Pareto Analysis

Quick Tips for Team Leaders

SERIES ARTICLE

By Jeff Oltmann

Oregon, USA

Pareto analysis is used to help decide which of many causes to focus on in order to change a situation most effectively.  It takes advantage of the Pareto Principle, which says that most problems have only a few primary root causes.  Fixing those root causes will fix most of the resulting problems.

When to Use

Use this technique when you don’t have enough time or resources to fix everything and want to focus on the things that will have the biggest effect on a situation.

It is often used together with cause-and-effect analysis.  Cause-and-effect analysis is used to figure out the root causes of a situation, then Pareto analysis is used to decide which of those causes to focus attention on.  A Pareto chart plots the frequency of occurrence of causes in descending order.

Procedure

1. Decide what causes you will analyze or what categories you will use to group items.  For example, if you are working on improving customer service, you might use categories like “excessive wait time” or “unable to fix customer’s issue.”
2. Decide how to measure the categories. Common measurements are number of occurrences, frequency, cost, and time spent.  For the customer service example, you could measure number of occurrences (how often the representative was unable to fix the issue) or frequency (what percentage of the interactions resulted in no fix).
3. Decide what period of time you will analyze.  It should be long enough to capture a valid picture of what is happening, but not so long that it will be unfeasible to gather data.
4. Collect data for each category or gather data that already exists.  Subtotal into each category.
5. Plot the categories on a column chart in decreasing order.  If there are many categories with small measurements, they can be grouped as “other.”
6. Optionally, also plot a line that shows the cumulative contribution of causes (see example below).  This line should reach 100% at the rightmost category.
7. Based on this information, decide which categories you will focus on to get the most return for your improvement effort.

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Editor’s note: This series of “Quick Tips” articles is by Jeff Oltmann, experienced program and technology executive and principal of Synergy Professional Services, LLC in Oregon, USA. The Quick Tips offer simple approaches and models for problem analysis, gathering ideas and input from team members, facilitation and taking action. The tips offered in this series were identified or developed over two decades of helping program, project and team leaders get things done in faster, more agile ways. Learn more about Jeff Oltmann in his author profile at the end of this article.

How to cite this work: Oltmann, J. (2022). Pareto Analysis, Quick Tips for Team Leaders, series article, PM World Journal, Vol. XI, Issue XII, December. Available online at https://pmworldlibrary.net/wp-content/uploads/2022/12/pmwj124-Dec2022-Oltmann-pareto-analysis-quicktips-article.pdf

About the Author

Jeff Oltmann

Oregon, USA

Jeff Oltmann is a seasoned leader with over 30 years of experience advising clients, managing successful technology programs, and developing new products. His specialties include strategy deployment, operational and project excellence, and project portfolio management. As principal consultant at Synergy Professional Services, Jeff advises leaders and teams in diverse sectors including healthcare, research, bioscience, and technology product development.

Jeff is the founder of the Portfolio and Project Leaders Forum.  He is also on the graduate faculty of the Division of Management at Oregon Health and Science University and was previously on executive staff at IBM.    He teaches portfolio, program, and project management and is a certified Project Management Professional (PMP®).

Jeff welcomes your questions and ideas.  You can contact him at jeff@spspro.com or read previous articles at www.spspro.com/article-library.