## What is a Pareto Chart?

→ A Pareto Chart is a bar graph representing the frequency or impact of different causes, and the bar is arranged with the longest bars on the left side and the shortest on the right side.

→ This bar graph is combined with a line graph representing the cumulative total.

→ It was invented by Mr. Vilfredo Pareto.

→ This tool is a very good tool for prioritization.

→ The Pareto Chart is the most popular tool among the 7 QC Tools.

**Table of Contents:**

- What is a Pareto Chart?
- History
- What is the Pareto Principle or 80/20 Rule?
- When to Use Pareto Chart?
- Why to Use Pareto Chart?
- Key Elements of Pareto Chart
- How to make a Pareto chart?
- Limitations of Pareto Chart
- Benefits of Pareto Chart
- Conclusion

## History:

→ Vilfredo Pareto was an Italian engineer, sociologist, and economist.

→ Vilfredo Pareto observed that: *"80% of the land in Italy was owned by about
20% of the population."
*

→ This observation led to the formulation of one important principle which
states that **"roughly 80% of effects come from 20% of causes."
**

→ This principle is known as the Pareto Principle.

→ The Pareto principle was named after Vilfredo Pareto.

→ He also contributed to the fields of sociology and mathematics.

→ Dr. Joseph M. Juran popularized the Pareto chart in the field of quality management.

→ Dr. Juran's work has explained to businesses to focus on ** "vital few"**
problems rather than the

**.**

*"trivial many"*→ That means we need to focus on very critical and high-impact 20 % problems rather than the 80% problems having less impact and less critical to the businesses.

→ After his work, this graph became an important tool in quality improvement initiatives.

→ The Pareto chart is an integral part of the ** Six Sigma Project** and Lean
Manufacturing Methodologies.

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## What is the Pareto Principle or 80/20 Rule?

→ Italian economist Vilfredo Pareto observed that *"roughly 80% of the effects
come from 20% of the causes".
*

→ This principle is known as the Pareto Principle.

→ The Pareto Principle is also known as the 80/20 rule.

→ Let us take more examples of the Pareto principle for better understanding.

→ 80% of the Problems come from 20% of the causes.

→ 80% of the Output comes from 20% of the Input.

→ It Distinguishes between Vital Few from Trivial Many.

→ 80% of the Results come from 20% of the effort

## When to Use Pareto Chart?

- This tool is used for Prioritization
- It is used to calculate the potential impact of things
- It is used for identifying the vital few and the trivial many
- Defect and customer complaint analysis
- Identify areas of improvement
- Prioritize efforts, and allocate resources effectively

## Why to Use Pareto Chart?

- It visually represents the critical improvement area and potential causes.
- Prioritization of issues
- Efficient resource allocation
- It enables data-driven decision making
- Very easy to communicate the opportunities for improvement.
- Very easy to understand and use

## Key Elements of Pareto Chart:

➝ Now we will understand about the key elements of the chart.

➝ These key elements help us to create and analyze the chart.

**⏩ The four Key Elements of the Pareto Chart are:**

- Bars
- Line Graph
- Axes
- Categories

➝ Now we will understand all key elements in detail.

#### (1) Bars:

➝ The bars represent the frequency of different categories.

➝ The categories are usually arranged in descending order from left to right.

➝ So we can say that the most significant causes are arranged on the left in the graph.

#### (2) Line Graph:

➝ In this graph the cumulative line graph is used.

➝ A cumulative line graph is plotted above the bars and it is used to show the percentage.

➝ The percentage we need to plot on the secondary axis of the graph.

➝ The cumulative percentage is calculated based on the cumulative count of the different categorical data.

#### (3) Axes:

➝ This graph contains two axes which are the primary axis and the secondary axis.

➝ The left vertical axis represents the frequency or impact of each category which is called as primary axis.

➝ The right vertical axis represents the cumulative percentage, ranging from 0% to 100% which is called the secondary axis.

#### (4) Categories:

➝ The categories are the types of issues or we can say the specific causes.

➝ We can simply understand categories as during manufacturing different types of defects are generated that we can consider as categories.

➝ We need to count the frequency of the data to construct the graph.

➝ Catagories name should be mentioned in the horizontal axis.

## How to make a Pareto chart?

➝ Now we will create a graph with an example of defect analysis in a manufacturing company.

**⏩ Five Steps for Making a Pareto Chart are:**

- Identify and Define the Problem
- Data Collection
- Soring the Data
- Calculate Cumulative Data
- Construct the Graph
- Analyze the Chart and Prepare an Action Plan

➝ Now we will learn each step with detailed examples.

### Step 1: Identify and Define the Problem:

➝ In the very first step, we will identify and define the problem.

➝ So in our example we will refer to the defect analysis problem.

➝ Then we need to determine the data collection method and period of data collection.

➝ Design a separate Check Sheet if necessary.

➝ Identify the different categories of defects for defect analysis.

### Step 2: Data Collection:

➝ The second step is data collection.

➝ In this step, we will collect the data related to different category-wise defects.

➝ We can collect this data from various sources such as quality control logs, customer complaints, warranty failures, market recalls, or any other relevant source.

### Step 3: Sorting the Data:

➝ After data collection, we need to sort the data into different categories.

➝ For that we need to list down all possible categories of defects and note down the frequency/count of the defect.

➝ So all categories have respective numbers of count.

➝ The data should be quantifiable or it should be quantitative.

➝ We will use this data to construct the graph.

### Step 4: Calculate Cumulative Data:

➝ The fourth step is to calculate the cumulative total land percentage of data.

➝ In this example we need to calculate cumulative defect count and percentage.

➝ Refer to the below picture for better understanding and clarification.

### Step 5: Construct the Graph:

➝ Now after collecting all data and calculating the cumulative percentage, we will create a chart.

➝ For that we need to draw the axes, bars, and cumulative percentage line, and label the chart.

➝ This way we can easily make the Graph.

➝ Refer to the below picture for a better understanding.

### Step 6: Analyze the Chart and Prepare Action Plan:

→ Now we need to analyze the chart and identify Vital Few problems from the Trivial Many by using the 80:20 principle.

→ Let's say in our example we are taking defects D, E, F, and A for further action because the contribution of these defects is almost around 81%. it is as per the 80:20 Rule.

→ It is not mandatory to take defects up to 80% we can take only the first two defects which contribute around 65% problem.

→ Now we will take action on these defects by finding the root cause with the help of any root cause analysis method such as the Cause and Effect Diagram, 5 Why analysis, Fault Tree Analysis, etc.

→ The bar graph shows the number of defects in descending order and the line graph shows the cumulative percentage of the defect.

## Limitations of Pareto Chart:

- It does not identify the root cause of the problem
- Does not show a trend or pattern of collected data
- It highly relies on the quality of data collected
- Wrong categorization of data leads to wrong prioritization
- Not suitable for all types of data

## Benefits of Pareto Chart:

- We can easily distinguish between Vital Few and Trivial Many
- It is a good problem-analysis tool
- Continuous Improvement
- It helps a team to focus on causes that will have the greatest impact when solved.
- By using 20% of resources we can solve 80% of problems.
- We can easily understand the impact of the defect on our production
- It improves our decision-making ability
- Increase efficiency and productivity
- This chart is used across different sectors and departments

## Conclusion:

→ The Pareto chart is an essential tool in quality management, business analysis, and problem-solving.

→ This chart visually represents the data and helps to prioritize the actions.

→ By applying the Pareto Principle, or the 80/20 rule, we can optimize our resources and improve efficiency.

→ Help us with data-driven decision-making.

→ It promotes a continuous improvement culture within the organization.

→ We can say that the Pareto chart is a powerful tool for prioritization.

→ Anyone can use this chart to improve the efficiency, effectiveness, and overall performance of the business.

Thanks for giving new information

ReplyDeleteYou are welcome

DeleteNor only in six sigma. Long before six sigma there is Toyota Production System as well as QCC and 7QC Tools

ReplyDeleteI do agree with this thank you for your input.

Deletewhat is cumulative and why needed in pareto chart, can you explain me briefly sir..

ReplyDeleteCumulative is percentage and it is used for creating the graph of cumulative percentage so we can have an estimate abut it.

DeleteGood morming, i had download pareto chart file. I would need to edit the file. Is possible to have the password??

ReplyDeleteThanks.

Regards, Carlo.

Currently our team is working on that we will defiantly help you for that.

DeleteGood day, I have been following your writeups for a while and I must commend that you are doing a fantastic job sir. Kudos!

ReplyDeleteThank you very much for your kind comment!!!

DeleteNice post thank you Michael

ReplyDeleteThanks and you are welcome

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