Pareto Analysis in Six Sigma

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 had discovered a principle that it would change how 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 the 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 application's capacity 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 become a global trend. Not only organizations but also individuals use Six Sigma methodologies to boost the efficiency of their operations. It aids with restoring business processes and pays attention to full productivity by bringing down process errors.

You might wonder where do Pareto Analysis and Six Sigma coordinate. Six Sigma methodology uses the Pareto Chart to identify solutions to errors. Also, the methodology uses the chart to reduce errors effectively. When you find the answer to how Pareto analysis is used in Six Sigma, you will identify that Pareto Chart is a method to determine the most common factors that lead to an error in Six Sigma methodology. For carrying out a graphical data analysis, the Pareto Chart can help define 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 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 fewer 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 Pareto Analysis is. Yes, you are right; this analysis will help identify 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 from 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 become more efficient when they pay attention to areas that will help increase 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 to handle issues that come up in the future.

Improvement in Decision Making:

With Pareto Analysis, organizations and employees will be able to decide on the most effective practices 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, you can plan, analyze, and troubleshoot any new changes you make to 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. In turn, decision-makers in your organization can 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 a 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 see the biggest reason for customer complaints. 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 to improve its products' quality 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 to analyze and improve the quality of the process. The Pareto diagram, otherwise called the 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, focusing mainly on eliminating defects in the production process.

Professionals widely use this visual representation to analyze data sets about 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, quality can be managed 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:

1. The first thing you will have to do is to define the issue that you wish to study
2. Using the available data or brainstorming, create a list of potential factors contributing to the issue.
3. Now, create a worthy unit concerning the cost and frequency to measure the issue
4. Choose a time period long enough to capture the situation. Make sure to choose a period that permits shorter weekly patterns and seasonality.
5. Either using real-time or historical data, collect data required for each group of issues.
6. Compare the cost or frequency of every issue group
7. 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 easily create a Pareto Chart. The chart will help display the process issues and their impact on your team, project, or organization as a whole. Your team can use this chart to identify 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. 

Conclusion:

Now, you know what Pareto Analysis is and how Pareto Analysis is used in Six Sigma. You also know that this principle can greatly help Six Sigma practitioners see 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. Simpliaxis offers a comprehensive approach to Pareto Analysis in Six Sigma, leveraging the power of this principle to enhance organizational efficiency, problem-solving skills, decision-making, change and time management, planning, troubleshooting, and analysis