Effective Management Techniques: Pareto Analysis
Vilfredo Pareto was an Italian economist who, in the 19th century, discovered that 80% of the land in Italy was held by 20% of the population. Since that time, the Pareto Analysis relates to the concept that 20% of A is responsible for 80% of B.
What It Means
The 80/20 Rule means that in anything a few (20 percent) are vital and many(80 percent) are trivial. In Pareto’s case it meant 20 percent of the people owned 80 percent of the wealth. In Juran’s initial work he identified 20 percent of the defects causing 80 percent of the problems. Project Managers know that 20 percent of the work (the first 10 percent and the last 10 percent) consume 80 percent of your time and resources. You can apply the 80/20 Rule to almost anything, from the science of management to the physical world. You know that 80 percent of your sales will come from 20 percent of your sales staff. 20 percent of your staff will cause 80 percent of your problems, but another 20 percent of your staff will provide 80 percent of your production. It works both ways.
How It Can Help You
The value of the Pareto Principle for a manager is that it reminds you to focus on the 20 percent that matters. Of the things you do during your day, only 20 percent really matter. Those 20 percent produce 80 percent of your results. Identify and focus on those things. When the fire drills of the day begin to sap your time, remind yourself of the 20 percent you need to focus on. If something in the schedule has to slip, if something isn’t going to get done, make sure it’s not part of that 20 percent. There is a management theory floating around at the moment that proposes to interpret Pareto’s Principle in such a way as to produce what is called Superstar Management. The theory’s supporters claim that since 20 percent of your people produce 80 percent of your results you should focus your limited time on managing only that 20 percent, the superstars. The theory is flawed, as we are discussing here because it overlooks the fact that 80 percent of your time should be spent doing what is really important. Helping the good become better is a better use of your time than helping the great become terrific. Apply the Pareto Principle to all you do, but use it wisely.
How to Use Pareto Analysis
There are 4 steps in performing a Pareto Analysis:
This exercise not only shows you the most important underlying cause, it also gives you a numerical score, allowing you to compare the severity of the problems caused by it.
NOTE: Of course, numerical score is an estimate for the situation severity. Do not worry, score judgement improves by time and experience.
Imagine a scenario where you are a project manager and you have been given responsibility for turning around a strategic business project that is running behind schedule. Your first action is to interview all of the team leaders involved and ask them to explain how their part of the project has been performing, highlighting any areas that have fallen behind and to provide valid reasons for this, whilst quantifying the number of days lost in each case. From this exercise you obtain the following data:
This table clearly shows you what has caused days to be lost on the project and highlights which of these causes have accounted for the greatest disruption.
You can clearly see that ‘lack of’ in both expert users and DBA resources is the key issue you need to address with some urgency to get your project back on track.
Drawbacks to be Considered with Pareto Analysis
Whilst using Pareto Analysis can be helpful in aiding your decisions about what priority to set each task, it does have certain limitations, which you must factor into your decision-making process:
• No account is taken of the relative difficulty of dealing with each underlying cause.
• Each problem is difficulty to quantify with an objective score.
• Only historical data is taken into consideration.
In order to overcome above drawbacks other techniques are to be combined to rectify this. I will elaborate on other management techniques in coming articles.