Pareto Analysis Step by Step

Pareto Principle | By Duncan Haughey | Read time minutes

80/20 written in white chalk on a blackboard

Pareto Analysis is a statistical technique in decision-making used to select a limited number of tasks that produce a 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.

Take quality improvement, for example. A vast majority of problems (80%) are produced by a few fundamental causes (20%). This technique is also called the vital few and the trivial many.

In the late 1940s, Romanian-born American engineer and management consultant Joseph M. Juran suggested the principle. He named it after Italian economist Vilfredo Pareto, who observed that 80% of income in Italy went to 20% of the population. Pareto later carried out surveys in some other countries and found that a similar distribution applied to his surprise.

We can apply the 80/20 rule 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 the defects of a system causes 80% of its problems.

The Pareto Principle has many applications in quality control. It is the basis for the Pareto diagram, one of the critical tools used in total quality control and Six Sigma.

PMBOK uses Pareto ordering to guide corrective action and help the project team fix the problems causing the most significant number of defects first.

Pareto Analysis

Here are eight steps to identifying the principal causes you should focus on, using Pareto Analysis:

  1. Create a vertical bar chart with causes on the x-axis and count (number of occurrences) on the y-axis.
  2. Arrange the bar chart in descending order of cause importance, the cause with the highest count first.
  3. Calculate the cumulative count for each cause in descending order.
  4. Calculate the cumulative count percentage for each cause in descending order. Percentage calculation: {Individual Cause Count} / {Total Causes Count}*100
  5. Create a second y-axis with percentages descending in increments of 10 from 100% to 0%.
  6. Plot the cumulative count percentage of each cause on the x-axis.
  7. Join the points to form a curve.
  8. Draw a line at 80% on the y-axis, running parallel to the x-axis. Then drop the line at the point of intersection with the curve on the x-axis. This point on the x-axis separates the important causes on the left (vital few) from the less important causes on the right (trivial many).

Here is a simple example of a Pareto diagram, using sample data showing the relative frequency of causes for errors on websites. It lets you see what 20% of cases are causing 80% of the problems and where you should focus efforts to achieve the most significant improvement. In this case, we can see that broken links, spelling errors and missing title tags should be the focus.

Pareto Analysis Diagram
Figure 1: Pareto Analysis Diagram

The value of the Pareto Principle for a project manager is that it reminds you to focus on the 20% of things that matter. Of the things you do for your project, only 20% are crucial. That 20% produces 80% of your results. Identify, and focus on those things first, but don't entirely ignore the remaining 80% of the causes.

Download our Pareto Analysis Template

Recommended read: Six Rules for Great IT Project Success by John Avellanet.


What's Next?

You may also be interested in