Today, I am writing this blog post upon receiving many requests from my visitors who want to understand the Pareto chart (or Pareto diagram) more deeply.
The Pareto chart is one of the seven basic tools of quality management. Usually this chart consists of 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 descending order of bars is from left to right. The bar on the left will have the highest height and the bar on the right side will have the lowest height.
Okay, let’s discuss this in more detail.
Sometimes it is very difficult for you to understand problems and their causes. Instead of focusing the root cause, you spend your time-solving problems which were impacting the project least.
The Pareto diagram can help you overcome this situation. The Pareto diagram can help you segregate the defects and their cause. Once you get this info, you can focus on the cause which is generating the most defects.
The Pareto diagram is based on the Pareto Principle, which was developed by an Italian economist named Vilfredo Pareto while analyzing the wealth distribution of people in society. He found that roughly 80% of the wealth was held by 20% of the population. Therefore, this principle is also known as the 80/20 principle.
Later on, further studies showed that the same phenomenon can be seen in other areas as well, such as:
- If you have many products, 80% of your sales come from 20% of your products.
- 80% of customer problems relate to 20% of the issues.
- 80% of the defects are due to 20% of the problems.
- 80% of the complaints are due to 20% of the defects
- 20% of the defects cause 80% of the problems.
In general, this phenomenon can be interpreted as follows: Roughly 80% of the problems will be due to 20% of the causes, or the majority of issues will be due to a small number of causes.
However, keep in mind that the above rule is a general rule and the ratio is not absolute.
The Pareto chart is one of the key tools in quality management and Six Sigma. This chart helps you find the majority of the problems and their root causes. You can then invest your effort in those causes and solve the majority of the problems.
How to Draw a Pareto Chart
Drawing a Pareto chart is very easy. The important step is to collect the correct data.
The steps to drawing a Pareto chart are as follows:
- Select the category of causes you want to group issues in.
- Determine the measure, for example, frequency, cost, time, etc.
- Determine the period to collect the data; for example, one cycle, one day, or one week.
- Collect the data.
- Segregate the data as per their categories.
- Draw a bar chart with causes on the x-axis and number of occurrences on the y-axis.
- Now 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 category with the lowest number of defects will be at the far-right.
The Pareto chart is ready and now you draw a cumulative sum line. The procedure to draw this line is as follows:
- Find the percentage of each category.
- Add the percentage of the first and second bar and put a dot on the second bar.
- Now 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 all the dots.
Now the cumulative sum line is drawn. Make sure that the bar at the far-right has a percentage of 100%.
In summary, 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 commonly occurring problems will be kept on the left side and the least common on the far-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.
When You Should Use a Pareto Chart
The Pareto diagram is one of the seven basic tools of quality management, so it is mainly used in quality management related processes. Along with quality management, this tool can also be used with other situations. Some of the cases when you can use the Pareto chart are as follows:
- 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 the relative importance of data.
Benefits of Pareto Analysis
The following are a few benefits of Pareto analysis:
- Drawing a Pareto chart is very simple.
- This diagram helps you segregate the problems and their causes.
- It helps you focus on solving the few causes which are generating the maximum amount of problems.
- It shows you which problems need attention on a priority basis so you can focus your effort on those problems, and thus you can see the greatest improvement.
- This chart can help stakeholders visualize problems quickly, so this is a good visual communication tool as well.
Limitations of Pareto Analysis
The following are a few limitations of Pareto analysis:
- The Pareto principle is a rule of thumb which is not a universal law and cannot be applied 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 to use it effectively.
- If there are many problems you may need more sub-Pareto charts to segregate, which sometimes may be cumbersome.
- Though a Pareto chart can show you the frequency of a problem, it cannot show you the severity.
- Pareto analysis focuses on past data which might not be significant to current or future scenarios.
The Pareto chart is a visual chart which has vertical bars and a line graph. The bars represent the individual values of the problem (in descending order), the line represents the cumulative sum, and the bars are segregated in descending order from left to right.
This chart helps project managers to identify the causes of most of the problems the process is facing. It also helps management prioritize tasks and activities. Being a variant of a bar chart, it is simple 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.
If you have something to share, you can do so through the comments section.