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From Wikipedia, the free encyclopedia Pareto analysis is a statistical technique in decision making that is used for selection of a limited number of tasks that produce significant overall effect. It uses the Pareto principle – the idea that by doing 20% of work, 80% of the advantage of doing the entire job can be generated. Or in terms of quality improvement, a large majority of problems (80%) are produced by a few key causes (20%). Pareto analysis is a formal technique useful where many possible courses of action are competing for attention. In essence, the problem-solver estimates the benefit delivered by each action, then selects a number of the most effective actions that deliver a total benefit reasonably close to the maximal possible one. Pareto analysis is a creative way of looking at causes of problems because it helps stimulate thinking and organize thoughts. However, it can be limited by its exclusion of possibly important problems which may be small initially, but which grow with time. It should be combined with other analytical tools such as failure mode and effects analysis and fault tree analysis for example. This technique helps to identify the top 20% of causes that needs to be addressed to resolve the 80% of the problems. Once the top 20% of the causes are identified, then tools like the Ishikawa diagram or Fish-bone Analysis can be used to identify the root causes of the problems. The application of the Pareto analysis in risk management allows management to focus on the 20% of the risks that have the most impact on the project.
 Steps to identify the important causes using Pareto analysis
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Step 1: Form an explicit table listing the causes and their frequency as a percentage. Step 2: Arrange the rows in the decreasing order of importance of the causes (i.e., the most important cause first) Step 3: Add a cumulative percentage column to the table Step 4: Plot with causes on x- and cumulative percentage on y-axis Step 5: Join the above points to form a curve Step 6: Plot (on the same graph) a bar graph with causes on x- and percent frequency on y-axis Step 7: Draw line at 80% on y-axis parallel to x-axis. Then drop the line at the point of intersection with the curve on x-axis. This point on the x-axis separates the important causes (on the left) and trivial causes (on the right) Step 8: Explicitly Review the chart to ensure that at least 80% of the causes are captured
Now that the team has analyzed the causes of long waiting times, they need to choose the most important causes to solve. One way to do this is by using a Pareto Analysis. Step 1: Frequency Analysis The first step of the Pareto Analysis is to gather data on the frequency of the causes. Looking over all the data they gathered when they were describing the problem, and the list of causes they created in the Cause-and-Effect Diagram, the team decides that they need to gather some more data on the frequency of the different possible causes. They interview a sample of 50 users and 20 staff members of the health center to determine which of the possible causes happen most frequently in the Santa Rosa Health Center. Here are the results of the survey, in a table: Possible Causes of Long Wait Time Policies require excess information on users Policies require complicated procedures Too much paperwork Not enough funding Inadequate schedules Inadequate policies Clinic personnel have too many chores at home Clinic personnel have other jobs Clinic personnel lack punctuality Clinic personnel have insufficient training Clinic personnel aren't motivated Clinic personnel are careless Clinic personnel don't follow the schedule Users forget ID cards Users don't keep appointments Users are uncooperative Delay in handing over lab results to doctors Outdated methods Lack of automation Procedures take too long Percent of Total 1 1 2 2 13 2 2 2 6 2 1 1 16 1 2 1 14 12 9 11
The next step of the Pareto Analysis is to identify the "vital few" causes of the problem. The Pareto Principle states that a problem can be solved by focusing on solving the most frequently occuring causes. Usually, there are four to six causes that lead to 80% of the problems. These are called the "vital few" causes.
Step 2: Ranking Causes To identify the "vital few" causes, the team ranks the causes based on the frequencies they found in their survey. Mrs. Alvarez helps the team calculate the cumulative percentage (each percentage added to the one before it) so they can build a pareto graph. The team constructs a chart with the cause, percentage, and cumulative percentage: Cause Clinic personnel don't follow the schedule Delay in handing over lab results to doctors Inadequate schedules Outdated methods Procedures take too long Lack of automation Clinic personnel lack punctuality Percentage 16% 14% 13% 12% 11% 9% 6% Cumulative Percentage 16% 30% 43% 55% 66% 75% 81%
Making the chart brings a lot of tension out into the open. Mrs. Alvarez decides to stop here and use some of the Team Building Tools to alleviate the stress arising between the quality team and the staff, as well as within the quality team itself. Step 3: Pareto Graph Now the team is ready to draw the pareto graph. They draw a horizontal axis (x) that represents the different causes, ordered from the most to least frequent. Next, they draw a vertical axis (y) with percentages from 0 to 100%. Now, they construct a bar graph based on the percentage of each cause. They construct a line graph of the cumulative percent. Finally, they draw a line from 80% on the y-axis to the line graph, and then drop the line down to the x-axis. This line separates the important causes from the trivial ones.
Now it is easy to see that approximately six factors are responsible for 80% of the waiting time problem. The other 14 factors are responsible for only 20%. Mrs. Alvarez decides to focus her attention on the most important (most frequently occurring) causes and begins working toward choosing the interventions that will be effective and cost-effective at solving this problem.