The Pareto Principle is Dangerous?

Jars of Skippy peanut butter

Image via Wikipedia

There are many benefits to the Pareto Principle (aka the 80-20 Rule) for those who want to get the most bang for the buck.  I am a big fan of this philosophy since we are all working with limited time and resources.  This mindset can be dangerous though if you are finally ready to fully resolve that chronic loss that has plagued your process for years.

As a reminder, chronic losses are normally smaller and more frequent deviations from the standards and gradually become accepted as normal.  Sporadic losses are sudden and often large deviations from the norm.  Sporadic losses are relatively easy to resolve and may have just one cause.  Chronic losses however, are not as easy to resolve because these often have multiple causes that are inter-related.

Let’s say that you are making peanut butter and have identified poorly sealed jars as a chronic loss.  You may find that there are two conditions that led to a poor seal on one occasion and 3 different conditions on another occasion.  You are probably dealing with a chronic quality loss if your defect rate is consistently no more than 1 or 2 percent (P-M Analysis).  Can you afford to resolve 80% of the seal issues?  Probably not since a properly sealed jar is a Critical to Quality characteristic for the consumer.  Addressing 20% of the root causes, even if you get an 80% reduction is not going to eliminate the issue.  Problem solving techniques that work with sporadic losses will not fully resolve chronic issues.  In this case, you must identify all possible root causes and implement effective countermeasures.

It’s not easy but I have seen chronic issues eliminated when effective countermeasures are in place for all root causes.  While you would do well to prioritize using the Pareto Principle, you just won’t get there if you stop at 20%.

Do you have any examples where you finally put a chronic loss or defect to bed for good?  Do you have a chronic loss you need to drive out?  Can you and your team identify all the root causes and implement effective countermeasures?

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This post was inspired while reading P-M Analysis (Shirose, Kimura, Kaneda) from JIPM and Productivity Press.  I am reading this as part of my ongoing effort to sharpen my saw. This post certainly does not describe the entire process but just one concept.

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About Christian Paulsen

Christian Paulsen is an Executive Consultant with 20 years of Lean Manufacturing. Chris adds value to organizations by driving process improvement and bottom line savings. Chris intends to help others by sharing the lessons learned after a quarter century of operational leadership, marriage, parenting, and even longer as a Cubs fan. Your comments on this blog are welcome. You can also connect with Chris via LinnkedIn, Twitter, and Facebook in the right sidebar. Chris welcomes your comments. Christian's professional services are available by contacting him through LinkedIn (right side bar)
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16 Responses to The Pareto Principle is Dangerous?

  1. Matt Wrye says:

    Christian –

    I do agree that chronic losses are bad and should be eliminated. The pareto principle can help get at a the issue. The pareto principle can help determine which chronic issue you should tackle first. Once you start to tackle the chronic issue then the pareto principle can help determine what to address first. Once you have found the root cause of the top issues causing the chronic loss, then re-pareto and see if it still shakes out at the top. If so, keep working on it. If not, then move on to the top chronic issue now.

    I’m not saying to ignore the remainder of the issues causing the chronic loss but if it isn’t in the Top 3 Chronic Losses after finding root cause to some of the issues then don’t spend your time there. With finite resources, it is best to work on the other top chronic losses until the original pops to the top again.

    This is how I have handled it on the past.

    • Hi Matt,

      You are right the Pareto Principle can be used for chronic losses. I’ve used it as you have described and had success as a result. That’s part of the reason this caught my attention and inspired the post. I’ve done this a few times myself. It can take a lot of time depending on how many root causes there really are. The effort can be worth it if you are facing a loss or defect that you cannot afford to have happen even one more time. I have taken this approach with safety investigations and on one more notable occasion where a quality defect turned into a major issue with a top customer.

      I think that your approach works if eliminating 80% of the issue makes it a non-issue compared to the other losses being faced in your plant. Frankly, that’s often the case.

      Thanks for your insight.

      Chris

  2. One of the dangers of the Pareto Principle is that we only look at impact, and not at relatively “solvability.” Yes, issue #1 on your Pareto may help you the most. But what if it would take you 10x the time and $ to solve than #2? Then all of a sudden it’s not so easy. We should understand the relative impact of issues, but also the relative solvability.

    • Great points, Jamie. In addition to the Pareto ranking, one should consider cost to implement, likelihood of success, and other factors. Thanks for checking in and sharing your insight.

      Chris

    • Hi Jamie,

      Thanks for sharing and introducing me the term “solvability.”.
      From project management view, i call it quick wins. but i still doubt we go extra steps to discuss the solvability of each item in pareto.

      • Hi Ganesh,

        Thank you for your comments and for initiating discussion with other readers. It’s good to see that you are learning from other reader’s comments as well. That’s the true spirit of blogging!

        Jamie raises a great point with his insight on solvability. I’d suggest that this goes beyond the quick wins though. As an example, you might have a project that would make a huge impact on your #2 issue on the Pareto. It’s bigger than a quick win but not a major capital project either. You believe it has a high chance of success. You also have a project that would potentially make an impact on your #1 issue. This one though requires a capital investment and approval. You are also less confident of success with this one. The dollar payback on both projects are similar. Which would you pursue first?

        The Pareto is a great tool for helping to set priorities but it should not be used blindly. And back to the point of the original post, you’ll need to address all root causes and not just the top 3 if you are to eliminate a chronic defect.

        Best regards, Chris

  3. Hi Chris,

    You think this problem is bad in manufacturing? Take a peak inside call centers.

    Pick the top call driver, ask what the Required Call Components (specs) are…what the agents need to do in their systems and what they need to say to the customers…and ask what % of time the RCCs are met just on that top call driver.

    You are likely to find that the RCCs have not been clearly defined or are not agreed on by SMEs, training, monitoring, agents and most important, customers. On the outside chance that they are defined, you are more likely to find flying pigs than a center tracking RCCs by call type on run or control charts.

    But if you did muscle your way to that point on even one call driver, your pareto would find that the agents either didn’t know what they were supposed to do or they just forgot or in some cases didn’t want to (collectors often skip the mini-Miranda warnings because they have learned they are more likely to collect if they don’t scare the debtor off at the top of the call…sad, i know).

    Now at that point a center could spend a lot of time on countermeasures such as posting signs or spending money pulling the agents of the phone for training or coaching and, after one or all three of these interventions, hoping the agents do what they are supposed to.

    OR, you could do what Manufacturing does and error-proof the process so it was easy for the agents to do what they are supposed to and impossible to blow it even if they want to.

    Which option do you think call centers most choose 99+% of the time? That’s right, the number one call center quality strategy is hope. They send an email and they hope. They train and they hope. They coach and they hope. They come up with a fancy incentive comp system and they hope.

    Choosing hope over error-proofing. Is it any wonder call center experiences are a favorite whipping boy for late-night comedians?

    Sincerely,

    Dennis Adsit

    • Hi Dennis,

      Thank you for your comments on call centers. Your insight is interesting. Manufacturing is big on hope too, probably because hoping is easier than developing good systems. Some things about human nature are universal. Thanks again.

      Best regards,
      Chris

    • Hi Dennis,

      I have seen technical call centre use call script to minimise wrong steps taken in fault isolation instead of hoping for the agent to deliver good customer experience.

      They use pareto to identify top call driver into call centre and build the trouble shoting script for common problem.

      • Hi Ganeshumuthiah,

        Thanks for your note. Scripts are better than nothing, but with scripts there is no error-proofing. You still have to hope the agents read it correctly. There are dozens of problems here and you could do a Pareto on why the agents are not properly using the scripts (would this make it a meta-Pareto? 🙂 ).

        1) the agent has trouble reading legalese, especially in a second language, so doesnt read it correctly or skips it.
        2) the agent memorizes the script and then doesn’t even notice when things change.
        3) the agent is texting or surfing, and skips it
        4) the agent feels reading the script hurts his/her performance (think sales or collections where disclosures can result in the customer backing out)
        5) the agent blasts through the disclosures to reduce their handle time…if they are speaking in a second language, the accent and speed can make the disclosures almost unintelligible. (you can read more here: http://www.kombea.com/Article_BeyondScriptingTools.shtml)

        You could of course just fire the agents that weren’t doing what you wanted them to. But there are at least two problems with this. First, how do you find the agents you want to fire? You have to hire a bunch of monitors (read as, inspectors…didnt manufacturing get rid of the “end of the line” inspectors?) and they have to monitor lots of calls to get a large enough sample for each agent. Second,firing all the workers is rather un-Deming-like, no? He said the system is the problem and there may be no better example than call centers for system design failing employees, customers and shareholders.

        On this last point, I don’t know what the required reading list is for call center leaders, but I do know that Out of the Crisis is not on that list. Call Centers, more than any other complex operation I have worked with, focus on the EE more than the system.

        There are multiple proof points for this. The over reliance on monitoring and coaching (do factories videotape workers and give them feedback once or twice a month as the primary quality improvement strategy?) and the excessive focus on the bottom x% (can someone take the call center leaders through Deming’s Red Bead game?) are two quick examples.

        But it goes even deeper, down to the very mental model call center leaders have about their operation. It goes something like “since my center wide metrics are a function of the weighted average performance of each of the agents, if i can improve each agent, i can improve my overall metrics.” This is true in theory, but not in practice. I am sure the readers of this blog need no proof, but if you are a propeller head (and I am), this can be easily be shown mathematically (http://www.isixsigma.com/index.php?option=com_k2&view=item&id=1062:the-futility-of-call-center-coaching&Itemid=256).

        The call center nation does not need to turn their lonely eyes to Joe DiMaggio. They need the call center version of Uncle Ed Deming to lead them out of the quality crisis they have been living in for forty years.

        Sincerely,

        Dennis Adsit

  4. Halley says:

    You are right the Pareto Principle can be used for chronic losses. I’ve used it as you have described and had success as a result. That’s part of the reason this caught my attention and inspired the post. I’ve done this a few times myself. It can take a lot of time depending on how many root causes there really are. The effort can be worth it if you are facing a loss or defect that you cannot afford to have happen even one more time. I have taken this approach with safety investigations and on one more notable occasion where a quality defect turned into a major issue with a top customer.
    +1

  5. Arnout says:

    Hi Paul, there is another danger of pareto: analysis paralysis. It keeps us in the P fase of PDSA and away from quick experimentation. Secondly, it supports the theory that one should choose (because not the complete loss can be economically eliminated ). If the vision is zero defects / waste, then it is best to start with the first problem that is in the way of your future state ( see Mike Rother, Toyota Kata). Arnout orelio

  6. Lubna says:

    It is so true, the root cause must always be found out. I love how you distinguished between a chronic loss and sporadic losses. Cheers.

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