About this lesson
The Pareto principle is a widely accepted technique for prioritizing effort and activity. The Pareto principle will typically be applied in every phase of a Lean Six Sigma project, including this initial Define phase where it is used to prioritize the areas of focus for the project.
The Pareto principle is a widely accepted technique for prioritizing effort and activity. The Pareto principle will typically be applied in every phase of a Lean Six Sigma project, including this initial Define phase where it is used to prioritize the areas of focus for the project
When to use
The Pareto principle is used whenever the team needs to prioritize effort or actions among items in a set based upon a measured attribute of each item in the set.
The Pareto principle, also known as the 80/20 rule, is a prioritization principle that is used to focus the efforts of activity of the Lean Six Sigma team. The principle, named after Vilfredo Pareto, an Italian engineer, economist and behavior scientist, states that 80% of a particular impact on a business or process is caused by just 20% of the underlying processes or causes. Based upon the Pareto Principle analysis, the team selects the 20% of items for improvement. Fixing those will have the largest impact on improving the business.
The Pareto principle analysis is conducted in this manner:
- Start by identifying a set of processes, causes, or any other characteristic that the team would like to prioritize. For instance, the stakeholder could consider a set of business processes for improvement.
- A measure is made of each identified item using a metric that is meaningful to the goals of the project. Using the example, a count could be made of the number of errors that occurred in each of the processes during the past three months.
- The items are then ordered from highest to lowest based upon the metric.
- The results are plotted in order on a vertical bar chart with the highest item on the left and the lowest item on the right.
- Often a cumulative percentage line is also plotted that shows the cumulative percentage value of all the items to the left of a point in the line.
The phrase 80 / 20 reflects the principle that normally the bars that add up to 80% of the cumulative effect only represent about 20% of the items in the set.
Hints & tips
- The cumulative percentage line can be tricky to plot using Excel, so many teams don’t plot the line.
- The graph is a great way of turning the numbers into a picture. This graph is very easy to construct and when explaining to stakeholders the priority decision, it can be very impactful.
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