Pareto Chart:: Continuous Process Improvement::80:20 Rule

The Pareto Chart and the 80:20 rule are useful tools to drive Continual or continuous process improvement. If you want your business to flourish and stay ahead of your competition then you need to stay ahead of them in all aspects of your business. A pareto chart is one tool that you could use to help you stay ahead of the competition. The pareto Chart will highlight the vital few areas for you to target to tackle the bulk of your problems.

The 80:20 rule can help you identify the 20% of the causes that create 80% of the effect allowing you to focus on those vital 20% for maximum benefit rather than wasting your resources tackling the other 80% of the causes for minimal benefit.

The Pareto chart and the 80:20 rule are powerful tools to help you focus your resources effectively for maximum benefit and are very simple tools to use.

Vilfredo Pareto discovered his “pareto principle” whilst studying the distribution of wealth for his works, he found that 80% of a countries land was owned by just 20% of it’s people. There is some argument as to the origin of his data however, it is often attributed as being based on Italian data as he was an Italian, however it is more likely that the data used was in fact from the UK. This principle was further expanded upon by the quality Guru Joseph Juran who applied the Pareto Principle across many industrial statistics.

By using a quality tool such as the pareto chart and the 80:20 Rule you can drive continuous process improvement.

Data can be of almost any numerical type, you could be looking at reject data from a production process, the number of line items supplied by suppliers, the value of stock items, just about any data that can be quantified. Some data that you wish to analyse may already be available within spreadsheets within your business such as the supplier data mentioned above, but other data such as reject data can be collected through the use of simple check sheets or statistical control charts.

The creation of your pareto chart is very simple, split your data into about 6-10 class intervals, class intervals being the catagories that you are looking at ie suppliers with less than 5 line items, 6-10 line items and so on through to 50+ or into the discrete problem areas for instance for reject data.

Put the actual data against each category and arrange the data in descending order, the top of your chart showing the highest figures. Beside the figures for each occurrence place the percentage of the total and beside that put the cumulative percentage total so that at the bottom of the table the cumulative figure will add to 100%.

You can now either plot your chart by hand as shown in the example or use software such as exel to draw your graph for you.

As already mentioned at the start of this article the pareto principle was based around the principle that 80% of the wealth (or land) was owned by 20% of the population. Vilfredo  Pareto noticed that this ratio was repeated in many other areas of economics and so he highlighted this 80:20 rule. This was later taken by Joseph Juran who applied this across business to help focus people’s attention to solve the 20% of causes that would eliminate the 80% of the problems.

The following are some typical examples of the 80 20 rule and why they are important.

80% of your rejects are caused by 20% of the causes, so tackling this 20% will eliminate the bulk of your problems.

80% of the value of your stock is made up by 20% of the quantity, so if you need to reduce your stock value to free up cash you identify the most efficient way to spend your time.

80% of your profit comes from 20% of your line items, so the remaining 80% are not as important if you have to prioritize your production or decide which to phase out.

20% of your suppliers supply 80% of your goods, so if you need to work on supplier development these are the ones to work with first.

80% of your sales come from 20% of your clients, so who do you focus on?

80% of time off work will come from 20% of your employees, so you know which to spend time with.

80% of your time on this website will be spent looking at only 20% of it’s content, maybe?

Only 20% of your time is spent doing 80% of your work, break your day down and check! You may surprise yourself and find out how inefficient most of us are in our working day. I have done this exercise with a number of people over the years and typically only 5% of their working day produces 80% of their output! We all have some room for improvement, including me!

Continuous process improvement does not just happen, it has to be planned and managed. Without a continual process of business improvement you will always be chasing your competitors and your problems until eventually they pull miles ahead of you. If your business is to flourish then there are a number of tools that you can utilize to help you drive continuous process improvement, Pareto's 80:20 rule is a great rule to help you identify the vital few areas of your business to focus on to gain the maximum benefit. Some of the other tools you could use are;

PDCA, Plan, Do, Check, Act, a technique to help you plan your improvement activities

Tally Charts, for data collection.

Histograms or Bar Charts, to graphically represent your data to make easy visual analysis.

Brainstorming and Mind Mapping, to generate ideas and organize them, a technique that can even be done online; Mind mapping online.

Fishbone Diagram or Ishikawa Diagram to show cause and effect in a simple manner

Process mapping, to highlight all of the wasteful steps in a process, also Value stream mapping to highlight the waste in the whole business.

Statistical Process Control (SPC) Charts, to measure and monitor the process output and parameters.

The 5 Whys, to help drive you to the true root cause of a problem.

The following links will help you with regard to understanding and implementing quality tools and continuous quality and process improvement;

Chartered Quality Institute (CQI) The Chartered Quality Institute

American Society for Quality (ASQ) American society for quality

Lloyds Register Quality Assurance (LRQA) Lloyds Register Quality Assurance

British Standards Institute British Standards Institute

American Standards Organization American Standards Organization

Quality Institute of America Quality Institute of America

Quality Institute in Healthcare Quality Institute for Healthcare

Institute for Manufacturing (IFM) Institute for Manufacturing

These links will help you with finding out about Pareto charts, the Pareto Principle, 80:20 rule and other quality tools for continuous process improvement.