Pareto Principle

The Pareto Principle describes that 80% of problems can be closed with 20% of the causes. This principle is named after Vilfredo Pareto who found out that 80% of Italy’s wealth belonged to 20% of the population.

With this in mind it is worth to have a look at it.

Let us start with an assumption, according to the Pareto Principle it allows us to assume that

• 20% of input creates 80% of the output

• 20% of customers create 80% of your revenue

• 20% of causes create 80% of failures

• 20% of your employees create 80% of sales

• and so on…

But before you run away now and think you have the answer hold a second. With the 80/20 rule you might tend to say that it always have to be 100 - it’s not. Make a deep analysis before making such statements! 20% of your employees can also make only 20% of sales or 60%. So before you fire 80% of your employees keep in mind that the Pareto Principle only gives you an idea on the distribution.

The whole idea behind it is that most things in life are not distributed evenly!

When we talk about value adding activities and the final product is 100% What is with all the necessary tasks, that are not adding any value to the final product but have to be done to run the company.

Or think about failures and finding the root cause, where to start to take actions? This is great when you think about a Failure Pareto and you want to satisfy your customer as quick as possible. Of course you are focusing first on the most failures and most of the time - not always - the other failures will disappear as well.

But most important of all, your customer gains trust in you that you have the competencies to do the job.

The key point is that most things are not in a 1/1 actio = reactio relationship.

So what can we use it for this 80/20 rule?
The Pareto Principle in first place supports you on realizing that most of the outcome are based on a minority of inputs. This means:

• 20% of input creates 80% of the output > try to reduce those non value adding activities

• 20% of customers create 80% of your revenue > install a key account manager that the customers knows he/she is important to your company > your customers success is your companies success

• 20% of causes create 80% of failures > Focus on fixing those failures first

• 20% of your employees create 80% of sales > get those employees a reward

We could continue on and on. To bring it to the point > focus on the 20% and not on everything at the same time.

Some examples that might help you for a better understanding:

• Instead of spending a whole night to prepare a presentation and thinking about where to start > focus on one topic and do it. You will get a feedback anyway during the pitch. This feedback gives you the chance to take it and improve it.

• Instead of focusing on one solution that might be the best and go through all the details. Make a list of three and go through the pros and cons with your colleagues that probably know the topic better anyway and based on their opinion make a decision with what to go on.

Maybe this examples are nuts for you but we want to emphasize that you should focus only on the important 20% and forget - for the moment - the other 80.

Last but not least - the Pareto Principle is not a law of nature it is a guideline to steer your focus and to save time on problem solving or simply getting your job done faster.

FMEA

Failure Mode Effects Analysis - FMEA

The method of the FMEA - Failure Mode and Effect Analysis has been used for years in the automotive and manufacturing industry.

The risk analysis framework has been applied in a wide range of industrial sectors. The first areas of application were traditionally in product development. Based on this the integration of the production process planning and the production. In the automotive industry, the joint creation of FMEA for products and processes by Today customer, supplier and subcontractor are a natural part of a cooperation. 

The user is guided through the "10 Steps to Creation of the FMEA".

Step 1 - Review the process

• Use a process flow chart or an already existing value stream map to identify each part of a process

• List all process steps in a FMEA table

• If you think the list gets too long it might is. Use this chance to split up the process and cut the elephant. It makes more sense to work on smaller parts of the process instead of getting lost in the woods.

Step 2 - List potential failures

• Review all existing data and documents that can give you a hint about each component that can lead to a failure

• After having a complete list try to cut it down and to combine the parts of the initial list

• The chances are high that you will identify several potential risks of failures for each component

Step 3 - List potential effects of failures

• The effect is the outcome of a failure on the finished good or a process step

• It is common that not only one effect will occur for a single failure, don’t be suprised

Step 4 - Assign the level of failure to risks

• This is based on the consequences for each failure

• Think about the ranking as the worst impact that it can have

Step 5 - Assign the possibility of occurrence

• How high is the possibility of occurrence

• What impact will it have if occur

Step 6 - How can it be detected

• What are the chances that you will detect the failure before occurring

Step 7 - Calculate the RPN (Risk Priority Number)

• Severity (S)

• Severity x Occurence (S x O) = criticality

• Severity x Occurence x Detection (S x O x D) = RPN

Step 8 - Define the action plan

• With the decision making process followed by the prioritization from the RPN (Step 7) focus on the topics with the highest RPNs

• Follow a classic action plan by defining who will be doing what till when

Step 9 - Take action

• Get things done!

• Implement the defined improvement actions

• Follow the PDCA principle

  • Plan - done

  • Do - right now

  • Check - Step 10

  • Act - loop starts over

Step 10 - Re-evaluate the RPN

• Time to check on the impact of your actions

• Re-evaluate each potential failure identified and determine if the improvement measures have an effect or not

• If not follow the PDCA and start over with step 8

The FMEA is linked to all CIP and Kaizen activities - there is always something to improve.