Pareto is Your Friend
How many of you have heard of the Pareto Principle? Many of you do not know who or what Pareto is all about.
Vilfredo Federico Damaso Pareto was born into this world in the mid 19th century and died in the early 20th century. However, his contributions have long lived on, making the lives of engineers, sociologists, and economists much simpler due to his identification of the distribution that is now known as the Pareto Principle.
The Pareto Principle is simply described as the 80/20 rule. It can apply to a number of generalities and allow you to quickly estimate (versus calculate) distribution or allow you to understand proportional values of something quickly, without having to do the deep dive calculations to multiple decimal points. Pareto Distributions occur naturally; it certainly occurs with humans and our activities.
For instance, in business, 20% of your customers provide you with 80% of your revenue. Or conversely, 80% of the work that you build in your factory accounts for 20% of your profits. Or the one I personally hate, the last 20% of a project is 80% of the effort and work!
The 80/20 rule is not necessarily written in stone, as there are a number of anomalies, however, with all things being equal, when you are looking at the population the percentage of the whole will usually break out into a very similar distribution that is 80/20.
Great! Now, what can the 80/20 rule do for me?
First of all, it helps you from trying to boil the ocean. You have a project to complete, an activity to take on, however, the scope seems massive. You can use the Pareto rule to help distribute the work as needed to identify what constitutes the greater bulk of the work, the volume of effort, needed to accomplish the project’s completion.
Recently, one of the projects that I am running in the factory today uses Pareto rules to identify the top 20 processes within the factory. That way we could focus only on those particular activities and develop the recording model to collect data specific to those areas in the workplace.
By doing this distribution, it helps sharpen your focus to a specific area without having to worry about the whole show. Without having to worry about getting into all the details of all the processes that may be occurring within the facility allows you to identify a solution that is robust.
In the same project, we also used Pareto to guide us in identifying the top 20% part numbers within the factory. This identified those that flow through the factory both in sheer volume and in cost. In those efforts, we also identified and used Pareto to quantify the number of quality issues within that same part numbers population to once again help hone and focus our vision on that specific subset of part numbers that are the biggest headaches for the organization.
By using Pareto, it allows us to focus on those few items that cause the most problems for the rest of the factory. It helps us use a Napoleonic approach to fighting the battle by identifying the primary targets and amassing forces in those areas to work on those particular issues quickly and effectively.
When using Pareto, you are also able to communicate to upper levels of management much easier. You do not need to get into the details, or the specifics, as the amount of discreteness of your data does not add value to the overall scope of the discussion at higher levels of the organization. By having a Pareto-type understanding of the information you are sharing, of what you are capturing, the value of the discussion meets the “significance” test. It provides the right amount of information that allows decisions to be made.
Salute Pareto!
Go forth and be brilliant.
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