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