Put the Pareto Principle into action! Download our free Pareto Analysis template and use the 80/20 rule to make great decisions and improve efficiency in your business..
Commonly known as the "80/20" rule, The Pareto Principle explains that for many situations, 80% of outcomes are produced by only 20% of causes.
Pareto Analysis is used in business and management to identify and prioritize problems or opportunities. It also appears in numerous self-help books where it is touted as a principle to use to improve personal productivity and time management. The message is very simple - spend your valuable time working on the few things that will benefit you the most.
Vilfredo Federico Damaso Pareto (15 July 1848 – 19 August 1923) was an Italian polymath. The Pareto principle was named after him, and it is based on his observations that 80% of the wealth in Italy belonged to about 20% of the population.
Using the 80/20 rule in the business world
Because the 80/20 rule is so popular amongst self-help gurus - Tim Ferriss for example - many descriptions assume that it will be used as a finger in the air or gut-feel approach to identifying the 20% of things, or effort that leads to 80% of the results. But you can take a much more analytical approach to Pareto.
The Institute for Healthcare Improvement (IHI), provide a great example of using the Pareto Principle to make investment decisions based on data rather than intuition. They describe how Doctors analysed surgical setup errors and identified the highest priority issues to fix using the 80/20 rule. To do this they measured how often each error occurred and calculated that as a percentage, with a cumulative percentage to identify the errors that were occurring most of the time. After plotting the results on a bar chart they found that three errors accounted for 75% of errors during surgical setup, and targeted effort and resources into fixing those.
The contents of the Pareto analysis template
Field
Field Description and guidance
Contributing factors
In the data table, column B enter each item that you are measuring. This could be an error type, a task or any data you want to analyze..
Frequency
Enter how often the contributing factor appears..
Precentage
Calculate the percentage of the occurance. This field is set to calculate automatically using this formula:
= (frequency/frequency total)*10.
Cumulative percentage
Calculate the cumulative percentage. This field calculates automatically using this formula.
Sum of frequencies so far / frequency total * 10.
Pareto Chart
This bar chart shows the distribution of the contributing factors. In other words, how often a particular task or factor happens compares to other factors. .
You can change the chart titles, data, colours, size and shape by clicking on the chart and selecting the Chart Design or Format menu.
