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gari jenkins


Pareto Analysis : selecting the most important changes to make.  It is a very simple technique that helps you to choose the most effective changes to make.

It uses the Pareto principle - the idea that by doing 20% of work you can generate 80% of the advantage of doing the entire job. Pareto analysis is a formal technique for finding the changes that will give the biggest benefits. It is useful where many possible courses of action are competing for your attention.

How to use tool:
To start using the tool, write out a list of the changes you could make. If you have a long list, group it into related changes.

Then score the items or groups. The scoring method you use depends on the sort of problem you are trying to solve. For example, if you are trying to improve profitability, you would score options on the basis of the profit each group might generate. If you are trying to improve customer satisfaction, you might score on the basis of the number of complaints eliminated by each change.

The first change to tackle is the one that has the highest score. This one will give you the biggest benefit if you solve it. The options with the lowest scores will probably not even be worth bothering with - solving these problems may cost you more than the solutions are worth.


Top 10 Business Uses of the 80/20 Principle

Strategy: Unless you have used the 80/20 Principle to look carefully at the different chunks of your business and to redirect your strategy, it is almost inevitable that you are doing too many things for too many people. "The principle is also of enormous value in identifying the next leaps forward for your business".

Quality: A small percentage of quality characteristics contributes a highest percentage of the quality loss. If you remedy the most critical 20% of your quality gaps, you will realize 80% of benefits. 80% of customer complaints can be eliminated by correcting only 20% of the causes.

Cost Reduction: "All effective techniques to reduce cost use three 80/20 insights: simplification, through elimination of unprofitable activity; focus, on a few key drivers of improvement; and comparison of performance". Cost reduction is an expensive business - concentrate 80% of your effort at the areas (20% of the whole business) that have the greatest cost-reduction potential.

Marketing: Marketing should focus on providing a stunning service in 20% of the existing products/services that generate 80% of fully costed profits. It should devote extraordinary endeavor towards retaining 20% of customers who provide 80% of the firm's profits.

Selling: "The key to superior sales performance is to stop thinking averages and start thinking 80/20". Hang on to the high-performing salespersons, get everyone to adopt the methods that have the highest input-output ratio. Focus every salesperson's effort on the 20% of products that generate 80% of sales, and on the 20% or customers who generate 80% of sales and 80% of profits.

Information Technology: The return on investment usually follows the 80/20 rule: 80% of the benefits will be found in the simplest 20% of the system. Most software spends 80% of its time executing only 20% of the available instructions.

Decision Taking & Analysis: Gather 80% of the data and perform 80% of the relevant analyses in the first 20% of time available.

Inventory Management: Around 80% of stock only accounts for 20% of volume or revenues.

Project Management: 80% of the value of any project will come from 20% of its activities

Negotiation: 20% or fewer of the points at issue will comprise over 80% of the value of the disputed territory; 80% of the concessions will occur in the last 20% of time available.

A manager has taken over a failing service centre He commissions research to find out why customers think that service is poor. He gets the following comments back from the customers:

  1. Phones are only answered after many rings.

  2. Staff seem distracted and under pressure.

  3. Engineers do not appear to be well organized. They need second visits to bring extra parts. This means that customers have to take more holiday to be there a second time.

  4. They do not know what time they will arrive. This means that customers may have to be in all day for an engineer to visit.

  5. Staff do not always seem to know what they are doing.

  6. Sometimes when staff arrive, the customer finds that the problem could have been solved over the phone.

The manager groups these problems together. He then scores each group by the number of complaints, and orders the list:

  • Lack of staff training: items 5 and 6: 51 complaints

  • Too few staff: items 1, 2 and 4: 21 complaints

  • Poor organization and preparation: item 3: 2 complaints

By doing the Pareto analysis above, the manager can see that the vast majority of problems (69%) can be solved by improving staff skills. Once this is done, it may be worth looking at increasing the number of staff. Alternatively, as staff become better and start to solve problems over the phone, maybe the need for new staff may decline.

It looks as if comments on poor organization and preparation may be rare, and could be caused by problems beyond the manager's control. By carrying out a Pareto Analysis, the manager is able to focus on training as an issue, rather than spreading effort over training, taking on new staff, and possibly installing a new computer system.

Key points:
Pareto Analysis is a simple technique that helps you to identify the most important problem to solve.

To use it:

  • List the problems you face, or the options you have available

  • Group options where they are facets of the same larger problem

  • Apply an appropriate score to each group

  • Work on the group with the highest score

Pareto analysis not only shows you the most important problem to solve, it also gives you a score showing how severe the problem is.


@ Complexity

@ Decision Making

@ Creativity

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