The Pareto principle

In this article, we will see what the Pareto principle is and how you can apply it in problem-solving. if you read this article to the end, you should be able to create your own Pareto graph.

What is the Pareto principle

The Pareto principle is also known as the 80/20 rule or the law of the vital few. The Pareto principle states that for many outcomes, roughly 80% of consequences come from 20% of causes. If we apply this to problem-solving, it means that 80% of the problems are caused by 20% of issues. This is of course good news for when we want to solve a problem! Using the Pareto principle we can prioritize and identify the causes we should first start working on. In other words, the causes which will give us the biggest impact.

let’s look at some examples to illustrate the Pareto principle:

80% of the traffic accidents are caused by 20% of the drivers. Other examples are:

• 80% of software crashes are caused by 20% of the bugs
• 80% of complaints are coming from 20% of customers
• 80% of the profit is made by 20% of the product types
• 80% of project value is created by the first 20% of the effort
• 80% of the machine failures are caused by 20% of the fault types

Please be aware that the 80% and 20% are not set in stone. The real values for your particular case could be different.

An example of the 80/20 rule

Every time I give a lean six sigma white belt course I asked the question: why do you follow this course? In the table below, you can see the response of the trainees. The reasons have been categorized into 9 categories:

259 participants out of the total of 476 participants which were asked the question, answered: “I want to improve a business process“. 259 out of 476 participants represent 54% of all the participants.

116 participants out of the total of 476 participants which were asked the question, answered: “I want to get a better salary and/or make a promotion. 116 out of 476 participants represent 24% of all the participants

These two answers represent 78.78% of all answers given by the trainees. And, these two answers also represent 2 out of 9 or 22.22%  of the different types of reasons.

So! in this case, we can say that 78.78% of the trainees follow the training because of 22.22% of the different types of reasons why people are following the training.

The Pareto graph

The Pareto analysis we just did can also be visualized in a Pareto graph. The horizontal bar represents the different reasons.  The number of trainees per reason is visualized on the left vertical axis. This can be an absolute count or a relative percentage.  In our case, we have put an absolute count of the numbers of trainees on the axis. This corresponds with the “numbers of trainees” from the table. The reasons have to be arranged in descending order from left to right. this means, The most important reason, thus! the reason which occurred most frequently is placed on the left side. In our case, this is reason 1. “I want to improve business processes”. This answer was given by 259 trainees. The second most frequently answered reason is “I want to get a better salary and/or make a promotion”. This answer was given by 116 trainees. It is therefore the second bar we draw on the graph. Now! If we look at the table we see that reason 9 “I want to be able to talk to my colleagues about lean six sigma” has 31 times gives. This is the third most given reason. Therefore we have to place it as the third bar on the graph. We continue until we have placed all reasons on the graph. You can see that the least important reason can be found completely on the right side. Note that in our case this is reason 8! “I want to reduce the risk of quality problems.” This reason is only given by 4 trainees.

In the table, you can see that we also added a column with the percentage each reason represents. Based on these percentages, we will add a cumulative percentage line on the graph. for this, we create a percentage axis on the right side of the graph.

Our first point is at 54%. The second point is at 78%, which is the percentage of the two most common reasons combined. In our case 54% and 24%.  The third point is at 85%, which is the percentage of the three most common reasons combined. In our case reason 1, 2, and 9. They represent 54%, 24%, and 7%. We keep continue doing this until we reach 100%.

Finally! a line is drawn from the right axis which shows the cumulative percentage. This line starts at the 80% marker and is drawn parallel to the horizontal axis. Where the line intersects with the cumulative line, a line is drawn parallel with the vertical axis. The causes which are left from the line are the vital few on which we should focus first. As we have discussed before, these are:

“I want to improve business processes”

And!

“I want to get a better salary and/or make promotion”

So! With this explanation, you should be able to create a Pareto graph on your own!