PARETO PRINCIPLE
You must work on the vital few things that influence results while
ignoring the trivial many things that do not materially alter performance. You must know the vital few things to correct
to get big improvements for your operations.
This concept is true for reducing cost, improving quality, or solving
business problems. Build your list using $’s not #’s
of problems.
Solving problems requires a breakthrough in your thinking to get
improvements. You must separate the
vital few details from the trivial many items.
Vital problems are difficult to solve and produce good results. Trivial problems are fun to solve, never put
your reputation at stake, and produce few results.
Dr. Juran, the father of modern quality technology, describes a
universal method for solving problems.
His recipe comes from studies in economics by Vilfredo Pareto. Juran calls the method the Pareto principle.
J. M. Juran said:
Changing from old standards to new standards for improved results
requires a breakthrough recipe. The
steps are straightforward but not easy to accomplish:
1.
You must prove to people the need for a breakthrough. Set a favorable attitude for an improvement
program.
2.
Use the
Pareto principle. Sort the vital few opportunities from the trivial many problems.
3.
Secure
new knowledge about the problem for effective problem solving action. Guide work on projects and guide how the
studies are conducted.
4.
Analyze
or diagnose the vital few problems for corrective action.
5.
Deal
with cultural resistance. People oppose
changes required for making improvements.
6.
Set your
actions on a course for making effective improvements.
7.
Build
controls for holding new performance levels.
Follow-up on decisions. Get
results. Activity alone do not achieve
results. Convert activities into
accomplishments.
Vilfredo Pareto (1848-1923) said:
Pareto, an Italian economist, said uneven
distribution of world wealth fits a logarithmic law of income
distribution. A few important nations
have most of the wealth. Most nations
have little wealth.
Juran generalized Pareto’s ideas in 1940. He said the issue is: Separating the vital few problems from the trivial many problems.
Juran’s description of the
Pareto principle is the 80/20 rule where 10% to 20% of the items give 60% to
80% of the effect. Here are Pareto principle examples:
1.
Wealth—A
few % of the people on earth hold most of the wealth.
2.
Marketing—A
few key customers account for most of a Company’s sales.
3.
Purchasing—A
few % of all purchase orders account for most $’s spent.
4.
Personnel—A
few % of the employees account for most of the absenteeism.
5.
Costs—About
20% of the parts made in a factory cause almost 80% of the total factory costs.
6.
Population—A
few % of countries have most of the world’s population.
7.
Biological—One
biological specie (insects) accounts for the bulk of the world’s biological
mass.
8.
Planet
Mass—One single planet (Jupiter) contains the bulk of the solar system mass
around the sun.
9.
Inventory—a
few % of the total catalog items account for most of the inventory $’s in a
warehouse.
J. W. Anson said:
Fixing major problems on the Pareto list requires effort, time, and
perseverance. Solving vital problems
puts your reputation at stake on high profile tasks for big gains. Winners
work on the vital few problems.
Losers work on trivial problems
without getting big gains.
Working on trivial problems makes pretty exhibits without chances for
failure. Pareto distributions assign
eye-catching activities on trivial problems into last place.
Working on the vital few problems results in
major gains on the most important projects! This is an important competitive key for
any manufacturing operation.
Use the Pareto principle with these action steps:
·
Sort problems in descending order from the most important
to the least important—use $’s cost whenever possible.
·
Start work
on the top 10% to 20% of the things which produce the vitally important
improvements.
·
Ignore
60% to 80% of the things on the bottom of the lists—they’re the trivial
problems producing few gains.
·
Solve
the really big problems at the top of the $ list—then sort the list again to
revise the priorities.
·
Use
continuous improvement programs to chip away at the big ticket items for a
never ending stream of changes.
Fix the vital few problems for important gains.
Pareto
principles result in:
Ranking problems in the order of their importance (use money rather than
occurrences) for establishing work priorities.
Winners in an organization work on the vital few problems which change
the results for the business. Losers in
an organization work on the trivial few problems which produces no gains. Set-up your breakthrough plans and make
important changes for improvements in your area using Pareto principles.
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© Barringer & Associates, Inc. 1995
