What is a Pareto Chart?

July 25, 2020
Fahad Usmani
pareto diagram

It can be challenging for you to understand the main problems and their causes, instead, you spend your time on solving problems with the least influence on the project.

In such situations, the Pareto Chart can help solve problems. The Pareto Chart is one of the seven basic tools of quality management. The Pareto Diagram can help you segregate the defects and their causes. Once you get this info, you can focus on the cause that is generating the most issue.

This is an important tool in quality management and project managers use it to find problems with the highest influence.

Pareto Chart

Mr. Vilfredo Pareto, an Italian economist, developed the Pareto Chart. This chart is based on the Pareto Principle.

This chart has a vertical bar and sometimes a bar and line graph. The vertical bar represents the frequency of defects, and the line represents a cumulative percentage of the defects.

The heights of the bars descend from left to right. The first bar on the left side is the highest, and the last bar on the right is the lowest.

Mr. Vilfredo Pareto developed this chart while analyzing the wealth distribution of people in society. He found out that roughly 80% of the wealth was held by 20% of the population. This principle is also known as the 80/20 principle.

Later, further studies showed the same phenomenon in other areas, such as

  • 80% of your sales come from 20% of your products.
  • 80% of customer problems are related to 20% of the issues.
  • 80% of defects are because of 20% of the problems.
  • 80% of the complaints are due to 20% of the defects.

You can interpret this phenomenon as follows: roughly 80% of the problems will be due to 20% of the causes, or most issues will stem from a few causes.

Keep in mind that this is a general rule and the ratio is not absolute.

A Pareto chart is a key tool in quality management and Six Sigma. This chart helps you segregate the problems and then you can find their root causes. You can invest your effort in those causes and solve most of the problems.

How to Draw a Pareto Chart

Once you collect the data, drawing a Pareto chart is easy. The steps to drawing a Pareto chart are:

  • Select the category of causes you want to group the issues into.
  • Determine the measure, for example, frequency, cost, time, etc.
  • Decide the period to collect the data, for example, one cycle, one day, or one week.
  • Collect the data.
  • Segregate the data as per the categories.
  • Draw a bar chart with causes on the x-axis and the number of occurrences on the y-axis.
  • Draw the bar with the highest number of occurrences at the far-left and label the category.
  • Repeat the procedure until you complete all identified categories.
  • The bar showing the lowest number of problems will be on the last.

Your Pareto chart is ready, and now you draw a cumulative sum line. The procedure to draw this line is:

  • Find the percentage of each category.
  • Add the percentage of the first and second bar and put a dot on the second bar.
  • Add the percentage of the third bar and place a dot at the top of the third bar.
  • Continue the process until all bars are covered.
  • Connect the dots.
  • Now, the cumulative sum line is drawn. Make sure the bar at the far right has a percentage of 100%.

To draw the Pareto chart, you collect the problems in your process and categorize them by their type and draw a bar chart as per their category. The most frequently occurring problems will be on the left and the least on the right side.

Now you can segregate the causes generating the majority of the problems, analyze them, find the solution for their root causes, and remove the problems from your process.

Using a Pareto Chart

Apart from quality management, you can use this tool in the following situations:

  • When you have a lot of data and you want to analyze it.
  • When you want to identify the cause with the highest number of problems.
  • When communicating data with stakeholders.
  • When you want to prioritize tasks.
  • When you want to see the relative importance of data.

Benefits of a Pareto Chart

The following are a few benefits of Pareto analysis:

  • Drawing a Pareto chart is easy.
  • It helps you segregate the problems and their causes.
  • It helps you focus on solving the few causes generating the most problems.
  • It shows you the problems to focus on to get a significant improvement.
  • It helps you visualize problems quickly, so it is an excellent visual communication tool.

Limitations of a Pareto Chart

The following are a few limitations of Pareto analysis:

  • The Pareto principle is a rule of thumb that you cannot apply in all cases.
  • It does not help you find the root cause of the problem, so you will need another tool such as root cause analysis.
  • If there are many problems, you may need more sub-Pareto charts to segregate, which sometimes may be cumbersome.
  • It shows the frequency of a problem, not the severity.
  • It focuses on past data which might not be significant to current or future scenarios.

Conclusion

A Pareto Chart consists of vertical bars and a line graph. The bars represent the individual values of the problem in descending order from left to right; the line shows the cumulative sum. This chart helps project managers find the minor causes that are affecting the project significantly. It helps prioritize tasks and activities. Being a variant of a bar chart, it is simple to draw, use, and communicate problems to stakeholders.

How is the Pareto Chart useful in your project? Please share your experiences in the comments section.

Reference: ASQ

This topic is vital from a PMP exam point of view. You will see it on your exam on this topic.

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Speak Your Mind

  • Hello sir,
    As I am new in quality circle, so I want to know that what is the use of that cumulative frequency and the curve in this chart if we get priority reason from the bar chart itself.
    Could you please explain sir.
    Thanks.

  • Sir,
    I find all your blogs very nice and helpful. I have a request, could you please make a post for all major things related to ISO. I’ll be grateful sir.
    Thank You.

  • Hi Fahad,

    Thanks for the blog!
    Could you explain how 80/20 rule relates to this chart?
    The chart helps to identify largest problems that need to be investigated for causes-if I am not wrong?

    • See the dot at the top curved line. You can see that it is approximately 80% of effects are due to around 20% of causes.

  • Hi Fahad,
    thanks for your blog, it help me clarify lots of contents. I passed my PMP today. I did little search on pareto, i think it is a cumulative percentage count.

  • Hi Fahad,

    thanks again for the wonderful blog.
    Can you please explain how is the cumulative line graph plotted and interpreted. i’ve seen a diagram where the line graph start at 45% instead of at the top of first bar.
    thanks,
    YB

  • Hi Fahad,

    Just a suggestion if you can update the graph with naming x axis with causes and bars with problems would be great to visualize.

    Excellent Post!!

    Thanks
    Sushil

  • I’ve used Pareto Analysis throughout my I/T career and have found it most useful in determining the ‘biggest bar’.

    After you rank your issues by occurrence, try ranking them by value of occurrence (occurrence multiplied by the cost value of the error). This will help you see the true financial impact of the issues at hand!

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