Vilfredo Pareto,
an Italian mathematician for whom pareto analysis was named, found that
20% of the people had 80% of the wealth. He also suggested that even if
the wealth was redistributed evenly, in a very short time the distribution
of wealth would return to 80/20. This is the genesis of the 80/20
rule. A pareto analysis shows where effort can be focused for
maximum benefit.
- 20% of customers generate 80% of the business
- 20% of the customers cause 80% of the complaints
- 20% of a process causes 80% of the errors
- 20% of the gaps in a process cause 80% of the delay
Pareto analysis often uses a pareto chart
to identify the "vital few vs the trivial many".
Pareto Analysis
Example
Most companies have lots of data, but sometimes have a hard time figuring
out what to do with it. I've found that I often use a common strategy
for analyzing a company's data. I usually slice and dice an Excel table
in the same way:
- I use pareto charts to
first analyze the "total" rows and "total" columns.
- Then I use pareto charts to analyze the biggest contributor in each
total row or column.
Let's look at an example. Here's a simplified table from a garage door
installation company that was having trouble making a profit because of
service and warranty calls.
Because the company installs doors for builders, they sometimes have
multiple service calls to install each door piece-by-piece. They may have
to install, replace, adjust, or lubricate some part to get the door working
properly. They work with five key parts: door, motor, track, vinyl trim,
and T-lock.
I've highlighted my first focus in yellow: total parts.
Motors are the big bar on the pareto chart at 33%. Then I drill down
to look at the motor row by type of service (yellow):
Adjusting the motor is the big bar on the pareto chart at 55% of total
motor service. Now we have something to analyze!
Now let's pull back and look at the service row:
As you can see, installation is 41% of the total followed by adjustments.
These two are 72% of the total as indicated by the cumulative line on
the pareto chart.
Next, I'll drill down by looking at the installation column:
Installations of vinyl followed by T-locks are 80% of the total. Now
we've got something to analyze. We could have one team analyze vinyl installs
and another analyze T-lock installs.
The 4-50 Rule (the 80-20 rule applied to itself)
I keep hammering this point: 4% of any business is causing 50% of the
waste, rework, and delay.
As you can see from these pareto analysis examples, by slicing and dicing
the data horizontally and vertically we can find two or three key problem
areas that could benefit from root cause analysis.
Start with the total columns and rows. Draw pareto
charts with the QI Macros. Then use this information to narrow your
attention to one key row and column within the table. Draw the lower-level
pareto charts from this data.
The "big bars" in the lower-level pareto charts can be turned
into problem statements to fill the head of your fishbone diagram. Here's
an example:
Problem Statement: During 2009, adjustments accounted for 55%
of all motor service calls which is higher than desired and caused customer
dissatisfaction and a loss of $60 per service call.
Start using the QI Macros to slice and dice your tables (no matter how
large). You'll find it easy to find the 4-50 and start making breakthrough
improvements.
QI Macros Pivot Table Wizard
If you have raw transaction data, you may need to summarize it before
you can run a chart like the Pareto chart. Use the QI
Macros Pivot Table Wizard to summarize your data before you
run your charts.
New! Or, if you just have a single column of text (below), just click on the heading for the column and select Pareto Chart from the QI Macros Menu:
The Pareto chart will count the occurrence of each phrase and draw a pareto chart of the result.
The Pareto chart is just one of the tools included in the QI
Macros for Excel SPC Software for Excel.
 Download
the FREE 30-day Evaluation copy of the QI Macros Excel SPC Software for Six Sigma
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