Pareto analysis is a formal technique useful where many possible courses of action are competing for attention. In essence, the problem-solver estimates the ...ParetoanalysisFromWikipedia,thefreeencyclopediaJumptonavigationJumptosearchStatisticalconceptAParetoanalysisinadiagramshowingwhichcauseshouldbeaddressedfirst.Paretoanalysisisaformaltechniqueusefulwheremanypossiblecoursesofactionarecompetingforattention.Inessence,theproblem-solverestimatesthebenefitdeliveredbyeachaction,thenselectsanumberofthemosteffectiveactionsthatdeliveratotalbenefitreasonablyclosetothemaximalpossibleone.Paretoanalysisisacreativewayoflookingatcausesofproblemsbecauseithelpsstimulatethinkingandorganizethoughts.However,itcanbelimitedbyitsexclusionofpossiblyimportantproblemswhichmaybesmallinitially,butwhichgrowwithtime.Itshouldbecombinedwithotheranalyticaltoolssuchasfailuremodeandeffectsanalysisandfaulttreeanalysisforexample.[citationneeded]Thistechniquehelpstoidentifythetopportionofcausesthatneedtobeaddressedtoresolvethemajorityofproblems.Oncethepredominantcausesareidentified,thentoolsliketheIshikawadiagramorFish-boneAnalysiscanbeusedtoidentifytherootcausesoftheproblems.Whileitiscommontorefertoparetoas"80/20"rule,undertheassumptionthat,inallsituations,20%ofcausesdetermine80%ofproblems,thisratioismerelyaconvenientruleofthumbandisnotnorshoulditbeconsideredanimmutablelawofnature.TheapplicationoftheParetoanalysisinriskmanagementallowsmanagementtofocusonthoserisksthathavethemostimpactontheproject.[1]Stepstoidentifytheimportantcausesusing80/20rule[edit]Mainarticle:80/20ruleFormafrequencyofoccurrencesasapercentageArrangetherowsindecreasingorderofimportanceofthecauses(i.e.,themostimportantcausefirst)Addacumulativepercentagecolumntothetable,thenplottheinformationPlot(#1)acurvewithcausesonx-andcumulativepercentageony-axisPlot(#2)abargraphwithcausesonx-andpercentfrequencyony-axisDrawahorizontaldottedlineat80%fromthey-axistointersectthecurve.Thendrawaverticaldottedlinefromthepointofintersectiontothex-axis