given for your damaged products and finds that approximately 80% of refunds given were for damaged products. Your company wants to avoid processing refunds for broken products, so you make this problem a priority solution. 

Your team decides to update packaging to protect your products during shipping, which resolves the issue of customers receiving damaged products.

Quality control

The Pareto analysis and the Pareto chart are key tools used within the Six Sigma quality control methodology. 

In the Six Sigma methodology, using a Pareto chart can help you visualize your data to identify how to prioritize actions. Six Sigma’s main goal is to reduce the amount of variation in a process with the goal of increasing the amount of production. Pareto charts are common in Six Sigma methodology because you can quickly identify what the majority of the variations are in a process. 

Benefits of using the Pareto principle

The biggest advantage of using the Pareto principle is that you can create the maximum amount of impact with the least amount of work. This can allow your team to work more efficiently and stay focused on specific initiatives. 

The 80/20 rule can help your metrics increase in less time, simply by prioritizing initiatives in the right order.

Other benefits of using the Pareto principle:

Clear priorities both for you and your team

Increased daily productivity

Ability to portion your work into manageable segments

More focused strategy

Disadvantages of using the 80/20 rule

​​There's a common misinterpretation of the Pareto principle that with 20% of effort, you can achieve 80% of the results. This is not necessarily the case. The 20 and 80% numbers don’t refer to the amount of effort you’re putting in, but the causes and consequences you’re working on. The goal is not to minimize the amount of effort, but to focus your effort on a specific portion of work to create a bigger impact. You still have to put 100% of effort into that 20% of focus to achieve 80% of results.

Another downside of the 80/20 rule is that sometimes team members can get too focused and lose sight on other tasks. If you only focus on the important tasks and put aside the less important tasks, like email and other correspondence, things can get lost. The challenge is finding the right balance of using the 80/20 rule, and getting through the rest of your tasks—even if they don't result in 80% of results. To combat this, you can use techniques like timeboxing or the Getting Things Done (GTD) method. 

Connect tasks to goals with Asana

Finding different ways to help your team achieve productivity is an important part about being a team leader. Using a work management tool like Asana can help organize all your team projects and tasks, share files, leave comments and feedback all in one location, while saving you time. 

Related resources

Timesheet templates: How to track team progress

AI at Work: Practical Ways to Start Using AI Today

Data-driven decision making: A step-by-step guide

How Asana streamlines strategic planning with work management

Our Recommendations

• Best Small Business Loans for 2024
• Businessloans.com Review
• Biz2Credit Review
• SBG Funding Review
• Rapid Finance Review
• 26 Great Business Ideas for Entrepreneurs
• Startup Costs: How Much Cash Will You Need?
• How to Get a Bank Loan for Your Small Business
• Articles of Incorporation: What New Business Owners Should Know
• How to Choose the Best Legal Structure for Your Business

Small Business Resources

• Business Ideas
• Business Plans
• Startup Basics
• Startup Funding
• Franchising
• Success Stories
• Entrepreneurs
• The Best Credit Card Processors of 2024
• Clover Credit Card Processing Review
• Merchant One Review
• Stax Review
• How to Conduct a Market Analysis for Your Business
• Local Marketing Strategies for Success
• Tips for Hiring a Marketing Company
• Benefits of CRM Systems
• 10 Employee Recruitment Strategies for Success
• Sales & Marketing
• Social Media
• Best Business Phone Systems of 2024
• The Best PEOs of 2024
• RingCentral Review
• Nextiva Review
• Ooma Review
• Guide to Developing a Training Program for New Employees
• How Does 401(k) Matching Work for Employers?
• Why You Need to Create a Fantastic Workplace Culture
• 16 Cool Job Perks That Keep Employees Happy
• 7 Project Management Styles
• Women in Business
• Personal Growth
• Best Accounting Software and Invoice Generators of 2024
• Best Payroll Services for 2024
• Best POS Systems for 2024
• Best CRM Software of 2024
• Best Call Centers and Answering Services for Busineses for 2024
• Salesforce vs. HubSpot: Which CRM Is Right for Your Business?
• Rippling vs Gusto: An In-Depth Comparison
• RingCentral vs. Ooma Comparison
• Choosing a Business Phone System: A Buyer’s Guide
• Equipment Leasing: A Guide for Business Owners
• HR Solutions
• Financial Solutions
• Marketing Solutions
• Security Solutions
• Retail Solutions
• SMB Solutions

Business News Daily provides resources, advice and product reviews to drive business growth. Our mission is to equip business owners with the knowledge and confidence to make informed decisions. As part of that, we recommend products and services for their success.

We collaborate with business-to-business vendors, connecting them with potential buyers. In some cases, we earn commissions when sales are made through our referrals. These financial relationships support our content but do not dictate our recommendations. Our editorial team independently evaluates products based on thousands of hours of research. We are committed to providing trustworthy advice for businesses. Learn more about our full process and see who our partners are here .

What Is a Pareto Analysis?

A Pareto analysis, also known as the 80/20 rule, is useful when many decisions need to be made.

Table of Contents

Company leaders always have many decisions to make. The question is, which one should be tackled first? Many business leaders conduct a Pareto analysis to answer that question. A Pareto analysis helps prioritize decisions by which ones will have the greatest influence on overall business goals .

What is a Pareto analysis? 

A Pareto analysis, or the Pareto principle, is also known as the 80/20 rule because it is based on the idea that 80 percent of a project’s benefit can come from doing 20 percent of the work. Conversely, 80 percent of a situation’s problems can be traced to 20 percent of the causes.

The technique is named after Italian economist Vilfredo Pareto, who observed in 1895 that 80 percent of Italy’s wealth belonged to only 20 percent of the population.

Although the Pareto principle is used primarily in business contexts, it can have other applications. These are some business and marketing examples:

• Eighty percent of complaints come from 20 percent of customers.
• Eighty percent of profits come from 20 percent of the company’s effort.
• Eighty percent of sales come from 20 percent of products or services.
• Eighty percent of sales are made by 20 percent of sellers.
• Eighty percent of clients come from 20 percent of marketing activities.

Related: How to Deal With Difficult Customers

How to conduct a Pareto analysis

There are several ways to conduct a Pareto analysis, but they all revolve around the same guiding principles. These are the six steps for conducting a Pareto analysis:

• Identify the problems. List all of the problems you need to solve.
• Determine the root causes. Analyze each problem to identify the fundamental cause of each one.
• Score the problems. The scoring method you use will depend on the type of problem. If the problem revolves around improving profits, then the scoring might center on how much each problem is costing your business. If you are trying to boost customer satisfaction, you might score the problems on the number of complaints that would be eliminated if the problem were solved.
• Group the problems. Organize the problems by root cause.
• Tally the scores. Add up the scores for each cause group. The one with the top score should be the highest priority, while the one with the lowest score should be the lowest priority.
• Take action. Start tackling the causes of the problems. Deal with the top-priority problem or group of problems first.

The benefits of using a Pareto analysis

Here are some of the top advantages of using a Pareto analysis:

• It increases organizational efficiency. A Pareto analysis allows you to shift your company’s focus, prioritize your problems and identify the root causes of those problems. Companies are more efficient when they focus efforts in the places where they will see the greatest return on investment (ROI) .
• It enhances problem-solving skills. A Pareto analysis lets you organize work-related problems into a clear set of causes and effects, which you can then address individually.
• It improves decision-making. Employees and businesses can use a Pareto analysis to decide which practices are most effective and determine how to improve current operations. Learn how benchmarking can benefit operations.
• It improves time and change management. You can use the Pareto analysis to look deeper into the effectiveness of any changes you make or need to make to improve your business practices. This helps you manage these changes and any time that you spend implementing them.
• It helps with planning, analysis and troubleshooting. You can use the Pareto analysis for planning and troubleshooting any changes you will make to your business practices.
• It shows the cumulative impact of issues on business. Because a Pareto analysis is versatile and applicable to multiple areas of business, it provides a look at the overall impact of challenges across the entire organization. This helps you and your company’s other decision-makers identify which problems to resolve first.

How businesses use a Pareto analysis

A Pareto analysis helps managers focus on what is most important and urgent for their business. Here are some examples of how businesses use this tool:

• Twenty percent of marketing efforts represent 80 percent of the results. While marketing and communications efforts are hard to measure, this is a critical principle for anyone who wants to achieve the maximum results with less marketing effort. By identifying which 20 percent is the most valuable, you can double down on those efforts and reduce resource expenditure on the other 80 percent of marketing operations.
• Twenty percent of posts generate 80 percent of traffic. If you work with social media and content marketing , you can use the Pareto principle to analyze which posts were most effective, discover their similarities and use them in future content. This can also help you optimize your other posts.
• Eighty percent of the quality failures originate from 20 percent of the tasks. If you work in process management, you can use a Pareto analysis to establish essential tasks and determine which tasks fall into the 80 percent of quality failures. Then, you can model the process to make those tasks more efficient.

Pareto analysis example

There are many ways for businesses to use a Pareto analysis to their advantage. For example, if a company wants to improve service at a customer call center , the first thing they need to do is survey customers to find out why they were unhappy with the call center’s service.

After getting customer responses back, the call center could divide the information by complaint category, which may include “too long on hold,” “no evening or weekend staff,” “not knowledgeable,” “not courteous,” “transferred too many times,” “could not locate file,” “no phone payment options,” “hard to understand representative” and “charged more than promised.”

From there, they would total the number of complaints in each category and determine the percentage of each complaint compared with the total amount. Then, they would find the cumulative percentage of the categories by adding them together. Based on this data, they could determine which issues account for 80 percent of the problems. In our call center example, the primary culprits might be “too long on hold,” “no evening or weekend staff” and “not knowledgeable,” as they account for approximately 80 percent of the total complaints. [Related: The Best Call Center Services ]

In light of the analysis, it is easy to determine that the call center needs to concentrate its efforts on those three complaints to improve its overall customer service.

Strengthen your business with a Pareto analysis

Many businesses know they need to improve, but they are too close to the work to see exactly where and why. With a Pareto analysis, you can quantify your problem areas so you know exactly where to target your time and resources. If you want to be sure you’re making the right choices for your business, a Pareto analysis can show you the way. 

Natalie Hamingson and Chad Brooks contributed to this article.

Building Better Businesses

Insights on business strategy and culture, right to your inbox. Part of the business.com network.

• Join Mind Tools

Pareto Analysis

Choosing the solution with the most impact.

© iStockphoto Mackan65

Use this approach to identify which challenges you should tackle first.

Imagine that you've just been promoted to head of department. You're brimming with ideas about how to improve things, so where do you start?

Ideally, you want to focus on fixing the problems that have the biggest impact. But how do you decide which one to tackle first?

Pareto Analysis is a simple decision-making technique for assessing competing problems and measuring the impact of fixing them. This allows you to focus on solutions that will provide the most benefit.

In this article, we'll show you how to carry out a Pareto Analysis, and explain how to use your findings to prioritize tasks that will deliver the greatest positive impact.

The 80/20 Rule

Pareto Analysis uses the Pareto Principle – also known as the "80/20 Rule" – which was coined by Italian economist, Vilfredo Pareto, in his 1896 book, "Cours d'économie politique." [1]

The Pareto Principle states that 80 percent of a project's benefit comes from 20 percent of the work. Or, conversely, that 80 percent of problems can be traced back to 20 percent of causes. Pareto Analysis identifies the problem areas or tasks that will have the biggest payoff. The tool has several benefits, including:

• Identifying and prioritizing problems and tasks.
• Helping people to organize their workloads more effectively.
• Improving productivity.
• Improving profitability.

The figures 80 and 20 aren't "set in stone," and should be taken as a guide. The Pareto Principle illustrates the lack of symmetry that often occurs between the work you put in and the results you achieve. For example, you might find that 13 percent of work could generate 87 percent of returns. Or that 70 percent of problems could be resolved by dealing with 30 percent of underlying causes.

Pareto Analysis Steps

Now, we'll take a look at how to carry out a Pareto Analysis:

1. Identify and List Problems

Write out a list of all of the problems that you need to resolve. Where possible, gather feedback from clients and team members. This could take the form of customer surveys, formal complaints, or helpdesk logs, for example.

2. Identify the Root Cause of Each Problem

Next, get to the root cause of each problem. Techniques such as the 5 Whys   , Cause and Effect Analysis   , and Root Cause Analysis   are useful tools for this.

3. Score Problems

Now, score each problem that you've listed by importance. The scoring method that you use will depend on the sort of problem that you're trying to resolve.

For example, if you want to improve profits, you could score problems by how much they cost. Or, if you're trying to improve customer satisfaction, you might score them based on the number of complaints that you've received about each.

4. Group Problems Together

Use the root cause analysis that you carried out in Step 3 to group problems together by common cause. For example, if three of your problems are caused by lack of staff, you could put these into the same group.

5. Add up Scores for Each Group

Now, add up the scores for each group that you've identified. The one with the top score should be your highest priority, and the group with the lowest score your lowest priority.

6. Take Action

Finally, it's time to take action! Your highest scoring problem will likely have the biggest payoff once fixed, so start brainstorming   ideas on how to solve this one first.

You may find that your lowest-scoring problems aren't worth bothering about, particularly if they are very costly to fix. Use your Pareto Analysis to save your energy and resources for what's important!

While this approach is great for identifying the most important root cause to deal with, it doesn't take into account the cost of doing so. Where costs are significant, you'll need to use techniques such as Cost/Benefit Analysis   , and Net Present Value (NPV) and Internal Rate of Return (IRR)   to determine which changes you should implement.

Finding This Article Useful?

You can learn another 55 decision-making skills, like this, by joining the Mind Tools Club.

Subscribe to Our Newsletter

Receive new career skills every week, plus get our latest offers and a free downloadable Personal Development Plan workbook.

Pareto Analysis Example

Jack has taken over a failing computer service center, with a host of problems that need resolving. His objective is to increase overall customer satisfaction.

He decides to carry out a Pareto Analysis to assess and prioritize the biggest issues facing the center. He starts by listing these (see the Problem column in the table, below). He then identifies the underlying causes behind each (see the Causes column). Finally, he scores each item by the number of customer complaints that each has received (see the Score column).

Jack uses his analysis to group problems together by cause, then adds up the scores for each group identified. He is now able to order the main causes affecting the center, starting with the one that has attracted the highest number of customer complaints:

• Lack of training (items 5 and 6) – 51 complaints.
• Too few service center staff (items 1 and 2) – 21 complaints.
• Poor organization and preparation (items 3 and 4) – 6 complaints.

Figure 1. Pareto Analysis of Computer Services Center

As you can see from figure 1, above, the business will benefit most from giving staff more training, so Jack should tackle this first. He could also look to increase the number of staff in the call center. However, it's possible that this won't be necessary – the provision of further training may help to reduce customer complaints and increase staff productivity.

Jack's Pareto Analysis has enabled him to quickly identify the areas of the business that face the biggest challenges, so he can focus his efforts where they are needed most and prioritize issues that will provide the biggest payoff to the business. This will likely save him a great deal of time and money that he might otherwise have spent trying to fix a range of different issues, some of which may have provided very little benefit.

Pareto Analysis is a simple decision-making technique that can help you to assess and prioritize different problems or tasks by comparing the benefit that solving each one will provide.

It's based on the Pareto Principle (also known as the 80/20 Rule) – the idea that 80 percent of problems may be the result of as little as 20 percent of causes.

To use Pareto Analysis, you first need to identify and list the problems that you face, and their root causes. Then, score each problem according to its impact (the scoring system that you use will depend on the types of problems that you are attempting to fix).

Group the problems together by cause and add up scores for each group. This will allow you to identify the problems that will have the biggest benefits if resolved.

Finally, use your findings to prioritize your workload, so that your efforts can be directed toward issues that are the most impactful, and away from problems that are less impactful.

This site teaches you the skills you need for a happy and successful career; and this is just one of many tools and resources that you'll find here at Mind Tools. Subscribe to our free newsletter , or join the Mind Tools Club and really supercharge your career!

Rate this resource

The Mind Tools Club gives you exclusive tips and tools to boost your career - plus a friendly community and support from our career coaches! 

Comments (32)

• Over a month ago Michele wrote Hi Hinai, Like you, I also find the 80/20 rule to be very powerful prioritization tool. Michele Mind Tools Team
• Over a month ago Hinai wrote Pareto is very powerful tool to prioritize and identify the highest reason/stage/element and different things... Also it is one of the main tool in six-sigma problem solving methodology.
• Over a month ago Michele wrote Hi Lori, Pareto Analysis is an effective problem solving tool. It identifies which solution will achieve the best result. Thanks for your comment. Michele Mind Tools Team

Please wait...