Framework library · Decision making and problem solving

Pareto analysis

Pareto analysis counts or costs each cause of a problem, ranks the causes from largest to smallest and plots their cumulative share. In most data a few causes account for most of the effect, so the chart shows where effort pays. The 80/20 split is a tendency, not a law. The analysis is worth doing because the real shares are often different from what the team assumed.

LevelFoundational
TimeAn hour once the data is extracted
Who to involveAn analyst with the incident or cost data, and the operations leads who will act on the top causes.
Also called80/20 rule, Pareto principle, Pareto chart, vital few and trivial many, ABC analysis

Use it when

  • You have counts or costs by cause, such as faults, complaints, outages or service credits, and need to decide where to act first.
  • Effort is spread across many small fixes and you suspect a few causes drive most of the cost.
  • You need to show a board or a team why one cause gets the budget and others do not.

Avoid it when

  • You do not yet know the causes. Draw a fishbone diagram first, then count.
  • The causes interact, so fixing one changes the others. Pareto treats causes as independent.
  • The categories are vague or mostly "other". Fix the coding before ranking, or the chart ranks the coding scheme.

How to run it

  1. Choose the effect to measure

    A count, hours or money, whichever the business feels. Outage hours rank causes differently from outage counts.

  2. Code every event to one cause

    Six to ten categories, each specific enough to act on. Keep "other" below a tenth of the total.

  3. Rank and plot

    Largest first, with the cumulative share. The chart marks the 80% line and highlights the causes that fall within it.

  4. Find the few causes that matter most

    The causes that take the cumulative share to roughly 80%. Check that each can be fixed; a large cause nobody can change is context, not a target.

  5. Fix, then run it again

    After acting on the top cause, repeat the analysis on new data. The ranking should change; if it does not, the fix did not work.

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Mistakes to avoid

  • Ranking by count when cost or duration is what matters. A rare cause with long outages can matter more than a frequent short one.
  • Expecting exactly 80/20 and forcing the cut there. Use the actual curve.
  • Using a month of data. Small samples rank causes by chance; use a period long enough to be stable.
  • Ignoring the long tail entirely. Small causes that are cheap to fix can be worth doing alongside the big ones.

Where it comes from

In the first edition of his Quality Control Handbook (1951), Joseph M. Juran named the principle of the vital few and the trivial many after the economist Vilfredo Pareto, who had observed that a small share of people held most of the wealth. Juran later wrote that Pareto had never claimed the principle applied generally ("The Non-Pareto Principle; Mea Culpa", 1975), and came to prefer "the vital few and the useful many". Source.

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