Online Money Manager

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Frequently recurring problems may be several different problems, all linked and with many causes. In such circumstances, Pareto analysis can be useful in organising the data so that the most significant factors are clearly illustrated. This is based upon the 80–20 Pareto principle: that 80% of problems are caused by 20% of possible factors. To tackle a problem, therefore, concentrate on the troublemaking 20%. There are four key steps when initiating a Pareto analysis:

Identify the overarching problem.

Determine the factors causing it and how often they are to blame for the problem’s occurrence.

List the biggest factors contributing to the problem. Pareto analysis is most useful when few factors are involved.

Develop a solution targeting each factor individually.

This approach has the potential to eliminate the biggest causes of a problem, which often prevents it recurring or, at the very least, mitigates its effects. But it is less useful when a large number of factors are more or less equally responsible, as it is difficult and time consuming to analyse each one and pointless to prioritise the order in which they should be tackled. Pareto analysis works best when only damage control is possible.

For example, all organisations get customer complaints, but the biggest reasons for customer dissatisfaction can be attended to, thus reducing the incidence of complaints. However, the more complicated the problem, the less likely it is that Pareto analysis will help to find a solution. For complex problems, creative problem solving is required.