Question

1. What is Pareto Principle and Analysis? Explain briefly.

Answer 1

=> Pareto Analysis is a statistical technique in decision-making used for the selection of a limited number of tasks that produce significant overall effect.

=> It uses the Pareto Principle (also known as the 80/20 rule) the idea that by doing 20% of the work you can generate 80% of the benefit of doing the entire job.

=> Take quality improvement, for example, a vast majority of problems (80%) are produced by a few key causes (20%).

=>This technique is also called the vital few and the trivial many.

=> The Pareto Principle has many applications in quality control. It is the basis for the Pareto diagram, one of the key tools used in total quality control and Six Sigma.

Pareto Analysis:

Here are eight steps to identifying the principal causes you should focus on, using Pareto Analysis:

1. Create a vertical bar chart with causes on the x-axis and count (number of occurrences) on the y-axis.
2. Arrange the bar chart in descending order of cause importance that is, the cause with the highest count first.
3. Calculate the cumulative count for each cause in descending order.
4. Calculate the cumulative count percentage for each cause in descending order. Percentage calculation: {Individual Cause Count} / {Total Causes Count}*100
5. Create a second y-axis with percentages descending in increments of 10 from 100% to 0%.
6. Plot the cumulative count percentage of each cause on the x-axis.
7. Join the points to form a curve
8. Draw a line at 80% on the y-axis running parallel to the x-axis. Then drop the line at the point of intersection with the curve on the x-axis. This point on the x-axis separates the important causes on the left (vital few) from the less important causes on the right (trivial many).
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