Pareto analysis can be used when you encounter multiple related problems or a common problem with multiple causes. In this technique you are also able to collect metrics on how many times each problem or cause occurs. The purpose of Pareto Analysis is to observe the problems and determine their frequency of occurrence. This, in turn, gives you the information you need to prioritize your effort to ensure you are spending your time where it will have the most positive impact.
Pareto Analysis is based on the classic 80/20 rule. That is, in many cases 20% of the problems cause 80% of the occurrences. For example, let’s say you have a problem with a product failure, based on a number of causes. Through observation and collecting metrics, you determine there are eight causes. Rather than attacking the causes randomly, a Pareto Analysis might show that 80% of the problems are caused by the top three causes. This gives you information to know which causes to solve first.
The tool associated with this problem solving technique is the Pareto Diagram. It is a chart, graph or histogram showing each problem and the frequency of occurrence. It is created as follows:
Developing a Pareto Diagram  
1  Create a table listing all observed problems or causes.
For each problem, identify the number of occurrences over a fixed period of time.


2  Arrange the problems from highest to lowest, based on the number of occurrences.  
3  Create a new column for the cumulative total.
You could add other columns such as the severity of the problems and the cost and effort to resolve the problem. 
Notice that this gives you important information. Even though there are six total problems identified, you need to resolve problems #1 and #3 first (all things being equal). That is where you will achieve the most impact. If you decided to work on problems #4 and #5 instead, the result of your effort would be almost meaningless. This does not mean that you do not want to resolve the other problems. However, this Pareto Analysis gives you information to know the order in which the problems should be resolved. It also provides a sense as to the relative value you receive for resolving each problem. You definitely do not want to spend the same amount of effort resolving problem #5 as you do for problem #1. The payback just isn’t there. (Of course, you may determine that problem #6 can be resolved quickly and you may choose to solve that one early. The Pareto Diagram does not tell you what to do. It provides information to you so that you can make the best decisions.)
Many times, you will see the results of the Pareto Diagram displayed as a histogram or bar chart. This provides more visual emphasis to the data you have observed.
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