Unleashing the Power of Generative AI for Pareto 80/20 Analysis (Problem Solving)

In the realm of problem solving, simplicity and effectiveness are key. Pareto 80/20 Analysis, a simple but powerful tool, has long been recognized as a valuable approach for prioritizing efforts and maximizing impact.

You might have heard and used it as part of Lean Management or Lean 6 Sigma program in your organization or even you probably used this intuitive tool without knowing the name.

A bit of history.... Did you know that the 80/20 principle, also known as the Pareto principle or Pareto's law, was formulated by the Italian economist Vilfredo Pareto in 1896? Pareto observed that approximately 80% of the land in Italy was owned by 20% of the population. Over time, this principle has been applied to various fields and areas of study, such as business, economics, and productivity, to describe the uneven distribution of inputs and outputs.

Now, with the advent of generative AI, we have the opportunity to take this problem-solving technique to unprecedented heights. By harnessing the capabilities of AI to generate innovative solutions and combining it with the Pareto principle, we can unlock new levels of efficiency and effectiveness in addressing complex challenges.

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Important remarks: I used Generative AI to rewrite some parts of this article in order to improve its readability and accessibility.

I am David Daoud , I have over 20 years of experience with over a decade in Hong Kong. I'm director and a dedicated Global Portfolio Manager at HSBC Legal Change & Innovation. Specializing in digital transformation and operational excellence, I lead a global team in implementing solutions that drive positive outcomes aligned with HSBC's objectives.

I'm actively involved in the HSBC AI Ambassador Program, bringing expertise in Legal Tech and Fin Tech. Having founded and grown three startups, I invite you to connect for collaboration in digital transformation, change management, and strategic growth in the financial and legal sectors. Let's make an impact together.

Furthermore, on top of my corporate experience, I have successfully founded and grown three startups in Hong Kong. Two of these ventures focused on corporate digital learning, while the other centered around career management, leveraging the power of generative AI.

What is Problem Solving

Problem solving lies at the core of every successful initiative, whether it's in business, technology, or our personal lives. It involves identifying and resolving challenges or obstacles to achieve desired outcomes.

Traditionally, problem solving has relied on human intuition and analytical thinking. However, with the advent of cutting-edge technologies like generative AI, we now have an unprecedented tool to supercharge our problem-solving capabilities.

Why This Matters

In today's fast-paced and hyper-competitive world, the ability to solve problems efficiently and effectively is a vital skill. It can mean the difference between stagnation and growth, success and failure.

By harnessing the power of generative AI for problem solving, we can gain a significant competitive advantage. It allows us to analyze complex data, identify key patterns, and devise innovative solutions that drive impactful outcomes.

What is Pareto 80/20 Analysis

Pareto 80/20 Analysis, also known as the Pareto Principle or the 80/20 rule, is a powerful concept that states that roughly 80% of the effects come from 20% of the causes.

It is based on the observation made by Italian economist Vilfredo Pareto, who noticed that 80% of the land in Italy was owned by 20% of the population. This principle has since been applied to various fields, including business, project management, and problem solving.

How to Use Pareto 80/20 Analysis Step by Step

To leverage the Pareto 80/20 Analysis effectively, follow these steps:

1. Identify the Problem: Clearly define the problem you want to solve and the desired outcome.
2. Collect Data: Gather relevant data related to the problem at hand. This can include customer feedback, sales figures, or any other metrics that provide insights into the issue.
3. Analyze the Data: Use statistical tools to analyze the data and identify patterns and trends. This step is crucial in determining the 20% of causes that contribute to 80% of the effects.
4. Pareto Chart: Create a Pareto chart, a visual representation of the data, highlighting the most significant causes. This chart helps prioritize efforts by focusing on the vital few factors that drive the majority of the problem.
5. Action Plan: Develop an action plan to address the identified causes. By allocating resources and efforts to the vital few factors, you can maximize your impact and efficiency.

What is Generative AI

Generative AI refers to a class of artificial intelligence that enables machines to generate new content, ideas, or solutions based on patterns and examples from existing data.

It involves training AI models on vast amounts of information and allowing them to generate novel outputs that mimic human creativity and problem-solving capabilities.

You probably heard about ChatGPT (Open AI), Gemini (ex. Bard from Google), Anthropic, GitHub Copilot (GitHub x Open AI) and many more.

How to Leverage Generative AI for Pareto 80/20 Problem Solving Analysis

By combining the power of generative AI with Pareto 80/20 Analysis, we can unlock a new level of problem-solving prowess. Here's how:

1. Data Preprocessing: Prepare your data by cleaning and organizing it. Generative AI models require high-quality and well-structured data for optimal performance.
2. Training the Model: Train a generative AI model using your dataset. This involves feeding the model with examples of problems and their corresponding solutions.
3. Generating Solutions: Once the model is trained, you can use it to generate potential solutions to the problem at hand. The generative AI model explores a vast solution space, providing novel insights and ideas that human analysis alone may have missed.
4. Pareto 80/20 Analysis on Steroids: Apply the Pareto 80/20 Analysis to the generated solutions. Identify the top 20% of solutions that are likely to have the most significant impact on solving the problem.
5. Implementation and Iteration: Implement the most promising solutions and monitor their effectiveness. Iterate the process, continuously incorporating feedback and refining the generative AI model to enhance its problem-solving capabilities.

Real life example of how to apply Generative AI for Pareto 80/20 analysis: Quality Control in Manufacturing

A manufacturing company aims to streamline their quality control process using generative AI and Pareto 80/20 Analysis. They train a generative AI model on a dataset of product defects and corresponding corrective actions.

The AI model generates potential solutions for identifying and addressing defects in real-time. Applying Pareto 80/20 Analysis to the generated solutions, they identify the critical few factors that contribute to the majority of defects.

By focusing their efforts on addressing these key factors, they can significantly reduce defects, improve product quality, and enhance overall operational efficiency.

I gathered the following data from the quality control activity, I converted those data in Excel to represent the Pareto 80 20 chart.

Then, I asked a GPT based Gen AI product, to analyse those data using this very simple prompt (we more context and more relevant data, the response would be more specific)

Prompt: “Analyse the following data related to defects identified during a quality control. Highlight the main deductions and propose recommendations”.

Generative AI Response:

Based on the provided data related to defects identified during quality control, we can make the following deductions and propose recommendations:

1. Pareto Analysis: Applying Pareto 80/20 Analysis to the defect factors, we can observe that the top five factors (Factor 1, Factor 2, Factor 3, Factor 4, and Factor 5) contribute to a significant portion of the defects. These factors alone account for a total of 1,550 defects, which is approximately 77.5% of the total defects identified.

2. Focus on High-Frequency Defect Factors: Given their high frequencies, it is crucial to prioritize addressing the top five defect factors. This can involve conducting deeper investigations into the root causes of these defects and implementing corrective actions to mitigate their occurrence.

3. Investigate Factors 6 to 10: While these factors have lower frequencies compared to the top five, they still contribute to a considerable number of defects. It is recommended to investigate these factors to identify any common patterns or underlying issues that may be leading to the defects.

4. Continuous Improvement: Implementing a system of continuous improvement is essential. Regular monitoring and analysis of defect data can help identify emerging trends or new defect factors that may arise over time. This enables proactive measures to be taken to prevent or minimize their impact on product quality.

5. Collaborative Efforts: Quality control should involve cross-functional collaboration between various departments, such as production, design, and engineering. By fostering effective communication and sharing insights, it becomes easier to identify and address potential defects at an early stage.

6. Training and Skill Development: Provide training programs to employees involved in quality control, emphasizing the identification and prevention of the most common defect factors. This can enhance their skills in identifying potential issues and implementing appropriate measures to mitigate defects.

7. Root Cause Analysis: Conduct thorough root cause analysis for each defect factor. Understanding the underlying reasons behind the defects can help in formulating targeted and effective corrective actions.

8. Standardization and Documentation: Establish clear quality control standards and procedures. Documenting defect data, investigation findings, and corrective actions taken can facilitate knowledge sharing and enable continuous improvement efforts.

By focusing on the main defect factors, implementing targeted corrective actions, and fostering a culture of continuous improvement, the company can reduce defects, improve product quality, and enhance overall operational efficiency.

Conclusion

In conclusion, the fusion of generative AI with Pareto 80/20 Analysis opens up exciting possibilities for problem solving. By harnessing the power of data and AI-driven insights, we can identify the vital few factors that drive the majority of the problem and devise innovative solutions. Embracing this transformative approach empowers organizations and individuals to navigate complex challenges with unprecedented efficiency, propelling them towards success in our rapidly evolving world.

To stay informed and receive valuable insights on driving successful digital transformations, adopting user-centric approaches, and staying ahead of industry trends, I invite you to subscribe to my newsletter, "Digital Transformation Insight."

By joining my community, readers can become frontrunners in the digital revolution and effectively navigate the challenges and opportunities of the evolving digital landscape.

I am David Daoud , I have over 20 years of experience with over a decade in Hong Kong. I'm director and a dedicated Global Portfolio Manager at HSBC Legal Change & Innovation. Specializing in digital transformation and operational excellence, I lead a global team in implementing solutions that drive positive outcomes aligned with HSBC's objectives.

I'm actively involved in the HSBC AI Ambassador Program, bringing expertise in Legal Tech and Fin Tech. Having founded and grown three startups, I invite you to connect for collaboration in digital transformation, change management, and strategic growth in the financial and legal sectors. Let's make an impact together.

Furthermore, on top of my corporate experience, I have successfully founded and grown three startups in Hong Kong. Two of these ventures focused on corporate digital learning, while the other centered around career management, leveraging the power of generative AI.