Question

Answer the following: Define the pareto principle in general and as it applies to analytics. If you created a “to do” list of 10 goals that you have for this class, which 2 would you place at the top of your list. What, if anything, is keeping you from achieving those top 2. Give an example of when you (not you personally, but a general example) would not want to apply the 80/20 rule….where perfection would be needed.

Answer 1

PARETO ANALYSIS IS A RULE THAT RECOMMENDS FOCUS ON THE MOST IMPORTANT ASPECTS OF THE DECISION MAKING IN ORDER TO SIMPLIFY THE PROCESS OF DECISION MAKING. IT IS BASED ON THE 80:20 RULE THAT WAS A PHENOMENON FIRST OBSERVED BY VILFREDO PARETO, A NINETEENTH CENTURY ITALIAN ECONOMIST. HE NOTICED THAT 80% OF THE WEALTH OF MILAN WAS OWNED BY 20% OF ITS CITIZENS. THE MANAGEMENT CAN USE IT IN A NUMBER OF DIFFERENT CIRCUMSTANCES TO DIRECT MANAGEMENT ATTENTION TO THE KEY CONTROL MECHANISM OR PLANNING ASPECTS.

PARETO ANALYSIS IS USEFUL TO

1. PRIORITIZE PROBLEMS , GOALS , AND OBJECTIVES IDENTIFY ROOT CAUSES.

2. SELECT AND DEFINE KEY QUALITY IMPROVEMENT PROGRAMS SELECT KEY CUSTOMER RELATIONS AND SERVICE PROGRAMS SELECTKEY EMPLOYEES RELATIONS IMPROVEMENT PROGRAMS

3. VERIFY OPERATING PROCEEDURES AND MANUFACTURING PROCESSES.

4. PRODUCT OR SERVICES SALES AND DISTRIBUTION

5. ALLOCATE PHYSICAL FINANCIAL AND HUMAN RESOURCES.

6. SELECT AND DEFINE KEY PERFORMANCE IMPROVEMENT PROGRAMS MAXIMISE RESEARCH AND PRODUCT DEVELOPMENT TIME.

EXAMPLE:

SET OF DEFECTIVE TYPES AND FREQUENCIES OF OCCURANCE
DEFECTIVE TYPES	NO. OF TYPES
CRACKS	13
IMPROPER SHAPES	7
INCOMPLETE	6
SURFACE SCRATCHES	55
BAD QUALITY	3
	84
ANS :
SURFACE SCRATCHES	55	65.48%
CRACKS	13	15.48%
IMPROPER SHAPES	7	8.33%
INCOMPLETE	6	7.14%
BAD QUALITY	3	3.57%
FIRST TWO ITEM HOLDING 80% OF DEFECT