Vilfredo Pareto, an Italian engineer, and economist developed the Pareto principle in 1895 to show the distribution of riches in society and state his claim that 20 percent of the population owned 80 percent of the wealth, and hence, the famous 80/20 rule was born. Never in his wildest dreams did he realize that it would someday become one of the simplest and greatest quality principles and tools in history.
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. 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 that offer the greatest potential for improvement
- Focuses on causes that 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:
- Choose a problem to study
- Agree on the criterion that will be used when ranking the possible causes
- Devise a method to collect data
- Collect the data
- Construct the bar chart placing the causes along the horizontal axis and the ranking criterion on the left vertical axis
- Rank the causes on the chart from left to right in descending order of importance
- Draw rectangular bars on the chart. The height of each bar should correspond to the importance of each cause
In constructing a 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 depend on the stratification analysis for that particular problem. The biggest contributor is the first and largest category and usually deserves the most attention.