Pareto Principle and Project Management

In the first MGT 598 class, we discussed about mistakes caused by not understanding the role of projects in strategies.  One of the mistakes is we try to solve customer issues with a product or services rather than focusing on the Pareto’s principal – the 80-20 rule.

I read an article from NuWave Technology, an IT consulting company.   The title is: “Adapting the Pareto Principle for Project Management”.  The author applies the Pareto’s principal in a new approach.  He believes that majority of the effects seen in projects will come from a minority of efforts that the team does.  This seems unbelievable because the general perception is no pain, no gain.  The more we work, the more we will get.   However, this is not always true.

The article mentioned that time management and quality control are the two major areas we need to monitor for project progresses.  In order to effectively manage these two, we need to apply the Pareto’s rules.  For time management, we have to identify the 20% of requirements that will mostly meet the project’s original goal, avoiding time on modifications that add little values.  Same as quality control, if we are able to identify the 20% problems that causes 80% of the issues, we are confident that we meet most of our customers’ needs.  In reality, we always forget about this golden rule.

I recently worked on an inventory management project for my company.  The goal was to accurately identify excess and obsolete inventories.  Our original approach to calculate excess inventories was to use historical product consumption.  While this seems make sense, it is not because history does not always repeat itself.  Historic usage might not be a good indicator for our excess and obsolete inventories.  To resolve this, we started an improvement project.  Instead of using historical consumption, we used forecast.

We tried to apply 12 month forecast to estimate potential demand for all products.  We gathered information from different departments and created a forecast database for items in inventories.  Based on the demand signal, we calculated potential excess inventories.  We believed this is a better approach to measure excess and obsolete inventories.  However, the result did not turn well.

We reviewed the data and the new model and figured this approach does not help to improve accuracy of calculation.  The reason is that we do not forecast demand for all items.  Although we forecast over 80% worth of total inventories, it is the 20% that we do not forecast matters most.  Why?  This is because majority of the excess and obsolete inventories come from the 20% inventories.  Thus, if we had focused on the 20% items with no forecast, accuracy would have been improved substantially.  This agrees with what the author proposed: “20% effort and 80% results”.  Have you experienced similar situation in your companies?

PM

*Source: “Adapting the Pareto Principle for Project Management”, NuWave Technologies

 

Article link:

“Adapting the Pareto Principle for Project Management”

http://www.nuwavetech.com/it-project-blog/bid/43037/Adapting-the-Pareto-Principle-for-Project-Management

3 thoughts on “Pareto Principle and Project Management

  1. I thoroughly enjoyed reading this blog post, as many companies have multiple projects in which team members get in the weeds. Although I have not worked within inventory management, our aerospace company usually receives “abstract” or “science project like” requirements for some of our aerospace applications. In my experience, the successful projects have had an organized kick-off in which the program manager identifies the major milestones that are required. Secondly, the project manager immediately addresses the “science project issues” that could increase cost, extend the timeline of the project and reduce performance. These issues are identified based on the rule that is being discussed in this article – the 80/20. Our program manager needs not to be a subject matter expert in the technical portion, but be able to identify which requirements are “fuzzy” and which “fuzzy” requirements could trigger adverse impacts. Identifying those top issues and addressing them via working plans, responsibilities and agreed upon accountability within the project group really assists in addressing the issue.

    For the inventory management project, do you think that this communication of issues up front would have helped identify the top 20% of inventory importance up front? The reason I present this is, it does not appear to be a “project charter” or “scope” issue, it more appears to be, like you said, a pareto principle identification of issues. Maybe the utility of the Pareto Principle in a Project Kick-Off checklist would assist in these potential items for future projects? What do you think?

  2. I can relate to this post because it is so easy to think you have solved a problem because you have addressed the 80% when the problem lies in the 20%. I was wondering the same thing, Sam, about what may have prevented this in your inventory management project. I like the idea of using the Pareto Principle up front during the project planning phase. I wonder how that would look in practice or if it is more of an awareness need during project planning.

    In our company, we try to forecast our project impact as part of our project proposal, which should make project managers think of the best way to get the best results. However, once you get attached to a project or particular analysis that was done, it can be difficult to be objective about it. I find that even with a project impact forecast, the project can still miss the mark by focusing on the wrong thing during the implementation or how you solve the problem. I think that being aware of the Pareto Principle would remind project managers to focus on the best use of everyone’s time to meet the goal of the project. Thanks for posting!

  3. I’m not sure I understand how your forecast approach only forecasted 80% and that the missing 20% of items ended up being the most critical. In your post, you explained, “This is because the majority of the excess and obsolete inventories come from the 20% inventories. Thus, if we had focused on the 20% items with no forecast, accuracy would have been improved substantially. ”
    Did you only forecast your 80% top selling items? When I read this I found myself wondering if the slow-moving 20% are exactly the items to focus forecasting efforts if you are interested in identifying excess and obsolete estimates because those slow-moving skus are within the product band that ends up in excess or obsolete because they don’t sell! Is that what you found to be true?

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