The document discusses Pareto analysis and its six-step process. Pareto analysis involves identifying problems, determining their root causes, scoring problems by importance, grouping causes, and prioritizing the highest scoring ones. An example analysis of a company PT A is provided. It found that 15% of factors were due to lack of management strategy, which caused 80% of problems. To compete, PT A needs business model transformation, developing e-commerce, and improving management - its identified 20% priority area.

1. Presented by :
E. Sahusilawane
Yohan Eko K.
Leady Ervine Winerungan
DECISION MAKING TOOLS USING PARETO ANALYSIS METHOD

2. What is Pareto
• Named after Vilfredo Pareto, an Italian economist.
He observed in 1906 that 20% of the Italian
population owned 80% of Italy's wealth
• Pareto Analysis is used to record and analyze data
relating to a problem in such a way as to highlight
the most significant areas, inputs or issues.
• Pareto Analysis often reveals that a small number
of failures are responsible for the bulk of quality
costs, a phenomenon called the ‘Pareto Principle.’
• This pattern is also called the ‘80/20 rule’ and
shows itself in many ways.

3. Pareto Principle
• Doing 20% of work generates advantage
80% of entire job
• In terms of quality improvement, large
majority of problems (80%) are created
by a few key causes (20%
• Example :
a. 80% of sales are generated by 20%
of customers.
b. 80% of Quality costs are caused by
20% of the problems.
c. 20% of stock lines will account for
80% of the value of the stock.

4. Benefits of Pareto Analysis
It helps to
improve
decision
making
It is used to
bridge the
gap between
efforts and
achievements
It helps to
grow and
develop
business
It helps to
identify
crucial
problems
It helps
organization
to focus on
its core
strength

5. Step 1
Identify and
List
Problems
Areas
Step 2
Identify the
Root Cause
for Each
Problem
Step 3
Score each
Problems in
terms of
importance
Step 4
Group
Problems
Together by
Root Cause
Step 5
Start working
on those with
highest score
Pareto - step by step

6. Step 1 : Identify and List Problem Areas
• Write a list of all most
important causes and
problems that you need to
consider
• If possible, talk to clients,
stakeholders and team
members to get their inputs

7. Problem List Example
• The decreased performance of PT A. which
previously was the only player for mail & freight
delivery service, now has becoming one of the
player due to many new competitors.
• The trend in the use of the product was decreased
along with new technology which offers the easier
way to send money and document in a faster way
and even real time.
• Reduced physical / paper mail delivery with the
changing trend to send the electronic document

8. Step 2 : Identify the Root Cause for Each Problem
• For each problem, identify its
fundamental cause
• Techniques which might be
used for this steps are:
- Brainstorming
- The 5 Whys
- Root Cause Analysis

9. PT. A – Root Cause Analysis
Business process,
Infrastructure & technology
• Less responsive and quickly
adapt to technological change
Corporate Culture
PT A. does not have the skillset
needed by the logistics industry
at this time
Human Resources
• Employees who are already in
the comfort zone
• Complicated bureaucracy &
long work procedures
Business Model
A conventional business model
that is less adaptive to rapid
business development

10. Step 3 : Score each Problems in terms of importance
• This steps is the most subjective in
the process
• The scoring method depends on the
sort of problem we're trying to solve
• Example :
a. If we want to improve profits, we
might score problems on the basis
of how much the cost
b. If we're trying to improve customer
satisfaction, we might score them on
the basis of the number of
complaints

11. Example of Questionnaire

12. Step 4 : Group Problems Together by Root Cause
• Group the problems by similar cause.
• For example when we do primary and
questionnaire research on PT. A, we
obtain that list driver / root cause.
• The decreased performance of PT. A is
classified into 5 factors as below :
1. Intrinsic
2. Environment
3. Peer & social
4. Supervising
5. Management

13. Step 5 : Start working on those with highest score
• Start to do calculation of previous
scoring to obtain percentage.
• This last step will show us which of
assumption 20% percentage that
influent the percentage of other
driver or root cause.

14. DRIVER FINDING PERCENTAGE PARETO
INTRINSIC 51 22%
80
ENVIRONMENT 52 22%
REKAN KERJA & SOSIAL (PEER & SOCIAL) 49 21%
SUPERVISING 45 19%
MANAGEMENT 35 15% 20
Based on questionnaire and research, it was found that:
a. 15% factors or 20% of Pareto assumption is due to lack of Management strategy & control which caused
the problems that occur in PT A.
b. 80% factors are caused by the intrinsic elements such as the Employees, environment, peer & social.
Pareto Analysis on PT. A

15. Pareto Chart on PT. A

16. Conclusion
1. To be able to compete with competitors, PT. A needs to do a
Business Model Transformation in the whole aspect.
2. To adapt with technology and society PT. A needs to build and
maximize the usage of E-Commerce channel to gain more revenue.
3. Improvements in management PT. A (20%) is now becoming main
priority to get 80% company performance improvement.