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Pareto Analysis

CMS Vocational Training Hadyn Luke posted this on Friday 12th of November 2021 Hadyn Luke 12/11/2021

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Pareto Analysis

If you ever feel overwhelmed by having too much to do at work – or in your everyday life – why not take a look at Pareto Analysis.

Pareto Analysis is a way of working out which actions to take in order to be more effective in any given situation. In other words: how to work smarter not harder.

It’s based on the concept of the Pareto Principle, which states that 20% of what we do brings 80% of the rewards.

How did the Pareto Principle come about?

The Pareto Principle is named after Vilfredo Pareto, an Italian economist, who in 1906 reported that 20% of Italy’s population received 80% of the country’s income. In the 1940s, this was developed into a larger principle by Joseph M Juran, a management consultant in the US, who surveyed a range of countries and found the same issue.

Using this concept of this 80/20 rule, Juran put forward the idea that if 80% of what we do only brings 20% of the rewards and 20% of our activities brings 80% of the rewards, we should work out which 20% is most effective and focus most of our energy on that.

Another term for this concept is: the vital few and the trivial many.

Where can Pareto Analysis be applied?

This statistical approach to the decision-making process can potentially be used across both your work and your personal life.

For example, if 80% of customer complaints are caused by 20% of issues, it makes sense to spend more time resolving these particular issues than on the other 80% of problems that cause 20% of complaints.

Equally, if 80% of your profits come from 20% of your products or services, these are clearly the ones to focus on.

In quality control, it’s a good idea to fix the 20% of problems that cause the 80% of faults before you address the remaining issues.

In your personal life, if 80% of your enjoyment and relaxation comes from 20% of your downtime activities, why not spend more time on these?

How to apply Pareto Analysis at work

The key to applying Pareto Analysis at work lies in identifying the 20% of your activities that you should be focusing on.

This can be done by combining a bar graph with a cumulative line graph. Let’s see how this works for calculating the 20% of your sales that bring the most profit.

First create a chart, with a vertical Y axis and a horizontal X axis. List your different products along the X axis and the profit they generate on the Y axis. The ones that generate the most profit should be put first and the others in descending order.

Then draw a second vertical Y axis at the end of the chart with 0% at the bottom and 100% at the top. Plot a course across your products from 20% on the left to 80% on the right.

All the items that fall in the top section above this line are the ones to focus on as a priority.

A simpler way of approaching Pareto Analysis is to write a list of the 10 things you spend most time on and choose the two (20%) that bring the best results. Resolve to spend more time on these than the other eight (80%) on the list.

How to apply Pareto Analysis in your home life

If you never seem to have time to do the things you enjoy most in your down time, try applying Pareto Analysis.

For example, you could list everything you do over a weekend and work out which 20% brings you the most pleasure.

If you have a list of jobs to do around the house, Pareto Analysis will help you work out which 20% of these are the most important to you. The other 80% can be delayed or discarded.

What about the other 80%?

While the 20% should be your priority, this doesn’t necessarily mean completely neglecting the remaining 80%. These might include vital activities for your business or your life.

However, according to the Pareto Principle, you should definitely spend less time on them, or perhaps look at outsourcing them. For example, could you send shorter replies to emails or redirect the query elsewhere?

Bear in mind that the split does not necessarily need to be exactly 80/20 – you may find in some situations that it is 75/25 or even 90/10. However, the principle remains the same – focus on the key issues that will bring you the best outcomes.

Conclusion

Pareto Analysis can help you to prioritise the most important activities to carry out in your work life in order to be more effective, from addressing customer complaints to trouble-shooting machinery faults to establishing your most profitable products and services. It can also improve your personal life, allowing you to focus on what you find most rewarding.

Rather than trying to do everything perfectly, the Pareto Principle recommends focusing your energy on the key 20% of your activities that will bring the best results.

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