A Pareto analysis is an observation of causes of problems that occur in either an organisation or daily life, which is then displayed in a histogram. A histogram is a chart that prioritises the causes of problems from the greatest to the least severe. The Pareto analysis is based on the Pareto Principle, also known as the 80/20 rule, which states that 20 per cent of effort yields 80 per cent of results. For example, if an individual sells items on eBay, he should focus on 20 per cent of the items that yield 80 per cent of sales. According to Mindtools.com, a Pareto analysis enables individuals to make effective changes.
A Pareto analysis requires that individuals list changes that are needed or organizational problems. Once the changes or problems are listed, they are ranked in order from the biggest to the least severe. The problems ranked highest in severity should become the main focus for problem resolution or improvement. Focusing on problems, causes and problem resolution contributes to organizational efficiency. Companies operate efficiently when employees identify the root causes of problems and spend time resolving the biggest problems to yield the greatest organizational benefit.
Enhanced Problem-Solving Skills
You can improve your problem-solving skills when you conduct a Pareto analysis, because it enables you to organise work-related problems into cohesive facts. Once you've clearly outlined these facts, you can begin the planning necessary to solve the problems. Members of a group can conduct a Pareto analysis together. Arriving at a group consensus about the issues that require change fosters organizational learning and increases group cohesiveness.
Improved Decision Making
Individuals who conduct a Pareto analysis can measure and compare the impact of changes that take place in an organisation. With a focus on resolving problems, the procedures and processes required to make the changes should be documented during a Pareto analysis. This documentation will enable better preparation and improvements in decision making for future changes.
- The 80/20 Principle: The Secret of Achieving More With Less "; Richard Koch; 2000