Analysis>Pareto  – also known as the 80/20 Rule
 

A Pareto chart (diagram) will help to identify problems and to prioritise then to help decide which processes need improvement.

Pareto is a very useful tool.  Often referred to as the 80/20 rule because it recognises that a small number of problem types can account for a large percentage of the total number of problems – usually in a ratio of 80/20.

Purpose Of A Pareto Chart (diagram)
A Pareto chart (diagram) is used to visually display the relative importance of the differences between groups of data. It helps identify improvement areas and set priorities.

Sample Pareto Chart (diagram)

 

How To Construct A Pareto Chart (diagram)

To construct a chart, data needs to be collected about each problem. Usually the data is obtained by check and tally sheets which are used to capture details of problems over a period of time (click here to learn more). When the data is available, the Pareto can be created:

1.  Decide what categories you will use to group items. For example, if your business was investigating the delay associated with processing credit card applications, you could group the data into the following categories (which you see have been used in the example chart above):

§         No signature

§         Residential address not valid

§         Non-legible handwriting

§         Already a customer

§         Other

2.   Construct the chart. The left-side vertical axis of the Pareto chart is labelled Frequency (the number of counts for each category), the right-side vertical axis of the Pareto chart is the cumulative percentage, and the horizontal axis of the Pareto chart is labelled with the group names of your response variables.  The percentage is determined by dividing the total for the category by the total of all the categories.
 

3.  Unlike the Bar chart the bars on the Pareto chart are placed in highest frequency order.

What Questions does the Pareto Chart Answer?

§  What are the largest issues (this will help you prioritise which improvements need to be done and in which order)

§         What 20% of issues are causing 80% of the problems (e.g. 80/20 rule – This will also help decide your improvement priorities

§         Where to focus your efforts to achieve the greatest improvements
 

Go to Analysis Knowledge Base

See also

 

Go to Process Change Knowledge Base
Go to Project Management Knowledge Base

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