More than 10 decades ago, Vilfredo Pareto, an economist from Italy was analyzing land ownership. At this time, he identified a principle. When he uncovered this technique, he might not have thought that he has discovered a principle that it is going to change the way the world is going to solve issues and evaluate opportunities. He discovered that 20% of the population owns 80% of the land. This revolutionary principle was named after him as Pareto Principle. The principle he found now applies not only to land ownership but also to other fields like those mentioned below:
20% of projects contribute to 80% of issues
20% of the capacity of the application is alone used by nearly 80% of people.
20% of clients contribute to 80% of sales
Pareto Chart in Six Sigma:
Six Sigma is an approach that offers a wide range of tools for effective process management. As businesses from across the world use this approach, it has turned out to be a global trend. Not only organizations but also individuals use Six Sigma methodologies for boosting the entire efficiency of their operations. It aids with restoring business processes and pays attention to full productivity by bringing down errors in processes.
You might wonder where do Pareto Analysis and Six Sigma coordinate. Six Sigma methodology uses Pareto Chart for identifying solutions to errors. Also, the methodology uses the chart for reducing errors effectively. When you find the answer to the question of how is Pareto Analysis used in Six Sigma, you will identify that Pareto Chart is a method to find out the most common factors that lead to an error in Six Sigma methodology. For carrying out a graphical analysis of data, the Pareto Chart can help with defining the prominent drives for the technique being employed. In turn, it prioritizes the behavior in conjunction with it. It will not be an overstatement to say that Pareto Chart is used as a valuable tool in Project Management, particularly in Six Sigma.
When you take the case of a Six Sigma team that uses Pareto Analysis, you will know that this team understands that most issues will result from a smaller number of factors. Six Sigma teams can know the effect of a particular error from the visual representation given by the Pareto Chart that comes after the Pareto Analysis. With the Pareto Chart, a Six Sigma Team can do the following:
See a process issue at a glance
Quickly understand all the factors that contribute to the issues in the process
Focus on the issues that contribute to the greatest disruption
Reasons To Use Pareto Analysis By A Six Sigma Team:
You now know what is Pareto Analysis. Yes, you are right, this analysis will help with identifying the factors that contribute to the errors. With Six Sigma highly focused on eliminating errors in the production process, Six Sigma teams can benefit considerably with Pareto Analysis as error identification will become easier. Here are some reasons why a Six Sigma Team should use Pareto Analysis:
For Increasing Organizational Efficiency:
With Pareto Analysis, it will be easier for your organization to shift its focus on prioritizing issues. Your teams will be in a better position to identify the root cause of the issues with this analysis. Organizations turn more efficient when they pay attention to areas that will help with increasing return on investment.
Improvement of Problem-Solving Skills:
Another key outcome of Pareto Analysis is that it will let you organize work-related issues into a clear set of effects and causes. When you have this idea, you can take appropriate problem-solving measures to address them individually. When you solve more such problems, you will gain the confidence required for handling issues that come up in the future.
Improvement in Decision Making:
With Pareto Analysis, it will be possible for organizations and employees to decide on the practices that are most effective and ways to improve the present options.
Improvement in Change and Time Management:
With the help of Pareto Analysis in your Six Sigma enterprise, you can get the opportunity to look deeper to find out how effective is a change you make or has decided to make. With this analysis, you can improve your business practices. As a result, apart from managing the change, you can also manage the time you spend implementing those changes.
Aids with Planning, Troubleshooting and Analysis:
With this chart apart from planning, you can also analyze and troubleshoot any fresh changes you make in your business practices.
Know the Cumulative Impact of Issues on your Business:
The versatility of Pareto Analysis calls for its application in a wide range of areas in your business. It aids with looking at the overall impact of challenges across the organization as a whole. In turn, decision-makers in your organization can get to see the problems that should be resolved in the first instance.
Find Answers To Different Questions:
One of the biggest reasons to implement Pareto Analysis is that it will help find answers to different questions in your organization. Examples of these questions include:
Which pages are crucial for your business to attract 20% of traffic?
How can we improve customer satisfaction?
How to improve the quality of products?
Where does a large portion of sales get lost in my business?
What are the biggest issues affecting my team or business as a whole?
For instance, with Pareto Chart, you can plot the factors that contribute to complaints along the X-Axis of a graph. In the same way, you can plot the number of complaints that fall under each factor along the Y-Axis. When you do this, you will get to see the biggest reason for complaints from customers. So, identifying the area of focus will become easier. In turn, you can take appropriate steps to improve your business operations.
Role of Pareto Analysis in Quality Management:
Naturally, every organization aims at improving the quality of its products in every way possible. When you understand what is Pareto analysis in quality management, you can get to know the effective role played by this chart in managing quality:
When it comes to managing quality, different diagrams, techniques and tools are used for analyzing and improving the quality of the process. Among them, the Pareto diagram otherwise called Pareto Chart or Pareto Analysis is one of the 7 commonly used tools. It aids in identifying the most frequent defects. Due to its efficiency in spotting defects, it is widely used in Six Sigma practices that focus mainly on eliminating defects in the production process.
Professionals widely use this visual representation for analyzing sets of data pertaining to a particular complaint or defect. This is why businesses see it as a problem-solving tool. When defects are identified and eliminated early in the production process, it will be possible to manage quality effectively. So, you know what is Pareto Analysis in quality management now. But, your question now will be how to develop a Pareto Chart in a Six Sigma project. Here is the answer to your question:
How to Create A Pareto Analysis Chart For A Six Sigma Project?
This chart creation is a 7-step process that encompasses the following:
The first thing you will have to do is to define the issue that you wish to study
With the help of the available data or through brainstorming, create a list of potential factors contributing to the issue.
Now, create a worthy unit concerning the cost and frequency to measure the issue
Choose an appropriate time period long enough to capture the situation. When selecting a period, make sure to choose a period that permits shorter weekly patterns and seasonality.
Either using real-time or historical data, collect data required for each group of issues.
Compare the cost or frequency of every issue group
Plot issues and the appropriate cost on a graph. When plotting, you can list the issues on the horizontal line and the costs or frequencies on the vertical side. From left to right, list the issues in descending order.
With these steps, you can create a Pareto Chart with ease. Now, the chart will help display the issues in the process and also their impact on your team, project or organization as a whole. Your team can use this chart for identifying the problems that should be tackled with priority. When spotting the issues, priority should be given to those with a greater impact on profitability and customers.
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Now, you know what is Pareto Analysis and how is Pareto Analysis used in Six Sigma. You also know that this principle can be of great help to Six Sigma practitioners to see the most of the problems associated with the processes. Apart from helping them spot the issues, they can also spot how often the defects occur and how much cost they create to the company. Above all, with the clarity they gain from this chart, Six Sigma practitioners can identify the issues that should be tackled with priority.