Pareto Analysis

There are plenty of skills that you need to possess as a business professional, but perhaps none are quite as important as time management. The ability to manage your time properly is one of those things that is non-negotiable in the professional world – if you fail on this point, you will be a failure overall. That might be harsh, but it is the truth.

Pareto Analysis

If you aren’t managing your time effectively, someone else will – and that person is almost certainly going to beat you in the market. Learning how to get the most return on the time you invest in your work is a skill that should never be taken for granted.

When talking about time management, you are really talking about managing your priorities successfully. During any given day, you will have a number of things that you could be doing – likely, more things than you could possibly get done in your eight or more hours at the office. Therefore, you have to prioritize on an ongoing basis. If you are good at prioritizing your work, you will first complete the tasks that have the biggest influence on your business. This is exactly the concept behind Pareto Analysis.

Pareto Analysis is based on the famous Pareto Principle, which states that 20% of the work you do will generate 80% of the results you are looking for. In other words, there is not a direct 1:1 relationship between the work you do and the results you get. If you pick out the right work to do, you can achieve most of your desired results without doing anywhere close to all of the work.

The 80/20 Rule

Obviously the 20% – 80% relationship is not an exact measurement, but it does highlight the lopsided nature of the connection between work and results.

If you would like to use Pareto Analysis to make sure you are getting the most from your time in the office, consider using the following steps before getting down to work for the day.

Step One – Find Your Problems

Unfortunately, you usually don’t have to look very far to find problems in business. The act of managing a business is basically about solving one problem after the next, day after day and year after year. So, you shouldn’t have to think very hard in order to come up with a list of problems that you would like to solve. However, you want to do your best to make this list as exhaustive as possible, so take your time and talk to others if necessary until you are satisfied that you have included all of the significant problems in front of you and your organization.

Using Pareto Analysis in the Decision Making Process

Step Two – Match Up Root Causes

With your list of problems in front of you, work through the list one by one while giving each problem an assigned ‘root cause’. This root cause should be the main issue that is leading to the existence of the problem. For example, if your production line is consistently running behind schedule, the root cause of the problem could be suppliers who are delivering materials late. Whatever the case may be, you need to be sure that every problem on the list is assigned to an accurate root cause.

Step Three – Give Each Problem a Score

This step is the most-subjective in the process, but it is still very important to the overall success of the analysis. Go through your list of problems and give each one a score based on its importance. For this, you will want to have a scale established when you get started, such as 1-5 or 1-10. Think carefully about each problem and decide how helpful it would be to have that problem fixed. With just a bit of critical thinking, it will probably be pretty easy to give all of your problems a rational score.

Step Four – Create Groups

This is where the exercise really starts to pay off. Once you have done a good job of giving all of your problems a specific score, you will then place them into groups which all have the same root cause. Look down your list and find problems that you feel will be fixed by the same solution. For instance, to continue the example from above, you may notice that more than one problem is being caused by the late deliveries from your suppliers. If that root cause is present next to more than one problem, it will become a group.

Group Problems Together

Continue with this process until you manage to get all of the problems into a group (some will inevitably be in a group by themselves).

Step Five – Do the Math

To complete the analysis, all you need to do is simply add up the scores and see where you stand. Which group has the highest score? That is the group that you should be addressing first. By solving the root problem that is associated with the group that has scored the highest, you should be able to fix the largest number of your problems in the shortest possible amount of time. This is exactly the kind of thing you should be doing if you wish to be as efficient with your time as possible. Once you have taken care of the top-scoring group, you can continue to move down the list. Hopefully, you will find that a majority of your problems have been solved relatively quickly through a modest amount of work.

Using the Pareto Principle, and Pareto Analysis, in your day to day work is a great way to be as productive and efficient as possible. Many people are willing to put in long hours at the office in order to get ahead, but many of those hours are wasted when they don’t work on the right things. Don’t let that happen to you. Instead of just working to work, take some time to prioritize your work and get a great return on the hours you log.

You can read more about Pareto Analysis in our free eBook ‘Six Key Decision Making Techniques’. Download it now for your PC, Mac, laptop, tablet, Kindle, eBook reader or Smartphone.

Key Points

  • Pareto Analysis is based on the famous Pareto Principle, which states that 20% of the work you do will generate 80% of the results you are looking for.
  • It is a useful technique for prioritizing problem-solving work, so that the first piece of work you tackle simultaneously resolves the greatest number of problems.
  • Step One: Identify the Problems: Make a a list of problems that you would like to solve.
  • Step Two: Match Up Root Causes: give each problem an assigned ‘root cause’, this is the main issue that is leading to the existence of the problem.
  • Step Three: Give Each Problem a Score: Go through your list of problems and give each one a score based on its importance.
  • Step Four: Create Groups Place them into groups which all have the same root cause. Look down your list and find problems that you feel will be fixed by the same solution.
  • Step Five: Complete the Analysis: Add up the scores and see where you stand. Which group has the highest score? That is the group that you should be addressing first.
  • Whilst Pareto Analysis appears to be totally objective, you need to be aware of its limitations.
  • It takes no account of the relative difficulty of tackling each underlying cause.
  • It can be difficult to quantify each problem using an objective score.
  • It only looks at historical data.

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