Resources - Risk Management

Procedure for Pareto Analysis

1.0 Define the activity or system of interest

Intended functions. All risk assessments are concerned with how an activity or system can fail to perform an intended function. A clear definition of the intended functions for an activity or system is, therefore, an important first step in any analysis. This step does not have to be formally documented for most Pareto analyses.

Example"The vessel must be able to take passengers to their destination safely"

Boundaries. Few activities or systems exist in isolation. Most interact with other activities or systems. By clearly defining the boundaries of an activity or system, the analyst can avoid (1) overlooking key elements of an activity or system at interfaces and (2) penalizing an activity or system by associating other issues with the subject of the study. This is especially true of boundaries that support activities or systems such as electric power and compressed air.

Example of boundaries for a Pareto analysis

Vessel Systems

Within boundaries

  • Bridge control systems
  • Electrical systems
  • Fuel, water, and oil storage systems
  • Propulsion systems
  • Steering systems
  • Structural systems

Outside of boundaries

  • Heating, ventilation, and air conditioning (HVAC) systems

2.0 Define the specific risk-related factors of merit

Specify the metrics that best characterize the problems of interest. Virtually any metric can serve as the basis for a Pareto analysis. Sometimes, the metrics are even more restrictively defined by being linked to a specific type of activity or system problem, such as the number of failures of elements of a vessel's propulsion system. The key is to define the factors of merit that will best help decision makers make more informed decisions. A Pareto analysis can address more than one factor of merit simultaneously, but separate plots must be created for each. In other words, the systems most important for preventing safety events may not be the same systems as those most important for preventing environmental problems.

3.0 Subdivide the activity or system for analysis

An activity or system may be divided at many different levels of resolution, as illustrated above. Generally speaking, Pareto analyses should try to characterize risk-related performance for an activity or system at the broadest level possible, based on the availability of applicable data. The procedure for subdividing an activity or system for Pareto analysis is typically iterative, beginning with a broad subdivision into major operations or subsystems. An example breakdown is shown below.

This strategy of beginning at the operation or subsystem level helps promote effective and efficient risk assessments by:

  • ensuring that all key issues are considered,
  • encouraging analysts to avoid unnecessary detail, and
  • using a structure that helps avoid overlooking lower-level issues (if further subdivision of the activity or system is necessary).

Example of system subdivision

Vessel systems within the boundaries of the analysis

  • Bridge control systems
    • control system
  • Electrical systems
    • power system
    • safety interlock system
  • Fuel, water, and oil storage systems
    • fuel tanks and piping
    • oil tanks and piping
    • water and ballast tanks and piping
  • Propulsion systems
    • diesel engine
    • diesel engine cooling system
    • diesel engine ignition system
    • diesel engine lubrication system
    • fuel system
    • screw
    • transmission and drive system
  • Steering systems
    • hydraulic system
    • steering lubrication system
  • Structural systems
    • cable trays
    • engine mounts
    • pipe hangers
    • pump mounts

4.0 Determine which elements of the activity or system lead to the problems of interest

Only elements of the activity or system that have produced the problem of interest should be included in the Pareto analysis. Omit others from the analysis.

Example of items leading to the problems of interest

5.0 Collect and organize relevant risk data for elements of the activity or system

Relevant risk-related data for elements of activities or systems are available from a number of sources. These include the following:

  • Accident records
  • Near-miss records
  • Maintenance records
  • Operations reports
  • Survey records

This step generally involves two activities:

  • Gathering the raw data about events of interest
  • Tabulating the data in a convenient format for generating the Pareto charts, as shown in the following example


6.0 Plot the data on Pareto charts

Choose one factor of merit. Select one of the factors of merit listed previously.

Construct the framework of a chart. Define the grid for plotting contributions of the various elements of the activity or system. A dual vertical axis plot is generally used, with the left axis defining the range for actual values of the factor of merit (e.g., the range of actual accidents for various elements of the activity or system) and the right axis defining the cumulative contribution of the elements.

Arrange the contributing elements along the horizontal axis. Begin on the left side of the horizontal axis by listing the element that contributes most to the selected factor of merit. Then, moving toward the right of the horizontal axis, list each of the other contributing elements successively in decreasing order of their contribution. You may choose to combine several less important elements into an "other" category to simplify your chart. Be sure you do not combine so many elements together that "other" becomes a dominant contributor.

Plot the data. For each element, draw a vertical bar that relates to the left axis of the chart and indicates the actual value of the factor of merit attributed to that element.

Then, draw a point based on the right axis of the chart indicating the cumulative percentage that the element with all of the other elements to its left contributes to the total value of the factor of merit for the activity or system. In this example, there were three failures out of five total failures attributed to the electrical system for this factor of merit. Therefore, the first element contributed three out of five, or 60%, of the cumulative percentage of problems. The second element contributing to this factor of merit, propulsion system, added an additional two failures. Adding these additional two failures to the three from the element to its left (electrical system) produces five out of the five total failures, or 100% of the cumulative.

Repeat the process for other important factors of merit. Repeat the previous steps for any other factors of merit that are pertinent and for which data have been collected. In this example, another chart could be generated to show the distribution of the number of failures of elements of the vessel's maneuvering system during transit.

The "important few" failures can easily be seen on this graph. For systems with a history of affecting the vessel's propulsion ability during transit, electrical system and engine system problems deserve the highest priority and should perhaps be subdivided.

Certainly, other types of chart formats (e.g., pie charts) can be equally effective for presenting Pareto analysis results. Use the formats with which management feels most comfortable.

7.0 Further subdivide the elements of the activity or system (if necessary or otherwise useful)

Further subdivision of activities or systems into operations or subsystems occurs only under the following conditions:

  • Applicable data at an activity or system level are not available
  • Decision makers need information at a more detailed level

Often, only a few activities or systems must be expanded.

If the above criteria apply to one or more activities, those activities may be further divided into operations. In a similar manner, operations may be divided into functions, functions into systems, etc.

At each level, the process of collecting, organizing, and plotting data is repeated. For operation, function, subsystem, and component charts, the cumulative percentages can be based on (1) the percentage of the overall factor of merit for the entire activity or system (as shown in the graphs on the next page) or (2) the percentage of the factor of merit attributed to the next higher level of the hierarchy (that is, the percentage a function contributes to an operation or a component contributes to a subsystem)


8.0 Use the results in decision making

Assess the applicability of the results to your current situation. Study the data to determine whether any recent changes might invalidate the trends reflected in the risk assessment results.

Judge acceptability. Decide whether the overall value of the factor of merit for the activity or system meets an established goal or requirement.

Identify improvement opportunities. Identify elements of the activity or system that are the largest contributors to future risk-related problems. These are the "important few" elements with the largest percentage contributions to the pertinent risk-related factors of merit.

Make recommendations for improvements. Develop specific suggestions for improving future activity or system performance, including any of the following:

  • Equipment modifications
  • Procedural changes
  • Administrative policy changes, such as planned maintenance tasks, operator training, etc.

Justify allocation of resources for improvements. Estimate how implementation of expensive or controversial recommendations for improvement will affect future risk-related performance. Compare the economic benefits of these improvements to the total life cycle costs of implementing each recommendation.

Monitor changing contributions over time. Periodically (e.g., monthly or quarterly), reevaluate activity or system performance to identify changes in the overall factors of merit as well as the key contributors to each factor of merit. This ongoing monitoring can provide the following benefits:

  • Document that goals and requirements have been met and are being maintained or improved upon
  • Provide quick recognition of negative trends in system performance so that root cause analyses may be launched to solve emerging problems
  • Document the benefits that specific improvement recommendations are producing
  • Identify instances where specific improvement recommendations are not producing the desired effects and need to be reevaluated

Source: USCG Risk-based Decision-making (RBDM) Guidelines.

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