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The Powerful Pareto Principle

Written by Nathanial Marshall, Senior Consultant at LI Europe.

Imagine that you’ve just stepped into a new role. Unsurprisingly, you’ve inherited a whole host of problems that need your attention, but how do you decide which problems you need to deal with first…?

LI Europe recommends using the Pareto Principle to target your top losses.

The Pareto Principle, or ’80-20 Rule’ is one of the simplest and most powerful management tools available. It is a simple technique that is extremely helpful in bringing quick and easy clarity to complex situations and problems, especially when deciding where to focus effort and resources.

The Pareto Principle (at a simple level) suggests that where two related data sets or groups exist (typically cause and effect, or input and output), they often show certain behaviour. For example:

  • “80% of the downtime come from 20 percent of problems”
  • “80% of a company’s profits come from 20% of its customers”

So how would you apply the Pareto Principle in your area?

 

There are 7 key steps to analysing a problem using the Pareto Principle:

  1. Identify the area/subject/problem you want to breakdown and prioritise
  2. Create a set of criteria you want to measure this against
  3. Collect data
  4. Analyse the data for each set of criteria
  5. Create a bar chart for each set of criteria
  6. Look for the Pareto effect
  7. Resolve the issue using Problem Solving Tools.

 

Example – Downtime Reduction:

Pareto

This demonstrates a perfect Pareto effect that 80% of downtime (800 of 1000 mins) is caused by 4 reason codes (4/20 reason codes=20%). By prioritising and reducing downtime in these areas, you will make the biggest difference.

 

 

 

 

If you’d like help deciding where to focus Continuous Improvement effort and resources to target your top losses – then please get in touch.

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