The 80/20 rule, also known as the Pareto Principle, states that 80% of the benefit can be achieved by 20% of the work. The Pareto analysis uses this concept to identify which parts of a project can be done efficiently and which can be avoided. It can be used to decide which problems should be solved first.
In this article, we’ll explain how to perform Pareto chart analysis and how it can be used to improve any project. We’ll also get into some vital tools you can use to help teams work smarter, not harder.
What is a Pareto chart?
The Pareto chart is a visual representation of the most important factors in a given field or project in order to identify and prioritize issues.
In general, this tool can be used to identify the most critical factors in a given product or process. For example, in quality assurance, the Pareto chart helps identify the most prevalent sources of defects.
The Pareto chart itself is a bar graph with two axes. The left axis shows the frequency of occurrence, which is the sum of the total number of occurrences and the cost of doing so. The right axis shows the cumulative function of the total number of occurrences.
The values for each category are depicted in descending order. And the final total is represented with a line drawn at 80% on the bar graph. Any bars rising above that line are considered the problems that, if solved, would have the biggest impact on the project.
The Pareto chart can be generated by various means, such as creating Excel spreadsheets, statistical software, and online quality charts.
What is a Pareto chart used for?
A Pareto chart helps you identify the causes of the various problems and the issues that need to be solved to get the most significant improvement. Here are some of the many ways it can be used:
- Visually represent project issues to find which have the greatest impact
- Communicate priority levels to stakeholders
- Isolate individual process hiccups so that they can be better understood
- Find the most impactful problems and eliminate them before they cause issues
- Reallocate workloads so that team members companywide are maximizing their impact and productivity
When to use a Pareto chart in project management
A Pareto chart is a tool that many people use to analyze different types of problems. It can also identify the most significant issues in a process. In project management, this means everything from big-picture project phases to individual task workflows.
When roadblocks come up, managers can use the Pareto analysis to quickly identify what is causing bottlenecks or delays. From there, they can use their project management tool to delegate troubleshooting, adjust task lists, or shift priorities without interrupting the entire project.
In addition to making on-the-fly decisions based on real evidence possible, Pareto charts can be used in project management for post-project analysis for both PMOs and stakeholders. Teams can learn from each other and what went wrong in projects with data clearly laid out in this way. In the future, they’ll be able to replicate their successes and mitigate failures.
Stakeholders can easily pinpoint areas of investment that worked out and learn more about how this project was managed so they can feel good about the outcome. In particularly successful works, they’ll be able to see how little interference the project encountered along the way. Or they can see how well the team managed issues that did arise.
This persuasive tactic allows them to feel great about providing repeat business or, at the very least, enrich their understanding of key projects related to their goals for future reference.
How to calculate Pareto analysis
The simplest formula for calculating a Pareto analysis is as follows:
[Your total unit of measurement per item, e.g., number of occurrences, hours, cost, etc.] / [the grand total of all items] x 100%
Use this formula for each category. Keep in mind that each result should be a percentage. Afterward, put them in order from highest to lowest before inputting them into your chart-making software.
How to create a Pareto chart
Step 1: Collect your data
A minimum of 30 data points is best for an accurate picture of the project as a whole.
Step 2: Create a frequency table
Use the following headers in this order:
- Issue Type
- Number of Occurrences (listed in descending order)
Note: Some programs will automatically generate a Pareto chart for you once you’ve added the number of occurrences or frequency for each issue category.
The rest of your headers may be calculated for you, again depending on the program you’re using:
- Cumulative Total
- Cumulative Percentage
- 80% Cut Off
Step 3: Label your chart
Keep it simple. You can never go wrong with “Types of Project Errors.” Freel free to add a single sentence description that includes the time period of your measurement and any other details that are important to the people you’ll be sharing it with.
Step 4: Clearly label the Y-axis
Frequency, total number of occurrences, or even price all work well here. Use whichever value best represents your data set or makes the most sense to you as a manager.
Step 5: Note the categories on the X-axis
These should match the Issue Types you first listed in your frequency table.
Step 6: Interpret the chart
Again, the software you use should fill in the other components of the chart, including the bars, lines, and cut-off. From there, you can get to work analyzing the results.
The higher the bars are, the more of an impact they are having on your project.
You’ll see percentages listed on the right-hand side of the chart across from frequency. They should be listed from 100% and counted down in increments of 10 to the bottom. Any bars that cross the 80% line should be considered a top priority for problem-solving.
Pareto chart example
This Pareto chart example was created by Clinical Excellence Commission and thoughtfully illustrates the key areas of focus project managers should be aware of.
The areas marked in red and bold are the spaces project managers should focus on when conducting their analysis.
We can also see that the categories on the bottom are great examples of types of medication errors. But project managers may use groupings such as scope creep, resource management, or communication to define a variety of issues that may come up.
The most important line on this graph is the green 80% cut-off, which symbolizes the Pareto principle. Any bar that reaches above that line should be considered the most important issue. In the above chart, that would be “dose missed” at 92% and “wrong time” at 83%. Although “wrong drug” clocks in at 76%, it’s not considered nearly as important as the first two.
For the next steps, the project manager in this particular example would likely solve the issues above the 80% line first before moving on to the next highest scoring category.
Alternatively, they could choose to solve the above-the-line problems, then create a new Pareto chart and see if the values have changed. It’s also possible that solving the highest priority issues may fix less pressing issues on your chart down the road as a byproduct.
How Pareto chart analysis can improve your project
In general, the Pareto chart helps project managers and team leaders identify the causes of various problems that are having the biggest impact on their work. By figuring out what they are, managers can take the necessary steps to solve them. It’s also easier to determine task and even project or goal prioritization with a chart like this.
If you’re working with third-party partners or stakeholders, the visual aspects of Pareto charts make them easy to understand and interpret. Not only is this highly effective for communicating with non-experts, but it’s also highly persuasive.
How to interpret Pareto analysis with Wrike
So you’ve made your Pareto charts and conducted your analysis. Now what? Put your plan into action with Wrike.
Wrike is a project management solution that makes project plans manageable, efficient, and crystal clear. Now that you know what’s going wrong, you can easily add actionable next steps to your project plans without missing a beat.
Start by adding a detailed task to your project. Add a description, deadline, and task owner. Wrike also allows you to see the workload of individual team members across all active projects so you can double-check they’re available before assigning it.
You can also use Wrike’s custom reporting features to identify issue categories for your Pareto chart. Dissect active and past tasks to find the biggest areas in need of improvement during individual project phases or projects as a whole.
In addition to Pareto charts, Wrike also offers Gantt charts and PERT charts that can improve productivity.
A Gantt chart is a bar chart that shows the various tasks and deadlines for a project. It's a great tool for managing time and improving efficiency.
A PERT chart is a network diagram that shows all the project tasks in separate containers. The boxes that make up the PERT chart are organized with arrows to represent the time needed to complete the task.
Combining the results of your Pareto, Gantt, and PERT charts will help you turbocharge your project troubleshooting plans and may even prevent future issues too.
Ready to get the biggest results from the least amount of effort? Get started with Wrike’s two-week free trial.