PROJECTmagazine

project management information

Home

Problem Solving - The Pareto Principle

The Pareto principle is named after Vilfredo Pareto, an Italian economist, who figured out that 80% of the wealth in Italy was owned by 20% of the population. The idea was popularised by the likes of Joseph Juran and Kaoru Ishikawa and become commonly known as the 80/20 rule.

It's a 'rule of thumb', an estimation that for many events 80% of the effects come from 20% of the causes.

From the Pareto principle comes the Pareto chart which is a histogram where the values are plotted in descending order of magnitude.
A line graph is then super-imposed on the histogram showing the cummulative totals of the plotted values. It is then easy to see what and how many of the plotted values represent 80% of the total.

If the plotted values represented problems, issues or faults then the idea is to focus on the 80%, and if the theory holds, you will only expend something like 20% of your effort to resolve the problems, issues or faults.
Conversely to clear the last 20% will take 80% of your effort.

Constructing a Pareto Chart

Collect the data
Segment the data into categories
Sort the categories into order of magnitude
Draw a histogram type chart with left vertical axis representing the frequency of occurance of the samples in the categories and the horizontal axis representing the categories
Super-impose a line graph. The right vertical axis representing the cummulative total of frequencies of occurence in percentage terms.
Draw a horizontal line at the 80% point.
Draw a vertical line where the horizontal line crosses the cummulative percentage graph.

Parteo Chart

The categories to the left of the line are the 80% and will only take 20% of effort to resolve, while the categories to the right of the line are the 20% and will consume 80% of the effort to resolve.

Simple uh?

To make it even easier dowload the pareto chart excel file from the guides category of our free download section.
In the excel file, you will find two worksheets:
- the input data sheet
- the Pareto chart. There is some excel 'magicry' in that the histogram automatically sorts itself into a descending order of magnitude.

Good luck,

Jeb Riordan (c) 2008

No one has commented on this article.