Pareto analysis can be used when you encounter multiple related problems or a common problem with multiple causes. The purpose of Pareto Analysis is to observe the problems and determine their frequency of occurrence. This, in turn, gives you the information you need to prioritize your effort to ensure you are spending your time where it will have the most positive impact.
Pareto Analysis is based on the classic 80/20 rule. That is, in many cases 20% of the problems cause 80% of the occurrences. For example, let’s say you have a problem with a product failure, based on a number of causes. Through observation and collecting metrics, you determine there are eight causes. Rather than attacking the causes randomly, a Pareto Analysis might show that 80% of the problems are caused by the top three causes. This gives you information to know which causes to solve first.
The tool associated with this problem solving technique is the Pareto Diagram. It is a chart, graph or histogram showing each problem and the frequency of occurrence. It is created as follows:
Notice that this gives you important information. Even though there are six total problems identified, you need to resolve problems #1 and #3 first (all things being equal). That is where you will achieve the most impact. If you decided to work on problems #4 and #5 instead, the result of your effort would be almost meaningless. This does not mean that you do not want to resolve the other problems. However, this Pareto Analysis gives you information to know the order in which the problems should be resolved. It also provides a sense as to the relative value you receive for resolving each problem. Of course, you may determine that problem #6 can be resolved quickly and you may choose to solve that one early. The Pareto Diagram does not tell you what to do. It provides information to you so that you can make the best decisions.