Theme One: Pareto Analysis

Quality practitioners almost certainly know that there are seven recognised Quality Tools. This is part of Quality Theory. In fact, I have even heard the saying in Quality circles that there are actually eight Quality Tools…the eighth tool being good old common sense.

The Seven Quality Tools used in Quality Management (also sometimes referred to as the Basic Seven) were first emphasized by Professor Kaoru Ishikawa, an engineer at Tokyo University. They may be used in any order however typically one might use the prioritization tool known as Pareto Analysis in the early stages of a quality management project.

When presenting a lesson on Pareto Analysis, I often tell the students that my view of the Pareto Chart is it’s a “two-in-one job” or a “buy one get one free special”. This is because it allows the user to not only prioritize the sources of problems associated to your process, but also to visualise the data in one quick graphic representation, or snapshot. Pareto Analysis entails analysing at a broader problem area and identifying problem sources, then arranging them in order of significance. Furthermore it is an effective way to communicate this data to others.

It is based on the Pareto principle which is also known as the “20/80 Rule” or the “Vital Few Trivial Many Law”. This law states that approximately 80% of the effects seen in a particular situation emanate from a mere 20% of the causes. The name Pareto stems from an Italian economist Vilfredo Pareto who observed that 80% of the wealth in Italy in 1906 was owned by only 20% of the Italian population. It is said that he did this by realising that 80% of the peas he grew in his garden came from 20% of the pea pods.

Roughly translated in business terms, it can be said that 80% of the sales of a business come from 20% of the clients. In Quality terms, we would say that 80% of the identifiable problems seen in process, are the result of 20% of the problem sources. That being said, we must also realise that this is not a Golden Rule, but rather a Rough Rule of Thumb. It is an illustrative, simple yet powerful prioritisation tool.

The steps involved when conducting a Pareto Analysis include:

1) Collect data associated to your problem. This is done by identify categories of problem sources and then collecting data in the form of the number of occurrences observed of each category.

2) Arrange the data collected in descending order. The greatest occurring problem would thus be on top of the list, followed by the second most frequently occurring, then the third etc. etc. etc.

3) Calculate an individual percentage for each problem source. That is, calculate the individual percentage that each individual problem source contributes in relation to grand total of problem sources.

4) Calculate the cumulative percentage of that all the sources contribute in ascending order. Stated in simple terms, what this means is after calculating individual percentages (step 3), start by stating the percentage that the top problem contributes to the total number of problems. The add the second highest percentage (second highest problem source) to the first. The result of that calculation will represent the contribution that the top two problem sources contribute to the overall problem. Thereafter add the third highest percentage (third highest problem source) to the first two. The result of that calculation will represent the contribution that the top three problems contributes to overall problem. Continue in this fashion until you have calculated the cummulative percentage of all the problem sources. The total should tally up to 100% or close to 100% (depending on rounding off).

5) Then start constructing your Pareto Chart.
Part One:

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