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Pareto Analysis

Choosing the solution with the most impact.

By the Mind Tools Content Team

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.

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.

[1] Pareto, V. (1897). 'Cours d'économie politique,' Lausanne: l'Université de Lausanne.

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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.

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• 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

How to align your team with a work schedule template

How to prioritize tasks in 4 steps (and get work done)

How Asana uses work management to streamline project intake processes

Work schedule types: How to find the right approach for your team

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.

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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 .

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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!

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

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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

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A Guide to Pareto Analysis With Pareto Charts

Pareto analysis is a decision-making method widely used by analytics teams across disparate industries. It attributes the majority of a given problem to a top percentage of cases. Specifically, it’s based on the idea that 20 percent of causes result in 80 percent of problems. In practice, the 80/20 split is a guideline that generally suggests that a small minority of causes are responsible for the majority of problems. As such, the exact values don't have to precisely align with the 80/20 rule as the split in practice may be 75/25, 90/10, or 85/15. The heuristic is meant to be a guide for distinguishing the vital few factors that are pertinent to a problem from the insignificant many that aren’t. 

Extremely versatile, Pareto analysis can identify impactful subsets of data in a wide variety of industries including retail, information technology, marketing, and healthcare. 

The ability to create these charts from data is a valuable skill for data scientists and data analysts . Python provides a variety of tools and visualization libraries that allow you to easily create pretty Pareto charts that clearly communicate the top underlying causes of most problems in a system. 

In this post, we will generate Pareto charts using synthetic emergency room patient readmission data. In our analysis, we will walk through the steps of generating a Pareto plot in Python. Using this data, we will analyze specific, real-world emergency room readmission scenarios. For our purposes, we will work with the Synthetic Healthcare Emergency Room Readmission data available on DataFabrica . The  free tier is free to download, modify, and share under the Apache 2.0 license .

What is Pareto Analysis? 

Pareto analysis is a decision-making method widely used by analytics teams across disparate industries. I t’s based on the idea that 20 percent of causes result in 80 percent of problems. This heuristic is meant to be a guide for distinguishing the vital few factors that are pertinent to a problem from the insignificant many that aren’t. Extremely versatile, Pareto analysis can identify impactful subsets of data in a wide variety of industries including retail, information technology, marketing, and healthcare.

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Steps of Pareto Analysis

A thorough Pareto analysis follows several steps.

• Define your problem and the associated causes. For example, in the case of prescription errors, the problem is the incorrect prescription of high blood pressure drugs and potential causes are “white coat hypertension” and  “inaccurate readings.”
• Calculate the frequency of each cause within a problem. 
• Sort the frequencies from highest to lowest.
• Plot a bar chart of the frequencies. 
• Calculate the cumulative sum of the unit of measure through each cause. For example, calculate the total cumulative percentage of hypertension misdiagnosis across each cause.
• Create a line plot of the cumulative percentage. 
• Label the left side of the y-axis with “Frequency” and the right side with “Cumulative Percentage.”
• Label the x-axis with the “Problem Causes” for the prescription error label “Prescription Error Causes.” 
• Title the plot “Pareto Chart of Problem,” i.e., “Pareto Chart of Prescription Errors”
• Analyze Pareto Chart – Inspect the top few causes that contribute to most of the problems. 

What Is a Pareto Chart? 

A Pareto chart is a dual plot of a bar chart and a line plot. The bar chart corresponds to descending frequencies in an event, usually denoted by a category. Examples of events include a product selling, a customer churning, a patient returning to the emergency room, or any event that impacts a business, whether positively or negatively. The line plot corresponds to the cumulative sum in a specified unit of measure across events. 

For example, in the case of a patient returning to the emergency room, also called patient readmission, the values in the line plot would be the cumulative sum of the number of readmission occurrences across all causes of readmission. 

Pareto Chart Examples 

Healthcare is an interesting application of Pareto analysis since it can improve patient outcomes, optimize resource allocation, facilitate disease management and more. Specifically, Pareto analysis can identify the causes of medical prescription errors, evaluate diagnostic accuracy, and identify the top causes of patient readmissions. 

For example, in the context of identifying causes of prescription errors, you can use Pareto analysis to determine if the issue is incorrect dosages, patient mismatching, or duplicate prescriptions. Identifying the causes of prescription errors allows healthcare providers to focus resources on addressing the most impactful causes of these errors. 

Below is a Pareto chart of prescription errors and their causes. From the plot, you can see that 80 percent of prescription errors are solely due to wrong dosage and wrong time. 

In terms of diagnostics, healthcare providers can identify the top causes of misdiagnoses. For example, common misdiagnoses include abnormal blood pressure readings due to white coat hypertension, improper cuff size, and more. These errors can also lead to prescription errors like prescribing hypertension medication to someone with normal blood pressure. 

In the Pareto chart below, we see that 80 percent of high blood pressure misdiagnoses are due to white coat hypertension and cuff size errors. 

You can also use Pareto analysis to identify prevalent factors driving readmission. Identifying the vital few causes of readmission among the insignificant many can significantly improve parient outcomes because providers can allocate resources toward prevention. By preventing readmission, hospitals can save money, reduce mortality rates, and ultimately provide better care to more patients. 

How to Create a Pareto Chart 

To start, let’s read our data into a Pandas DataFrame and display the first five rows of data:

Next, let’s filter our data to only include readmitted patients:

We can then use this filtered DataFrame to count the number of times a cause appears in the readmitted patient data:

Next, we can calculate the cumulative sum of readamission_cause counts and divide by the total count of readmissions to get the cumulative percentage in cause counts:

Next, to be able to generate our Pareto chart, we need to define a Matplotlib subplot object, which we will call ax1 :

The subplot object will allow us to generate a dual plot, containing a line plot and a bar chart. It will also allow us to format our chart with axis labels, legends and titles. 

Next, let’s use ax1 to plot our bar chart of cause frequencies:

And we can label our x and y axes:

Format the values to be frequency, color to be cyan for the y-ticks on the y-axis, and format the plot legend to be located on the upper left of the chart:

Next, we will create a secondary y-axis, which is where the values for the cumulative percentages will reside:

This step will enable us to overlay two plots, a bar chart for frequencies and a line plot for cumulative percentages. 

Next, we generate a line plot of our cumulative percentages:

And format the y-axis label to be cumulative percentage, y-ticks to be red, and legend to be on the upper right:

  We can further format our chart by including a title:

Also, let’s format the x-axis such that the readmission cause values are angled by 30 degrees. This makes the readmission cause values more readable as they would otherwise overlap each other:

We can also format with the tight layout method, which makes the plot easier to read by tightening the figure:

We see from the chart that 80 percent of readmissions in our data are due to sepsis and falls. Further, very few readmissions in our data are due to the wrong time of administration, lack of patient education and prescription errors. A few lines of Python code can generate an insightful Pareto chart that clearly distinguishes the most impactful causes of a problem from the other many trivial causes. 

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Pareto Analysis Best Practices 

Pareto analysis is most effective when done with best practices in mind. So, you should always consider the following factors when generating Pareto charts and performing analysis on them:

• Make sure you have sufficient data.  Although there is no exact cutoff, take measures to ensure that you have a large enough sample size. Many statisticians use n=100 as the minimum sample size required to generate meaningful statistical results, though this is not always possible in practice. Generally, the more data available per cause, the better. 
• Clearly label axes.  In order to gain the most insights from your Pareto chart, you should ensure that axes are clearly labeled and easy to understand. Given that Pareto charts are dual plots, failing to provide clear labels is bound to cause confusion. 
• Choose contrasting colors for the line plot and bar chart.  This helps to clearly differentiate the line plot from the bar chart. 
• Clearly label root causes.  The causes should be easy to interpret. Although you may not have complete control over them, if the cause descriptions are long or complicated, try to simplify them so that they are easy for the chart reader to understand. 
• Limit the number of causes.  Focus on the most important contributing causes. This also helps prevent the Pareto chart from becoming overcrowded, especially with causes that rarely occur in the data. 
• Strive for method transparency.  Clearly articulate the methods used to gather the data. This step can clearly communicate any biases in the data and can help ensure the reproducibility of results. 

Advantages of Pareto Analysis 

Pareto analysis is advantageous because it allows business decision-makers to identify the top underlying causes contributing to the bulk of a given problem. This knowledge helps prevent businesses from wasting resources on causes that rarely contribute to a problem. Knowing which cause to prioritize has tremendous business value as it can significantly improve the efficiency of services. 

In the context of readmission, hospitals can filter down a potentially long list of causes of readmission. In our early example, we saw 80 percent of readmissions in our data are due to sepsis and falls, while very few are due to the wrong time of administration, lack of patient education or prescription errors. Hospitals can use this type of information to optimally allocate resources to patients who suffer from sepsis and falls instead of other, less common causes. Healthcare providers can analyze the initial visits for sepsis and fall injury victims and determine if there are any actions that can be taken with future patients to prevent future readmissions. 

For example, consider a patient readmitted for sepsis after having a coronary artery bypass grafting surgery. Readmission prevention measures can be taken to prevent future occurrences with similar patients. This includes patient education on how to care for surgical wounds post-surgery, pre-surgery antibiotic administration (prophylaxis), understanding patient health history and more. By knowing which contributors to focus on, decision-makers can save time and resources. 

Generally, Pareto analysis has the following advantages:

• Easy to understand 
• Clear communication of problems and root causes 
• Identification and prioritization of high-impact causes
• Optimization of resource allocation 
• Risk minimization

Disadvantages of Pareto Analysis 

Although Pareto analysis is a powerful tool for decision-makers it has its disadvantages. One disadvantage is that it requires sufficient data for results to be meaningful, which isn’t always possible in practice. It also assumes that the causes are independent, meaning that one cause doesn’t influence another. 

This assumption is not very realistic in practice. For example, in the case of readmission, lack of patient education can interact with adverse drug reactions. If a patient is unaware of the side effects of a drug, they may return to the emergency room unnecessarily due to these side effects. 

Another disadvantage is that we are limited to the known causes available in the data. Additional causes might be more impactful but unavailable in the data and therefore escape the analysis. 

Finally, this method assumes that each cause has the same impact. In practice, however, certain causes may be more critical than others when considering readmission. For example, readmission for high blood sugar levels may not be as critical, regardless of frequency, as readmission for sepsis after surgery. 

Generally, Pareto analysis has the following disadvantages:

• Dependent on available data 
• Assumes causes are independent  
• Limited to known causes 
• Causes are equally weighted 

Applications of Pareto Analysis 

Pareto analysis has many applications across industries. Here are a few known applications of Pareto analysis. Note that these are just illustrative examples and don’t necessarily reflect ground truth.

• Identify the top 20 percent of causes for 80 percent of readmissions. For example, sepsis and falls account for 80 percent of readmissions. 
• Identify the top 20 percent of causes for 80 percent of misdiagnoses. For example, white coat hypertension accounts for 80 percent of high blood pressure misdiagnoses.
• Identify the top 20 percent of causes for 80 percent of fraud instances. For example, x-ray imaging accounts for 80 percent of fraudulent health insurance claims.
• Identify the top 20 percent of products that account for 80 percent of company revenue. For example, you could determine the top 100 SKUs from a retailer that accounts for 80 percent of revenue.
• Identify the top 20 percent of customers that account for 80 percent of company revenue. For example, the top 100 SKUs from a retail business account for 80 percent of its revenue.
• Identify the top 20 percent of inventory that accounts for 80 percent of company revenue. For example, you could identify the top 100 SKUs from a retail line that account for 80 percent of revenue.

The code in this post is available on GitHub . 

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Use Pareto Analysis

Although Pareto analysis has its limitations, it is an invaluable tool for businesses and decision-makers. Identifying the most impactful causes of a problem can aid in resource allocation, cause prioritization and prevention, and increase the efficiency of business services. In the context of hospital readmission, this means decreasing readmission rates by allocating resources to the most impactful causes of a problem, improving patient outcomes, which consequently decreases emergency room patient mortality, and more. Many business tasks that involve an event and its causes can be made more efficient through Pareto analysis. 

The free version of the synthetic emergency room patient readmission is here . The full data set can be found here .

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What Is a Pareto Analysis?

Table of Contents

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

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

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

While the Pareto principle is primarily used in business contexts, it exists in others. ResumeLab offers examples of the Pareto principle in the era of the COVID-19 pandemic, marketing and business, time management , computing, and online dating.

These are some business and marketing examples:

• 80% of complaints come from 20% of customers.
• 80% of profits come from 20% of the company’s effort.
• 80% of sales come from 20% of products or services.
• 80% of sales are made by 20% of sellers.
• 80% of clients come from 20% of marketing activities.

[Related: How to Deal With Difficult Customers ]

The benefits of using a Pareto analysis

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

• It increases organizational efficiency. The 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 ROI .
• It enhances problem-solving skills. The 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 how to improve current operations. Learn how benchmarking can help improve 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 in order to improve your business practices. This helps you manage these changes and any time you spend implementing them.
• It helps in 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 the 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 to make a Pareto chart

There are several ways to conduct a Pareto analysis, and they all revolve around the same guiding principles. According to the website Mind Tools, these are the six steps to conduct a Pareto analysis:

• Identify and list the problems. Write a list of all the problems you need to resolve.
• Identify the root causes. Determine the fundamental cause of each problem.
• Score the problems. The scoring method used 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 group 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.

If you want a graphical representation of the problems, the Process Excellence Network says to divide each problem’s score by the grand total of all of the scores to get a percentage. Then, draw a chart with a horizontal axis and two vertical axes. Mark the left vertical axis in increments from zero to the grand total of all the problem scores. On the other side, mark the right vertical axis in increments from 0% to 100%. [Read related article: What Is a Decision Matrix? Definition and Examples ]

Next, construct a vertical bar diagram, with the highest percentage score on the left and lowest on the right. According to the Process Excellence Network, the height of each bar should correspond with the value on the left axis and the percentage of the total on the right axis.

Finally, add a line graph to the top to figure out what percentage of the total problems will be solved when more than one are addressed.

“Beginning at the left zero point, plot a line showing the cumulative percentage total reached with the addition of each problem classification,” writes Steven Bonacorsi on the Process Excellence Network website. “The line should end at the 100% mark on the right axis.”

After making a Pareto chart, create a vertical bar diagram and add a line graph to the top if you want a graphical representation of the problem.

How businesses use Pareto analysis

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

• 20% of marketing efforts represent 80% 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% is the most valuable, you can double down on those efforts and reduce resource expenditure on the other 80% of marketing operations.
• 20% of posts generate 80% 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.
• 80% of the quality failures originate from 20% of the tasks. If you work in process management, you can use the Pareto analysis to establish critical tasks and determine which tasks fall into the 80% of quality failures. Then, model the process to make those tasks more efficient.

Pareto analysis helps businesses understand what they need to focus on and make improvements in each of these areas.

Pareto analysis case study

There are many ways for businesses to use a Pareto analysis to their advantage. For example, if a company wants to improve customer service at a 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 can 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 against the total amount. Then, they would find the cumulative percentage of the categories by adding them together. Based on this data, they can determine which issues account for 80% 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% 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 their efforts on those three complaints to improve their overall customer service.

Other examples are available online:

Chad Brooks contributed to the writing and research in this article.

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Pareto Analysis: A Comprehensive Guide to Decision-Making and Prioritising

Pareto Analysis, a strategic tool based on the Pareto Principle, is instrumental in the realm of decision-making and prioritizing tasks. By distinguishing the "vital few" from the "trivial many", Pareto Analysis enables individuals and organizations to allocate resources more effectively, thereby optimizing outcomes.

The principle posits that roughly 80% of effects come from 20% of causes. Applying this analysis across various fields, from business management to software engineering, facilitates an enhanced understanding of the most significant factors contributing to a particular issue. This guide aims to delve into the intricacies of Pareto Analysis, providing a comprehensive understanding of its application and illustrating its importance with relevant examples.

The Pareto Principle: Understanding the 80/20 Rule

Thorough explanation of the 80/20 rule in the pareto analysis.

The 80/20 rule, articulated by economist Vilfredo Pareto, is foundational to the Pareto Analysis. The principle emerged from Pareto's observations that 80% of wealth within Italy was owned by 20% of the population, a distribution which he later found to be applicable in various other domains.

In practical terms, the 80/20 rule suggests that a minority of causes, inputs, or efforts typically lead to a majority of the results, outcomes, or rewards. In the context of business, for example, it is often observed that 80% of sales might come from 20% of customers. Recognizing this disproportion allows entities to focus on the most impactful areas of their operation.

Real-life examples of the 80/20 rule

Real-life implications of the 80/20 rule are manifold and span across different spheres of activity. In healthcare, for instance, 20% of patients might account for 80% of healthcare costs, which could lead to specific strategies for managing such expenses. In the realm of customer service, companies often find that a majority of complaints come from a relatively small fraction of customers, thus directing where customer service improvements can be most effectively made.

These examples illustrate how identifying the critical 20% enables organizations to target their efforts for maximum effect.

Explanation of how the 80/20 rule is applicable to various issues and processes

The 80/20 rule has a versatile applicability, extending its use to facets of personal productivity and organizational efficiency. One might discover that 20% of their study habits contribute to 80% of their learning problem solving skills. Similarly, in manufacturing, 20% of defects could be causing 80% of production issues, necessitating a focused quality control approach. Unpacking which areas underpin the majority of results provides a clear path to both problem identification and resolution.

The Process of Conducting a Pareto Analysis

Detailed step-by-step guide on how to conduct a pareto analysis.

Conducting a Pareto Analysis is a systematic process that begins with the collection and categorization of data revolving around a specific problem. First, one must identify a list of problems or causes and quantify their frequency or impact. Next, these issues are sorted in descending order.

A cumulative frequency is calculated to understand the proportion each category contributes to the total. This data is then represented visually in a Pareto chart, where a distinct separation of the critical few (20%) from the trivial many (80%) should emerge.

Explanation of the purpose of each step in the process

Each step in the Pareto Analysis process serves a purpose to elucidate problem areas and prioritize action. Listing and quantifying issues creates a clear inventory of what requires attention. Ordering these issues by frequency or impact provides an objective basis for tackling them sequentially. Calculating cumulative impact underscores the significance of the top-ranking issues. The resulting Pareto chart outlines where efforts can yield the most substantial improvements, transforming complex data sets into actionable insights.

Practical example of a Pareto Analysis being conducted

Imagine an e-commerce business that faces multiple customer complaints. By listing complaints and aggregating the data, the company realizes that incorrect orders and delayed shipping comprise 80% of complaints despite only being two out of ten complaint categories. By concentrating on these areas, the business can disproportionately reduce the overall number of customer complaints, thus utilizing the Pareto Analysis to instigate a strategic improvement in customer satisfaction.

The Role of Pareto Analysis in Problem Solving and Decision Making

Explanation of how Pareto Analysis aids in identifying problems: Pareto Analysis is particularly powerful in problem identification, offering clarity by quantifying which issues have the most profound effects on a system. It serves to eliminate the noise of less significant problems, spotlighting those which, if solved, could have a considerable positive impact on the overall system. This refined focus effectively guides individuals and organizations in determining where to apply their efforts for the greatest return on investment.

Discussion on how Pareto Analysis interacts with decision-making processes: The insights garnered from a Pareto Analysis feed directly into decision-making processes by providing empirical evidence of priority areas. When choices must be made regarding resource allocation, time management, or strategic planning, Pareto Analysis offers a data-driven hierarchy of concerns. Decisions become informed, justified, and strategically geared towards optimal resource utilization and enhanced problem-solving efficacy.

Real-life case studies proving the effectiveness of Pareto Analysis in problem solving and decision-making: Numerous case studies validate the effectiveness of Pareto Analysis in decision-making and online certificate programs are a testament to this. For instance, an online education platform analyzing course completion rates might use Pareto Analysis to determine specific modules where students commonly disengage. By focusing on enhancing these critical sections, they can significantly improve completion rates across numerous programs. This methodology supports stakeholders to pinpoint issues and implement evidence-based decisions, resulting in tangible improvements in organizational performance.

The Advantages and Limitations of Pareto Analysis

Explanation of the key benefits of utilizing Pareto Analysis: Pareto Analysis offers several advantages, including a streamlined approach to diagnosing and treating the most pressing challenges within an entity. It encourages efficient resource allocation, promotes cost-effective strategies, and aids in setting clear priorities. Businesses and individuals who adopt Pareto Analysis can often achieve more with less, boosting productivity while reducing waste through targeted efforts.

Discussion on the limitations and potential challenges in conducting a Pareto Analysis: While potent, Pareto Analysis is not without its limitations. This methodology assumes that data is available and accurate, which may not always be the case. There are also scenarios where an overemphasis on the 20% could neglect issues that, although less significant individually, cumulatively could impose negative consequences if left unaddressed. Additionally, Pareto Analysis does not provide specific solutions but rather a framework for identifying areas needing attention.

Suggestions for overcoming the limitations of Pareto Analysis: To overcome limitations, it's crucial to employ Pareto Analysis alongside other decision-making tools, ensuring a balanced approach to problem-solving. When data is scarce or uncertain, complement the analysis with qualitative research or hypothesis testing. It's also critical to periodically revisit and reassess the analysis, especially in dynamic environments, to ensure that the areas of focus remain relevant.

Applying Pareto Analysis Across Different Industries

Explanation of how Pareto Analysis is applicable to different industries: Not confined to any single sector, Pareto Analysis has proven to be a universal tool with relevance across industries. By identifying the most significant factors within complex systems, it can influence the approach to issues in healthcare, finance, education, manufacturing, and beyond. In each industry, Pareto Analysis affords a means to discern inefficiencies, streamline operations, and elevate service or product quality.

Specific examples of industries where Pareto Analysis is particularly beneficial: Pareto Analysis has led to dramatic improvements in areas such as manufacturing, where it drives quality control initiatives by identifying the most common sources of defects. In marketing, it aids in optimizing advertising budgets by spotlighting the campaigns that yield the highest returns. In software development, focusing remedial efforts on the most frequently reported bugs via Pareto Analysis leads to more stable releases and improved user satisfaction.

Case studies demonstrating the application and effectiveness of Pareto Analysis in various industries: Case studies across sectors bear witness to the efficacy of Pareto Analysis. An automotive manufacturer might apply Pareto Analysis to reduce vehicle recalls by addressing the most common causes of failure. The financial sector uses Pareto Analysis to combat fraudulent activity by targeting the fraud types that result in the highest losses. Each case encapsulates the adaptability and utility of Pareto Analysis as a decision-making ally.

Summary of the key points covered in the blog: This comprehensive guide has traversed the essentials of Pareto Analysis, delineating its foundational 80/20 rule and illustrating its broad utility in problem identification and resource prioritization. With its structured approach, Pareto Analysis offers a lucid method for discerning which challenges warrant immediate attention and streamlined action.

Emphasis on the value and versatility of the Pareto Analysis: The value of Pareto Analysis lies in its ability to unearth the most significant contributions to an issue, allowing for targeted and effective interventions. Its versatility spans multiple industries and spheres, proving that this tool can be tailored to meet the unique needs of any context, thereby enhancing decision-making and delivering impactful outcomes.

Encouragement to readers to utilize Pareto Analysis in their respective fields: The insights and methodologies presented encourage readers to leverage Pareto Analysis within their respective fields. Beyond academic intrigue, its practical implications promise substantial benefits for all who apply it judiciously, be it in personal pursuits or professional undertakings. By embracing this analysis, one can expect not only to decipher the complex landscape of challenges but also to orchestrate strategic interventions that are both prudent and profitable.

What are the main steps in conducting a Pareto Analysis and how can it be applied to improve decision-making in business?

Understanding pareto analysis.

Pareto Analysis plays a pivotal role in decision-making. It is an approach advocating that 80% of outcomes stem from 20% of causes. This principle assists businesses in zeroing in on the most significant issues.

Steps in Conducting a Pareto Analysis

Identify and list problems.

Begin with compiling a list of problems or causes. Brainstorm and consult to gather an extensive set.

Score Problems

Assign scores to problems based on frequency or impact. This helps differentiate major issues from minor annoyances.

Group Problems

Cluster problems into categories. This makes the analysis manageable and organized.

Rank Issues

Order issues based on their scores. Prioritize to tackle the most impactful problems first.

Create a Pareto Chart

Visualize data with a chart. Bars represent issues; larger ones suggest greater impact.

Applying Pareto Analysis in Decision-Making

Focus on critical issues.

Concentrate on the top 20% of problems. These demand immediate attention for the most significant impact.

Allocate Resources Efficiently

Apply resources to areas offering high returns. Don't dissipate effort across less critical issues.

Monitor Improvements

Track how changes affect the major issues. Ensure that interventions yield the desired effects.

Pareto Analysis simplifies complexity. It affirms that not all problems require equal resource expenditure. By targeting the most consequential issues, businesses can optimize decision-making and effectuate considerable improvements.

What are the advantages and potential limitations of using Pareto Analysis as a decision-making tool?

Advantages of pareto analysis.

Pareto Analysis stands out for its simplicity. It requires users to identify and sort issues by significance. This prioritization technique aligns with the Pareto Principle. This principle suggests that 80% of problems stem from 20% of causes. By focusing on a few critical issues, one can effectively address the majority of complications.

The clear visualization aspect is another benefit. Pareto Analysis often employs bar charts, which show the relative frequency or impact of problems. By providing a visual representation, stakeholders can quickly comprehend the data. This clarity aids in communication within teams.

Decision-making efficiency improves as well. Pareto Analysis condenses vast amounts of data into actionable insights. This leads to quicker problem-solving as teams focus on the 'vital few' issues rather than the 'trivial many'.

The tool promotes resource optimization as well. Organizations can allocate resources effectively by targeting areas with maximum impact. This ensures better use of time, money, and personnel.

Pareto Analysis also fosters a data-driven culture . It leads teams away from decision-making based on intuition. Instead, it encourages reliance on quantifiable data.

Lastly, Pareto Analysis enhances problem understanding . By breaking down problems into categories, teams gain insights into root causes. This understanding is critical for developing sustainable solutions.

Potential Limitations of Pareto Analysis

Despite its strengths, Pareto Analysis has limitations. One such limitation is the oversimplification of complex issues. It assumes the most frequent issues have the greatest impact, which isn't always true.

Another is the quality of data required. The analysis hinges on accurate and complete data. Poor data quality can lead to misleading prioritizations.

Pareto Analysis may also result in neglect of less frequent problems . Minor issues might cumulate over time, eventually requiring critical attention.

There is also a dynamic nature to problems . Problems evolve, and Pareto Analysis might not fully account for this. Relying solely on Pareto could mean missing out on emerging or evolving issues.

In addition, Pareto Analysis lacks in-depth analysis. It identifies areas of focus but doesn’t provide solutions or root cause analysis . Further tools and techniques are necessary to solve the identified issues.

Finally, the approach might lead to a complacency or false sense of control. Focusing heavily on the 'vital few' may give the illusion that one is addressing all crucial aspects of a problem, potentially missing out on the bigger picture.

Pareto Analysis offers a structured approach to decision-making. It emphasizes efficiency, resource optimization, and better understanding of problems. Yet, its efficacy depends on data quality and it can oversimplify issues. By acknowledging its limitations and using it alongside other analytical tools, decision-makers can fully leverage Pareto Analysis for more strategic outcomes.

How does Pareto Analysis contribute to more effective prioritisation in project management and strategic planning?

Pareto analysis in prioritization.

Pareto Analysis, widely known as the 80/20 rule, asserts that 80% of effects come from 20% of causes. In project management, this powerful principle aids in identifying the most significant issues impacting a project. It promotes effective prioritization, ensuring a strategic focus on tasks providing the highest value.

To begin with, Pareto Analysis is a decision-making technique. It helps to rank tasks or problems based on their importance. The idea is to ascertain which tasks, if completed, would yield the most significant overall benefit.

The Role in Project Management

Within project management, Pareto Analysis simplifies the complex array of tasks. It distinguishes between the 'vital few' and the 'trivial many'. Project managers can thus allocate resources where they matter most. This allocation boosts efficiency and maximizes returns on investment.

Strategic Planning Benefits

Strategic planning also gains from Pareto Analysis. This analytical tool supports decision-makers in setting strategic priorities. It enables them to focus on key initiatives aiding in long-term success.

Steps to Apply Pareto Analysis

To apply Pareto Analysis in project management and strategic planning, several key steps are necessary:

- Identify problems or list tasks.

- Score each problem or task for significance.

- Rank them from highest to lowest.

- Apply the 80/20 rule to identify top priorities.

The Impact on Decision Making

By focusing on critical issues, decision-making becomes more streamlined. Teams don't waste time on problems with minimal impact. They drive project advancement more effectively.

Enhancing Resource Allocation

Pareto Analysis directs resources toward 'high-impact' activities. It ensures that teams do not spread thin over lesser issues. Managers can assign skilled manpower to crucial tasks.

Improving Time Management

Effective prioritization inherently boosts time management. Teams can avoid investing time in areas with limited returns. They maximize their productivity by targeting pivotal areas.

Encouraging Data-Driven Decisions

This analysis encourages a data-driven approach. Teams bypass biases and make informed decisions based on quantifiable data.

Limitations to Consider

However, apply Pareto Analysis with caution. It's crucial to recognize that not all tasks can undergo strict prioritization. Some projects may require a more nuanced approach. Dependencies between tasks must also factor into the decision-making process.

Pareto Analysis serves as a beacon in the murky waters of project management and strategic planning. It shines a light on what truly matters. By applying this simple yet profound principle, managers and planners can navigate toward more successful and efficient outcomes.

He is a content producer who specializes in blog content. He has a master's degree in business administration and he lives in the Netherlands.

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What Is Pareto Analysis?

Understanding pareto analysis, how to create a pareto chart.

• Pros and Cons

Special Considerations

The bottom line.

• Business Essentials

What Is Pareto Analysis? How to Create a Pareto Chart and Example

Investopedia / Julie Bang

Pareto analysis is a technique used for business decision-making, but it also has applications in several different fields from welfare economics to quality control. It is based largely on the "80-20 rule." As a decision-making technique, Pareto analysis statistically separates a limited number of input factors—either desirable or undesirable—which have the greatest impact on an outcome.

Pareto analysis is premised on the idea that 80% of a project's benefit can be achieved by doing 20% of the work—or, conversely, 80% of problems can be traced to 20% of the causes. Pareto analysis is a powerful quality and decision-making tool. In the most general sense, it is a technique for getting the necessary facts needed for setting priorities.

Key Takeaways

• As a decision-making technique, Pareto analysis statistically separates a limited number of input factors—either desirable or undesirable—which have the greatest impact on an outcome.
• Pareto analysis states that 80% of a project's benefit or results are achieved from 20% of the work—or conversely, 80% of problems can be traced to 20% of the causes.
• With Pareto analysis, each problem or benefit is given a numerical score based on the level of impact on the company; the higher the score, the greater its impact.
• Modern-day applications of Pareto analysis are used to determine which issues cause the most problems within different departments, organizations, or sectors of a business.
• By allocating resources to issues with higher scores, companies can use Pareto analysis to solve problems more efficiently because they can target those problems that have a greater impact on the business.

In 1906, Italian economist Vilfredo Pareto discovered that 80% of the land in Italy was owned by just 20% of the people in the country. He extended his research and determined that this disproportionate wealth distribution was the same across all of Europe. The 80-20 rule was formally defined as follows: The top 20% of a country’s population accounts for an estimated 80% of the country’s wealth or total income .

Joseph Juran, a Romanian-American business theorist, discovered Pareto’s research in 1937, approximately 40 years after it was published. Juran proceeded to rename the 80-20 rule as " Pareto’s Principle of Unequal Distribution ."

Juran extended Pareto’s principle to the business world in order to understand whether the rule could be applied to problems faced by businesses. He observed that in quality control departments, most production defects resulted from a small percentage of the causes of all defects. So, by extension, 80% of the problems are caused by 20% of the defects; Juran's work implies that if you focus on fixing that 20%, you could have a big impact with minimal effort.

Joseph Juran, a Romanian-American engineer and management consultant, coined the terms “vital few,” “useful many,” and “trivial many” to refer to the few contributions that account for the bulk of the effect, and to the many other contributions that account for a smaller proportion of the effect.

Modern-day applications of Pareto analysis are used to determine which issues cause the most problems within different departments, organizations, or sectors of a business. Hence, Pareto analysis is so important to save the most scarce resource in the business, which is time, in the area of solving problems.

Typically, Pareto analysis is employed by business managers , whose approach typically involves conducting a statistical analysis, such as a cause and effect analysis, to produce a list of potential problems and the outcomes of these problems. Following the information provided by the cause and effect analysis, the 80-20 rule can be applied. Here are some scenarios relevant to businesses where Pareto analysis might be applicable:

• Sharing information about defects/errors with high-priority stakeholders
• Prioritizing defects or tasks according to their severity, i.e. according to their impact on a system or business
• Analyzing data or errors/defects

Steps of Pareto Analysis

By applying the 80-20 rule, problems can be sorted based on whether they affect profits, customer complaints, technical issues, product defects, or delays and backlogs from missed deadlines. Each of these issues is given a rating based on the amount of revenue or sales and time lost, or the number of complaints received. Here is a basic breakdown of the steps of Pareto analysis:

• Identify the problem or problems
• List or identify the cause of the issues or problems, noting that there could be multiple causes
• Score the problems by assigning a number to each one that prioritizes the problem based on the level of negative impact on the company
• Organize the problems into groups, such as customer service or system issues
• Develop and implement an action plan, focusing on the higher-scored problems first, in order to solve the problems

Not all problems will have a high score, and some smaller problems may not be worth pursuing initially. By allocating resources to high-impact issues or higher scores, companies can solve problems more efficiently by targeting the issues that have a major impact on profits, sales, or customers.

Pareto analysis shows that a disproportionate improvement can be achieved by ranking various causes of a problem and concentrating on the solutions with the largest impact.

A common part of Pareto analysis is to graphically depict the occurrence of each variable being tracked. This depiction is called a Pareto chart, and it organizes and displays information to show the relative importance of various problems or causes of problems. It is similar to a vertical bar graph in that it puts items in order (from the highest to the lowest) relative to some measurable effect of interest: frequency, cost, or time. Here is the process of making a Pareto chart.

• Develop a list of problems to be compared.
• Develop a standard measure for comparing the items. For example, how often it occurs: frequency (e.g., utilization, complications, errors); how long it takes (time); and how many resources it uses (cost).
• Choose a timeframe for collecting the data.
• For each item, tally how often it occurred (or cost or total time). Then, add these amounts to determine the grand total for all items.
• Find the percent of each item in the grand total by taking the sum of the item, dividing it by the grand total, and multiplying by 100.
• List the items being compared in decreasing order of the measure of comparison: e.g., the most frequent to the least frequent. The cumulative percent for an item is the sum of that item’s percent of the total and that of all the other items that come before it in the ordering by rank.
• List the items on the horizontal axis of a graph from highest to lowest. Label the left vertical axis with the numbers (frequency, time, or cost).
• Label the right vertical axis with the cumulative percentages (the cumulative total should equal 100%).
• Draw in the bars for each item.
• Draw a line graph of the cumulative percentages. The first point on the line graph should line up with the top of the first bar.

The final step is analysis. You can now analyze a Pareto chart by identifying those items that appear to account for most of the difficulty. In the example below, the Institute for Healthcare Improvement identified three vital types of errors discovered during surgical set-up.

Advantages and Disadvantages of Pareto Analysis

In the most general sense, the advantage of Pareto analysis is that it helps to identify and determine the root causes of defects or problems. It also helps to save time by focusing on the root causes of the problem at hand. In business, the most important resource is time. Due to time, the goals usually are not to eliminate or maximize but rather to optimize. And the Pareto rule helps with optimization. Hence, businesses can resolve defects or errors with the highest priority first.

Pareto charts can specifically help determine the cumulative impact of a problem. Cumulative impact results from effects caused by a problem happening over a long period of time. Pareto charts are especially useful for businesses or organizations because they can use them to plan the measures or actions that need to be taken in order to amend the problems. For this reason, Pareto charts can sharpen problem-solving and decision-making skills: problems related to a defect or error can be distilled into cohesive facts.

The main disadvantage of Pareto analysis is that it does not provide solutions to issues; it is only helpful for determining or identifying the root causes of a problem(s). In addition, Pareto analysis only focuses on past data. While information about past errors or problems is useful, it's not a guarantee that it will be relevant in future scenarios.

A final disadvantage of Pareto charts is that they can only show qualitative data that can be observed; they cannot be used to represent quantitative data. For example, Pareto charts cannot be used to calculate the mean, the standard deviation, or the average of the data, its variability, or changes in the measured attribute over time.

Helps to identify and determine the root causes of defects or problems

Organizations can eliminate or resolve defects or errors with the highest priority first

Determine the cumulative impact of a problem, where cumulative impact is defined as an effect that is being caused due to a problem happening over a long period of time

Organizations can use Pareto charts to plan what measures or actions need to be taken in order to amend problems

Pareto charts can sharpen problem-solving and decision-making skills

Does not provide solutions to issues; only helpful for determining or identifying the root causes of a problem(s)

Only focuses on past data

Pareto charts can only show qualitative data that can be observed; they cannot be used to represent quantitative data

Example of Pareto Analysis

The Department of Ecology for the state of Washington performed a study to identify why oil spills happen. They gathered information on 209 oil spill incidents including internal peer review of the causes and potentially factored in input from responsible parties.

In total, the Department of Ecology identified dozens of causes for oil spills. It identified the primary causes as:

• Inattention/distraction (38 times cited)
• Procedural Error (31)
• Judgment (26)
• Mechanical Failure (23)
• Structural Failure (20)
• Unknown Causes (11)

The total number of explanations above (six) represents a little bit more than 20% of the total causes identified (29 total casual factors). However, these six causes cumulatively were responsible for 71% (149 of 209 cases) of oil spills identified. In this example of Pareto analysis, only a few data items are primarily responsible for most causes of oil spills.

It's important to note that Pareto analysis does not provide solutions to issues, but only helps businesses to identify and narrow down the most significant causes of the majority of their problems. Once the causes have been identified, the company must then create strategies to address those problems.

Pareto analysis will typically show that a disproportionate improvement can be achieved by ranking various causes of a problem and by concentrating on those solutions or items with the largest impact. The basic premise is that not all inputs have the same or even proportional impact on a given output. This type of decision-making can be used in many fields of endeavor, from government policy to individual business decisions.

What Is Pareto Analysis Used for?

Pareto analysis is used to identify problems or strengths within an organization. As an overwhelming amount of impact is often tied to a relatively smaller proportion of a company, Pareto analysis strives to identify the more material issues worth resolving or the more successful aspects of a business.

What Is the Importance of Pareto Analysis?

Pareto analysis enables an entity to be more efficient with its resources. By quickly identifying a major issue or capitalizing on a major business success, the company can spend less time and resources focusing on less impactful aspects of the company.

How Is a Pareto Chart Different From a Standard Vertical Bar Graph?

A vertical bar graph is a type of graph that visually displays data using vertical bars going up from the bottom. In a vertical bar graph, the lengths are proportional to the quantities they represent. Vertical bar graphs are typically utilized when one axis cannot have a numerical scale.

A Pareto chart is a type of chart that contains both bars and a line graph, where individual values are represented in descending order by bars, and the cumulative total is represented by the line. A Pareto chart is different from a vertical bar graph because the bars are positioned in order of decreasing height, with the tallest bar on the left.

What Is Pareto Efficiency?

Pareto efficiency is a state of the economy where resources cannot be reallocated to provide more advantages for one individual without making at least one individual worse off. Pareto efficiency implies that resources are  allocated  in the most  economically efficient  manner. However, this state does not guarantee equality or fairness.

What Is an Example of Pareto Analysis?

Imagine a hypothetical example where a company is analyzing why its products are being shipped late. It comes up with 20 various reasons for what may be causing the delay.

Pareto analysis holds the claim that of those 20 various reasons, roughly four of those items will be the primary cause of roughly 80% of the shipping delays. The company undertakes an analysis to track how many instances of each reason occur.

Pareto analysis isn't exact; the company may find that five reasons are causing 75% of the company's delays. Still, in principle, the fact remains that only several items are the primary drivers for a majority of outcomes. The company must focus its resources on these five reasons to make the most impactful positive change to its delivery processes.

When there seem to be too many options to choose from or it is difficult to assess what is most important within a company, Pareto analysis attempts to identify the more crucial and impactful options. The analysis helps identify which tasks hold the most weight as opposed to which tasks have less of an impact. By leveraging Pareto analysis, a company can more efficiently and effectively approach its decision-making process.

Vilfredo Pareto. "Cours d'Économie Politique: Nouvelle édition par G.-H. Bousquet et G. Busino ." Librairie Droz, 1964. 

National Library of Medicine. " Qual Saf Health Care: Joseph Juran: Overcoming Resistance to Organisational Change ."

Institute of Healthcare Improvement. " QI Essentials Toolkit: Pareto Chart ."

Washington State Department of Ecology. " Why Spills Happen ."

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What is a Pareto Chart

Based on the Pareto principle, also known as the 80/20 rule

Pareto Principle: Vilfredo Pareto observed that 80% of the peas in his garden came from 20% of his pea plants and 

80% of Italy's land was owned by 20% of the people. 

So the principle - 80% of effects come from 20% of causes

How does that help us - if we can find the 20% causes and remove/reduce their occurrence then we remove 80% of errors

Pareto Chart: presents the chosen areas sorted by relative frequency, also cumulative percentage line on the Z-axis ( see example below)

How to make a Pareto diagram

Area: Decide an area you want to study - it should be able to give some data

Category: Choose the causes, problems, categories that you will use to group items eg. count of errors in process steps, failure types,  error types, reasons for rejection...

Unit of measure: Choose the appropriate unit of measure. eg if you are trying to save costs - then total expense on an item would be better than the count of items. 

Period: choose the period that will give you sufficient data, day, week, month  

Collect data: or use the data available - with categories

Tabulate: use the table in the template ( shown in the example below )

Once done, format the graph is required.

Interpretation: the tallest bar points to the largest contributor. You can also see that where the cumulative % line, comes near 80 %, in this case, the first 4 parameters contribute to the 78.3% of errors 

Is it always 80: 20, No .... we are just trying to prioritize and find the biggest impact areas. 

In the shown examples case it is 78.3: 40 ( 4 of 10 parameters)

Start with the biggest one and keep on

When to use a Pareto Diagram

To concentrate on the problems/areas that offer the best potential for improvement

To prioritize

Use the pareto chart to visually present areas that need improvement

Breakdown the tallest bar and make a linked pareto of its causes 

Similarly you could use multiple pareto's and present side by side to compare - e.g. by region, by process (Note parameters should be same) Helps find solutions as well , e.g. if grammar is problem is one region and not in another - what has the region done differently

Example & Excel Template  - Pareto

• Guide: Pareto Chart

Daniel Croft

Daniel Croft is an experienced continuous improvement manager with a Lean Six Sigma Black Belt and a Bachelor's degree in Business Management. With more than ten years of experience applying his skills across various industries, Daniel specializes in optimizing processes and improving efficiency. His approach combines practical experience with a deep understanding of business fundamentals to drive meaningful change.

• Last Updated: June 2, 2023
• Learn Lean Sigma

Pareto Charts serve as a key tool in quality control and continuous improvement efforts. This visual tool, underpinned by the Pareto Principle, helps pinpoint the critical factors that contribute most significantly to a problem. By sorting issues from the most to the least frequent and superimposing cumulative percentages, Pareto Charts offer a clear, prioritized roadmap for problem-solving. They transform complex datasets into actionable insights, ensuring that effort and resources are focused where they can have the most substantial impact. This guide dives into the essence of Pareto Charts, their composition, and how they apply the Pareto Principle to foster strategic improvements across diverse industries.

Table of Contents

What is a pareto chart.

A Pareto Chart is a visual tool used in continuous improvement and quality control to help identify the most frequent factors contributing to an overall effect. It is a type of Bar Chart that sorts frequencies from high to low and combines a line chart of cumulative percentagess to measure the Pareto Principle

The Pareto Principle

The Pareto Chart is based on the Pareto Principle, a concept developed by economist Vilfredo Pareto in the late 19th and early 20th centuries. Pareto initially identified that approximately 80% of Italy’s land was owned by 20% of the population.

He then further identified in different industries that similar distributions applied, where the minority of causes, inputs, or efforts led to the majority of results, outcomes, or rewards. Pareto’s work was initially intended for use in economics but quickly gained traction in a range of fields such as business, engineering, health care, and quality control.

Key Components of a Pareto Chart

• Bars : Each bar represents a type of defect or problem, with the height reflecting the frequency or impact of that issue. The bars are arranged so that the longest bars (representing the most significant problems) appear first.
• Line Graph : Superimposed on the bar chart is a line graph that displays the cumulative total of the issues as you move from left to right. This helps identify the point at which the most critical issues have been covered.
• Categories : The categories (e.g., types of defects or customer complaints) are often issues that can be addressed or controlled. By focusing on the categories to the left (the tallest bars), you can achieve a greater overall effect.

How the Pareto Principle is Applied in Business

In quality control or continuous improvement, the principle suggests that by solving 20% of the problems, you could potentially eliminate 80% of the issues. This would mean that a small number of causes often lead to a large part of the problem.

For example, below:

Insights from the Chart:

• Defect Frequencies : The distribution starts with ‘Misalignment’ as the most frequent defect, followed by ‘Electrical Failure’, with each subsequent defect type decreasing in frequency more naturally.
• Cumulative Percentage : The cumulative line shows that the first two defect types (‘Misalignment’ and ‘Electrical Failure’) contribute significantly to the total number of defects, maintaining the essence of the 80/20 rule.
• 80% Threshold : The red dashed line indicates where approximately 80% of the problems could theoretically be resolved by addressing the issues represented to the left of where the line intersects with the cumulative percentage graph.

When to Use a Pareto Chart?

Pareto charts are a key tool used in Lean Six Sigma and will often find them used in the analysis phase of a DMAIC project or the gap analysis phase of an A3 Problem-solving improvement. Pareto charts are most useful in situations where data-driven decisions need to be made.

Examples of situations in which a Pareto Chart can be Used

Data-Driven Analysis: When you have data that can be quantified and categorized, such as defects, customer complaints, or any other types of non-conformities, The Pareto can help visualize the frequencies in the data and identify the critical few to focus on.

Problem Identification: It helps in distinguishing between the “vital few” problems that occur frequently and the “trivial many” that happen rarely.

Process Complexity : In complex processes where multiple factors could contribute to a problem, a Pareto chart can simplify the data, making it easier to identify and prioritize issues.

How to Create a Pareto Chart?

Creating a Pareto Chart is a systematic process that involves data collection, chart construction, and analysis. Here’s a detailed walkthrough of each step

Step 1: Data Collection

The first step in creating a Pareto chart, if you have not already, is to collect data. Therefore, determine what you want to analyze with the Pareto chart. This could be a range of problems, such as production defects or customer complaints. Determine the scope of the problem and decide if it is a specific part of the process, a product line, or time period you are analyzing. 

Identify the frequent causes of the problem; the data you have may already tell you this. Otherwise, you will need to brainstorm the category list and future data collection. With this you should group similar issues together to form categories such as, ‘machine breakdowns’ could include subcategories like ‘electrical failures’, ‘mechanical wear’.

During the data collection, you will need to collect data on each cause, which will be the count of times they occur or the number of minutes of downtime associated with each cause.

Step  2: Construction the Chart

To follow the steps of constructing a chart, you can use our example data set if you dont have data available: Example Pareto Data

For this you simply need two columns:

Column A: Category, such as defect type

Column B: Frequency: the number of times the frequency occurred or the number of minutes the problem caused downtime for example

Once you have this data, select all the data, both columns and all the rows, and click Insert (on the top bar) > Click Recommended Charts > Select the Pareto Chart  > Click Ok.

You will now have a Pareto chart like the example below

Step 3: Analyzing the Chart

Identify “vital few”.

• Assess the Curve : Look for the point at which the cumulative percentage line starts to level off; this is often referred to as the “elbow” of the curve.
• Vital Few : The causes to the left of this point are your “vital few”—the most significant causes that you should address first.

Using the example chart above the vital few would be paint flaws, scatches, and dents, which account for around 80%.

Focus on the Critical Causes

• Prioritize : These are the issues that, if solved, could lead to the greatest improvements in the system.
• Action Plan : Develop action plans for the critical causes, ensuring that solutions are practical and can be implemented effectively.

Free Pareto Chart Tools on LearnLeanSigma

At LearnLeanSigma, we understand that not everyone has access to sophisticated software like Excel or the time to become proficient in it. That’s why we offer user-friendly, free tools to create and download Pareto Charts, helping you to visualize and prioritize problems quickly and efficiently.

Free Pareto Template Download

Simplify Your Analysis : With our free Pareto template, you can easily input your data and let the template do the rest. It’s a plug-and-play solution that requires no advanced Excel skills.

How It Works :

• Visit our Pareto Template Download page .
• Download the template to your computer.
• Input your data into the predefined fields.
• The template will automatically generate a Pareto Chart for you.
• Use the chart to analyze and prioritize improvement efforts.

Free Online Pareto Chart Creator

Create Pareto Charts Anywhere : Our online Pareto Chart creator allows you to create a Pareto Chart directly from your browser. This tool is perfect for those who need to generate a Pareto Chart on the go or prefer not to download software or templates.

• Access the Online Pareto Chart Creator .
• Enter your categories and their corresponding values.
• Adjust the settings to fit your preferences.
• Generate the chart with the click of a button.
• Download the generated Pareto Chart for your reports or presentations.
• Accessible from any device with internet connectivity.
• No downloads required.
• Instantly generates downloadable Pareto Charts.

The Pareto chart is more than just a tool, by highlighting the ‘vital few’ from the ‘trivial many’, Pareto Charts allow businesses to focus their efforts into the most impactful areas. With our free Pareto Chart tools, this process becomes accessible to all, removing barriers to sophisticated software and streamlining the journey towards excellence. Whether through a downloadable template or an online creator, LearnLeanSigma offers the resources to visualize, prioritize, and act upon the data that matters, promoting a cycle of continuous improvement and sustained success.

• Harvey, H.B. and Sotardi, S.T., 2018. The pareto principle.   Journal of the American College of Radiology ,  15 (6), p.931.

Additional Useful Information on Pareto Charts

Variants of pareto charts.

Weighted Pareto Chart : This version of the chart takes into account not just the frequency of occurrences but also the magnitude of each issue’s impact.

Nested Pareto Chart : In some situations, each category in the Pareto chart can be broken down into sub-categories, allowing for deeper analysis.

Comparative Pareto Charts : These charts compare the same categories across different time periods or scenarios, providing a dynamic view of how issue importance shifts over time.

Integration with Lean Six Sigma

In the Lean Six Sigma methodology, Pareto Charts are often used during the “Analyze” phase of the DMAIC cycle to identify the most critical issues to focus on for maximum impact.

Practical Tips for Creating Pareto Charts

Accurate Data Collection : Ensure that the data you are using is accurate and up-to-date to make your Pareto chart as effective as possible.

Use of Color : Consider using varying shades or colors to represent different categories or levels of severity. This makes the chart easier to read and interpret.

Annotations : Adding labels or notes can provide context and make it easier for team members who are not as familiar with the data.

A: A Pareto chart is a graphical tool used for prioritizing and analyzing the relative importance of different factors or problems in a dataset. It is based on the Pareto principle, also known as the 80/20 rule, which states that roughly 80% of the effects come from 20% of the causes.

A: To construct a Pareto chart, you first need to identify and list the different factors or categories you want to analyze. These factors should be mutually exclusive and collectively exhaustive. Then, you gather data on the frequency or impact of each factor and arrange them in descending order. The factors are plotted on the x-axis, while the frequency or impact is represented on the y-axis. A bar graph is used to visualize the data, with the bars arranged in descending order from left to right.

A: The main purpose of a Pareto chart is to identify and prioritize the most significant factors or problems in a dataset. It helps you focus your efforts on the vital few rather than the trivial many. By visualizing the data in a Pareto chart, you can quickly identify the factors that contribute the most to an outcome or issue, allowing you to allocate resources efficiently and address the root causes effectively.

A: A Pareto chart typically has two key features:

• Bars: The chart consists of bars representing each factor or category, arranged in descending order based on their frequency or impact. The length of the bars represents the relative importance of each factor.
• Cumulative Percentage Line: A cumulative percentage line is often included in the chart. It shows the cumulative percentage of the total frequency or impact as you move from left to right on the chart. This line helps identify the point at which the most significant factors begin to level off.

A: A Pareto chart can provide several insights, including:

• Identification of the vital few factors: It highlights the factors that have the most significant impact, allowing you to prioritize your actions accordingly.
• Visualization of cumulative contribution: The cumulative percentage line shows how much the selected factors contribute to the overall problem, helping you understand the cumulative impact.
• Focus on the key areas for improvement: By identifying the top factors, you can focus your efforts and resources on addressing the root causes, leading to more effective problem-solving.

A: Pareto charts have a wide range of applications across various industries, including:

• Quality improvement: Identifying the most frequent defects or problems to focus on improving quality.
• Process optimization: Determining the most significant process bottlenecks or inefficiencies.
• Customer complaints analysis: Prioritizing the most common customer complaints for addressing customer satisfaction issues.
• Risk management: Identifying the most critical risks or hazards in a system to prioritize risk mitigation strategies.
• Resource allocation: Allocating resources based on the most impactful factors to maximize efficiency and effectiveness.

A: Yes, there are a few limitations to consider when using Pareto charts:

• Subjectivity in factor selection: The choice of factors and their categorization may involve subjectivity, which can impact the outcomes of the analysis.
• Lack of context: Pareto charts provide a high-level overview and may not capture the full context of the underlying factors. Additional analysis may be required for a comprehensive understanding.
• Focus on historical data: Pareto charts are typically based on historical data, so they may not account for changes in circumstances or new factors that emerge over time.
• Ignoring interactions

Daniel Croft is a seasoned continuous improvement manager with a Black Belt in Lean Six Sigma. With over 10 years of real-world application experience across diverse sectors, Daniel has a passion for optimizing processes and fostering a culture of efficiency. He's not just a practitioner but also an avid learner, constantly seeking to expand his knowledge. Outside of his professional life, Daniel has a keen Investing, statistics and knowledge-sharing, which led him to create the website learnleansigma.com, a platform dedicated to Lean Six Sigma and process improvement insights.

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Pareto Analysis (The 80/20 Rule)

In this article:

Pareto analysis is a problem solving and decision-making tool that can help you choose the appropriate course of action when many options are available, and there aren’t enough resources to pursue all options.

Imagine you are the Leader of a small startup. You have to make important decisions about how to invest your time and money. You want to invest wisely. How do you know which of your many ideas will lead your startup to the fastest growth?

In this situation, it would be useful to perform a Pareto analysis. Your Pareto analysis will help you prioritize which actions to take, by showing you which actions will bring the fastest growth to your business.

Pareto analysis is known by several other names, including:

• The law of the vital few.
• The principle of factor sparsity.
• The Pareto principle.
• The 80/20 rule.

The Pareto Principle is named after Italian economist Vilfredo Pareto, who observed in the 19th century that 80% of outcomes come from 20% of causes.

Examples of the Pareto principle include that:

• 80% of results come from 20% of the work.
• 80% of the land is owned by 20% of the people.
• 80% of sales are attributed to 20% of customers.
• 80% of wealth belongs to 20% of the people.

When to use a Pareto Analysis?

Daily life requires us to make multiple decisions. Some of these decisions are easy to make because it’s obvious which course of action to take.

Other decisions are more complicated, particularly when we don’t have the resources to pursue all options. In this situation, using a Pareto analysis can give you the information you need to prioritize, so you make the best decision.

Factor Sparsity

The 80/20 rule seeks to identify which 20% of actions will realize 80% of outcomes, but it’s important to realize it works under a specific condition called factor sparsity.

Factor sparsity is simply another way of saying that you have limited resources.

For example, in business, you will typically have more opportunities than you have resources to pursue. When investing, you will have more investment opportunities than you have financial means.

These constraints on your resources (factor sparsity) mean you have to prioritize. It is in situations such as these, where factor sparsity is present, and the correct path to take isn’t clear that conducting a Pareto analysis can be useful.

Using the Pareto Analysis

To solve a problem using Pareto analysis, you can follow this five-step process.

Step 1: Identify and list all the problems.

Create a list of all your problems.

Step 2: Identify the root causes

Identify the root cause of each problem. By identifying the root cause it will help you direct your effort where it is most needed and prevent you from only superficially solving problems.

A 5 Whys analysis can be a useful tool to help you find the root cause of each problem.

Step 3: Score each of the options using some relative measure.

For example, you might use a scale like 1 to 10, where problems ranked 1 have the lowest impact, and those ranked 10 have the highest impact.

Step 4: Rank the items.

Now add up your total scores for each of the root causes you identified.

Step 5: Take action

Create a plan to address those root causes that are causing you the biggest problem.

Pareto Analysis Examples

Let’s take a moment to look at two examples of how to perform a Pareto analysis. This will help bring the 5-step process above to life.

Example One: Investigating IT Problems

In this example, imagine that you are the new manager of an IT department within a small firm. Your biggest problem is that your customer-facing server keeps crashing. When this happens, the company is generating zero revenue.

Obviously, it’s essential that this is rectified as soon as possible. Unfortunately, there are many reasons why the server keeps crashing. Because of this, you decide to perform a Pareto analysis to determine the order in which to fix issues.

Your first step is to get a list of reasons the server is crashing. These are shown below:

Next, you will want to find the root cause for each incident. To do this, you use the 5 Whys technique and identify the following root causes.

Next, you’ll want to score each row in some way. You decide to score each row from 1 to 10 based on how much negative impact this problem resulted in. 10 represents the most impact and 1 the least. This is shown below.

The next step is to add the scores together for each of the root causes. This results in a table that looks like this.

As you can see, the obvious first step in addressing your server problems is actually to invest in more robust processes and possibly some employee training to ensure that everyone knows how to follow those processes. By addressing this root cause first, you’ll be addressing 55% of your negative impact.

Representing your analysis as a bar chart you can clearly see that improved processes and training will have the biggest impact on the problem.

Example Two: Creating a Study Plan

If the previous example was quite complicated, this example is very simple. Remember that 80% of the results come from 20% of the efforts? Well, this is the reason why in this example we’ll just perform a rough and ready mentally calculated Pareto analysis – because it will give you 80% of the results for 20% of the effort.

In this scenario, you are a student. You have an exam tomorrow morning, and so far you have not studied at all. You don’t have enough time to revise everything. How do you decide which elements to study first?

You guessed it! You’re going to use a Pareto analysis.

You will perform your Pareto analysis by comparing the last three years of exam papers and ranking the most common topics. You will now revise for your exam in order of how likely a topic is to appear in your exam tomorrow.

Now, this approach might not result in you achieving an A grade, but it will give you the best possible grade given the very limited time you have available to study.

Advantages & Disadvantages

There are several advantages and disadvantages to a Pareto analysis which you should know about.

• It can help decision-makers rank and understand which options to pursue when resources are limited.
• A useful tool to help visualize the root causes of a problem and take action.
• Prioritizes specific measures to ensure maximal benefit in an organization.

Disadvantages

• The methodology provides no guidance on how to find the root causes of problems.
• The 80/20 rule is a principle only and not an immutable law. In practice, you might find the 40% of the causes result in 60% of the results, for example.
• Data inputs to the Pareto analysis capture a snapshot in time, not what’s happening in real-time. This lagging effect can result in choices that impact the quality of your decision-making.

Pareto Analysis Summary

Sometimes we need a tool to help us with our decision-making to ensure we are applying effort in the most useful way.

Pareto analysis can be used to help you identify the appropriate course of action to take when resources are limited but there are many options available.

Cite this article

Minute Tools Content Team, Pareto Analysis (The 80/20 Rule), Minute Tools, Jun, 2019 https://expertprogrammanagement.com/2019/06/pareto-analysis-the-80-20-rule/

Originally hailing from Dublin, Denis has always been interested in all things business and started EPM in 2009. Before EPM, Denis held a leadership position at Nokia, owned a sports statistics business, and was a member of the PMI's (Project Management Institute’s) Global Executive Council for two years. Denis now spends his days helping others understand complex business topics.

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The Pareto Principle And Pareto Analysis In A Nutshell

The Pareto Analysis is a statistical analysis used in business decision making that identifies a certain number of input factors that have the greatest impact on income. It is based on the similarly named Pareto Principle, which states that 80% of the effect of something can be attributed to just 20% of the drivers.

Table of Contents

The Origin and Significance of Pareto Analysis

Pareto Analysis is named after Vilfredo Pareto, an Italian economist and sociologist, who observed that a small percentage of the population in Italy owned the majority of the wealth in the late 19th century. This observation led to the development of the Pareto Principle, which states that roughly 80% of the effects come from 20% of the causes. While the initial application was in economics, the principle has since been widely adopted in various disciplines, including business, engineering, healthcare, and quality management.

The significance of Pareto Analysis lies in its ability to help individuals and organizations focus their efforts and resources on the most critical areas. By identifying the vital few factors that have the most substantial impact, it becomes possible to prioritize actions and achieve more significant results with limited resources.

Understanding the Pareto Analysis

The Pareto Analysis was named after Italian economist Vilfredo Pareto, who noted that 80% of the total income earned in Italy went to 20% of the population.

In a modern business context, the principle is evident in a variety of settings.

For example:

• 20% of a product range accounts for 80% of profits.
• 80% of customer complaints relate to 20% of products or services.
• 20% of the workforce accounts for 80% of company revenue.
• 80% of meeting decisions come in 20% of the total meeting time.

Conducting a Pareto Analysis

Although the applications of a Pareto Analysis are vast, certain principles will apply to most situations.

Following is a six-step process that businesses can use.

• 1. Identify the problems

Start by writing a list of the problems that need resolving.

• 2. Identify root causes

Then, identify the fundamental cause of each problem. Note that there could be multiple causes of a single problem.

• 3. Score the problems

In step 3, it is time to score each problem.

The scoring method being utilized will depend on the industry and the nature of the problem itself.

For example, a business trying to increase profits might score each problem based on how much it is costing them. 

Indeed, cost is a common problem in business.

But problems can also be scored based on duration or the number of times they occur in a specified period.

• 4. Group problems

Group the problems according to the root cause.

Perhaps a group is focused on customer satisfaction, while another on quality control.

• 5. Tally the scores

Now, add the scores for each group.

The group with the highest score is the top priority, as it is part of the 20% of factors causing 80% of the problems.

Sometimes, two or even three groups may be causing the majority of problems.

Lastly, allocate resources to the problems with the highest scores and thus the most potential to impact on profits, customers, or sales.

Advantages of the Pareto Analysis

The analysis allows businesses to quickly and accurately identify factors that are contributing to a significant proportion of their problems.

Problem-solving ability

Many workplace problems are intangible in the sense that personnel does not agree on their scope or even on their definition.

The Pareto Analysis allows people to come to a consensus on the main problems facing an organization.

This also increases morale and cohesiveness in the process.

Improved decision making

A company that can quantify its main problems is better able to make decisions to counteract them.

Quantifiable problems are also better prepared for so that they have less chance of recurring in the future.

Pareto Analysis Case Study

As we saw, the Pareto analysis starts from the premise that a small number of factors (typically 20%) account for most of the impact (typically 80%) in a given situation.

One example of Pareto analysis is a study of customer complaints at a retail store.

Imagine that the retail store collected data on all customer complaints over one year.

They can leverage the Pareto analysis to identify the top 20% of complaints that accounted for 80% of these same complaints.

From a Pareto analysis , it would be simple to show how the top complaints were related to product quality, customer service, and shipping delays.

That information could be used to develop strategies to address these complaints and improve the overall customer experience.

Thus, the retail store can improve the quality of its products by implementing stricter quality control measures and conducting more frequent product testing.

And they can provide additional training for their customer service representatives and implement more flexible return policies.

Or perhaps to address shipping delays by investing in new technology to track and manage shipments more efficiently.

In other words, Pareto analysis can help businesses identify the key factors causing most of the issues.

Thus employing strategies that make it possible to tackle these issues and improve, with minor efforts, the overall experience for customers!

Key takeaways

• Fundamentally, the Pareto Analysis is a statistical technique that identifies a limited number of factors that produce a significant overall effect.
• The Pareto Analysis has a vast range of applications in business settings, allowing organizations to target problems that erode profits or budget expenditure.
• The Pareto Analysis is an efficient technique that brings personnel together to quantify and then work to address tangible problems.

Case Studies

• In sales, approximately 20% of customers often contribute to 80% of revenue.
• In inventory management, 20% of products typically account for 80% of sales.
• In software testing, 20% of the software bugs may cause 80% of the system’s errors.
• When designing products, focusing on the top 20% of features that provide 80% of user value can lead to efficient development.
• In personal productivity, 20% of tasks often result in 80% of the desired outcomes.
• When prioritizing daily tasks, focusing on the most important 20% can lead to significant productivity gains.
• In marketing , 20% of marketing efforts may generate 80% of leads or conversions.
• In digital advertising, optimizing the top-performing 20% of ads can improve campaign effectiveness.
• In customer support, addressing the top 20% of customer complaints or issues can lead to 80% of customer satisfaction.
• Focusing on the most common 20% of customer inquiries can streamline support processes.
• In healthcare, 20% of patients may account for 80% of medical costs due to chronic conditions.
• Targeting preventive care and interventions for high-impact patients can reduce overall healthcare expenses.
• In project management, 20% of project tasks often consume 80% of resources and time.
• Identifying critical tasks within a project’s scope can help allocate resources more efficiently.
• In investing, 20% of investments may generate 80% of returns in a portfolio.
• Diversifying investments while focusing on high-performing assets can enhance returns.
• In social networks, 20% of individuals may have 80% of the social influence or connections.
• When studying social behavior, analyzing the most influential individuals can provide insights into network dynamics.
• In environmental conservation efforts, 20% of actions may contribute to 80% of positive environmental impact.
• Targeting high-impact actions, such as reducing energy consumption, can lead to substantial environmental benefits.
• In education, focusing on the top 20% of teaching methods that lead to 80% of student learning can improve educational outcomes.
• Identifying the most critical concepts in a curriculum can enhance student understanding.
• In portfolio management, selecting and prioritizing the top 20% of projects based on strategic alignment can lead to 80% of business value.
• Allocating resources to high-impact projects can maximize overall returns.
• In website analytics, 20% of website content may drive 80% of web traffic.
• Optimizing high-traffic pages can improve user engagement and conversions.
• In talent management, 20% of employees may contribute to 80% of a company’s success.
• Identifying and nurturing high-performing employees can boost overall organizational performance.
• In root cause analysis , addressing the top 20% of issues that lead to 80% of problems can lead to more effective solutions.
• Identifying and eliminating major contributing factors can prevent recurring issues.

Key Highlights

• Pareto Analysis Overview : The Pareto Analysis is a statistical approach used in business decision-making to identify a small number of input factors that have a substantial impact on outcomes. It’s based on the Pareto Principle, which states that 80% of effects come from 20% of causes.
• Pareto Principle Origin : The principle is named after Vilfredo Pareto, who observed that 80% of Italy’s income was earned by 20% of the population.
• 20% of product range yields 80% of profits.
• 80% of customer complaints link to 20% of products/services.
• 20% of the workforce generates 80% of revenue.
• 80% of meeting decisions happen in 20% of meeting time.
• Identify problems that need solving.
• Identify root causes for each problem.
• Score problems based on criteria (cost, duration, frequency, etc.).
• Group problems by root cause.
• Tally scores within each group.
• Allocate resources to problems with highest scores.
• Efficiency : Rapidly identifies significant contributing factors.
• Problem-Solving : Aids consensus on main problems, increasing morale and cohesiveness.
• Improved Decision-Making : Quantifiable problems are better addressed and prepared for.
• Example: Retail store analyzing customer complaints.
• Using Pareto analysis , the store identifies top complaints (20%) causing most of the issues (80%).
• Strategies can be developed to address these complaints, such as improving product quality, customer service, and shipping processes.
• Pareto Analysis identifies a small number of factors that contribute significantly to outcomes.
• It’s versatile, applicable in various business contexts to target problems affecting results.
• The analysis encourages collaboration in quantifying and addressing issues effectively.

What are the steps to conduct a Pareto Analysis?

The key steps to conduct a Pareto Analysis are:

What are the advantages of a Pareto Analysis?

The key advantages of a Pareto Analysis can be grouped into:

• Efficiency : the Pareto Analysis eliminates noise and narrows the analysis to the key, most impactful elements.
• Problem-solving ability : given the ability to narrow down the context, to focus on the key elements, the Pareto Analysis enhances decision-making.
• Improved decision-making: once the factors that have the most impact on the decision have been identified, this facilitates the decision-making process.

What is the Pareto Principle in simple definition?

The Pareto Principle is a theory that postulates that for most human endeavors, 20 percent of the input determines 80 percent of the output. This postulate, of course, will depend on the context, where the Pareto Law might get less skewed (like in cases in which the 30% of input determines the 60% of output) and more skewed (where 5-10% of the input determines the 80-90% of output).

How do we use Pareto Principle in everyday life?

One way to apply the Pareto Principle to your life is by enhancing productivity or well-being by identifying the less impactful activities and yet giving you more stress. Take the case of minor tasks you do daily (like checking up on your smartphone) which have little impact on your life. With the Pareto Analysis, you can identify these low-impact inputs to enhance your life and productivity.

How to apply Pareto Principle to your business?

In times of constraints and crisis, the Pareto Analysis can help identify these parts of the business with low impact and yet require considerable maintenance. Take the case of a company that sells a product to a thousand customers. Yet, of these customers, only 100 impacts the bottom line, and yet the remaining 900 smaller customers are the ones that require the most support, thus, consuming the company’s resources and requiring a large team. This is an extreme case of Pareto, where 10% of the input determines 90% of the output. In this case, the company can cut out the smaller customer segments, which is not profitable to make t business viable.

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How to Conduct Pareto Analysis Using Pareto Charts

February 22, 2022 - 10 min read

The 80/20 rule, also known as the Pareto Principle, states that 80% of the benefit can be achieved by 20% of the work. The Pareto analysis uses this concept to identify which parts of a project can be done efficiently and which can be avoided. It can be used to decide which problems should be solved first.

In this article, we’ll explain how to perform Pareto chart analysis and how it can be used to improve any project. We’ll also get into some vital tools you can use to help teams work smarter, not harder. 

What is a Pareto chart?

The Pareto chart is a visual representation of the most important factors in a given field or project in order to identify and prioritize issues. 

In general, this tool can be used to identify the most critical factors in a given product or process. For example, in quality assurance , the Pareto chart helps identify the most prevalent sources of defects.

The Pareto chart itself is a bar graph with two axes. The left axis shows the frequency of occurrence, which is the sum of the total number of occurrences and the cost of doing so. The right axis shows the cumulative function of the total number of occurrences.

The values for each category are depicted in descending order. And the final total is represented with a line drawn at 80% on the bar graph. Any bars rising above that line are considered the problems that, if solved, would have the biggest impact on the project. 

The Pareto chart can be generated by various means, such as creating Excel spreadsheets , statistical software, and online quality charts.

What is a Pareto chart used for?   

A Pareto chart helps you identify the causes of the various problems and the issues that need to be solved to get the most significant improvement. Here are some of the many ways it can be used:

• Visually represent project issues to find which have the greatest impact
• Communicate priority levels to stakeholders 
• Isolate individual process hiccups so that they can be better understood 
• Find the most impactful problems and eliminate them before they cause issues 
• Reallocate workloads so that team members companywide are maximizing their impact and productivity 

When to use a Pareto chart in project management

A Pareto chart is a tool that many people use to analyze different types of problems. It can also identify the most significant issues in a process. In project management , this means everything from big-picture project phases to individual task workflows. 

When roadblocks come up, managers can use the Pareto analysis to quickly identify what is causing bottlenecks or delays. From there, they can use their project management tool to delegate troubleshooting, adjust task lists, or shift priorities without interrupting the entire project. 

In addition to making on-the-fly decisions based on real evidence possible, Pareto charts can be used in project management for post-project analysis for both PMOs and stakeholders. Teams can learn from each other and what went wrong in projects with data clearly laid out in this way. In the future, they’ll be able to replicate their successes and mitigate failures. 

Stakeholders can easily pinpoint areas of investment that worked out and learn more about how this project was managed so they can feel good about the outcome. In particularly successful works, they’ll be able to see how little interference the project encountered along the way. Or they can see how well the team managed issues that did arise. 

This persuasive tactic allows them to feel great about providing repeat business or, at the very least, enrich their understanding of key projects related to their goals for future reference. 

How to calculate Pareto analysis

The simplest formula for calculating a Pareto analysis is as follows: 

[Your total unit of measurement per item, e.g., number of occurrences, hours, cost, etc.] / [the grand total of all items] x 100% 

Use this formula for each category. Keep in mind that each result should be a percentage. Afterward, put them in order from highest to lowest before inputting them into your chart-making software. 

How to create a Pareto chart

Step 1: collect your data.

A minimum of 30 data points is best for an accurate picture of the project as a whole. 

Step 2: Create a frequency table

Use the following headers in this order: 

• Number of Occurrences (listed in descending order)

Note: Some programs will automatically generate a Pareto chart for you once you’ve added the number of occurrences or frequency for each issue category. 

The rest of your headers may be calculated for you, again depending on the program you’re using: 

• Cumulative Total 
• Cumulative Percentage 
• 80% Cut Off

Step 3: Label your chart

Keep it simple. You can never go wrong with “Types of Project Errors.” Freel free to add a single sentence description that includes the time period of your measurement and any other details that are important to the people you’ll be sharing it with. 

Step 4: Clearly label the Y-axis

Frequency, total number of occurrences, or even price all work well here. Use whichever value best represents your data set or makes the most sense to you as a manager. 

Step 5: Note the categories on the X-axis

These should match the Issue Types you first listed in your frequency table. 

Step 6: Interpret the chart 

Again, the software you use should fill in the other components of the chart, including the bars, lines, and cut-off. From there, you can get to work analyzing the results. 

The higher the bars are, the more of an impact they are having on your project. 

You’ll see percentages listed on the right-hand side of the chart across from frequency. They should be listed from 100% and counted down in increments of 10 to the bottom. Any bars that cross the 80% line should be considered a top priority for problem-solving. 

Pareto chart example

This Pareto chart example was created by Clinical Excellence Commission and thoughtfully illustrates the key areas of focus project managers should be aware of. 

We can also see that the categories on the bottom are great examples of types of medication errors. But project managers may use groupings such as scope creep , resource management , or communication to define a variety of issues that may come up. 

The most important line on this graph is the green 80% cut-off, which symbolizes the Pareto principle. Any bar that reaches above that line should be considered the most important issue. In the above chart, that would be “dose missed” at 92% and “wrong time” at 83%. Although “wrong drug” clocks in at 76%, it’s not considered nearly as important as the first two. 

For the next steps, the project manager in this particular example would likely solve the issues above the 80% line first before moving on to the next highest scoring category.

Alternatively, they could choose to solve the above-the-line problems, then create a new Pareto chart and see if the values have changed. It’s also possible that solving the highest priority issues may fix less pressing issues on your chart down the road as a byproduct. 

How Pareto chart analysis can improve your project

In general, the Pareto chart helps project managers and team leaders identify the causes of various problems that are having the biggest impact on their work. By figuring out what they are, managers can take the necessary steps to solve them. It’s also easier to determine task and even project or goal prioritization with a chart like this. 

If you’re working with third-party partners or stakeholders, the visual aspects of Pareto charts make them easy to understand and interpret. Not only is this highly effective for communicating with non-experts, but it’s also highly persuasive. 

How to interpret Pareto analysis with Wrike

So you’ve made your Pareto charts and conducted your analysis. Now what? Put your plan into action with Wrike. 

Wrike is a project management solution that makes project plans manageable, efficient, and crystal clear. Now that you know what’s going wrong, you can easily add actionable next steps to your project plans without missing a beat. 

Start by adding a detailed task to your project. Add a description, deadline, and task owner. Wrike also allows you to see the workload of individual team members across all active projects so you can double-check they’re available before assigning it. 

You can also use Wrike’s custom reporting features to identify issue categories for your Pareto chart. Dissect active and past tasks to find the biggest areas in need of improvement during individual project phases or projects as a whole. 

In addition to Pareto charts, Wrike also offers Gantt charts and PERT charts that can improve productivity. 

A Gantt chart is a bar chart that shows the various tasks and deadlines for a project. It's a great tool for managing time and improving efficiency. 

A PERT chart is a network diagram that shows all the project tasks in separate containers. The boxes that make up the PERT chart are organized with arrows to represent the time needed to complete the task.

Combining the results of your Pareto, Gantt, and PERT charts will help you turbocharge your project troubleshooting plans and may even prevent future issues too. 

Ready to get the biggest results from the least amount of effort? Get started with Wrike’s two-week free trial . 

Maria Waida

Maria is a freelance content writer who specializes in blogging and other marketing materials for enterprise software businesses.

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