A Pareto Chart Has Many Uses

Posted by on Jul 10, 2011 in Lean Six Sigma | 2 comments

A Pareto chart is a useful tool that can help you in many ways.  Basically it is a bar chart showing the bars in order from highest to lowest.  It was developed by Wilfredo Pareto, an Italian economist, to show the distribution of wealth in Italy.  His premise was that 80% of the wealth was owned by 20% of the population.  Hence, the famous 80/20 rule was born.  A Pareto chart is based on two claims.  The first holds that many problems are unevenly distributed along certain dimensions.  Second, when an uneven distribution occurs, one should focus on the “vital few” and ignore the “trivial many.”
A Pareto chart helps prioritize items.  It is often used for the following reasons:
• Visually displays the relative frequency, size or importance of problems in a simple, visual format
• Focuses efforts on problems which offer the greatest potential for improvement
• Focuses on causes which will have the greatest impact when solved
• Evaluates improvements using before and after data
• Separates the vital few from the trivial many

The following steps are used to construct a Pareto chart:
1. Choose a problem to study
2. Choose categories of potential problems or causes
3. Devise a method to collect data
4. Collect the data
5. Construct the bar chart in decreasing order
Here is an example of a simple Pareto chart.  The vertical scale can be anything you want, i.e., cost, number of errors/defects, % nonconformance, revenue, sales, etc.  The horizontal scale is for the different categories which depends on the stratification analysis for that particular problem.  The biggest contributor in this analysis is category A and it deserves the most attention.

2 Responses to “A Pareto Chart Has Many Uses”

1. Thanks for explaining the Pareto chart in simple terms- I had never really understood what it was!

2. Jessica, thanks for the feedback! I have always stressed that organizations can accomplish outstanding results by using and understanding basic quality tools.