Today we are going to discuss the Pareto Chart, which is one of the seven basic tools of quality management. I am writing this blog post upon receiving a few requests from my visitors who asked me to explain the Pareto Analysis.
Sometimes it is very difficult for you to understand the problems and their causes and everything is a mess. In this case, the Pareto Chart helps you identify a few things which matter to you the most.
The Pareto Diagram was developed by an Italian economist named Vilfredo Pareto while analysing the wealth distribution of wealthy people in society. He found that roughly 80% of the wealth was held by 20% of the population.
Later on, further studies showed the same phenomenon can be seen in other areas as well, such as:
- If you have a bucket of products, 80% of your sales comes from 20% of your products.
- 80% of customer problems relates to 20% of the issues.
- 80% of the defects is due to 20% of the problems.
So in general, this phenomenon can be interpreted as follows:
Roughly 80% of the outputs is a result of 20% of the inputs, or more simply, 80% of the effects come from 20% of the causes.
Therefore, this rule is also known as the 80/20 rule.
However, keep in mind that the above rule is a general rule and the percentage of ratio is not absolute.
The Pareto Chart is one of the key tools in quality management and Six Sigma, which helps you find the majority of problems and their root cause so you can put your effort into those causes to solve the majority of problems.
To draw the Pareto Chart you collect a list of the problems in your process and draw a bar chart. Now, you can segregate the most common cause from the minority of causes. The most commonly occurring problems will be kept on the left side and the least on the right side.
Now that you have the most significant causes, you can analyze them and find the solution for their root causes and remove the problems from your process.
The Pareto Chart is a visual chart which has vertical bars with groups of the highest numbers of problems to the lowest numbers of problems. This chart has both bars and a line graph. The bars represent the individual values (in descending order), and the line represents the cumulative total.
When You Should Use the Pareto Chart
You can use the Pareto Chart in the following cases:
- When you have a lot of data and you want to analyze it.
- When you want to identify the main cause for most of the problems.
- When communicating data with stakeholders.
- When you want to prioritize tasks.
- When you want to see relative importance of data.
Benefits of the Pareto Analysis
Following are a few benefits of the Pareto Analysis:
- Drawing a Pareto Chart is very easy.
- This diagram helps you find the majority of problems and their causes.
- It shows you which problems needs attention on a priority basis so you can focus your effort on those problems, where you can see greatest scope of improvement.
- This chart can help stakeholders visualize problems quickly, so this is a good visual communication tool as well.
The Pareto Diagram is a very useful chart for project managers and organizations. It helps project managers to identify a few important causes for many problems. It also helps management prioritize their tasks and activities. Being a variant of a bar chart, it is very easy to draw, use and communicate problems to stakeholders.
This topic is very important from a PMP exam point of view. You will see a few questions on your exam from this topic.
Here is where this blog post on Pareto Chart ends. If you have something to share, you can do so through the comments section.
image credit=> “Pareto chart of titanium investment casting defects” by DanielPenfield – Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons.