Tool 22/30 - Pareto Analysis

 

The objectives of this short ten minute exercise -

1. To learn a management tool that will be helpful in work life 
2. To apply the learning

1. To start a great day using this morning ritual

Step 1 - the warm up

Keep your journal and pen at hand

Sit in a relaxed position with an intent to go into a ‘flow state’ to learn something new

Take three deep, powerful breaths to lock in your focus and start the next step

Step 2 - the learning

About Pareto analysis

Pareto Analysis, based on the Pareto Principle, is a decision-making tool used to prioritize problems or tasks by identifying the most significant factors. It suggests that 80% of effects come from 20% of causes. Introduced by economist Vilfredo Pareto in the early 20th century, it is widely used in business and quality management.

Situations (examples) where this tool can be best used

• Delays in deliveries
• High employee turnover
• Stagnating revenue growth

The top three mental muscles (competencies) developed by practicing this tool

• Problem-solving - Addressing challenges thoughtfully and decisively
• Critical thinking - Encouraging deep thinking and exploration of ideas
• Data analysis - Understanding and interpreting data

A corporate story to understand the usage of this tool

The Elon Musk's (Tesla) story

Problem - In the early stages of Tesla’s Model 3 production, Elon Musk faced significant production delays and quality control issues, impacting Tesla's ability to meet customer demand and profitability targets.

Potential causes - 

• Production bottlenecks (e.g., lack of automated assembly)
• Supply chain disruptions (e.g., parts shortages)
• Manufacturing defects (e.g., quality control issues)
• Staffing shortages (e.g., not enough skilled workers)
• Management and communication breakdowns (e.g., coordination issues)
• Technology and design complexity (e.g., issues with software integration)

Organize/ Sort Data in Descending Order - 

Based on data from Tesla's internal reports, the main causes of delays were:

• Production bottlenecks: 40%
• Supply chain disruptions: 30%
• Manufacturing defects: 15%
• Staffing shortages: 10%
• Management breakdowns: 3%
• Technology complexity: 2%

Pick the top 20% - 

• Production bottlenecks

Impact - 

Tesla was able to improve production speed and quality, ultimately meeting demand and becoming profitable. This targeted focus led to better resource allocation and a streamlined production process.

A story from the World Wars

My personal story

Context

At some point, we had a huge bench. Most of those on the bench had outdated technical skills. As Head of Performance management, I had to take quick action else I would be asked to let them go away. 

The problem - Large number of people on bench

List potential causes - Lower business (out of my control), Requirement for skills in new technologies (within my control)  

Sort data in descending order - We listed all the new technologies in descending order of importance

Pick the top 20% - We picked up the top 4 skills, trained people in those and assigned them tasks of creating tools for internal usage

Impact - People got trained in new technologies and became deployable and the company had some new internal tools too

Step 3 - the reflection

Sit back, go down memory lane, think of various events in your work life where you could have used this learning.

If nothing comes to mind, think of a situation that would help you answer any one of these interview questions.

1. “How do you prioritize tasks or manage competing priorities?” - Explain how Pareto Analysis helps identify the "vital few" tasks
2. “Can you provide an example of how you reduced costs in your previous role?” - Highlight how Pareto Analysis revealed areas of inefficiency or high costs, enabling you to focus
3. “How do you identify and address the root causes of problems in a team or project?” - Explain how you use Pareto Analysis to categorize and prioritize root causes

Step 4 - the practice

Apply your learning to the situation you selected above.

• Problem
• Potential causes
• Sort impact data in descending order
• Pick the top 20%

Step 5 - the victory lap

Celebrate your achievement for a minute. Maybe a quick victory lap doing some energizing exercise?

**

To those who felt, “Management tools are too rigid and don’t allow for the flexibility required in complex or dynamic environments.” - Do you feel that the last ten minutes were worth the effort?

This exercise is not only about management tools. It’s about building a neural pathway. And it’s about my mantra for creating small daily acts of feeling successful and happy. 

Don’t forget to carry this image 👇 in your mind. There could be a great situation where you may want to use the tool. Keep a log of all such situations. This practice will help you when you want to train someone.

My congratulations for your first dose of the day of success and happiness. Have a great day ahead.