Lean Six Sigma is a globally recognised process improvement methodology that helps businesses increase revenue, reduce costs and improve efficiency.
It incorporates a number of principles and theories taken from other areas, such as finance, including the Pareto Principle.
The Pareto Principle dates from 1897, when an Italian economist called Vilfreda Perato analysed the distribution of wealth in his country. He came up with the theory that 20% of the population held 80% of the income. Renowned quality management leader Dr Joe M. Juran first applied to theory to other areas of business and society during the 1940s.
Although it is often known as the 80/20 principle, these proportions are not set in stone. The most important point is that a large proportion of results come for a small proportion of cases. For example, a company may earn 80% of its profits from 20% of its sales.
Lean Six Sigma uses ‘Pareto Charts’ to visualise where the bulk of the problems or opportunities in a process originate. The theory is that by tackling the largest source of inefficiency first, companies can make the biggest improvements with the minimal amount of effort.
Pareto charts can be used to answer questions such as:
For example, you could plot the reason for complaints along the X axis of a graph and the number of complaints that fall under each category along the Y axis. This will clearly display the biggest reason for customer complaints and, therefore, the area the business needs to tackle first to improve its service.
As you can see from the above, Lean Six Sigma principles incorporated into business strategy can improve an organisation’s efficiency, no matter which industry it operates in.
The Pareto Principle enables managers and staff alike to:
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Discover more about Lean Six Sigma courses and how they can benefit you on our IASSC page.