How To Deliver 1000% ROI

Pareto articulated a simple solution.

Pareto Principle

Vilfredo Pareto (1848- 1923) was an Italian economist who observed that a relative few people held the majority of the wealth. Pareto developed logarithmic mathematical models to describe this non-uniform distribution of wealth.

Dr J M Juran (1904-2008) was the first to point out that what Pareto and others had observed was a universal principle – one that applied to an astounding variety of situations. Including quality.

In the early 1950s, Juran articulated the Pareto Principle: In a group of factors contributing to a common effect, a relative few account for the bulk of the effect.

Juran coined the terms ‘vital few’ for the relative few that account for the bulk of the effect; and ‘useful many’ for the many others that account for a smaller proportion of the effect.

The principle of the vital few and useful many also applies to quality improvement opportunities. In other words, the vital few chronic problems, say 20%, account for 80% of the Cost Of Poor Quality (COPQ). Consequently, some refer to the Pareto principle as the 80/20 rule.

Problem with Problems

The Pareto principle is so obvious and so simple that you might wonder what the fuss is about. After all, everybody knows that, don’t they?

But if everybody knows it already, why do we hear managers complaining that they are faced with dozens of problems in their organization? And why do we see company Quality Councils listing dozens of problems and setting out to solve all of them simultaneously with equal vigour?

As a result our organizations get busy working on useful many problems that deliver micro-results. Everyone looks busy. Busy, busy, busy…..going nowhere..

Eventually, the Quality Council gets buried. Top management looks for another elixir.

Much of the disappointment can be avoided if we:

  • Identify the value creation processes
  • Map the value creation processes
  • Identify the chronic problems resident in these processes
  • Estimate the COPQ for each chronic problem
  • Apply the Pareto principle
  • Solve the vital few chronic problems for quality improvement.

All this requires time. We also need economy of effort. There is no escaping that we need to work on the vital few problems.

This is exactly what was done by, amongst others, Bombay Dyeing, ITC Packaging & Printing Division, Punjab Tractors, Mahindra Tractors, Bumrungrad Hospital (Bangkok) and numerous SMEs.

Solving vital few chronic problems brings health to the bottom line.

Managers working on chronic problems for quality improvement can deliver 1000% ROI on their project team effort. As well as, get recognized by top management.

All this towards making ‘Made in India’ the Gold Standard.

Random Thoughts

  • Organizations that make quality improvement a habit deliver Faster / Better / Cheaper outputs.
  • ‘Made in India’ should precede ‘Make in India’
  • India’s richest 1 per cent hold more than four-times the wealth held by 953 million people who constitute the bottom 70 per cent of the country’s population, a study released by Oxfam said on Monday, 20 January 2020.
  • Author :

    Suresh Lulla

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