Pareto Analysis

Identify the most important parts of your problem and determine their severity.

Pareto Analysis is a tool for finding the changes that will give the biggest benefits. It is useful where many possible courses of action are competing for your attention.

The Pareto principle states: Doing 20% of the work can generate 80% of the advantage of doing the entire job.

To perform a Pareto Analysis:

Step 1:  List each one of your Alternatives.

Step 2:  If any alternatives have similar aspects, that are part of a larger problem, group them together.

Step 3:  Apply an appropriate score for each group. The scoring method you use depends on the sort of problem you are trying to solve.

For example, if you are trying to improve profitability, you would score options on the basis of the profit each group might generate.

If you are trying to improve customer satisfaction, you might score on the basis of the number of complaints eliminated by each change. (See example below.)

Step 4:  Work on the groups with the highest scores. These groups will give you the biggest benefit, so solve them first. In the example below, you'd want to address room service, reservations, and cleaning to solve 80% of your complaints.

Example of Pareto Chart in Excel:

PDF version of Pareto Chart.pdf (Click link to download PDF version).

Source:

Mind Tools web site at www.mindtools.com.