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Pareto analysis

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Pareto analysis is a type of prioritizing proposed by Joseph Juran, named for economist/sociologist Vilfredo Pareto. Pareto was a key figure in applying mathematical analysis to problems of economics, and is perhaps best known for his ideas regarding distribution of wealth in populations. Juran extended Pareto’s wealth distribution ideas—primarily the idea that at the time, 80% of Italy’s wealth was controlled by 20% of the population—to prioritization of problem-solving efforts. Juran proposed that 80% of economic loss due to quality problems was due to 20% of the actual number of problems. Juran referred to the 80% proportion as the “trivial many” and the 20% as the “vital few.”

Although the practice of Pareto analysis has come to focus in many cases just on the numbers of problems themselves, Juran’s emphasis was on the economic impact of the “vital few.” Thus simply counting problems and ranking them in order of numbers of occurrences might be misleading unless the economic value of each category is known. For example, if there are 100 occurrences of problem x and 50 occurrences of problem y, it could be that the initial focus should be on problem y if the cost per occurrence is such that the total value of the y problems is greater than the aggregate for x.

Brief Summary: The Pareto Principle states that only a "vital few" factors are responsible for producing most of the problems. This principle can be applied to quality improvement to the extent that a great majority of problems (80%) are produced by a few key causes (20%). If we correct these few key causes, we will have a greater probability of success.


See also

Related Elsmar Cove Forum Pareto Discussion Threads

Pareto Chart

Pareto Principle

Pareto Diagram


References

Wikipedia