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This article explains the theory of Pareto Analysis by Vilfredo Pareto in a practical way. After reading you will understand the basics of this powerful problem solving tool. In addition to being a static technique, the Pareto Analysis is a creative and practical way of looking at the causes of problems. It stimulates ideas about thinking and organizing.

As soon as the main causes have been identified, the diagnostic techniques such as the Ishikawa diagram or fishbone analysis can be used to identify and address the deeper causes of the problems. In order to apply the Pareto analysis in practice some basic steps have been defined which can be followed to arrive at a thorough analysis. Based on observations, interviews and reports, data can be collected from which problems can be deduced.

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Subsequently, these problems are documented in a table and grouped if possible. Organize the inventoried problems in ranking order from the most important down to the least important in descending order. Make sure that the most important cause is documented first. Now that the problems have been identified, deduced and been put in order of importance, it is essential to link these to a mark or score. The way in which a score must be calculated depends on the type of problem that needs to be solved.

Pareto Analysis in practice

For example a financial approach improvement of profits will focus on how the score relates to what costs are involved with solving these problems. Is the focus on customer-orientation improving customer satisfaction , then the focus is on the number of complaints that need to be solved.

An example is a computation of the percentages of problem costs, in other words, the number of times a department is faced with this problem or the opportunities of how a department can increase sales. The identified problems are grouped based on their causes. If, for example, there are five problems that lead to dysfunctional employees then put them together in one group. Now that all problems have been grouped, the marks or scores are added.

How to create a Pareto Analysis Chart in Excel - 80/20 Rule or Pareto Principle

The group with the highest score must be given the highest priority in order so that they can be dealt with. This is where the most results can be obtained in terms of optimization. The data can be converted into a graph called a Pareto Analysis Diagram.


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Using the information from step 4, an action plan can be drawn up in which performance improvement actions can be formulated. Uh-oh, it looks like your Internet Explorer is out of date.

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Quantitative Pareto Analysis by Cone Separation Technique

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