PROCESS MANAGEMENT GLOSSARY
What is Pareto Priority Index?
The Pareto Priority Index is a formula for calculating the costs and benefits of a project.
The index is about selecting the project that will give you the highest return on the invested resources. Calculate each suggested project using this tool to prioritise your projects by value:
Pareto Priority Index Column Terms
Estimate savings based on the reduced labour and material the project would require in a specific time window. It is worth considering that the equipment used to make these savings may last longer than your allotted time frame (giving increased value).
Probability of Success
Evaluate your chances based on the complexity of the equipment which will be involved in the project. For example, highly customised equipment means a much higher risk of late delivery, cost overruns, or other unforeseen issues.
All costs associated with the equipment, engineering and testing, installation and support work.
Time for Completion
Lead time for equipment delivery, training, and startup time.
The PPI chart takes these inputs and uses them to draw a probability of success, demonstrated by an index number. A project with both a high yield and probability of success will register a high index number. While a project with many associated risks and a long completion time will have a low index number.
Flaws of Pareto Priority Index
The advantage of PPI, that it measures objective and quantitative factors is also its downside. The problem with using a PPI chart alone for choosing which project to work on, is that it doesn’t take the customer into account.
This is why the Pareto Priority Index goes hand in hand with the prioritisation matrix. The prioritisation matrix is a rigorous method to make comparisons. When used with customer surveys, interviews and focus groups you get a clear public perception. With all of this information collected the committee can accurately rate each potential project accurately.
- Learn about other process improvement tools from our guide.