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Focusing our efforts: The Pareto Principle

As experienced managers and professionals, we intuitively recognize the Pareto Principle (80 20 Rule) and the concepts of the vital few and useful many. We see these at play all the time in everyday business situations.

Shewhart, Juran and Deming (fathers of the actual quality assurance) found that errors, mistakes and defects were not evenly spread over a business; instead they tended to cluster in a few steps of the process. If the delivery of a product or service takes 100 steps, one often finds a Pareto pattern to the distribution of defects: 80 steps will be error free, 20 steps will cause 80% of all errors, 4 steps will cause 64% of all errors, and 1 step alone may cause over half of all errors.

Essentially, the Pareto Principle states that sources of a problem can be divided into two categories:

  1. The vital few: A small number of sources that account for most of the problem.

  2. The useful many: The large number of remaining sources that individually and collectively account for a relatively small part of the entire problem.

For example, on the revenue side of a business, this means that if you have 100 customers:

  • 80 will buy a single product

  • 20, on average might buy 4 products

  • 4 of the 20 will buy 16 products

  • 1 of the 4 will buy 80 products


The goal, of course, is to figure out the mental and geographical demographics of the top four customers and find a way to snag more of them. In these typical cases, the few (steps, services, items) accounts also for most of the negative impact on quality.


Thus, the first step when faced with a host of problems would be to gather data and facts to identify the vital few. The focus could then be put on attention and improvement efforts for those few things that would most greatly improve the quality.


When diagnosing the cause, it makes sense to look for the vital few and not to become distracted by the useful many. A Pareto diagram is helpful at this point. By ranking the impact of several factors on a given effect, it reveals the most significant sources of a quality problem. These sources should be investigated further.


Source:

"Learn Pareto's Law and Principle of Distribution", www.qimacros.com/pareto-chart-excel/pareto-principle/

"What is the Pareto Principle (80/20 Rule)?", www.juran.com/blog/a-guide-to-the-pareto-principle-80-20-rule-pareto-analysis/

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