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Understanding the Pareto Principle: Types, Benefits, Applications, and Examples of Diagrams

Timesofummah.com In the fields of human life, surely Timesofummah.com has understood how a cause can affect an effect?

Including in the field of management, especially for companies, there is one management strategy called the Pareto Principle. This principle is said to be able to increase our efforts in the process of getting many things done in a fairly short time!

What is the Pareto Principle? How does it benefit human life directly?

Understanding the Pareto Principle Types, Benefits, Applications, and Examples of Diagrams

So, so that understands it better, let’s look at the following review regarding the Pareto Principle.

Understanding the Pareto Principle

The Pareto principle is a logical approximation of a probability distribution that has strong coherent rules with the social sciences, sciences, geophysics, and those related to estimation.

The Pareto principle is often referred to as the 80-20 principle. This is because in this principle it states that about 80% of the results, are actually generated by the presence of 20% of inputs or incentives.

The Pareto principle was first coined by an Italian economist named Vilfredo Pareto. The Pareto principle is also related to Pareto efficiency, resulting in two concepts in relation to the distribution of income and wealth among populations.

In its implementation, the Pareto Principle or the 80/20 Principle can be applied to all things, for example:

  • 80% of customer complaints arise from 20% of the product or service.
  • 80% of schedule delays arise from 20% of possible causes of delays.
  • 20% of the product or service reaches 80% of the profit.
  • 20% of system defects cause 80& problems.

This principle was later used by Dr. M. Juran is broadly involved in quality control activities, dealing with project frameworks, program processes, training combinations, projects and processes. Dr Juran believes that this principle is universal so that it can be used in all aspects of human life, from social, cultural, economic, and others.

Although known as the 80/20 principle, the Pareto Principle doesn’t necessarily apply to the 80:20 ratio in all situations. So, this principle doesn’t have to be applied to 80:20 in order to be a 100% fit.

The Pareto principle can be used for retailers who sell various products in their stores. Through this principle, retailers sell about 20% of the types of products and contribute about 80% of their total sales. Meanwhile, the remaining 80% of its products contributed 20% of total sales.

To increase these sales, it can be done by sorting the types of products that are sold the best-selling to those that are the least-selling. This can be based on the quantity of the product or the amount of rupiah. Then, take 20% of the best-selling types of products with total sales, whether the result is 80%.

After retailers know what types of products have the best-selling 20%, of course they don’t want to lose sales. Therefore, sales can be increased by ensuring that the best-selling products are always available, so they don’t run out of stock.

This Pareto principle can be used based on total sales, total sales quantity, total number of transactions, total margin per product, and others.

Pareto diagram

The existence of the Pareto Principle will of course be related to the Pareto diagram. The Pareto diagram was also created by Vilfredo Pareto in 1941.

Pareto chart is a bar chart combined with a line chart to show a parameter being measured. It can be in the form of frequency of occurrence or a certain value, so that the dominant parameter can be known.

The Pareto chart has become a standard method of quality control in order to get maximum results. Pareto diagrams are also considered as a form of simple approach that is easily understood by workers (even if they are not educated), and can be used as a tool for solving complex problems.

In the Pareto diagram, there is an image that sorts the classification of data from left to right, according to the order of the highest ranking to the lowest ranking.

Pareto diagrams can also be used to compare process conditions, for example process discrepancies.

The success of the Pareto diagram is determined by the participation of personnel in the situation being observed, with a visible financial impact on the process of improving the situation and setting the right goals.

The thing to avoid in making Pareto diagrams is not to make the problem too complex and do not look for simplification of the problem.

Steps in Creating a Pareto Chart

  1. Identify the problem to be researched. For example the problem regarding the high level of defects in PCB assembly production.
  2. Determine the cause of the problem and group it according to the period
  3. Make a note of the frequency of occurrence on the check sheet (check sheet)
  4. Make a list of problems in order of frequency of occurrence (from the highest ranking to the lowest ranking)
  5. Calculate cumulative frequency and cumulative percentage
  6. Drawing frequency in the form of a plane graph
  7. Draw the cumulative percentage in the form of a line graph
  8. Take action on problems based on the priority of the problemRepeat these steps to implement improvement
  9. actions for the sake of comparison of results

Types of Pareto Principles

The Pareto principle can be used for data analysis activities, so the types are:

1. The Pareto Principle of Phenomena

In this type, the existence of the Pareto principle will be used for analysis related to unwanted results and can be used to find out the main problem.

For example in a company, the Pareto principle can be used to analyze matters related to quality, cost, delivery, to security.

  • Quality: may relate to defects, failures, complaints,

repairs, and so on.

  • Cost: can be related to the amount of loss obtained, the cost of expenses, and others.
  • Delivery (delivery): can be related to delays in delivery, late payments, and others.
  • Security: can be related to accidents, errors, interference from various things, and others.

2. The Pareto Principle of Cause

In this type of principle, the Pareto principle is used to analyze matters relating to causes in a process and is used to find out what causes the problem.

For example, in a company, the Pareto principle is used to analyze matters relating to operators, machines, raw materials, to operating methods.

  • Operator: can be related to age, experience, skills, individual traits (Human Resources)
  • Machinery: may relate to equipment and instruments.
  • Raw materials: can be related to the manufacture of raw materials.
  • Method of operation: can be related to operating conditions, work methods, system settings, and others.

Benefits of the Pareto Principle

  • To find the cause or dominant factor of a problem. This mass is usually related to costs, losses, machine efficiency, and others.
  • To determine and identify priority problems to be solved.
  • To show the actual value of each parameter under review.
  • As an interpretation tool in determining the frequency or relative importance of various problems.
  • To show the results of improvements through Pareto diagrams.

Application of the Pareto Principle

The Pareto principle can be applied in various scientific fields related to the act of assessment, including:

1. Economics

The Pareto principle can of course be applied in economics. According to Krugman (2006), the Pareto Principle is used to attribute the widening of economic inequality in “USA to skill-biased technical change”, i.e. income growth increases, for that with education and skills, it is necessary to take advantage of the existence of new technologies and globalization.

2. Software field

According to Gen and Cheng (2002), the Pareto principle can be used for optimization efforts in computer science and engineering control theory such as electromagnetic energy.

This opinion is also agreed by Rooney (2002) who revealed that Microsoft noted the presence of equipment materials at the top there were 20% of the damage reports and 80% of errors and collisions could be eliminated.

In addition, Slus Alek (2009) also argues about the same thing, namely the Pareto principle can be used on a principle computer, by using 80% of the traced rays from the geometry of the criss-crossed rays as much as 20%.

3. Health Sector

Not only can it be applied in the fields of economics and software, but the Pareto Principle can also be used in the health sector.

According to Weinberg (2009), on health care measures in America, found that 20% of patients use 80% of health care resources.

4. Logistics and Production Quality Control

According to Rushton and Croucher (2000), the Pareto Principle is used in many quality controls. The Pareto principle is useful in various steps, for example as a baseline for analyzing ABC and XYZ, is used in logistics widely, and in the pursuit of inventory optimization.

5. Field of Geophysics

According to Nassim (2007), the Pareto Principle is an illustration of a “power law” relationship that occurs in various phenomena, such as fire fighting and earthquakes.

The Pareto principle can also be used to estimate the value of the amount of oil reserves in oil fields (both large and small fields).

6. Education Sector

Apparently, the Pareto Principle or the 80/20 Principle can also be useful in the field of education. The educational practice obtained by students is determined by the extent to which educators can work intelligently.

For example, to “send” knowledge and values ​​to students, it must be done effectively and efficiently; in the sense of using appropriate and not excessive learning strategies.

The application of the Pareto Principle in this example is to find 20% suitable learning strategies to provide 80% educational learning.

Even the enthusiasm of students to learn contributed to 80% of the success of education and learning.

There are several advantages to the application of the Pareto Principle in the field of education, namely:

  1. Learning becomes more targeted
  2. Save time and energy
  3. Minimizing rejection or negative responses from students during learning.

Pareto Chart Example

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