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ThePareto Principal

. also

Known By

Many Other Names


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VilfredoPareto,

1848-1923

A GREAT Management Tool ..With Many Names!

The Pareto Principle

The Law of The Vital Few

and the Trivial Many

The Power Law

Participation InequalityThe 80 20 Rule

ABC Analysis Technique


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VilfredoPareto,

1848-1923

Introducing Alfred PARETO

In 1879, the famous Italian economist Alfred

Pareto, noticed that 80% of Italys wealth was

controlled by 20% of the population.

This concept is known as Paretos Law orParetos Rule or Pareto Principle or Principle

of imbalance or simply The 80/20 Rule.

Subsequently, people in various disciplines and

professions noticed that this same 80/20 applied,

in a broad way, to a wide range of phenomena. Dr.

Joseph Juran also recognized this concept as

universal that could be applied to many fields. He

coined the term vital few and useful many.


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IntroducingDr. Joseph M. Juran

Quality Management pioneer, Dr. Joseph Juran

recognized a universal principle he called the "vital few

and trivial many".

In an early work, a lack of precision on Juran's part made

it appear that he was applying Pareto's observations

about economics to a broader body of work.

The name Pareto's Principal stuck, probably because it

sounded better than Juran's Principle.As a result, Dr. Juran's observation of the "vital few and

trivial many", the principle that 20 percent of something

always are responsible for 80 percent of the results,

became known as Pareto's Principle or the 80/20 Rule.

Dr Joseph M. Juran


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The Pareto Principle aka

The 80 20 Rule


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VilfredoPareto,

1848-1923

The Pareto Principle aka

The 80 20 Rule

The

VITAL FEW


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VilfredoPareto,

1848-1923

ExamplesPareto Principle / 80 20 Rule

20% of the Code

Has 80% of the Defects.


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VilfredoPareto,

1848-1923

ExamplesPareto Principle / 80 20 Rule

20% of the Modules -

Consume 80% of the Resources.

20% of the Modules - Consume

80% of the Execution time.

20% of the repairs -

Consume 80% of repair costs.

20% of the enhancements -

Consume 80% of adaptivemaintenance costs.

20% of the tools -

Experience 80% of the tool

usage.


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VilfredoPareto,

1848-1923

Examples ofPareto Principle / 80 20 Rule

Input Output

Products

Effect

Cause

Efforts


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Pareto Principle Also Appliesto Inventory $ & Purchase $

Purchase $ Inventory $

80% $$$$$$$$$$$$

$$$$$$$$$$$$$$$$$$$$ 20%

$$

80%

20%


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Pareto Principle Also Appliesto Purchases & Suppliers

Suppliers Purchases


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Pareto PrincipleAlso Applies to People

In-Put Output


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VilfredoPareto,

1848-1923

Like Roads, Pareto ChartsCan Be

COMPLE

X

SIMPLE

OR


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VilfredoPareto,

1848-1923

What Makes The ChartsComplex?

Our initial Simple Charts will only involve

examination of the Production of Doors with

only:

6 Manufacturing Defects,Over a Period of 31 Days.

Now visualize the greater complexity of Charts

for;

An Inventory of 30,000 + Stock Keeping Units /Items

Over a Period of 365 days.

When we are comfortable with the Process the

Complex will become Simple


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VilfredoPareto,

1848-1923

SO

In this Session we will start with simple

Manual Bar Charts - to learn the

Process ..

Then

In the NEXT Session ABC Analysis we will

move on to more complex Charts using MS

Excel to apply the Process to large

amounts of (Real Life) Data


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VilfredoPareto,

1848-1923

Variables & Data

Variables and data can be:

Qualitative = the answerisNOTa number;or

Quantitative = the answerISa number.

REMEMBER- In Exercise 1Chart we will only be

examining ONE Quantitative VARIABLE

Frequency


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VilfredoPareto,

1848-1923

Back to BasicsThe Pareto

Frequency Diagram

The Pareto Frequency Diagram is a bar chart

which displays the causes of various defects, in

order, from:

The most frequent- to

The least frequent

so that you can focus attention on the Most

Frequentproblems (which may or may NOT be

the most important just the most Frequent!.


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VilfredoPareto,

1848-1923

Pareto Frequency Diagram

EXERCISE # 1

Wooden glass doors are produced on a six day

work week.

At final checkout before shipping, the doors areinspected and each is classified as conforming or

non-conforming and specific Defects are identified

for each non-conforming door.

The Next 2 Slides shows details ofNonconforming doors or Door Defects identified

by day and by type of Defect:


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VilfredoPareto,

1848-1923

Door Defects Defined

Day: Day Door is Mfg &

Inspected

Window: Window misalignedDiscolor: Discolor

Handle: Handle hole missing

Hinges: Hinges wrong

Rough: Rough wood

Glass: Broken glass

Warped: Warped


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VilfredoPareto,

1848-1923

DayDefects Detected Each Day

Window Discolor Handle Hinges Rough Glass Warped

1 1 3 2 7 1 4

2 2 2 3 3

3 2 1 4 4 1

4 2 3 3 1 1 1 1

5 1 26 2 2 4 1 1

8 1 1 1 3

9 1 2

10 2 3 2

11 5

12 1 1 4 4 1

13 1 4

15 2

16 2

17 2 2 1

18 1

19 6 3

20 3 2

22 2 1

23 324 1 2 1

25 2 2 3 2 1 2

26 1 2 3 4

27 2 3 2 1

29 1 2 3

30 2

31 5Total 6 24 28 60 24 12 14

DefectsDetectedPer Day!


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VilfredoPareto,

1848-1923

0

1

2

3

4

5

6

7

8

Window

Discolor

Handle

Hinges

Rough

Glass

Warped

CanYouSe

eAPattern?

NorcanI(yet)

!

Bar Chart of Defects by DayCan You Identify The Problem Area?


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VilfredoPareto,

1848-1923

Pareto Frequency Chart

EXERCISE # 1

Using the Data from the

Defects Detected By Day

Slide and the Blank Graph inyour Notes, make up a Pareto

Frequency Chart (a Bar

Chart Format) with the:

Highest Frequency /Tallest Bar on the Left, &

Lowest Frequency /Shortest Bar on the Right.


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Exercise # 1Mfg Fault Frequency Chart


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Exercise 2 =Create the Pareto Curve

for the Door Defects

#

Exercise 2 Steps =

1. Convert the Number of each fault to a % of total

Defects & calculate the Cumulative % of Defects.

2. Create a Bar Chart that Show the % of Individual

Defects (Tallest on the Left) AND

3. Include the Cumulative % of the Defects in the Chart

THEN

4. Draw a line that joins the tops of each of the

Cumulative % Bars (That Curved Line is the

Pareto Curve

%


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Exercise 2 = Convert Chart 1 to %of Problems + Add a Pareto Curve

to the New Chart


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Complete Exercise #

2Pareto FrequencyChart with Pareto

Curvefor Manufacturing

Defects

Your Chart Should Look

Like This


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VilfredoPareto,

1848-1923

QUESTION?

Are the Hinges the MOST

IMPORTANTProblem to besolved??

YES? or NO?

NO!It is the Most Frequentproblem

- but we can not be sure if it the

most important until we take into

account Other Variables


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VilfredoPareto,

1848-1923

Another VariableTo Consider!

We know the Most Frequent

Fault but to get a firm base for

a Decision we need to

consider another key

Variable .

The Cost to fix each Fault!


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VilfredoPareto,

1848-1923

EXERCISE # 3Pareto Fault Costs Chart

We will now use the same

technique with the Cost Data from the Next Slide to

create a Pareto Fault Cost

Chart.

Then we will know therelative Cost of each Fault!

= 1 step closer to a Decision

Chart


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Exercise 3Pareto Cost Chart

A Pareto Diagram can display the costs of various defects, in

order, so you can focus attention on the most importantproblems.

ASSUMEthe following costs for each of type of defect.


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VilfredoPareto,

1848-1923

EXERCISE # 3Pareto Fault Cost Chart

Using the Data from the previous

Slide and the Blank Exercise 2Graph in your Notes, make up a

Pareto COST Chart (a Bar Chart

Format) with the:

Highest COST / Tallest Bar onthe Left, &

Lowest COST / Shortest Baron the Right.


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VilfredoPareto,

1848-1923

QUESTION?

We now know Hinges are

the MOST FREQUENT fault !

AND

We also know that Hinges are

the MOST EXPENSIVE fault

SO

You tell me Which is the MOST

IMPORTANT fault to fix FIRST!


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VilfredoPareto,

1848-1923

What Else Do We Need To Do ToMake a Valid Decision?


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VilfredoPareto,

1848-1923

EXERCISE # 4Pareto Decision Chart

The MOST IMPORTANT Fault to be corrected can

not be identified from the date we have so far;

Now we will make up a Pareto Decision Chart

that we clearly identify the most important faultthat must be corrected immediately.

Use the same process to construct your Chart

and the data for inclusion in your Chart is:

Frequency of each Fault

Multiplied By

The Cost of each Fault. &

Converted to % of Total Costs


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Exercise 4 - Pareto Chart

Cumulative Cost of Faults

Steps Taken:

1. # of Faults x $Cost of a Fault

= Total Costs

2. Sort into

Sequence

Highest Total

Cost to Lowest

Total Cost


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Exercise # 4 Create a

Pareto Decision Chartthat Shows You ToIdentify the most

Important 80% of theCost of Defects to be

Attacked!

Your Chart Should LookLike This


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VilfredoPareto,

1848-1923

Pareto Charts

Pareto Charts Defined

Pareto charts are used to identify andprioritize problems to be solved.

They are actually histograms aided by the80/20 rule adapted by Joseph Juran.

Remember the 80/20 rule states thatAPPROXIMATELY80% of the problems

are created byAPPROXIMATELY20% of

the causes.


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VilfredoPareto,

1848-1923

Have YOU Become

An 80/20 Individual?

An 80/20 Individual is a person who has learned

that in order to have success, they don't need to

be increasing their effort by 110%. Most people

who do this are simply doing the wrong things

more often.

Instead, an 80/20 individual looks at the 20% that

is responsible for 80% of their results and then

they focus on improving this 20%!

Is it really that simple? . Yes!

Once you are taught how and what tools to use

to improve your results, the only question left

is ..... Will YOUtake action?


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VilfredoPareto,

1848-1923

Any Questions?

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