A pareto chart is a series of bars whose heights reflect the frequency or impact of problems. In fact, a pareto diagram consists of both bars and line graphs. Bars in descending order in a pareto diagram represent individual values. Further, the line in pareto diagram represents cumulative values. Moreover, the bars are arranged in descending order of height from left to right. This signifies that the categories represented by the tall bars on the left are relatively more significant than those on the right. Another key point is that , the pareto diagram gets its name from the pareto principle.
What is the pareto principle?
According to pareto principle 80% of the effects comes from 20% of the causes. Pareto principle is also popularly known as the 80 / 20 rule. Hence, a pareto chart helps to identify the vital few sources that are responsible for causing most of a problem’s effects.
What is a Pareto Chart?
Pareto chart is one of the seven basic quality control tool . It exists as a special forms of vertical bar chart. A pareto diagram helps to identify the vital few sources that are responsible for causing most of a problem’s effects.
Categories in a pareto diagram measure either frequencies or consequences. The categories shown on the horizontal axis accounts for 100% of the possible observations. The relative frequencies of each specified cause listed on the horizontal axis decrease in magnitude.
A pareto diagram has two vertical axes. The first one on left indicates frequency and the second on the right specifies cumulative percentage of frequency. The cumulative frequency curve identifies the few vital factors that warrant immediate attention.
Pareto Diagram Example
Also read: Quality Control Data Representation Tools
Pareto analysis is a quantitative tallying of the number and types of defects that occur with a product or service. Analysts use this tally to produce a vertical bar chart that displays the most common types of defects, ranked in order of occurrence from left to right.
Pareto Chart Benefits
The paragraph below enumerates most important benefits of using a pareto diagram.
- A pareto diagram arranges data as per frequency of occurrence.
- It also helps to identify the biggest problems
- It also facilitates to focus efforts on vital few issues that cause maximum impact.
- A pareto chart helps to build consensus among team members on which issue to focus.
How to Create a Pareto Chart?
The following paragraph enumerates steps involved in creating a pareto diagram.
Step 1: Collect Data
The first step is to collect the raw data. Check Sheets (Tally Sheets) may be used as a checklist when gathering data. Check sheets organise facts in a manner that facilitate effective collection of useful data about a potential quality problem. They are especially useful for gathering attributes data while performing inspections to identify defects. For eg data about the frequencies or consequences of defects collected in check sheets are often displayed using pareto diagrams.
Step 2: Organise your Data
Organise your data in categories. Arrange the categories in descending (largest to smallest) order of frequency.
Step 3: Calculate cumulative percentage
Now, calculate the cumulative count and the cumulative percentage for each category.
Step 4: Plot the Pareto Chart
Plot your categories in X – axis. Use frequency in Y axis and the cumulative percentage of frequency in secondary Y axis. Microsoft excel has a built in chart to easily plot and analyse a pareto diagram.
Step 5: Analyse the Diagram
In order to identify the vital few draw a horizontal line from the 80% point to intersect the cumulative line. Then drop a vertical line on the X- axis. All issues that are on the left side of this vertical line are the vital few that require attention. All issues on the right of this vertical line are the trivial many.
Also read: Seven Basic Quality Tools PMP Exam Guide
To sum up, a pareto chart is an import tool that enables decision making. It helps teams to set priorities and allows them to separate vital few issues that require attention from others. However, the most important fact is that PMBOK 6th edition does not mention pareto chart as a quality tool.