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Last edited 11 Oct 2020
Pareto analysis in construction
Pareto analysis is a statistical decision-making technique that identifies a limited number of input factors as having a greater impact on outcomes, whether they are positive or negative. It is based on the Pareto Principle, popularly known as the ‘80/20 rule’, that stipulates that 80% of the outputs result from 20% of the inputs.
The principle was developed by Vilfredo Pareto, a 19th century Italian economist and sociologist who was researching wealth distribution. He subsequently discovered the 80/20 rule applied to areas outside of economics, for example, 80% of the peas in his garden were produced by only 20% of the peapods planted.
Pareto analysis can also be used as a project management tool. For example, the majority of problems (80%) are produced by relatively few causes (20%); and 80% of the project’s benefits are delivered through 20% of the work.
Put simply, Pareto analysis shows that a disproportionate improvement can be made by ranking the various causes of a problem and allocating resources to tackling those that have the largest impact.
In construction, there may be a problem with the project programme that is the result of a large number of causes. Through observation and the collection of data, it might be determined that there are 8 causes. Pareto analysis may show that 80% of the problems result from the top 2 or 3 causes. The project management team can then plan an appropriate response, targeting resources at those 2 or 3 causes, rather than all 8.
Inputs are listed along the horizontal ‘y’ axis in descending order of output frequency (using the cumulative percentage of the outputs), and uses a line graph to chart them. The vertical ‘x’ axis measures the frequency of the output for each input, and uses a bar graph to chart them.
In the example diagram, it can be seen that 42% of the issues are related to installation, and that three of the categories; installation, software faults, and shipping, account for 79% of the issues.
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