Pareto analysis is a way of looking at the frequency of an issue caused by a known factor. Production or service process management most commonly use Pareto analysis.
Pareto analysis is based on the 80/20 concept theory developed by Vilfredo Pareto and popularized by Joseph Juran. The underlying premise is that 80 percent of observations come from 20 percent of the sample.
Pareto discovered this concept while looking at Italian distribution of income, but others have since applied this concept to a variety of subjects. Today, it is most commonly used to diagnose problems concerning production or customer satisfaction in service processes.
The first step in a Pareto analysis is determining what factors cause the issue; for example, if one in 10 blouses have a run in the sleeve, the analysis determines if this is due to catching on a machine, a flaw in the material or an operator’s watch. Factors are determined through brainstorming or the use of other various qualitative methods, such as surveys.
A time period for the analysis is then established. It is important to note that a Pareto analysis is by its nature time dependent. As such, the analysis can only be repeated with the same results when the exact same conditions occur.
One of the most commonly recognized aspects of the Pareto analysis is the diagram that accompanies it. The Pareto analysis requires summarizing and graphing the causes and frequency. The graph is then analyzed with respect to the 80/20 concept to determine the frequency of causes.