Operations Management: Anika Mary Varkey PGDM 2015 - 2017 ROLL NO.:18

OPERATIONS MANAGEMENT
PARETO ANALYSIS
ANIKA MARY VARKEY

PGDM 2015 - 2017
ROLL NO.:18
CONTENTS
S.
No.
Topic
Slide
No.
1.
Introduction
2.
Pareto principle
4-5
3.
History
4.
Objectives
5.
Application
8-9
6.
Benefits
10
7.
4 Steps
11
8.
Example
12-15
9.
Conclusion
16
2
INTRODUCTION
Pareto Analysis is a statistical technique in decision-making used for

the selection of a limited number of tasks that produce significant
overall effect.
It uses the Pareto Principle (also known as the 80/20 rule) the idea that
by doing 20% of the work you can generate 80% of the benefit of doing
the entire job.
PARETO PRINCIPLE
Doing 20% of work generates advantage of 80% of entire job.
In terms of quality improvement, a large majority of problems (80%) are
produced by a few key causes (20%). This is also known as the vital few
and the trivial many.
The exact values of 20 and 80 are not significant; they could actually be
10 percent and 60 percent. What is important is that there is a
considerable disproportion. The values of 20 and 80 just have a simple
symmetry.
PARETO PRINCIPLE
This principle of concentration, inequality, or inverse proportion can be
seen from the following diagram:
HISTORY
e Pareto Principle was propounded by Vilfredo Pareto
48-1923) a 19th-century Italian economist who conducted
udy in Europe in the early 1900s on wealth and poverty.
observed in 1906 that 20 percent of the people of Italy
ed 80 percent of the wealth.
bsequently, people in various disciplines and professions noticed

this same 80/20 applied, in a broad way, to a wide range of
nomena. Dr. Joseph Juran also recognized this concept as universal

could be applied to many fields.
coined the term vital few and useful many

6
OBJECTIVES
A Pareto chart has the following objectives:
Separate the few major problems from the many possible problems so
you can
focus your improvement efforts.
Arrange data according to priority or importance.
Determine which problems are most important using data, not
perceptions.
7
APPLICATIONS
The 80/20 rule can be applied to almost anything:
80% of customer complaints arise from 20% of your products and
services.
80% of delays in the schedule result from 20% of the possible causes of
the delays.
20% of your products and services account for 80% of your profit.
20% of your sales-force produces 80% of your company revenues.
20% of a systems defects cause 80% of its problems.
THE PARETTO PRINCIPLE IN WORK-LIFE
Problem solving
To do list of the day
Passion
Relationship
Cut the clutter
BENEFITS
Pareto diagrams:
Solves efficiently a problem by the identification and the

hierarchisation,
according to their importance, of the main causes of the faults.

Sets the priorities for many practical applications. Some examples
are: process improvement efforts for increased unit readiness,
customer needs, suppliers, investment opportunities.
Shows where to focus efforts.
Allows better use of limited resources.
10
4 steps in Performing a Pareto

Analysis:
2. Group
problems by
causes
1. List
problems and
their causes
3. Score each
problem as
objectively as
possible
Pareto
Analysis
4. Add up the
score for each
group.
11
EXAMPLE
Old customers complaint data before a pizza shop mastered the thirty
minutes pizza
delivery:
Complaint
Count
Pizza not hot
600
Inadequate toping quantity
105
Inadequate cheese quantity
55
Not baked properly
12
No or less seasoning
75
Delayed delivery
1200
Damaged delivery
100
Incorrect billing
57
Wrong size delivered
95
The pizza shop wanted to develop a strategy to reduce the customer

complaint dramatically.
This is where Pareto Chart comes in to action.
12
EXAMPLE
To create a Pareto Chart, this data is sorted and cumulative count &
percentages are computed as illustrated in the following table:
Complaint
Count
Cumulative
Count
Cummulative
%
Delayed delivery
1200
1200
52
Pizza not hot
600
1800
78
Inadequate topping 105

quantity
1905
83
Damaged delivery
2005
87
100
Wrong
delivered
size 95
2100
91
No
or
seasoning
less 75
2175
95
57
2232
97
Inadequate cheese 55
quantity
2287
99
Not baked properly
2299
100
Incorrect billing
12
13
EXAMPLE
The bar represents the count of each complaint and the line illustrates the
cumulative complaint count percentages.
14
CONCLUSION
A Pareto Diagram is a good tool to use when the process investigated
produces data that are broken down into categories and you can count the
number of times each category occurs.
A Pareto diagram puts data in a hierarchical order, which allows the most
significant problems to be corrected first.
The Pareto analysis technique can be used to identify and evaluate
nonconformities, although it can summarize all types of data. It is the
perhaps the diagram most often used in management presentations.
16
THE END
17

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What is Pareto analysis and how does it relate to the 80/20 rule?

What is Pareto analysis and how does it relate to the 80/20 rule?

What are the steps to perform a Pareto analysis?

What are the steps to perform a Pareto analysis?

OPERATIONS MANAGEMENT

ANIKA MARY VARKEY

Pareto Analysis is a statistical technique in decision-making used for

e Pareto Principle was propounded by Vilfredo Pareto

48-1923) a 19th-century Italian economist who conducted

udy in Europe in the early 1900s on wealth and poverty.

observed in 1906 that 20 percent of the people of Italy

ed 80 percent of the wealth.

bsequently, people in various disciplines and professions noticed

nomena. Dr. Joseph Juran also recognized this concept as universal

coined the term vital few and useful many

THE PARETTO PRINCIPLE IN WORK-LIFE

Solves efficiently a problem by the identification and the

according to their importance, of the main causes of the faults.

4 steps in Performing a Pareto

Inadequate toping quantity

Inadequate cheese quantity

Not baked properly

Wrong size delivered

The pizza shop wanted to develop a strategy to reduce the customer

Pizza not hot

Inadequate topping 105

Not baked properly

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