pareto chart for problem solving

The Pareto Chart: How to Solve Problems & Make Informed Decisions

I’ve just finished watching this Netflix docuseries and I can’t stop thinking about it.

The Last Dance .

It’s ten juicy episodes, full of massive egos, incredible basketball, and a banging 90’s hip-hop soundtrack. It’s a fantastically brutal account of how the Chicago Bulls came to dominate the basketball scene throughout the 1990s.

The team was led to countless victories by three key players: Michael Jordan, Scottie Pippen, and Dennis Rodman.

This, coincidentally, demonstrates the concept behind the Pareto chart, and this Process Street post perfectly.

I’ll explain what I mean by this later. First, let me go through what we’ll cover in this post:

What is a Pareto chart?

Where did the pareto chart come from, how to read a pareto chart, when to use a pareto chart, how to create a pareto chart with process street.

I’m excited to get started. So, my cagers, let’s take it to the hole!

I admit. I may have googled “ basketball terms ” for that sentence… what I’m basically saying is; C’mon you lot! Let’s go!

Remember math lessons as a kid? I mean before it began to get tricky with trigonometry and algebra. When it was working through straightforward sums and creating graphs? The ‘fun’ stuff.

Well, keep hold of that memory as it will come in handy for this post.

Because the Pareto chart is, essentially, a plain old bar graph.

A Pareto chart, in its simplest form, is a bar chart that arranges the bars from largest to smallest, from left to right. The bigger bars on the left are more important than the smaller bars on the right.

Like a lot of bar charts.

However, this simple little bar chart is different from the bar charts you created when you were six. This bar chart is used by organizations, in almost every industry, for root cause analysis . In other words, it’s a vital quality management tool .

A Pareto chart enables organizations to make decisions on where to focus their efforts so they get as much bang for their buck as possible.

How does a humble bar chart do that?! I hear you ask.

Well, it’s so simple it almost sounds silly.

By graphically separating the aspects of a problem, an organization can instantly see where to direct its improvement efforts. Focusing its efforts on reducing the largest bars in the chart, will do more for overall improvement than reducing the smaller ones.

Take this Pareto chart below as an example.

With a quick glance, we can instantly see that a lack of training and inadequate pay cause the highest number of customer service complaints.

The Pareto chart theory suggests that if the organization prioritized training and increasing pay, they would see the biggest improvement in customer service.

It’s a tool that’s been used for decades by problem solvers to separate the vital few factors from the trivial many and prioritize actions.

For those that are familiar with the 80/20 rule, the phrase ‘ separating the vital few from the trivial many ’ may have rung a few bells?

That’s because the Pareto chart is a visual representation of the 80/20 rule.

The 80/20 rule states that 80% of the results are determined by 20% of the causes. The Pareto chart displays the few, most significant defects, that make up most of the overall problem.

By ordering the bars from the largest to the smallest, a Pareto chart helps you to visualize which factors comprise the 20% that are the vital few, and which factors make up the trivial many.

“ The significant few things will generally make up 80% of the whole, while the trivial many will make up about 20% ” – Pareto Diagram , PQ Systems

While we’re on the subject of the 80/20 rule, for those of you who don’t know, the 80/20 rule is also referred to as the ‘Pareto principle’. This leads me, quite nicely, to talk about where the Pareto chart came from.

You’re going to love this.

This is the story behind where the Pareto chart came from.

The Pareto chart takes its name from a 19th-century Italian called Vilfredo Pareto, and as we touched on earlier, the concept is based on the 80/20 rule.

Pareto, a philosopher, economist, and keen gardener, had an epiphany one day, while out picking peas.

He noticed that roughly 20% of his pea plants seemed to generate around 80% of the peas.

Now, most of us might’ve thought; “ Hah! Well, would you look at that! ” and carried on with our daily lives.

But not Vilfredo Pareto.

This observation led him to think about uneven distribution , and where better to start with that concept than by looking at wealth.

He discovered that around 80% of the land in Italy was owned by 20% of the population.

He then investigated different industries and found that 80% of production typically came from only 20% of companies.

Although he researched and wrote papers on this theory, he never took it further than wealth and prosperity.

It was the “ Father of Quality Management ” Dr. Joseph M. Juran, who extended this theory into the business world.

Juran, while detecting manufacturing problems at Western Electric , noticed that a small number of defects in parts and machines seemed to cause most of the issues he found in quality.

He came across Pareto’s earlier work and found it made a lot of sense.

He recognized that “ the vital few and the trivial many ” pattern was a universal principle that could be applied to almost all organizations, in any industry, to help them make decisions on what to focus on to improve quality.

This theory is proven when you look at examples like these:

• 80% of web traffic comes from 20% of your site’s pages
• One search engine (Google) receives 64% of search queries
• 80% of the logic of a software program is run using 20% of the classes or code
• 3% of Guatemalans own 70% of the land in Guatemala
• 80% of the software errors are caused by 20% of the bugs
• 20% of your wardrobe is worn 80% of the time
• 80% of crimes are committed by 20% of criminals
• 80% of wins in sport are produced by 20% of the players on a given team (remember this one for later!)

So that’s how the Pareto principle came about.

The Pareto chart, being a visual representation of the Pareto principle, was developed to allow companies to see where the major causes of a problem were. This enabled them to focus their time and efforts on the greatest potential for improvement .

“ It’s common sense to focus on the ‘vital few’ factors. In the quality improvement arena, Pareto charts help teams direct their efforts where they can make the biggest impact ” – When to Use a Pareto Chart , The Minitab Blog

We all know how to look at a bar chart and work out what it’s telling us, but there’s a little more to interpreting a Pareto chart than meets the eye.

As we’ve previously covered, in its simplest form, a Pareto chart is a bar graph that shows where the biggest opportunities for quality and process improvement lie.

It’s simple, easy to read and there’s nothing wrong with using this method to decide where to focus your efforts.

However, there is another, arguably more accurate, way of interpreting a Pareto chart.

We can take the simple bar chart a step further by adding in a line.

The line, like the one in the example above, is a cumulative percentage line.

Ok, I know. Earlier I urged you to remember the ‘fun’ math. I don’t remember line graphs and cumulative percentages being much fun either, but stick with me. It’s nowhere near as bad as Algebra or Pythagoras.

To understand how to read a Pareto chart, like the one above, we first need to understand the components of a Pareto chart and the relationship between each one.

So let’s start by looking at the basic structure of a Pareto chart, using the below ‘shirt defect’ chart as an example.

We can see that there are three axes in this chart: X, Y, and Z which represent the following:

• X-axis shows the different types, or categories, of defects
• Y-axis shows how often these defects occur

We’ll talk about the third axis in a second.

We can see that each vertical bar in the chart represents a type of defect and the height of each bar represents the frequency in which that type of defect occurs.

So, from the example above, we can see that button defects occur 23 times, whereas sleeve defects happen only three times.

We can also see that the bars are presented in descending order (from tallest to shortest) so we can instantly see which defects are most frequent at a glance.

Now we understand that bit, let’s bring in the third axis.

• Z-axis represents the cumulative percentage

The cumulative percentage indicates what percentage of all defects can be removed if the most important types of defects are resolved.

To plot the cumulative percentage line, you’ll need to get your calculator out and work out the cumulative percentage for each defect using this formula:

Total frequency of all defects / The frequency of each defect x 100.

Plot these percentages as you would on any normal graph and then join them up with a line.

Now you have your cumulative percentage line, using the Pareto principle, find the 80% mark on the Z-axis, and draw a dotted line across until you hit your cumulative percentage line.

Then, immediately drop your dotted line downwards.

The defects to the left of this dotted line, on the X-axis, are the defects that, if addressed, will deliver the greatest benefit. These are the ‘vital few’ defects, out of the ‘trivial many’, to focus on.

Let’s go back to our shirt defect example. According to the Pareto principle, if we focused our efforts on resolving the pocket and button defects, we should see the biggest improvement in the quality of our shirts.

It’s worth noting that, in any Pareto chart, when the cumulative percentage line is steep, the types of defects are likely to have a significant effect. When the cumulative percentage line starts to flatten, the types of defects aren’t likely to influence the outcome as much, so they don’t deserve as much attention.

Once you’ve used a Pareto chart to decide what to focus your efforts on, it’s a great time to then bring something like the PDCA cycle into your organization to help you manage the changes you need to implement.

In fact, Process Street has created a few change management templates that you can access, for free, to help you with this.

PDCA Cycle Change Management Model Process Checklist

Click here to access the PDCA Cycle Change Management Model Process Checklist!

Satir Change Management Model Process Checklist

Click here to access the Satir Change Management Model Process Checklist

I’ve only given you two change management templates in this post, but we have heaps more for you to use. Take a look at this post .

My word. I have steam coming from my ears. I’ve had enough of math, fancy a game of basketball instead?

As we’ve already established, Pareto charts are used by organizations to figure out where the problems are and decide what to focus on to get the best results.

“ Pareto charts are most useful for identifying what the biggest issues regarding your business are. They also help you analyze how to present the issues that need tackling in a simpler, more understandable manner. In addition, they also help to guide where to look in terms of figuring out the frequency of a certain problem in your company ” – How to Do Pareto Chart Analysis , Tallyfy

Below are a few ways you might use a Pareto chart to make key decisions in your organization:

• You could use it to work out which top 20% of your company’s processes are causing 80% of the problems and focus on refining those processes.
• You could use it to establish which 20% of your clients are responsible for 80% of your sales and create a high-touch program for them.
• You could use it to assess all your upcoming projects, decide which ones will make the most difference, and start those first.
• You could use it to decide which tasks to prioritize , like the CEO of Dell does. He uses a Pareto chart on a daily basis to make sure he spends 80% of his time on the 20% of tasks that will generate the biggest results.

Speaking of daily tasks, once you’ve used the Pareto chart to decide what to focus on, you could use this Remote Daily Work Schedule Template to help keep you on track:

Although the checklist is for remote workers, you can adapt it if you’re office-based. I’ll tell you how to do that in a second.

So you can see that the Pareto chart can be been applied in all sorts of settings. And as it turns out…

“ It also applies to both the NBA and the WNBA. Specifically, in general, about 80% of a team’s wins are produced by a team’s top three players ” – The Pareto Principle Sheds Light On The WNBA’s Western Conference Contenders , Forbes

If you were a basketball coach, you could use a Pareto chart to determine which 20% of the team contribute to 80% of the wins, and focus your time and efforts on improving those players.

Kind of like what possibly happened between 1991 and 1998 with the Chicago Bulls.

As I touched on earlier, the Netflix mini docuseries ‘The Last Dance’ shows how the Chicago Bulls became unbeatable in the ’90s.

The team won the NBA championship six times over the course of eight years thanks to three players (Micheal Jordan, Scottie Pippen, and Dennis Rodman), and some sound decisions, made by head coach, Phil Jackson.

**Conspiracy alert!**

Surprisingly, the Netflix series doesn’t state whether Phil Jackson utilized the Pareto chart to make the critical decision to focus his coaching efforts on Jordan, Pippen, and Rodman. But I’d like to think it had a part to play in the Bull’s success.

( Maybe a 20% part ?!)

Now we know what the Pareto chart is, where it came from, how to read it, and when to use it, let’s talk about how to create one.

As we’ve discussed, one of the greatest uses for the Pareto chart is in quality control and process improvement.

This is something that Process Street is expert in.

Process Street is super-powered checklists .

Our state of the art business process management (BPM) software allows you to create templates, run individual checklists , and manage recurring tasks faultlessly.

Watch this introductory video to get a better idea about who we are and what we do:

So as you can see, you can check tasks off as you work through them, set deadlines, request approval from colleagues, assign tasks , and track each team member’s progress . You can also connect to thousands of apps through Zapier , webhooks, or API integration.

How can all this help you create a Pareto chart though?

Glad you asked.

You could create a template, and, each time you want to create a new Pareto chart, run a new checklist from this template.

It’s super easy.

All you’d need to do is create a new template and add the following 12 steps into your template, as tasks, that you can then work through:

Step 1: Identify the problem Define the problem as accurately as you can so you can work out all the various factors that may be contributing to it, in the next step.

Step 2: List the contributing factors Determine what root causes are contributing to the problem and put them into categories.

Step 3: Decide on the measurement Establish how you will measure the impact of each contributing factor or category. This is usually the number of occurrences or cost.

Step 4: Establish a time period Decide what period of time the Pareto chart will cover: One sprint? One full day? A week?

Step 5: Collect the data Collect the data for each of the categories you have chosen and place it into a table so you can work out your cumulative percentages easily.

Step 6: Draw the Y-axis and X-axis Label the Y-axis with the measurement and the X-axis with the categories.

Step 7: Construct and label bars for each category Place the tallest at the far left, then the next tallest to its right, and so on.

Step 8: Draw Z-axis Once you’ve drawn the right vertical axis, label it with percentages.

Step 9: Calculate your cumulative percentages Use this calculation to work out your cumulative percentages: Total frequency of all categories / The frequency of each category x 100.

Step 10: Plot and draw your cumulative percentage line Make sure that the last dot reaches 100% on the Z-axis (as all cumulative percentage must reach 100%)

Step 11: Establish what your focus should be Find 80% on the Z-axis and draw a horizontal line until it hits the cumulative percentage line. Whatever lies to the left of that point is your ‘vital few’.

Step 12: Implement the changes Using change management processes like the Lewins Change Management Model, or the ADKAR Model start to implement the changes that will cause the most affect.

That’s it! Simple.

If you’re a little unsure, don’t worry. To help get you used to the software, below are some similar problem solving, root cause analysis templates that you could use to get started:

FMEA Template: Failure Mode and Effects Analysis

Click here to access the FMEA Template: Failure Mode and Effects Analysis Template!

Root Cause Analysis Template

Click here to access the Root Cause Analysis Template!

SWOT Analysis Template

Click here to access the SWOT Analysis Template!

If you’re feeling a bit braver, you could edit the existing templates so they suit your organization better, or even create your own Pareto chart process template.

If you’re planning to go down this road, try adding some of these features into your template:

• Dynamic due dates
• Task permissions
• Conditional logic
• Approval tasks
• Embed widget
• Role assignments

These features will help you to automate your newly created processes.

I can’t even begin to tell you how much time and effort automating your business processes will save you. But I know a man who can.

Blake Bailey.

He ran the below Process Street webinar on advanced workflow automation. Watch it. It’ll explain everything there is to know about workflow automation, and I guarantee you’ll never create a manual, laborious process even again!

Or, check out these great articles on how you could automate your business:

• 24 Best apps & software to automate your small business
• Small Business Automation: A Guide To Getting Things Done
• 40 Marketing Automation Tools: The Best Software for Growing Your Business
• Add value to your firm with process automation services
• Top 5 Benefits of Business Automation in 2020

Speaking of great articles , we’ve written tonnes on quality management, process management , root cause analysis, and the like.

Check out a few of them below.

Pareto chart related articles

• How to Perform a Root Cause Analysis (Free Template)
• Best QMS Software for Quality Management Systems: Which is Right for You?
• What is ISO 9000? The Beginner’s Guide to Quality Management System Standards (Free ISO 9001 QMS Template)
• What is Quality Management? The Definitive QMS Guide (Free ISO 9001 Template)
• What is a Quality Management System? The Key to ISO 9000
• What is Porter’s Five Forces Model? Competitive Position Analysis Explained
• What is FMEA? A Practical Guide to Failure Analysis (Free Checklist)
• What is Process Mining? 9 Tools to Optimize Your Process Management

When you’re trying to get the most bang for your buck , focusing on the critical 20% is a huge time-saver. See what activities generate the most results and give them the appropriate attention.

So, my cagers, that’s it! But before I shoot my last shot, if a Pareto chart seems a bit basic, well, it is.

However…

“ Its very simplicity makes the Pareto chart applicable to a very wide range of situations, both within and beyond quality improvement ” – When to use a Pareto Chart , Minitab

Do you use the Pareto chart in your organization? If so, how do you find it? We’d love to hear your thoughts in the comments below. Who knows? You may even get featured in an upcoming article!

Get our posts & product updates earlier by simply subscribing

Amanda Greenwood

Amanda is a content writer for Process Street. Her main mission in life is to write content that makes business processes fun, interesting, and easy to understand. Her background is in marketing and project management, so she has a wealth of experience to draw from, which adds a touch of reality and a whole heap of depth to the content she writes.

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Statistics By Jim

Making statistics intuitive

Pareto Chart: Making, Reading & Examples

By Jim Frost 1 Comment

What is a Pareto Chart?

A Pareto chart is a specialized bar chart that displays categories in descending order and a line chart representing the cumulative amount. The chart effectively communicates the categories that contribute the most to the total. Frequently, quality analysts use Pareto charts to identify the most common types of defects or other problems.

Learn how to use and read Pareto charts and understand the Pareto principle and the 80/20 rule that are behind it. I’ll also show you how to create them using Excel.

What is the Pareto Principle?

This chart is named after Vilfredo Pareto. He was an Italian economist who observed that 80% of the land was owned by 20% of the people in the 1800s. This observation inspired the Pareto principle , which is the origin of the 80/20 rule. This premise states that approximately 80% of outcomes originate from 20% of causes for many study areas. It stems from a power law relationship that applies to a variety of areas, at least approximately. For example, you probably use 20% of the applications on your PC about 80% of the time. And, you likely wear 20% of your clothes 80% of the time. At a business, 20% of clients account for 80% of the sales.

It’s a simple graph but surprisingly effective at focusing efforts on the most critical areas. What are the most common issues? Pareto charts are powerful tools for guiding decision-making and problem-solving endeavors in an organization.

What are Pareto Charts?

Pareto charts are beneficial when you have many problems, causes, or conditions and want to find the vital few out of the trivial many. In other words, these graphs identify the 20% of categories that are responsible for 80% of the outcomes.

Pareto charts display this graphically by showing bars that represent each cause. It presents these bars in descending order of frequency. Even when there are many causes, you’ll frequently find that just a few of them cause the majority of outcomes. Those vital few will be the first several bars on a Pareto chart.

Use a Pareto chart to help prioritize efforts in areas that will have the most significant impact. You want to focus your energy on a small number of causes that will produce the most results. That’s where you get the most bang for your buck. You don’t want to prioritize working on issues associated with a small number of events.

Using and Reading Pareto Charts

Quality analysts frequently use Pareto charts to find the most common problems in a process, such as product defects, motives for customer complaints, and top mistakes in a hospital or other settings. Knowing these answers helps direct their quality improvement efforts.

Because Pareto charts display the relative magnitude of different categories sorted by significance, you can use them for various purposes beyond quality control. These include finding the most common reasons employees leave a company, causes for flight delays, products with the top revenue, and business processes associated with the most losses. In all these cases, the goal is to separate the vital few from the trivial many.

Use a Pareto chart when you can place your causes into categories and can count how often each type occurs. The largest categories are on the left side of the chart, and they become smaller as you move right. The cumulative line indicates the total percentage as you add each type. Reading a Pareto involves assessing the cumulative line to help you identify the most common problems. When a few causes account for most of the outcomes, the cumulative line rises quickly and then levels out.

Related post : Bar Charts

Pareto Chart Example

Quality analysts are identifying the most common defects with a product. They’ll target their quality improvement efforts on the most frequently occurring defects first. After collecting a random sample of data, categorizing the types of defects, and recording their frequencies, they produce this Pareto chart.

Pareto charts typically contain bar graphs and line charts with the following elements:

• Y-axis left: Frequency or percentages for the categories in the bar chart. Alternatively, it can display costs, revenue, time, etc.
• Y-axis right: Cumulative percentages, costs, revenue, time, etc., for the line chart.
• Categories on the x-axis.
• Vertical bars representing the value for each category. The bars are in descending order.
• Cumulative percentage line.

Here’s how to read a Pareto chart. For the defect data, the first two bars are the tallest and comprise a large percentage of all outcomes. The cumulative line chart rises steeply at first and then levels out, indicative of the Pareto principle in action. The first two categories account for approximately 80% of the defects.

Collectively, the graph indicates that dents and paint defects are the two most common types of defects. The analysts decide to prioritize reducing these two types first. Additionally, the analysts will present this graph to upper management to support their decision.

How to Make a Pareto Chart in Excel

Making a Pareto chart in Excel is easy. Start by arranging your data to have a column of categories and another for frequencies, as shown below. Click here to download the Excel file: Pareto chart .

To create a Pareto chart in Excel, follow these step-by-step instructions.

• Select both columns of data.
• From the ribbon, click the Insert tab.
• Click Recommended Charts and then click the bottom chart in the list.

Voila! Excel will create a bar chart with the groups in descending order, calculate the percentages, and include a cumulative percentage line!

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June 4, 2024 at 7:45 am

For those trying to find the Pareto chart and it is not showing up in “Recommended Charts” use the histogram tab under “All Charts” and it will be there!

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Pareto Analysis

What is Pareto Analysis

Pareto Analysis (also referred to as Pareto Chart or Pareto Diagram) is one of the Seven Basic Quality Tools [1] for process improvement.

These seven basic tools form the fixed set of visual exercises most helpful in troubleshooting issues related to quality. They are called “basic” because they require little formal training in statistics and can effectively address most quality-related problems.

This article will focus comprehensively on the Pareto Analysis, its origin, how a Pareto Chart is constructed and its relevance in modern-day problem-solving.

Origin of Pareto Analysis

Pareto Analysis traces its roots to the Pareto Principle, first observed by the Italian sociologist and economist Vilfredo Pareto. [2] While studying income distribution across Italy in 1986, Vilfredo showed that 80% of income in the country was owned by 20% of the population.

Vilfredo’s work was extended by Joseph Juran [3] , an American engineer and well-known quality management advocate.

Juran theorized that losses are never uniformly distributed over the quality characteristics. Rather they are always maldistributed in such a way that a small percentage of the quality characteristics always contributes a high percentage of the quality loss.

This forms the basis of the Pareto Principle, which, in simple words, means “for many outcomes, roughly 80% of consequences come from 20% of causes” .

This principle is also known as The 80/20 Rule (most common), The Law of the Vital Few or The Principle of Factor Sparsity , which all interchangeably mean the same.

It is important to note that although many systems tend to follow an approximate 80-20 pattern, this is not an absolute or obligatory rule. The distribution can vary, such as 90-10 or 70-30, while still adhering to the underlying principle that many outcomes are a result of a few causes.

Why use Pareto Analysis?

Organizations have diverse goals and aspirations but in most cases, are constrained by resources (money, manpower, machines, technology etc.).

Under such limitations, Pareto Analysis can help create maximum impact with the least amount of effort. This enables teams to work more efficiently on specific initiatives. Targets can be achieved faster simply by prioritizing initiatives in the right order.

Other benefits include:

• Setting clear priorities for the organization
• Increased daily productivity
• Ability to portion work into manageable segments
• Focused strategy

Pareto Analysis optimizes the overall organization’s performance by pointing to the highest return activities that can be pursued for maximum benefits.

When to use a Pareto Analysis?

The most compelling use case of a Pareto Analysis is to optimize the utilization of an organization’s resources by focusing them on a few key areas rather than spreading them over many others that have little impact on results.

Pareto Analysis helps identify patterns that highlight the main reasons behind most of the challenges an organization is trying to solve.

But, to perform a Pareto Analysis, the process data must fulfill two criteria:

1) It must be possible to arrangeable the data into categories

The core part of the analysis involves breaking down complex issues into their constituent root causes so that the repeating causes can be prioritized according to the number of occurrences.

For example, if an automobile assembly manager wants to analyze failures in the production line, it must be possible to classify them into categories such as equipment failures, material shortages, worker absenteeism, and quality defects.

Without this classification, it will not be possible to prioritize one category over another.

2) The ranking of the categories should matter

If the ranking of categories does not matter, the data frequency is no longer relevant for decision-making.

For example, if the assembly line manager determines that addressing the top two categories, equipment-related issues, and material-related issues, will have the most significant impact on reducing delays, the exact frequency difference between these two categories becomes less important. The focus is on resolving both categories as they are the primary contributors to the delays.

In this case, the data frequency becomes less relevant because the primary goal is to address the critical categories and minimize their impact, regardless of the precise order between them.

A Pareto Analysis will not add value in such a case.

Components of a Pareto Chart

A Pareto Chart is a combination of a bar graph and a line graph. It consists of four major components:

Constructing a Pareto Chart

To demonstrate the components and process of building a Pareto diagram, consider the example of a company that is facing delays in shipping products due to various problems in its production line.

The company has limited resources to spare and cannot focus on all the root causes. It must judiciously allot resources (manpower, management attention, funds etc.) such that chances of on-time delivery are maximized.

By performing a Pareto Analysis, the resulting Pareto Chart can help the company make the best use of its resources. The process involves the following steps:

Step 1 – Decide on the categories

Categories are the list of causes/events that contribute to a problem being addressed. This could be gathered through feedback from employees, clients, or customers.

It is important that the list of causes identified accurately reflect the issue. An analytical approach to preparing a root cause list could be by using a Five-Whys analysis.

In the case of the example considered, the company has identified a total of 12 causes that have led to the delays, which are:

Step 2 – Establish a measurement metric

The next step is to identify a measurement metric that is most appropriate to the grouped categories.

These could range from the number of product defects per batch to the frequency of customer complaints, to how many resources it takes to manufacture a product to how long it takes to resolve customer complaints, etc.

In the case of the above example, the number of times a particular root cause was responsible for the delay is a good metric to consider.

Step 3 – Choose a timeframe to collect the data

This can be one work cycle, a sprint, one full day, one week, one month etc. In the case of the example, the company has chosen to record one week’s data.

It is important to choose a sufficiently broad timeframe to even out the impact of rare events and aberrations. For example, in the example’s case, if a day was selected instead of a week, it may not accurately capture the trends in material shortages or transportation delays. This could lead to misleading results.

Step 4 – Record the data over the selected timeline

Gather data on the number of times each chosen category was responsible for the delay. The measurement metric in this example case is the frequency, which was selected in Step-2. It could vary depending on the choice.

The recorded data must then be organized in a table according to the categories and timelines selected. In the case of the company’s example, the selected timeline is one week with 12 categories. Hence, the data tabulation will look as below:

Step 5 – Organize the data

The output of this step is a table with categories sorted in descending order as per their occurrence over the selected period.

In the example case considered, the steps would involve aggregating the occurrences by adding totals to each category, constructing a smaller table (or hiding the daily data) and then sorting the data in descending order based on occurrences of each root cause.

The same is shown in the figure below:

Step 6 – Calculate cumulative percentages

Cumulative percentages can be calculated using any of the spreadsheet applications. In the figure below, cumulative percentages are calculated for the example case using Google Sheets. The formula used can be seen in the image.

Step 7 – Construct the graph

This step involves graphing the data. A spreadsheet tool can be conveniently used to plot a bar graph (occurrences) and a line graph (commutive percentage).

In Google Sheets, this can be performed using a Combo Chart [4] , with achieves both objectives with the following steps:

• Select the data in the table
• Go to Insert -> Chart
• From the Chat Editor, change the chart type to Combo Chart [4]
• Set X-axis data as a category – In the example case “Reason for Delay”
• Set left Y-axis data as the frequency of occurrence – In the example case “Reason for Delay”
• Set the right Y-axis data as the cumulative percentage

With this, the Pareto chart will be ready and will look as under:

Interpreting a Pareto Chart

Once a Pareto Chart is constructed, clarity emerges on which few out of the many occurrences have the most impact on the results.

The Cumulative percentage curve makes it easier to visually answer the question – “Which 20% of the causes are responsible for 80% of the results?”

It can be seen from the example case chart above that out of 12 identified causes, just 3 contribute to over 80% of the delays.

With this, the company has a clearer picture of where to focus its efforts and deploy resources.

Limitations of Pareto Analysis

Although Pareto Analysis is a potent visual problem-solving tool, it does have certain limitations, such as:

Data quality – if the data is compromised by errors, inconsistencies, biases, or missing values, results can be misleading or inaccurate, leading to wrong decisions.

Root cause analysis : Pareto analysis helps to identify the frequency and impact of different causes of a problem, but it does not provide any insight into the underlying reasons or mechanisms behind them.

For example, a Pareto chart may show that half of all problems occur in shipping and receiving, but it does not explain why that is the case. To find out the root causes, additional tools such as the 5 Whys or Fishbone diagrams are needed.

Qualitative aspects : Pareto analysis focuses on quantitative data, such as the number of occurrences or the percentage of the impact of different causes. However, it does not account for qualitative aspects, such as the severity, urgency, or complexity of the causes.

For example, a Pareto chart may show that equipment failures are the most frequent cause of delays, but it does not indicate how severe or difficult to fix those failures are. Qualitative aspects may affect the priority and feasibility of addressing different causes.

Future scenarios : Pareto analysis is based on past or present data, which may not reflect future scenarios or changes in parameters.

For example, a Pareto chart may show that supplier issues are a minor cause of delays, but that may change if the supplier changes its policies or prices. Pareto analysis does not account for uncertainty or variability in the data or the environment. Therefore, it should be updated regularly and supplemented with other tools such as scenario analysis or risk analysis.

Varied Applications of Pareto Analysis

Pareto Analysis, with its versatile nature, finds applications across diverse industries and sectors. It aids in identifying critical issues, prioritizing tasks, and allocating resources effectively.

Some examples use cases of Pareto Analysis are:

Pareto Analysis can even be applied at an individual level to identify the vital few factors that significantly impact personal productivity, thus aiding in effective time management, focused improvements, and better decision-making.

1. “THE 7 BASIC QUALITY TOOLS FOR PROCESS IMPROVEMENT”. American Society for Quality (ASQ) , https://asq.org/quality-resources/seven-basic-quality-tools . Accessed 29 Jun 2023

2. “Vilfredo Pareto”. Britannica, https://www.britannica.com/biography/Vilfredo-Pareto#ref37223 . Accessed 01 Jul 2023

3. ” Dr. Joseph M. Juran”. Juran.com, https://www.juran.com/about-us/dr-jurans-history/ . Accessed 01 Jul 2023

4. “Combo chart”. Google, https://support.google.com/docs/answer/9142593?sjid=5335603720602667500-AP#combo_chart&zippy=%2Ccombo-chart . Accessed 30 Jun 2023

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Guide: Pareto Chart

Author: Daniel Croft

Daniel Croft is an experienced continuous improvement manager with a Lean Six Sigma Black Belt and a Bachelor's degree in Business Management. With more than ten years of experience applying his skills across various industries, Daniel specializes in optimizing processes and improving efficiency. His approach combines practical experience with a deep understanding of business fundamentals to drive meaningful change.

Pareto Charts serve as a key tool in quality control and continuous improvement efforts. This visual tool, underpinned by the Pareto Principle, helps pinpoint the critical factors that contribute most significantly to a problem. By sorting issues from the most to the least frequent and superimposing cumulative percentages, Pareto Charts offer a clear, prioritized roadmap for problem-solving. They transform complex datasets into actionable insights, ensuring that effort and resources are focused where they can have the most substantial impact. This guide dives into the essence of Pareto Charts, their composition, and how they apply the Pareto Principle to foster strategic improvements across diverse industries.

What is a Pareto Chart?

A Pareto Chart is a visual tool used in continuous improvement and quality control to help identify the most frequent factors contributing to an overall effect. It is a type of Bar Chart that sorts frequencies from high to low and combines a line chart of cumulative percentagess to measure the Pareto Principle

The Pareto Principle

The Pareto Chart is based on the Pareto Principle, a concept developed by economist Vilfredo Pareto in the late 19th and early 20th centuries. Pareto initially identified that approximately 80% of Italy’s land was owned by 20% of the population.

He then further identified in different industries that similar distributions applied, where the minority of causes, inputs, or efforts led to the majority of results, outcomes, or rewards. Pareto’s work was initially intended for use in economics but quickly gained traction in a range of fields such as business, engineering, health care, and quality control.

Key Components of a Pareto Chart

• Bars : Each bar represents a type of defect or problem, with the height reflecting the frequency or impact of that issue. The bars are arranged so that the longest bars (representing the most significant problems) appear first.
• Line Graph : Superimposed on the bar chart is a line graph that displays the cumulative total of the issues as you move from left to right. This helps identify the point at which the most critical issues have been covered.
• Categories : The categories (e.g., types of defects or customer complaints) are often issues that can be addressed or controlled. By focusing on the categories to the left (the tallest bars), you can achieve a greater overall effect.

How the Pareto Principle is Applied in Business

In quality control or continuous improvement, the principle suggests that by solving 20% of the problems, you could potentially eliminate 80% of the issues. This would mean that a small number of causes often lead to a large part of the problem.

For example, below:

Insights from the Chart:

• Defect Frequencies : The distribution starts with ‘Misalignment’ as the most frequent defect, followed by ‘Electrical Failure’, with each subsequent defect type decreasing in frequency more naturally.
• Cumulative Percentage : The cumulative line shows that the first two defect types (‘Misalignment’ and ‘Electrical Failure’) contribute significantly to the total number of defects, maintaining the essence of the 80/20 rule.
• 80% Threshold : The red dashed line indicates where approximately 80% of the problems could theoretically be resolved by addressing the issues represented to the left of where the line intersects with the cumulative percentage graph.

When to Use a Pareto Chart?

Pareto charts are a key tool used in Lean Six Sigma and will often find them used in the analysis phase of a DMAIC project or the gap analysis phase of an A3 Problem-solving improvement. Pareto charts are most useful in situations where data-driven decisions need to be made.

Examples of situations in which a Pareto Chart can be Used

Data-Driven Analysis: When you have data that can be quantified and categorized, such as defects, customer complaints, or any other types of non-conformities, The Pareto can help visualize the frequencies in the data and identify the critical few to focus on.

Problem Identification: It helps in distinguishing between the “vital few” problems that occur frequently and the “trivial many” that happen rarely.

Process Complexity : In complex processes where multiple factors could contribute to a problem, a Pareto chart can simplify the data, making it easier to identify and prioritize issues.

How to Create a Pareto Chart?

Creating a Pareto Chart is a systematic process that involves data collection, chart construction, and analysis. Here’s a detailed walkthrough of each step

Step 1: Data Collection

The first step in creating a Pareto chart, if you have not already, is to collect data. Therefore, determine what you want to analyze with the Pareto chart. This could be a range of problems, such as production defects or customer complaints. Determine the scope of the problem and decide if it is a specific part of the process, a product line, or time period you are analyzing. 

Identify the frequent causes of the problem; the data you have may already tell you this. Otherwise, you will need to brainstorm the category list and future data collection. With this you should group similar issues together to form categories such as, ‘machine breakdowns’ could include subcategories like ‘electrical failures’, ‘mechanical wear’.

During the data collection, you will need to collect data on each cause, which will be the count of times they occur or the number of minutes of downtime associated with each cause.

Step  2: Construction the Chart

To follow the steps of constructing a chart, you can use our example data set if you dont have data available: Example Pareto Data

For this you simply need two columns:

Column A: Category, such as defect type

Column B: Frequency: the number of times the frequency occurred or the number of minutes the problem caused downtime for example

Once you have this data, select all the data, both columns and all the rows, and click Insert (on the top bar) > Click Recommended Charts > Select the Pareto Chart  > Click Ok.

You will now have a Pareto chart like the example below

Step 3: Analyzing the Chart

Identify “vital few”.

• Assess the Curve : Look for the point at which the cumulative percentage line starts to level off; this is often referred to as the “elbow” of the curve.
• Vital Few : The causes to the left of this point are your “vital few”—the most significant causes that you should address first.

Using the example chart above the vital few would be paint flaws, scatches, and dents, which account for around 80%.

Focus on the Critical Causes

• Prioritize : These are the issues that, if solved, could lead to the greatest improvements in the system.
• Action Plan : Develop action plans for the critical causes, ensuring that solutions are practical and can be implemented effectively.

Free Pareto Chart Tools on LearnLeanSigma

At LearnLeanSigma, we understand that not everyone has access to sophisticated software like Excel or the time to become proficient in it. That’s why we offer user-friendly, free tools to create and download Pareto Charts, helping you to visualize and prioritize problems quickly and efficiently.

Free Pareto Template Download

Simplify Your Analysis : With our free Pareto template, you can easily input your data and let the template do the rest. It’s a plug-and-play solution that requires no advanced Excel skills.

How It Works :

• Visit our Pareto Template Download page .
• Download the template to your computer.
• Input your data into the predefined fields.
• The template will automatically generate a Pareto Chart for you.
• Use the chart to analyze and prioritize improvement efforts.

Free Online Pareto Chart Creator

Create Pareto Charts Anywhere : Our online Pareto Chart creator allows you to create a Pareto Chart directly from your browser. This tool is perfect for those who need to generate a Pareto Chart on the go or prefer not to download software or templates.

• Access the Online Pareto Chart Creator .
• Enter your categories and their corresponding values.
• Adjust the settings to fit your preferences.
• Generate the chart with the click of a button.
• Download the generated Pareto Chart for your reports or presentations.
• Accessible from any device with internet connectivity.
• No downloads required.
• Instantly generates downloadable Pareto Charts.

The Pareto chart is more than just a tool, by highlighting the ‘vital few’ from the ‘trivial many’, Pareto Charts allow businesses to focus their efforts into the most impactful areas. With our free Pareto Chart tools, this process becomes accessible to all, removing barriers to sophisticated software and streamlining the journey towards excellence. Whether through a downloadable template or an online creator, LearnLeanSigma offers the resources to visualize, prioritize, and act upon the data that matters, promoting a cycle of continuous improvement and sustained success.

• Harvey, H.B. and Sotardi, S.T., 2018. The pareto principle.   Journal of the American College of Radiology ,  15 (6), p.931.

Additional Useful Information on Pareto Charts

Variants of pareto charts.

Weighted Pareto Chart : This version of the chart takes into account not just the frequency of occurrences but also the magnitude of each issue’s impact.

Nested Pareto Chart : In some situations, each category in the Pareto chart can be broken down into sub-categories, allowing for deeper analysis.

Comparative Pareto Charts : These charts compare the same categories across different time periods or scenarios, providing a dynamic view of how issue importance shifts over time.

Integration with Lean Six Sigma

In the Lean Six Sigma methodology, Pareto Charts are often used during the “Analyze” phase of the DMAIC cycle to identify the most critical issues to focus on for maximum impact.

Practical Tips for Creating Pareto Charts

Accurate Data Collection : Ensure that the data you are using is accurate and up-to-date to make your Pareto chart as effective as possible.

Use of Color : Consider using varying shades or colors to represent different categories or levels of severity. This makes the chart easier to read and interpret.

Annotations : Adding labels or notes can provide context and make it easier for team members who are not as familiar with the data.

A: A Pareto chart is a graphical tool used for prioritizing and analyzing the relative importance of different factors or problems in a dataset. It is based on the Pareto principle, also known as the 80/20 rule, which states that roughly 80% of the effects come from 20% of the causes.

A: To construct a Pareto chart, you first need to identify and list the different factors or categories you want to analyze. These factors should be mutually exclusive and collectively exhaustive. Then, you gather data on the frequency or impact of each factor and arrange them in descending order. The factors are plotted on the x-axis, while the frequency or impact is represented on the y-axis. A bar graph is used to visualize the data, with the bars arranged in descending order from left to right.

A: The main purpose of a Pareto chart is to identify and prioritize the most significant factors or problems in a dataset. It helps you focus your efforts on the vital few rather than the trivial many. By visualizing the data in a Pareto chart, you can quickly identify the factors that contribute the most to an outcome or issue, allowing you to allocate resources efficiently and address the root causes effectively.

A: A Pareto chart typically has two key features:

• Bars: The chart consists of bars representing each factor or category, arranged in descending order based on their frequency or impact. The length of the bars represents the relative importance of each factor.
• Cumulative Percentage Line: A cumulative percentage line is often included in the chart. It shows the cumulative percentage of the total frequency or impact as you move from left to right on the chart. This line helps identify the point at which the most significant factors begin to level off.

A: A Pareto chart can provide several insights, including:

• Identification of the vital few factors: It highlights the factors that have the most significant impact, allowing you to prioritize your actions accordingly.
• Visualization of cumulative contribution: The cumulative percentage line shows how much the selected factors contribute to the overall problem, helping you understand the cumulative impact.
• Focus on the key areas for improvement: By identifying the top factors, you can focus your efforts and resources on addressing the root causes, leading to more effective problem-solving.

A: Pareto charts have a wide range of applications across various industries, including:

• Quality improvement: Identifying the most frequent defects or problems to focus on improving quality.
• Process optimization: Determining the most significant process bottlenecks or inefficiencies.
• Customer complaints analysis: Prioritizing the most common customer complaints for addressing customer satisfaction issues.
• Risk management: Identifying the most critical risks or hazards in a system to prioritize risk mitigation strategies.
• Resource allocation: Allocating resources based on the most impactful factors to maximize efficiency and effectiveness.

A: Yes, there are a few limitations to consider when using Pareto charts:

• Subjectivity in factor selection: The choice of factors and their categorization may involve subjectivity, which can impact the outcomes of the analysis.
• Lack of context: Pareto charts provide a high-level overview and may not capture the full context of the underlying factors. Additional analysis may be required for a comprehensive understanding.
• Focus on historical data: Pareto charts are typically based on historical data, so they may not account for changes in circumstances or new factors that emerge over time.
• Ignoring interactions

Daniel Croft

Daniel Croft is a seasoned continuous improvement manager with a Black Belt in Lean Six Sigma. With over 10 years of real-world application experience across diverse sectors, Daniel has a passion for optimizing processes and fostering a culture of efficiency. He's not just a practitioner but also an avid learner, constantly seeking to expand his knowledge. Outside of his professional life, Daniel has a keen Investing, statistics and knowledge-sharing, which led him to create the website www.learnleansigma.com, a platform dedicated to Lean Six Sigma and process improvement insights.

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A Guide to Pareto Analysis With Pareto Charts

Pareto analysis, which strives to separate a vital few factors in a problem from an insignificant many, has a wide variety of applications across industries. Our expert shows you how it works.

Pareto analysis is a decision-making method widely used by analytics teams across disparate industries. It attributes the majority of a given problem to a top percentage of cases. Specifically, it’s based on the idea that 20 percent of causes result in 80 percent of problems. In practice, the 80/20 split is a guideline that generally suggests that a small minority of causes are responsible for the majority of problems. As such, the exact values don't have to precisely align with the 80/20 rule as the split in practice may be 75/25, 90/10, or 85/15. The heuristic is meant to be a guide for distinguishing the vital few factors that are pertinent to a problem from the insignificant many that aren’t. 

Extremely versatile, Pareto analysis can identify impactful subsets of data in a wide variety of industries including retail, information technology, marketing, and healthcare. 

The ability to create these charts from data is a valuable skill for data scientists and data analysts . Python provides a variety of tools and visualization libraries that allow you to easily create pretty Pareto charts that clearly communicate the top underlying causes of most problems in a system. 

In this post, we will generate Pareto charts using synthetic emergency room patient readmission data. In our analysis, we will walk through the steps of generating a Pareto plot in Python. Using this data, we will analyze specific, real-world emergency room readmission scenarios. For our purposes, we will work with the Synthetic Healthcare Emergency Room Readmission data available on DataFabrica . The  free tier is free to download, modify, and share under the Apache 2.0 license .

What is Pareto Analysis? 

Pareto analysis is a decision-making method widely used by analytics teams across disparate industries. I t’s based on the idea that 20 percent of causes result in 80 percent of problems. This heuristic is meant to be a guide for distinguishing the vital few factors that are pertinent to a problem from the insignificant many that aren’t. Extremely versatile, Pareto analysis can identify impactful subsets of data in a wide variety of industries including retail, information technology, marketing, and healthcare.

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Steps of Pareto Analysis

A thorough Pareto analysis follows several steps.

• Define your problem and the associated causes. For example, in the case of prescription errors, the problem is the incorrect prescription of high blood pressure drugs and potential causes are “white coat hypertension” and  “inaccurate readings.”
• Calculate the frequency of each cause within a problem. 
• Sort the frequencies from highest to lowest.
• Plot a bar chart of the frequencies. 
• Calculate the cumulative sum of the unit of measure through each cause. For example, calculate the total cumulative percentage of hypertension misdiagnosis across each cause.
• Create a line plot of the cumulative percentage. 
• Label the left side of the y-axis with “Frequency” and the right side with “Cumulative Percentage.”
• Label the x-axis with the “Problem Causes” for the prescription error label “Prescription Error Causes.” 
• Title the plot “Pareto Chart of Problem,” i.e., “Pareto Chart of Prescription Errors”
• Analyze Pareto Chart – Inspect the top few causes that contribute to most of the problems. 

What Is a Pareto Chart? 

A Pareto chart is a dual plot of a bar chart and a line plot. The bar chart corresponds to descending frequencies in an event, usually denoted by a category. Examples of events include a product selling, a customer churning, a patient returning to the emergency room, or any event that impacts a business, whether positively or negatively. The line plot corresponds to the cumulative sum in a specified unit of measure across events. 

For example, in the case of a patient returning to the emergency room, also called patient readmission, the values in the line plot would be the cumulative sum of the number of readmission occurrences across all causes of readmission. 

Pareto Chart Examples 

Healthcare is an interesting application of Pareto analysis since it can improve patient outcomes, optimize resource allocation, facilitate disease management and more. Specifically, Pareto analysis can identify the causes of medical prescription errors, evaluate diagnostic accuracy, and identify the top causes of patient readmissions. 

For example, in the context of identifying causes of prescription errors, you can use Pareto analysis to determine if the issue is incorrect dosages, patient mismatching, or duplicate prescriptions. Identifying the causes of prescription errors allows healthcare providers to focus resources on addressing the most impactful causes of these errors. 

Below is a Pareto chart of prescription errors and their causes. From the plot, you can see that 80 percent of prescription errors are solely due to wrong dosage and wrong time. 

In terms of diagnostics, healthcare providers can identify the top causes of misdiagnoses. For example, common misdiagnoses include abnormal blood pressure readings due to white coat hypertension, improper cuff size, and more. These errors can also lead to prescription errors like prescribing hypertension medication to someone with normal blood pressure. 

In the Pareto chart below, we see that 80 percent of high blood pressure misdiagnoses are due to white coat hypertension and cuff size errors. 

You can also use Pareto analysis to identify prevalent factors driving readmission. Identifying the vital few causes of readmission among the insignificant many can significantly improve parient outcomes because providers can allocate resources toward prevention. By preventing readmission, hospitals can save money, reduce mortality rates, and ultimately provide better care to more patients. 

How to Create a Pareto Chart 

To start, let’s read our data into a Pandas DataFrame and display the first five rows of data:

Next, let’s filter our data to only include readmitted patients:

We can then use this filtered DataFrame to count the number of times a cause appears in the readmitted patient data:

Next, we can calculate the cumulative sum of readamission_cause counts and divide by the total count of readmissions to get the cumulative percentage in cause counts:

Next, to be able to generate our Pareto chart, we need to define a Matplotlib subplot object, which we will call ax1 :

The subplot object will allow us to generate a dual plot, containing a line plot and a bar chart. It will also allow us to format our chart with axis labels, legends and titles. 

Next, let’s use ax1 to plot our bar chart of cause frequencies:

And we can label our x and y axes:

Format the values to be frequency, color to be cyan for the y-ticks on the y-axis, and format the plot legend to be located on the upper left of the chart:

Next, we will create a secondary y-axis, which is where the values for the cumulative percentages will reside:

This step will enable us to overlay two plots, a bar chart for frequencies and a line plot for cumulative percentages. 

Next, we generate a line plot of our cumulative percentages:

And format the y-axis label to be cumulative percentage, y-ticks to be red, and legend to be on the upper right:

  We can further format our chart by including a title:

Also, let’s format the x-axis such that the readmission cause values are angled by 30 degrees. This makes the readmission cause values more readable as they would otherwise overlap each other:

We can also format with the tight layout method, which makes the plot easier to read by tightening the figure:

We see from the chart that 80 percent of readmissions in our data are due to sepsis and falls. Further, very few readmissions in our data are due to the wrong time of administration, lack of patient education and prescription errors. A few lines of Python code can generate an insightful Pareto chart that clearly distinguishes the most impactful causes of a problem from the other many trivial causes. 

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Pareto Analysis Best Practices 

Pareto analysis is most effective when done with best practices in mind. So, you should always consider the following factors when generating Pareto charts and performing analysis on them:

• Make sure you have sufficient data.  Although there is no exact cutoff, take measures to ensure that you have a large enough sample size. Many statisticians use n=100 as the minimum sample size required to generate meaningful statistical results, though this is not always possible in practice. Generally, the more data available per cause, the better. 
• Clearly label axes.  In order to gain the most insights from your Pareto chart, you should ensure that axes are clearly labeled and easy to understand. Given that Pareto charts are dual plots, failing to provide clear labels is bound to cause confusion. 
• Choose contrasting colors for the line plot and bar chart.  This helps to clearly differentiate the line plot from the bar chart. 
• Clearly label root causes.  The causes should be easy to interpret. Although you may not have complete control over them, if the cause descriptions are long or complicated, try to simplify them so that they are easy for the chart reader to understand. 
• Limit the number of causes.  Focus on the most important contributing causes. This also helps prevent the Pareto chart from becoming overcrowded, especially with causes that rarely occur in the data. 
• Strive for method transparency.  Clearly articulate the methods used to gather the data. This step can clearly communicate any biases in the data and can help ensure the reproducibility of results. 

Advantages of Pareto Analysis 

Pareto analysis is advantageous because it allows business decision-makers to identify the top underlying causes contributing to the bulk of a given problem. This knowledge helps prevent businesses from wasting resources on causes that rarely contribute to a problem. Knowing which cause to prioritize has tremendous business value as it can significantly improve the efficiency of services. 

In the context of readmission, hospitals can filter down a potentially long list of causes of readmission. In our early example, we saw 80 percent of readmissions in our data are due to sepsis and falls, while very few are due to the wrong time of administration, lack of patient education or prescription errors. Hospitals can use this type of information to optimally allocate resources to patients who suffer from sepsis and falls instead of other, less common causes. Healthcare providers can analyze the initial visits for sepsis and fall injury victims and determine if there are any actions that can be taken with future patients to prevent future readmissions. 

For example, consider a patient readmitted for sepsis after having a coronary artery bypass grafting surgery. Readmission prevention measures can be taken to prevent future occurrences with similar patients. This includes patient education on how to care for surgical wounds post-surgery, pre-surgery antibiotic administration (prophylaxis), understanding patient health history and more. By knowing which contributors to focus on, decision-makers can save time and resources. 

Generally, Pareto analysis has the following advantages:

• Easy to understand 
• Clear communication of problems and root causes 
• Identification and prioritization of high-impact causes
• Optimization of resource allocation 
• Risk minimization

Disadvantages of Pareto Analysis 

Although Pareto analysis is a powerful tool for decision-makers it has its disadvantages. One disadvantage is that it requires sufficient data for results to be meaningful, which isn’t always possible in practice. It also assumes that the causes are independent, meaning that one cause doesn’t influence another. 

This assumption is not very realistic in practice. For example, in the case of readmission, lack of patient education can interact with adverse drug reactions. If a patient is unaware of the side effects of a drug, they may return to the emergency room unnecessarily due to these side effects. 

Another disadvantage is that we are limited to the known causes available in the data. Additional causes might be more impactful but unavailable in the data and therefore escape the analysis. 

Finally, this method assumes that each cause has the same impact. In practice, however, certain causes may be more critical than others when considering readmission. For example, readmission for high blood sugar levels may not be as critical, regardless of frequency, as readmission for sepsis after surgery. 

Generally, Pareto analysis has the following disadvantages:

• Dependent on available data 
• Assumes causes are independent  
• Limited to known causes 
• Causes are equally weighted 

Applications of Pareto Analysis 

Pareto analysis has many applications across industries. Here are a few known applications of Pareto analysis. Note that these are just illustrative examples and don’t necessarily reflect ground truth.

• Identify the top 20 percent of causes for 80 percent of readmissions. For example, sepsis and falls account for 80 percent of readmissions. 
• Identify the top 20 percent of causes for 80 percent of misdiagnoses. For example, white coat hypertension accounts for 80 percent of high blood pressure misdiagnoses.
• Identify the top 20 percent of causes for 80 percent of fraud instances. For example, x-ray imaging accounts for 80 percent of fraudulent health insurance claims.
• Identify the top 20 percent of products that account for 80 percent of company revenue. For example, you could determine the top 100 SKUs from a retailer that accounts for 80 percent of revenue.
• Identify the top 20 percent of customers that account for 80 percent of company revenue. For example, the top 100 SKUs from a retail business account for 80 percent of its revenue.
• Identify the top 20 percent of inventory that accounts for 80 percent of company revenue. For example, you could identify the top 100 SKUs from a retail line that account for 80 percent of revenue.

The code in this post is available on GitHub . 

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Use Pareto Analysis

Although Pareto analysis has its limitations, it is an invaluable tool for businesses and decision-makers. Identifying the most impactful causes of a problem can aid in resource allocation, cause prioritization and prevention, and increase the efficiency of business services. In the context of hospital readmission, this means decreasing readmission rates by allocating resources to the most impactful causes of a problem, improving patient outcomes, which consequently decreases emergency room patient mortality, and more. Many business tasks that involve an event and its causes can be made more efficient through Pareto analysis. 

The free version of the synthetic emergency room patient readmission is here . The full data set can be found here .

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Pareto Chart: What It Is, Uses, Tips + Examples

The Pareto chart can be very helpful for making decisions in a company because it lets you figure out the important steps you need to take to get the desired results.

If you still don’t know what this technique is and how to use it, this article will tell you everything you should take into account.

What is the Pareto Chart?

A Pareto chart is a technique that allows you to graphically classify information from most to least relevant, aiming to recognize the most important problems that you should focus on and solve.

This method is based on the Pareto principle, often known as the 80/20 rule, which develops a correspondence relationship between the 80-20 groupings, where 80% of the effects result from 20% of the causes.

The Pareto diagram, also known as the ABC distribution curve, consists of a graph that classifies the aspects related to a problem and orders them from highest to lowest frequency, thus allowing clear visualization of the leading cause of a consequence.

Many businesses don’t understand that increasing profits is not always by increasing product variety. Sometimes, we ourselves can be the worst enemy of our products, taking away sales to offer others.

So, the function of the Pareto chart is that companies can recognize which are the most important needs to which they should direct their efforts and not waste resources on irrelevant issues, hence the importance of always conducting data analysis.

Characteristics

The Pareto Chart is a technique of simple calculations. It helps identify the most significant causes or problems that account for most of the issues, allowing for more targeted problem-solving efforts. The following are the most important characteristics of the Pareto chart:

• Vertical Bar Chart

It represents different categories or factors. Each bar’s height represents the frequency, magnitude, or relevance of the category being represented.

• Descending Order

The bars are organized in descending order from left to right, with the most important category on the left. This allows you to quickly discover the most significant factors contributing to an issue or circumstance.

• Cumulative Percentage Line

A line graph is superimposed on the bar chart to illustrate the cumulative percentage of each category’s overall contribution. It begins on the left side and rises to the right, often as a curving line.

• Axis Labels

The vertical axis on the left represents the frequency or magnitude of each category, while the horizontal axis at the bottom represents the categories themselves.

• Category Labels

Each bar on the chart is labeled to indicate the associated category. These labels help in understanding the particular aspects under consideration.

• Focus on Vital Few

Pareto charts emphasize the “80/20” concept, which suggests a large amount of the influence or issues may be tracked to a small number of factors. It helps in prioritizing resources and attention to the most important areas for improvement.

• Analysis and Decision-Making

The chart makes it easier to make decisions based on facts by demonstrating visually how important different factors are. It lets you figure out the main causes and work on resolving those to get the desired results.

Advantages of the Pareto Chart

The Pareto chart allows you to define priorities and focus on knowing the root causes to solve problems effectively. By using this tool, you can make objective decisions that bring more benefits to your organization.

Among the advantages of using the Pareto Diagram for decision-making are:

• Identification of the main problems: The Pareto diagram lets us quickly identify the main problems affecting a process, product, or service. In this way, improvement efforts can be focused on the most critical areas and obtain significant results quickly.
• Prioritization of improvement efforts: The Pareto chart assists in prioritizing improvement efforts by highlighting the primary problems. Resources can be directed toward issues that influence process performance or customer satisfaction.
• Visualization of relative importance: The Pareto chart provides a visual representation of the relative importance of each case. This helps to better understand the problem’s nature and impact on overall performance.
• Effective Communication: The Pareto chart is an effective communication tool that can help engage stakeholders and foster collaboration in continuous improvement.
• Saving time and resources: The Pareto chart can help save time and resources by prioritizing improvement efforts and focusing resources on the most important areas.

What is a Pareto Diagram used for?

The Pareto chart can be used to:

• Analyze the different products and services you offer and improve their quality.
• Observe the production of products in time and volume.
• Identify which products generate the highest sales and which have been stored for the longest.
• Recognize opportunities to improve your business.
• Identify the reasons why some problems occur and prioritize solutions.

Uses of the Pareto Chart in an Organization

The Pareto chart can be applied in all areas of a company. Next, we will show you some of them:

• Inventory control: The ABC inventory control system is based on the Pareto principle, considering that 20% of the items in the warehouse generate 80% of the inventory movements, so they are the ones that need to be paid the most attention.
• Sales: 80% of closed sales come from 20% of the products, and 20% of the most loyal customers are the ones that generate 80% of the total profits, from which more business and marketing strategies can be developed effectively.
• Customer service: It is considered that 20% of product failures represent 80% of customer complaints, so it helps to prioritize precise optimization to reduce incidents.
• Production control: Using the Pareto diagram helps to study the 20% of the defects in a production that produce 80% of the negative consequences of the procedures, which helps to prioritize the improvement program.
• Human Resources: In the area of ​​organizational development, the 80/20 rule can be applied to identify problems such as absenteeism since 80% of absences are mainly due to 20% of collaborators.

How to Create a Pareto Chart?

To create a Pareto chart, do the following steps:

• Define the Problem: Clearly identify and prioritize the problem or issue you want to research. Determine the categories or factors that are involved in the situation.
• Collect Data: Gather relevant data for each category or element. This could be in the form of counts, frequencies, or magnitudes. Ensure that the data is correct and complete.
• Order the Data: Arrange the categories or elements in descending order based on their contribution to the problem.
• Calculate Cumulative Percentages: Divide the cumulative sum of the category values by the total sum of all categories to calculate the cumulative percentage for each category. This reflects how much each area contributes to the overall problem.
• Create the Chart: Create a vertical bar chart with the categories on the horizontal axis and the frequencies or magnitudes on the vertical axis using spreadsheet software or a data visualization tool. Make sure the bars are labeled and scaled correctly.
• Add Cumulative Percentage Line: Draw a line graph on top of the chart to demonstrate the cumulative percentage. The line begins on the left side of the chart and gradually increases to the right, representing the total contribution of each group.
• Label the Axes: Provide clear labels for the vertical and horizontal axes, specifying the units of measurement and the categories represented.
• Title and Subtitles: Add a title to the chart indicating the investigated objective or problem. Subtitles can optionally be included to provide extra context or information.
• Interpret and Analyze: Analyze the Pareto chart to determine the “vital few” factors that contribute the most to the problem. Concentrate on addressing these variables to have the most significant influence on changing the situation.

Tips for making a Pareto Chart

Drawing up a Pareto chart and selecting priority issues is not always easy. Here are some tips that you can take into account:

• Evaluate the validity of the information collected: Before doing it, consider that the information collected in a short time can give wrong results. If you don’t control the data, it can change from moment to moment and not represent the level of priority that has been set.
• Sort the categories methodically: If we do not look at the diagram correctly, the results will not be useful. Choose your criteria carefully and prioritize the most important ones.
• Focus on frequent problems: This will reduce the number of points needing repair. It does not mean that you forget the minor problems, but fixing the biggest ones will help you increase your financial resources.

Pareto Chart Example

The following example consists of a company that is dedicated to the sale of different brands of flour. Below we present the sales for each one:

The entire amount sold is $160,651,000.00 . As a result, the percentage for each is as follows:

The next step is to order from highest to lowest and add the cumulative frequency percentage.

Finally, the next process is to record the frequency on a bar graph and the cumulative frequency with a line graph. On the left side of the graph, we will see the percentage of the first graph, and on the right side, that of the second.

With this result, it can be concluded that the best decision is to remain with the Blue Sphere, Hercules, and The King brands since they represent just over 80% of sales, while the others represent less than 20% of total sales.

The Pareto Chart can be particularly beneficial for decision-making and the development of successful strategies that assist a business in reaching its key objectives.

To get accurate and useful results, it is important to make sure that the data collected is correct, complete, and relevant and that the proper techniques are used to analyze it. In short, the Pareto Chart is a helpful tool that can make data collection and research much better and more efficient.

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What Is Pareto Analysis?

Understanding pareto analysis, how to create a pareto chart.

• Pros and Cons

Special Considerations

The bottom line.

• Business Essentials

Pareto Analysis: Definition, How to Create a Pareto Chart, and Example

Julie Bang / Investopedia

Pareto analysis is a technique used for business decision making, but it also has applications in several different fields from welfare economics to quality control. A common part of such analysis is to graphically depict the occurrence of each variable being tracked. This depiction is called a Pareto chart.

Pareto analysis is based largely on the “80-20 rule.” It is premised on the idea that 80% of a project’s benefit can be achieved by doing 20% of the work—or, conversely, 80% of problems can be traced to 20% of the causes.

As a decision-making technique, Pareto analysis statistically separates a limited number of input factors—either desirable or undesirable—which have the greatest impact on an outcome. It is a powerful quality and decision-making tool. In the most general sense, it is a technique for getting the necessary facts to set priorities.

Key Takeaways

• As a decision-making technique, Pareto analysis statistically separates a limited number of input factors—either desirable or undesirable—which have the greatest impact on an outcome.
• Pareto analysis states that 80% of a project’s benefit or results are achieved from 20% of the work—or conversely, 80% of problems can be traced to 20% of the causes.
• With Pareto analysis, each problem or benefit is given a numerical score based on the level of impact on the company; the higher the score, the greater its impact.
• Modern-day applications of Pareto analysis are used to determine which issues cause the most problems within different departments, organizations, or sectors of a business.
• By allocating resources to issues with higher scores, companies can use Pareto analysis to solve problems more efficiently because they can target those problems that have a greater impact on the business.

In 1906, Italian economist Vilfredo Pareto discovered that 80% of the land in Italy was owned by just 20% of the people in the country. He extended his research and determined that this disproportionate wealth distribution was the same across Europe. The 80-20 rule was formally defined as follows: The top 20% of a country’s population accounts for an estimated 80% of the country’s wealth or total income .

Joseph Juran, a Romanian-American business theorist, discovered Pareto’s research in 1937, approximately 40 years after it was published. Juran proceeded to rename the 80-20 rule as “ Pareto’s Principle of Unequal Distribution .”

Juran extended Pareto’s principle to the business world in order to understand whether the rule could be applied to problems faced by businesses. He observed that in quality control departments, most production defects resulted from a small percentage of the causes of all defects. So, by extension, 80% of the problems are caused by 20% of the defects; Juran’s work implies that if you focus on fixing that 20%, you could have a big impact with minimal effort.

Joseph Juran, a Romanian-American engineer and management consultant, coined the terms “vital few,” “useful many,” and “trivial many” to refer to the few contributions that account for the bulk of the effect, and to the many other contributions that account for a smaller proportion of the effect.

Modern-day applications of Pareto analysis are used to determine which issues cause the most problems within different departments, organizations, or sectors of a business. Hence, Pareto analysis is so important to save the most scarce resource in the business, which is time, in the area of solving problems.

Typically, Pareto analysis is employed by business managers , whose approach typically involves conducting a statistical analysis, such as a cause-and-effect analysis, to produce a list of potential problems and the outcomes of these problems. Following the information provided by the cause-and-effect analysis, the 80-20 rule can be applied. Here are some scenarios relevant to businesses where Pareto analysis might be applicable:

• Sharing information about defects/errors with high-priority stakeholders
• Prioritizing defects or tasks according to their severity; i.e., according to their impact on a system or business
• Analyzing data or errors/defects

Steps of Pareto Analysis

By applying the 80-20 rule, problems can be sorted based on whether they affect profits, customer complaints, technical issues, product defects, or delays and backlogs from missed deadlines. Each of these issues is given a rating based on the amount of revenue or sales and time lost, or the number of complaints received.

Here is a basic breakdown of the steps of Pareto analysis:

• Identify the problem or problems.
• List or identify the cause of the issues or problems, noting that there could be multiple causes.
• Score the problems by assigning a number to each one that prioritizes the problem based on the level of negative impact on the company.
• Organize the problems into groups, such as customer service or system issues.
• Develop and implement an action plan, focusing on the higher-scored problems first, in order to solve the problems.

Not all problems will have a high score, and some smaller problems may not be worth pursuing initially. By allocating resources to high-impact issues or higher scores, companies can solve problems more efficiently by targeting the issues that have a major impact on profits, sales, or customers.

Pareto analysis shows that disproportionate improvement can be achieved by ranking various causes of a problem and concentrating on the solutions with the largest impact.

A common part of Pareto analysis is to graphically depict the occurrence of each variable being tracked. This depiction is called a Pareto chart, and it organizes and displays information to show the relative importance of various problems or causes of problems. It is similar to a vertical bar graph in that it puts items in order (from the highest to the lowest) relative to some measurable effect of interest: frequency, cost, or time. Here is the process of making a Pareto chart.

• Develop a list of problems to be compared.
• Develop a standard measure for comparing the items—for example, how often it occurs: frequency (e.g., utilization, complications, errors); how long it takes (time); and how many resources it uses (cost).
• Choose a time frame for collecting the data.
• For each item, tally how often it occurred (or cost or total time). Then, add these amounts to determine the grand total for all items.
• Find the percent of each item in the grand total by taking the sum of the item, dividing it by the grand total, and multiplying by 100.
• List the items being compared in decreasing order of the measure of comparison; e.g., the most frequent to the least frequent. The cumulative percent for an item is the sum of that item’s percent of the total and that of all the other items that come before it in the ordering by rank.
• List the items on the horizontal axis of a graph from highest to lowest. Label the left vertical axis with the numbers (frequency, time, or cost).
• Label the right vertical axis with the cumulative percentages (the cumulative total should equal 100%).
• Draw in the bars for each item.
• Draw a line graph of the cumulative percentages. The first point on the line graph should line up with the top of the first bar.

The final step is analysis. You can now analyze a Pareto chart by identifying those items that appear to account for most of the difficulty. In the example below, the Institute for Healthcare Improvement identified three vital types of errors discovered during surgical setup.

Advantages and Disadvantages of Pareto Analysis

In the most general sense, the advantage of Pareto analysis is that it helps to identify and determine the root causes of defects or problems. It also helps to save time by focusing on the root causes of the problem at hand.

In business, the most important resource is time. Due to time, the goals usually are not to eliminate or maximize but rather to optimize. And the Pareto rule helps with optimization. Hence, businesses can resolve defects or errors with the highest priority first.

Pareto charts can specifically help determine the cumulative impact of a problem. Cumulative impact results from effects caused by a problem happening over a long period of time.

Pareto charts are especially useful for businesses or organizations because they can use them to plan the measures or actions that need to be taken in order to amend the problems. For this reason, Pareto charts can sharpen problem-solving and decision-making skills: Problems related to a defect or error can be distilled into cohesive facts.

Disadvantages

The main disadvantage of Pareto analysis is that it does not provide solutions to issues; it is only helpful for determining or identifying the root causes of a problem(s). In addition, Pareto analysis only focuses on past data. While information about past errors or problems is useful, there’s no guarantee that it will be relevant in future scenarios.

A final disadvantage of Pareto charts is that they can only show qualitative data that can be observed; they cannot be used to represent quantitative data. For example, Pareto charts cannot be used to calculate the mean, the standard deviation, or the average of the data, its variability, or changes in the measured attribute over time.

Helps to identify and determine the root causes of defects or problems

Organizations can eliminate or resolve defects or errors with the highest priority first

Determine the cumulative impact of a problem, where cumulative impact is defined as an effect that is being caused due to a problem happening over a long period of time

Organizations can use Pareto charts to plan what measures or actions need to be taken in order to amend problems

Pareto charts can sharpen problem-solving and decision-making skills

Does not provide solutions to issues; only helpful for determining or identifying the root causes of a problem(s)

Only focuses on past data

Pareto charts can only show qualitative data that can be observed; they cannot be used to represent quantitative data

Example of Pareto Analysis

The Department of Ecology for the state of Washington performed a study to identify why oil spills happen. They gathered information on 209 oil spill incidents, including internal peer review of the causes, and potentially factored in input from responsible parties.

In total, the Department of Ecology identified dozens of causes for oil spills. It identified the primary causes as:

• Inattention/distraction (38 times cited)
• Procedural error (31)
• Judgment (26)
• Mechanical failure (23)
• Structural failure (20)
• Unknown causes (11)

The total number of explanations above (six) represents a little bit more than 20% of the total causes identified (29 total casual factors). However, these six causes cumulatively were responsible for 71% (149 of 209 cases) of oil spills identified. In this example of Pareto analysis, only a few data items are primarily responsible for most causes of oil spills.

It’s important to note that Pareto analysis does not provide solutions to issues, but only helps businesses to identify and narrow down the most significant causes of the majority of their problems. Once the causes have been identified, the company must then create strategies to address those problems.

Pareto analysis will typically show that a disproportionate improvement can be achieved by ranking various causes of a problem and by concentrating on those solutions or items with the largest impact. The basic premise is that not all inputs have the same or even proportional impact on a given output. This type of decision making can be used in many fields of endeavor, from government policy to individual business decisions.

What Is Pareto Analysis Used for?

Pareto analysis is used to identify problems or strengths within an organization. As an overwhelming amount of impact is often tied to a relatively smaller proportion of a company, Pareto analysis strives to identify the more material issues worth resolving or the more successful aspects of a business.

What Is the Importance of Pareto Analysis?

Pareto analysis enables an entity to be more efficient with its resources. By quickly identifying a major issue or capitalizing on a major business success, the company can spend less time and resources focusing on less impactful aspects of the company.

How Is a Pareto Chart Different from a Standard Vertical Bar Graph?

A vertical bar graph is a type of graph that visually displays data using vertical bars going up from the bottom. In a vertical bar graph, the lengths are proportional to the quantities they represent. Vertical bar graphs are typically utilized when one axis cannot have a numerical scale.

A Pareto chart is a type of chart that contains both bars and a line graph, where individual values are represented in descending order by bars, and the cumulative total is represented by the line. A Pareto chart is different from a vertical bar graph because the bars are positioned in order of decreasing height, with the tallest bar on the left.

What Is Pareto Efficiency?

Pareto efficiency is a state of the economy where resources cannot be reallocated to provide more advantages for one individual without making at least one individual worse off. Pareto efficiency implies that resources are  allocated  in the most  economically efficient  manner. However, this state does not guarantee equality or fairness.

What Is an Example of Pareto Analysis?

Imagine a hypothetical example where a company is analyzing why its products are being shipped late. It comes up with 20 various reasons for what may be causing the delay.

Pareto analysis holds the claim that of those 20 various reasons, roughly four of those items will be the primary cause of roughly 80% of the shipping delays. The company undertakes an analysis to track how many instances of each reason occur.

Pareto analysis isn’t exact; the company may find that five reasons are causing 75% of the company’s delays. Still, in principle, the fact remains that only several items are the primary drivers for a majority of outcomes. The company must focus its resources on these five reasons to make the most impactful positive change to its delivery processes.

When there seem to be too many options to choose from or it is difficult to assess what is most important within a company, Pareto analysis attempts to identify the more crucial and impactful options. The analysis helps identify which tasks hold the most weight as opposed to which tasks have less of an impact.

By leveraging Pareto analysis, a company can more efficiently and effectively approach its decision-making process.

Vilfredo Pareto, via Google Books. “ Cours d’Économie Politique: Nouvelle édition par G.-H. Bousquet et G. Busino .” Librairie Droz, 1964. 

National Center for Biotechnology Information. “ Joseph Juran: Overcoming Resistance to Organisational Change .”

Institute for Healthcare Improvement, via Upstate Medical University, University Hospital Nursing. “ QI Essentials Toolkit: Pareto Chart .”

Washington State Department of Ecology, via Internet Archive Wayback Machine. “ Why Spills Happen .”

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Pareto Analysis explained plus example

Pareto Analysis: this article explains the theory of Pareto Analysis by Vilfredo Pareto in a practical way. After reading you will understand the basics of this problem solving tool. This article explains what the analysis is and which steps are needed to apply the analysis, along with an example.

What is the Pareto Analysis?

The Pareto Analysis, also known as the Pareto principle or 80/20 rule, assumes that the large majority of problems (80%) is determined by a few important causes (20%). This makes the tool very effective for determining where you should focus efforts to achieve improvements.

The founder of this analysis, Italian economist Vilfredo Pareto , discovered this when he was carrying out a study at the end of the 18th century in which he ascertained that 20% of the population owned 80% of the property.

This method was further developed by total quality management guru Joseph Juran (after 1940) and can be applied to various matters (for instance decision-making and other complex issues).

A few of the 80/20 rule examples from daily practice which are often correct are:

• 80% of the customer complaints ensue from 20% of the products or services delivered.
• 20% of the products or services yield 80% of the profits.
• 20% of the people responsible for sales generate 80% of the operational income.
• 80% of the system failures are caused by 20% of the system problems.

The principle of this method is based on the Zipf distribution (pattern in linguistics and a discrete probability distribution with parameters λ and N).

In addition to being a static technique, the Pareto Analysis is a creative and practical way of looking at the causes of problems. It stimulates ideas about thinking and organizing. This method helps identify the main causes (20%) that lead to 80% of the problems that need are to be solved.

As soon as the main causes have been identified, the diagnostic techniques such as the Ishikawa diagram or fishbone analysis can be used to identify and address the deeper causes of the problems.

Practice of the Pareto Analysis

In order to apply the analysis in practice some basic steps have been defined which can be followed to arrive at a thorough analysis.

Step 1: Measuring – identify the problems and document them in a table

Based on observations, interviews and reports, data can be collected from which problems can be deduced. Subsequently, these problems are documented in a table and grouped if possible.

It is important to apply the ‘cause-effect’ theory to each item so that the source of each documented problem can be found. There are several techniques that can help in this such as for example the Root Cause Analysis (RCA) .

Step 2: Determine their order of importance

Organize the inventoried problems in ranking order from the most important down to the least important in descending order. Make sure that the most important cause is documented first.

Step 3: Mark or score each recorded problem

Now that the problems have been identified, deduced and been put in order of importance, it is essential to link these to a mark or score. The way in which a score must be calculated depends on the type of problem that needs to be solved.

For example a financial approach (improvement of profits) will focus on how the score relates to what costs are involved with solving these problems. Is the focus on customer-orientation (improving customer satisfaction), then the focus is on the number of complaints that need to be solved.

Pareto Analysis example

An example is a computation of the cumulative percentages of problem costs, in other words, the number of times a department is faced with this problem or the opportunities of how a department can increase sales.

Step 4: Group the identified problem and add the marks or scores

The identified problems are grouped based on their causes. If, for example, there are five problems that lead to dysfunctional employees then put them together in one group. Now that all problems have been grouped, the marks or scores are added.

The group with the highest score must be given the highest priority in order so that they can be dealt with. This is where the most results can be obtained in terms of optimization.

Figure 1 – Pareto Analysis Example

Pareto Analysis diagram

Figure 2 – Plotted Pareto Analysis Diagram

Step 5: Time to act, based on the Pareto Analysis

Using the information from step 4, an action plan can be drawn up in which performance improvement actions can be formulated.

It’s Your Turn

What do you think? Are you familiar with the Pareto Analysis or PA Diagram? Do you recognize the practical explanation or do you have more suggestions? What are your success factors for the good problem analysis and approach?

Share your experience and knowledge in the comments box below.

More information

• Fotopoulos, C., Kafetzopoulos, D., & Gotzamani, K. (2011). Critical factors for effective implementation of the HACCP system: a Pareto analysis . British Food Journal, 113(5), 578-597.
• Karuppusami, G., & Gandhinathan, R. (2006). Pareto analysis of critical success factors of total quality management: A literature review and analysis . The TQM magazine , 18(4), 372-385.
• Kaliszewski, I. (1994). Quantitative Pareto analysis by cone separation technique . Kluwer Academic Publishers .

How to cite this article: Mulder, P. (2012). Pareto Analysis . Retrieved [insert date] from Toolshero: https://www.toolshero.com/problem-solving/pareto-analysis/

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Patty Mulder

Patty Mulder is an Dutch expert on Management Skills, Personal Effectiveness and Business Communication. She is also a Content writer, Business Coach and Company Trainer and lives in the Netherlands (Europe). Note: all her articles are written in Dutch and we translated her articles to English!

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One response to “pareto analysis explained plus example”.

Btw, I think it is: “80% of the system problems/defects are caused by 20% of the system failures “

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Pareto Analysis

Choosing the solution with the most impact.

© iStockphoto Mackan65

Use this approach to identify which challenges you should tackle first.

Imagine that you've just been promoted to head of department. You're brimming with ideas about how to improve things, so where do you start?

Ideally, you want to focus on fixing the problems that have the biggest impact. But how do you decide which one to tackle first?

Pareto Analysis is a simple decision-making technique for assessing competing problems and measuring the impact of fixing them. This allows you to focus on solutions that will provide the most benefit.

In this article, we'll show you how to carry out a Pareto Analysis, and explain how to use your findings to prioritize tasks that will deliver the greatest positive impact.

The 80/20 Rule

Pareto Analysis uses the Pareto Principle – also known as the "80/20 Rule" – which was coined by Italian economist, Vilfredo Pareto, in his 1896 book, "Cours d'économie politique." [1]

The Pareto Principle states that 80 percent of a project's benefit comes from 20 percent of the work. Or, conversely, that 80 percent of problems can be traced back to 20 percent of causes. Pareto Analysis identifies the problem areas or tasks that will have the biggest payoff. The tool has several benefits, including:

• Identifying and prioritizing problems and tasks.
• Helping people to organize their workloads more effectively.
• Improving productivity.
• Improving profitability.

The figures 80 and 20 aren't "set in stone," and should be taken as a guide. The Pareto Principle illustrates the lack of symmetry that often occurs between the work you put in and the results you achieve. For example, you might find that 13 percent of work could generate 87 percent of returns. Or that 70 percent of problems could be resolved by dealing with 30 percent of underlying causes.

Pareto Analysis Steps

Now, we'll take a look at how to carry out a Pareto Analysis:

1. Identify and List Problems

Write out a list of all of the problems that you need to resolve. Where possible, gather feedback from clients and team members. This could take the form of customer surveys, formal complaints, or helpdesk logs, for example.

2. Identify the Root Cause of Each Problem

Next, get to the root cause of each problem. Techniques such as the 5 Whys   , Cause and Effect Analysis   , and Root Cause Analysis   are useful tools for this.

3. Score Problems

Now, score each problem that you've listed by importance. The scoring method that you use will depend on the sort of problem that you're trying to resolve.

For example, if you want to improve profits, you could score problems by how much they cost. Or, if you're trying to improve customer satisfaction, you might score them based on the number of complaints that you've received about each.

4. Group Problems Together

Use the root cause analysis that you carried out in Step 3 to group problems together by common cause. For example, if three of your problems are caused by lack of staff, you could put these into the same group.

5. Add up Scores for Each Group

Now, add up the scores for each group that you've identified. The one with the top score should be your highest priority, and the group with the lowest score your lowest priority.

6. Take Action

Finally, it's time to take action! Your highest scoring problem will likely have the biggest payoff once fixed, so start brainstorming   ideas on how to solve this one first.

You may find that your lowest-scoring problems aren't worth bothering about, particularly if they are very costly to fix. Use your Pareto Analysis to save your energy and resources for what's important!

While this approach is great for identifying the most important root cause to deal with, it doesn't take into account the cost of doing so. Where costs are significant, you'll need to use techniques such as Cost/Benefit Analysis   , and Net Present Value (NPV) and Internal Rate of Return (IRR)   to determine which changes you should implement.

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Pareto Analysis Example

Jack has taken over a failing computer service center, with a host of problems that need resolving. His objective is to increase overall customer satisfaction.

He decides to carry out a Pareto Analysis to assess and prioritize the biggest issues facing the center. He starts by listing these (see the Problem column in the table, below). He then identifies the underlying causes behind each (see the Causes column). Finally, he scores each item by the number of customer complaints that each has received (see the Score column).

Jack uses his analysis to group problems together by cause, then adds up the scores for each group identified. He is now able to order the main causes affecting the center, starting with the one that has attracted the highest number of customer complaints:

• Lack of training (items 5 and 6) – 51 complaints.
• Too few service center staff (items 1 and 2) – 21 complaints.
• Poor organization and preparation (items 3 and 4) – 6 complaints.

Figure 1. Pareto Analysis of Computer Services Center

As you can see from figure 1, above, the business will benefit most from giving staff more training, so Jack should tackle this first. He could also look to increase the number of staff in the call center. However, it's possible that this won't be necessary – the provision of further training may help to reduce customer complaints and increase staff productivity.

Jack's Pareto Analysis has enabled him to quickly identify the areas of the business that face the biggest challenges, so he can focus his efforts where they are needed most and prioritize issues that will provide the biggest payoff to the business. This will likely save him a great deal of time and money that he might otherwise have spent trying to fix a range of different issues, some of which may have provided very little benefit.

Pareto Analysis is a simple decision-making technique that can help you to assess and prioritize different problems or tasks by comparing the benefit that solving each one will provide.

It's based on the Pareto Principle (also known as the 80/20 Rule) – the idea that 80 percent of problems may be the result of as little as 20 percent of causes.

To use Pareto Analysis, you first need to identify and list the problems that you face, and their root causes. Then, score each problem according to its impact (the scoring system that you use will depend on the types of problems that you are attempting to fix).

Group the problems together by cause and add up scores for each group. This will allow you to identify the problems that will have the biggest benefits if resolved.

Finally, use your findings to prioritize your workload, so that your efforts can be directed toward issues that are the most impactful, and away from problems that are less impactful.

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Comments (32)

• Over a month ago Michele wrote Hi Hinai, Like you, I also find the 80/20 rule to be very powerful prioritization tool. Michele Mind Tools Team
• Over a month ago Hinai wrote Pareto is very powerful tool to prioritize and identify the highest reason/stage/element and different things... Also it is one of the main tool in six-sigma problem solving methodology.
• Over a month ago Michele wrote Hi Lori, Pareto Analysis is an effective problem solving tool. It identifies which solution will achieve the best result. Thanks for your comment. Michele Mind Tools Team

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Table of Contents

What is a pareto chart, pareto principle explained, when to use a pareto chart, steps of pareto analysis, pareto chart procedure: how to create a pareto chart, advantages of pareto analysis, disadvantages of pareto analysis, example of pareto analysis, understanding pareto chart: analysis and interpretation.

With the ability to visualize and prioritize issues based on how frequent or serious they are, a Pareto chart is an amazing tool for anyone involved in problem-solving or decision-making processes . It can be particularly beneficial for managers, analysts, engineers, and anyone else within various domains such as business management, quality control, project management, or process improvement.

Deriving from the Pareto Principle, i.e., 20% of the causes give 80% of the impact, this chart represents the data in descending order by emphasis on the most significant factors. The power of the Pareto Principle lies in the fact that because of the clear graphical representation, individuals can concentrate mostly on really important issues. 

A Pareto chart is a composite chart that uses bar graphs to convey the major factors causing a problem or issue. It mixes up the bar graph and line chart, with the bars showing individual category factors separately and the line showing the number of parts out of the total.

The idea behind the Pareto chart is rooted in the Pareto Principle, the 80*20 rule. The Pareto chart starts with data collection and decomposition, which refers to the major causes of the problem. Now, factors are placed into the scale of the following ranking system: 

• The higher the position is, the more essential the factor is. 

As for the Rule of Plurality, the one leading in the rating system becomes the first factor. The frequency for each group is illustrated in a bar graph and a line graph.

Pareto charts enable decision-makers to identify the most crucial problems or improvement opportunities quickly. This pattern allows them to prioritize different programs or projects and allocate resources effectively, thereby producing more targeted and effectively implemented solutions.

The concept of the Pareto Principle is such that according to it, the effects of 80% of the results are caused by 20% of their causes. The 'Pareto 80/20 Principle' was named after Vilfredo Pareto, an Italian economist, who noticed that almost 80% of the earth was enjoyed by 20% of the population in Italy. This principle becomes equally relevant to many observed facts at different edges of science.

In business or economic matters, the Pareto Principle highlights that a small percentage of input or efforts can frequently yield a large proportion of results or outcomes. For example, it could help the management understand that 80% of a company will bring in 20% of the profits or that 80% of the problems are caused by 20% of the causes.

The rule also works outside the economy; for example, in time management, it helps us prioritize activities by demonstrating that 80% of productive efforts are devoted to only 20% of the tasks done consistently. 

While the exact percentages may vary in different contexts, the main idea remains consistent: most often, a minority of inputs or, sometimes, only many forces are forcing the majority of results or outcomes.

A Pareto chart is best used when you need to:

• Identify Priorities: A Pareto chart is useful when many factors are contributing to the final result. Having this tool from day one will equip you with knowledge of what factors hold the highest priority and where resources should be applied. 
• Communicate Effectively: Pareto charts offer a graphical way of displaying data , making it easier to tell the management what was found. 
• Track Progress: Providing continuous updates to the chart with new data, you will have a chance to evaluate whether the activities targeting the most potent factors are giving the desirable outcomes and to adjust strategies if needed.
• Problem-Solving: Very complex problems require dissection into simpler parts, which is where Pareto charts are important. By recognizing the main drivers of the problem, it will be possible to plan and develop plans that target the hidden causes.

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The technique of Pareto analysis is applied to determine what leads to a certain situation and which issue needs to be focused on the most. The rule of Pareto is also known as the 80/20 rule, indicating that the majority of an effect is obtained from the minority of its causes. Here are the steps of Pareto analysis:

Define the Problem

Start by defining the problem you are trying to solve. It might be related to customer complaints, production process inefficiencies, or equipment malfunctions. Ensure that the selected issue is tangible enough and can be measured properly, thereby facilitating the process of collecting and analyzing data.

Collect Data

Gather information about the problem you knew about from the existing sources. This might include customer feedback, reports, process logs, or other data sources that provide insights into the issue. Ensure that the data is accurate , complete, and representative of your problem.

Categorize the Data

Grouping or categorizing the data based on the different factors that impact the problem could be encouraged. For example, when working with customer complaints, classify them by type of complaint to determine which issue is the most important, such as poor product quality, delayed delivery, or customer service problems.

Calculate Frequencies

Figure out the end frequency for every category by the number of factors in the data set. This step enables us to define the dimensional nature of every problem factor.

Calculate Cumulative Frequencies

Sum up the table entries where each category represents the most significant to the least significant factor for the cumulative frequency. This part helps you identify the extent of the whole problem, which each factor is monitoring.

Calculate Percentages

Calculate the percentages of each category's total problem by dividing each category's respective frequencies by their total frequency and multiplying by 100. This action eliminates biases and simplifies the comparison accuracy of each attribute.

Create a Pareto Chart

Create a Pareto chart using the categories and the amounts or percentages next to them. Plot the categories on the x-axis (horizontal line) and their frequency or percentages (vertical line). Classify the categories by the order in which they are displayed in line with their occurrence or size.

Identify the Important Ones

Know what categories of the total problem to be explained account for the biggest amount of the problem. These are the “vital few” coupled with the most significant factors. Like the Pareto Principle, your goal is to focus on the top 20 percent of the problem for about 80 percent of what was mentioned.

Analyze Root Causes

After the important step, when you’ve found the key problems, discover how they are deeply interconnected with the root cause. Conduct root cause analysis to uncover underlying issues or systemic problems that need to be addressed to mitigate the problem effectively.

Develop Action Plans

Based on the outcome of your analysis , design action plans to address the Pareto principle factors. By allocating resources and prioritizing interventions that address these factors, much more can be accomplished in delivering results.

Implement Solutions

Implement the identified actions to support the few key factors. Track the progress and take corrective measures to avoid duplication of efforts. In this case, your solutions should effectively solve the problem.

Monitor and Evaluate

Continuously monitor and assess the effectiveness of the measures implemented and react in case of problems or issues. Apply the data-driven approach to assess performance and to determine if the problem is being addressed satisfactorily. Make the needed adjustments or additions to the mechanism to complete the targets.

• To conduct a Pareto analysis, acquire data connected to the problem from various sources and put them into classes known as factors of the problem. Work out the frequency of the category appearance and get the cumulative frequencies. 
• Next, determine the percentage of each category for the problem as a whole. The highest percentage to the lowest are plotted on the x-axis, while their corresponding frequencies or percentages are shown on the y-axis. 
• Label the right vertical axis with the cumulative percentages (Note that the cumulative total should equal 100%).
• Draw in the bars for each item.
• Next, draw a line graph of the cumulative percentages. Ensure that the first point on the line graph lines up with the top of the first bar.

With the chart prepared, the final step is analysis. Identify the items that appear to account for most of the difficulty. 

The importance of Pareto analysis includes the following aspects: 

• Pareto analysis helps identify the important factors or issues that contribute the most to a problem. By focusing on the vital few factors, organizations can allocate resources and efforts more efficiently, targeting areas where they must address the issues most importantly.
• Pareto charts provide a clear visual representation of data, making it easier to understand complex relationships and prioritize actions. 
• Pareto analysis is based on empirical data, enabling data-driven decision-making processes. 
• Pareto analysis helps in problem-solving . Instead of addressing every aspect of a problem equally, organizations can prioritize the root causes or key drivers.
• Pareto analysis can be used as part of a continuous improvement process to monitor progress. 
• It provides a common language for communicating findings and priorities to stakeholders.

While Pareto analysis offers several benefits, it also has some disadvantages: 

• Pareto analysis depends on selecting appropriate data categories to represent the problem. The nature of categorization can introduce bias and influence the results.
• Pareto analysis focuses on quantitative data, like counts or frequencies of occurrences. This numerical data emphasis may overlook the problem's qualitative aspects, such as root causes, context, or underlying dynamics. 
• Static representation of problems at a specific point in time, but they do not capture changes or trends over time. Continuous monitoring and updating of Pareto charts are necessary to ensure their relevance and effectiveness.
• Pareto analysis assumes that factors contributing to the problem are independent. However, in reality, factors may be interconnected.
• Pareto analysis focuses on identifying the vital few factors that contribute the most to the problem, which leads to neglecting minority factors that may still have significant implications. 

An example of Pareto analysis includes a case where a manufacturing company is experiencing product quality issues. The company decides to conduct a Pareto analysis to identify the most significant defects contributing to the overall quality problems. 

• Define the Problem: The company defines the problem as quality issues affecting its products, leading to customer complaints and decreased satisfaction.
• Collect Data: Data is collected from various sources, including defect reports, customer complaints, and quality control records. The data includes information on the types and frequency of defects observed in the products.
• Categorize the Data: The collected data is categorized into different types of defects, such as manufacturing defects, design flaws, material issues, and packaging errors.
• Calculate Frequencies: The frequency of occurrence for each defect type is calculated by counting the number of occurrences in the data set. For example, the data might show that there were 50 instances of manufacturing defects, 30 instances of design flaws, 20 instances of material issues, and 10 instances of packaging errors.
• Create a Pareto Chart: A Pareto chart is constructed, with the defect types plotted on the x-axis and their frequencies on the y-axis. The defect types are arranged in descending order of frequency, with the most common defect type appearing first.
• Identify the Vital Few: The Pareto chart reveals that manufacturing defects account for most quality issues, representing 50% of the total defects. Design flaws and material issues account for 30% and 20% of the defects, respectively, while packaging errors have a minimal impact.
• Analyze Root Causes: Further analysis is conducted to understand the root causes behind the manufacturing defects. This may involve examining production processes, equipment performance, training procedures, and quality control measures to identify areas for improvement.
• Develop Action Plans: Based on the analysis, action plans address the root causes of manufacturing defects. This might include implementing process improvements, enhancing quality control measures, providing additional training to staff, and refining product designs.
• Implement Solutions: The action plans are implemented, and changes are made to production processes, quality control protocols, and other relevant areas to reduce the occurrence of manufacturing defects.
• Monitor and Evaluate: Progress is monitored closely to assess the effectiveness of the implemented solutions. Key performance indicators, such as defect rates, customer satisfaction scores, and product returns, are tracked to measure improvement and identify areas needing further attention.

Pareto charts are invaluable tools for decision-making, offering a systematic approach to identifying and addressing key issues. Organizations can achieve maximum impact and drive continuous improvement by focusing efforts on the vital few factors. Simplilearn offers AI and machine learning courses that empower professionals to use advanced technologies for business transformation. Explore Simplilearn's courses on Generative AI for business transformation and Applied AI to gain the skills needed to thrive in today's data-driven world.

1. What are the components of a Pareto Chart?

Components of a Pareto Chart include bars representing categories and a line graph showing cumulative percentages.

2. What does the Pareto Diagram include?

The Pareto Diagram includes categories of factors contributing to a problem and their respective frequencies or percentages.

3. What is the 80/20 rule in Pareto charts?

The 80/20 rule in Pareto charts states that roughly 80% of effects come from 20% of causes.

4. Can Pareto charts be used for all types of data?

Pareto charts can be used for most data types, including categories, frequencies, or percentages.

5. What are the limitations of using Pareto charts?

Limitations of Pareto charts include subjectivity in data selection, overemphasis on quantitative data, and neglect of minority factors.

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Understanding the Pareto principle (The 80/20 rule)

The Pareto principle (also known as the 80/20 rule) is a phenomenon that states that roughly 80% of outcomes come from 20% of causes. In this article, we break down how you can use this principle to help prioritize tasks and business efforts.

When you get into the office in the morning, what's the first thing you do? Most people grab their caffeinated beverage of choice, check their email, and prioritize their tasks for the day. But what techniques do you use to identify what needs to get done first?

One common technique is called the Pareto principle, also known as the 80/20 rule. This technique can help you determine and prioritize your highest-impact tasks, increasing your productivity throughout the day.

What is the Pareto principle?

The Pareto principle states that for many outcomes, roughly 80% of consequences come from 20% of causes. In other words, a small percentage of causes have an outsized effect. This concept is important to understand because it can help you identify which initiatives to prioritize so you can make the most impact.

Where does the Pareto principle come from?

The Pareto principle was developed by Italian economist Vilfredo Pareto in 1896. Pareto observed that 80% of the land in Italy was owned by only 20% of the population. He also witnessed this happening with plants in his garden—20% of his plants were bearing 80% of the fruit. This relationship is best mathematically described as a power law distribution between two quantities, in which a change in one quantity results in a relevant change into the other.

This phenomenon also goes by a couple of different names:

Pareto principle

The 80/20 rule (most common)

Law of the vital few

Principle of factor sparsity 

The 80/20 rule is not a formal mathematical equation, but more a generalized phenomenon that can be observed in economics, business, time management, and even sports.

General examples of the Pareto principle:

20% of a plant contains 80% of the fruit

80% of a company’s profits come from 20% of customers

20% of players result in 80% of points scored

How you can use the 80/20 rule

While the 80/20 rule applies to almost every industry, the Pareto principle is commonly used in business and economics. This is because the 80/20 rule is helpful in determining where you can focus your efforts to maximize your output. 

The basis of the Pareto principle states that 80% of results come from 20% of actions. If you have any kind of work that can be segmented into smaller portions, the Pareto principle can help you identify what part of that work is the most influential.

Here are a few examples of how to use the tool in practice.

Productivity

You can use the 80/20 rule to prioritize the tasks that you need to get done during the day. 

The idea is that out of your entire task list, completing 20% of those tasks will result in 80% of the impact you can create for that day. So in order to get the most impact done, identify which tasks have the most impact for your team and focus on those for the day.

To do this, list out all of the things that you need to get done that day. Then identify which of those tasks have the highest impact. Do any of your tasks involve collaborating with other teammates? Are there any tasks on your plate that are blocking projects from moving forward? These tasks may be simple in execution, but they can make a large impact to the rest of the team by allowing the process to keep flowing. 

Decision making

The Pareto principle can help you to make the best decisions during the problem-solving process. When there are many different causes to one problem, the Pareto principle can help you prioritize solutions. Here are a few steps to how this works:

Identify the problems that your team is experiencing. These are the problems that you're trying to find a solution to within this decision making process.

Categorize your problems into similar groups. If some of the causes of the problems you're trying to solve can fall into similar categories, use this as an opportunity to group them together. This can help you decide if one solution can resolve multiple issues. 

Assign a value to each of these problems based on the impact to the business. The value can be as simple as a number between 1-10, or actual monetary value to indicate the importance.

Develop a plan to focus on the top 20% of the problems that impact the business. The idea is that one solution can resolve multiple problems. Based on the values you assigned to each problem, calculate which ones are in the top 20%. Once you’ve identified the main problem, develop a plan to create a solution that can result in 80% of the results using problem-solving strategies .

Example of how to use the 80/20 rule for decision making: 

Imagine you work at an ecommerce company. You take a look at 100 of your most recent customer service complaints, and notice that the bulk of the complaints come from the fact that customers are receiving damaged products. Your team calculates the amount of refunds given for your damaged products and finds that approximately 80% of refunds given were for damaged products. Your company wants to avoid processing refunds for broken products, so you make this problem a priority solution. 

Your team decides to update packaging to protect your products during shipping, which resolves the issue of customers receiving damaged products.

Quality control

The Pareto analysis and the Pareto chart are key tools used within the Six Sigma quality control methodology. 

In the Six Sigma methodology, using a Pareto chart can help you visualize your data to identify how to prioritize actions. Six Sigma’s main goal is to reduce the amount of variation in a process with the goal of increasing the amount of production. Pareto charts are common in Six Sigma methodology because you can quickly identify what the majority of the variations are in a process. 

Benefits of using the Pareto principle

The biggest advantage of using the Pareto principle is that you can create the maximum amount of impact with the least amount of work. This can allow your team to work more efficiently and stay focused on specific initiatives. 

The 80/20 rule can help your metrics increase in less time, simply by prioritizing initiatives in the right order.

Other benefits of using the Pareto principle:

Clear priorities both for you and your team

Increased daily productivity

Ability to portion your work into manageable segments

More focused strategy

Disadvantages of using the 80/20 rule

​​There's a common misinterpretation of the Pareto principle that with 20% of effort, you can achieve 80% of the results. This is not necessarily the case. The 20 and 80% numbers don’t refer to the amount of effort you’re putting in, but the causes and consequences you’re working on. The goal is not to minimize the amount of effort, but to focus your effort on a specific portion of work to create a bigger impact. You still have to put 100% of effort into that 20% of focus to achieve 80% of results.

Another downside of the 80/20 rule is that sometimes team members can get too focused and lose sight on other tasks. If you only focus on the important tasks and put aside the less important tasks, like email and other correspondence, things can get lost. The challenge is finding the right balance of using the 80/20 rule, and getting through the rest of your tasks—even if they don't result in 80% of results. To combat this, you can use techniques like timeboxing or the Getting Things Done (GTD) method. 

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Mastering Pareto Analysis: Problem Solving & Process Optimization Guide

Pareto Analysis  is a powerful problem-solving tool and process improvement technique that helps businesses and organizations identify the most significant problems and prioritize their efforts for maximum impact. This academic blog post will explore the meaning, application, and benefits of Pareto Analysis and delve into various examples and case studies from different industries. As a result, organizations can achieve more efficient and effective outcomes by leveraging the Pareto Principle, also known as the 80/20 rule or Pareto's Rule.

Understanding Pareto Analysis and the Pareto Principle

Pareto Analysis Definition: Pareto Analysis  is a decision-making technique to identify the most critical factors, issues, or problems. This method involves the application of the Pareto Principle, which states that approximately 80% of effects result from 20% of causes.

Pareto Principle: The 80/20 Rule

The Pareto Principle, or the 80/20 rule, was first introduced by Italian economist Vilfredo Pareto in the early 20th century. The principle emphasizes that a small number of inputs (20%) contribute to a large percentage (80%) of outcomes. In problem-solving, this translates to the idea that focusing on the most significant problems first can lead to significant improvements.

Pareto Analysis Meaning and Purpose

Pareto Analysis prioritizes issues, identifies root causes, and allocates resources efficiently. As a result, organizations can substantially improve with limited resources by focusing on the most significant problems, making Pareto Analysis a valuable tool for continuous process improvement.

The Process of Conducting Pareto Analysis

Pareto Chart Analysis: Pareto Analysis often uses a Pareto Chart, a graphical representation of the distribution of problems, causes, or issues. A Pareto Chart consists of a bar chart and a line graph, with the bars representing the frequency or magnitude of problems and the line indicating the cumulative percentage.

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Pareto Analysis Steps

Identify the problems or issues: Begin by compiling a comprehensive list of the issues that must be addressed.

Collect data and categorize: Gather relevant data on the problems, then categorize and quantify them based on their impact or frequency.

Rank the issues: Rank the problems in descending order based on their magnitude, impact, or frequency.

Create the Pareto Chart: Plot the data on a Pareto Chart, illustrating the distribution and cumulative percentage of the issues.

Analyze and prioritize: Use the Pareto Chart to identify the most significant problems and prioritize your efforts accordingly.

Implement solutions and monitor progress: Address the prioritized issues, implement solutions, and continuously monitor the progress and impact of these efforts.

Pareto Analysis Examples and Case Studies

Pareto Analysis Example in Manufacturing: In a manufacturing setting, Pareto Analysis can identify the root causes of defects or issues in the production process. By collecting data on the frequency and impact of each deficiency, a Pareto Chart can be created to visualize the distribution of problems. Focusing on the top 20% of issues, which typically contribute to 80% of the overall defects, allows the organization to prioritize and allocate resources effectively.

Example of a Pareto Chart Analysis (Table):

Imagine a software company is experiencing a high number of customer-reported bugs. They collect data on the frequency of each bug category and create the following table:

In this example, the software company can see that User Interface and Performance bugs account for 62.5% of all reported issues. The company can significantly reduce the number of customer-reported bugs by addressing these two categories. The table forms the basis for creating a Pareto Chart, which visually represents the distribution of issues and helps prioritize problem-solving efforts.

Pareto Chart Example with Explanation

Consider a software development company that wants to reduce the number of customer-reported bugs. By collecting data on the frequency of different bug categories, the company can create a Pareto Chart to identify the most significant issues. For example, the chart might reveal that 80% of customer complaints result from 20% of bug categories. By prioritizing these categories and addressing their root causes, the company can significantly improve the customer experience and reduce the overall number of reported issues.

Pareto Law 20/80 in Problem-Solving

The Pareto Law 80/20 concept can be applied to various industries and scenarios in problem-solving. For example, in sales, it is often observed that 80% of revenue is generated by 20% of customers. Therefore, businesses can optimize their sales strategies and achieve better results by focusing on these top customers and understanding their needs and preferences.

Root Cause Pareto Analysis

Root cause Pareto Analysis involves identifying the underlying causes of the most significant problems, as highlighted by the Pareto Chart. By addressing these root causes, organizations can achieve long-term improvements and prevent future issues from arising.

Pareto Analysis Case Study

Consider a healthcare organization experiencing long patient wait times in its emergency department. By conducting a Pareto Analysis, the organization identifies the primary factors contributing to the delays, such as inefficient patient triage and understaffing during peak hours. By focusing on these critical issues and implementing targeted solutions, the organization can significantly reduce wait times and improve patient satisfaction.

Key Takeaways and Best Practices

A. pareto analysis benefits.

Prioritization: Pareto Analysis helps organizations prioritize issues and focus on the most significant problems first.

Resource allocation: By concentrating on the top 20% of issues, organizations can allocate resources more efficiently and achieve better results.

Continuous improvement: Pareto Analysis is a valuable tool for ongoing process improvement, as it enables organizations to identify and address problems consistently.

Root cause analysis : Identifying and addressing the root causes of issues ensures long-term improvements and reduces the likelihood of recurring problems.

Best Practices for Conducting Pareto Analysis

Use accurate and reliable data: The quality of your Pareto Analysis depends on the data quality used. Ensure that you collect accurate and reliable data from relevant sources.

Regularly update your analysis: Review your Pareto Analysis to account for changes in your organization, industry, or market.

Involve stakeholders: Ensure stakeholders' perspectives and expertise are considered during the analysis.

Implement and monitor solutions: After prioritizing issues, implement targeted solutions and continuously monitor progress to assess their effectiveness.

Communicate results: Share the findings and insights from your Pareto Analysis with relevant stakeholders to foster a culture of continuous improvement and data-driven decision-making.

Pareto Analysis  is a powerful problem-solving and process improvement technique that leverages the Pareto Principle to enable organizations to focus on the most critical issues and achieve significant improvements. By understanding and applying Pareto Analysis, businesses can prioritize their efforts, allocate resources efficiently, and implement data-driven solutions to drive success. Whether in manufacturing, healthcare, or software development, Pareto Analysis offers a valuable and versatile approach to tackling complex problems and achieving meaningful results.

What is the primary purpose of Pareto Analysis?

The primary purpose of Pareto Analysis is to prioritize issues, identify root causes, and allocate resources efficiently by focusing on the most significant problems. This approach helps organizations achieve substantial improvements with limited resources.

How does the Pareto Principle, or the 80/20 rule, apply to problem-solving?

The Pareto Principle, also known as the 80/20 rule, states that approximately 80% of effects result from 20% of causes. In problem-solving, this translates to the idea that focusing on the most significant problems first can lead to substantial improvements with limited resources.

What are some benefits of conducting Pareto Analysis in an organization?

Some benefits of conducting Pareto Analysis include prioritizing issues, enabling efficient resource allocation, promoting continuous improvement, and identifying root causes of problems for long-term improvements and prevention of future issues.

Pia Prebensen is a personal growth expert who helps people identify and overcome their limiting beliefs. She has been featured in various online and print publications, including Elite Daily and The Huffington Post.

Born and raised in Denmark, Pia has always been fascinated by human behavior and the inner workings of the mind.

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What is a Pareto Chart

Based on the Pareto principle, also known as the 80/20 rule

Pareto Principle: Vilfredo Pareto observed that 80% of the peas in his garden came from 20% of his pea plants and 

80% of Italy's land was owned by 20% of the people. 

So the principle - 80% of effects come from 20% of causes

How does that help us - if we can find the 20% causes and remove/reduce their occurrence then we remove 80% of errors

Pareto Chart: presents the chosen areas sorted by relative frequency, also cumulative percentage line on the Z-axis ( see example below)

How to make a Pareto diagram

Area: Decide an area you want to study - it should be able to give some data

Category: Choose the causes, problems, categories that you will use to group items eg. count of errors in process steps, failure types,  error types, reasons for rejection...

Unit of measure: Choose the appropriate unit of measure. eg if you are trying to save costs - then total expense on an item would be better than the count of items. 

Period: choose the period that will give you sufficient data, day, week, month  

Collect data: or use the data available - with categories

Tabulate: use the table in the template ( shown in the example below )

Once done, format the graph is required.

Interpretation: the tallest bar points to the largest contributor. You can also see that where the cumulative % line, comes near 80 %, in this case, the first 4 parameters contribute to the 78.3% of errors 

Is it always 80: 20, No .... we are just trying to prioritize and find the biggest impact areas. 

In the shown examples case it is 78.3: 40 ( 4 of 10 parameters)

Start with the biggest one and keep on

When to use a Pareto Diagram

To concentrate on the problems/areas that offer the best potential for improvement

To prioritize

Use the pareto chart to visually present areas that need improvement

Breakdown the tallest bar and make a linked pareto of its causes 

Similarly you could use multiple pareto's and present side by side to compare - e.g. by region, by process (Note parameters should be same) Helps find solutions as well , e.g. if grammar is problem is one region and not in another - what has the region done differently

Example & Excel Template  - Pareto

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Pareto Analysis Explained With Pareto Chart And Examples

This Tutorial Explains What is Pareto Analysis With Examples, Benefits & Limitations. Also learn What is a Pareto Chart, how to create it in Excel:

Pareto Analysis is a powerful quality and decision-making tool. If implemented properly, it will help in identifying the major pitfalls in any process flow which in turn improves the quality of the product/business. It is an excellent visualization tool to visualize the issues quickly.

Let’s see a real-life example where Pareto Analysis is applied.

Learning and Development [L&D] Manager in a company noticed that number of employees getting enrolled in skill up-gradation training was considerably reducing. To understand the reason, he did a feedback survey with the possible dissatisfaction factors and plotted a Pareto Chart.

And there it is!! all the information that he wanted is in front of him and now he knows how to improve the training sessions.

Let’s learn in detail about Pareto Analysis and Pareto Chart or Pareto Diagrams.

Table of Contents:

History Of Pareto Analysis

Pareto analysis examples, benefits & limitations, when to use pareto chart, steps to create a pareto chart, inbuilt tools in microsoft excel to create pareto chart, frequently asked questions, was this helpful, recommended reading, what is pareto analysis.

Pareto Analysis is a technique used for decision making based on the Pareto Principle. Pareto Principle is based on 80/20 rule which says “80% of impacts are due to 20% of causes”. It emphasizes that a major number of issues are created by a relatively smaller number of underlying causes.

Pareto Analysis is one of the 7 basic quality process tools and is applied across many industries by Managers to improve the business and quality.

When it is applied to the software industry, the Pareto Principle can be quoted as “80% of defects are contributed by 20% of the code”. 80/20 are just a figure, it can vary as 70/30 or 95/5. Also, it’s not necessary to add up to 100%, for example, 20% of products in a company can account for 120% profits.

Pareto Analysis was named after Vilfredo Pareto , an Italian Economist. He observed in the late 1800s that in Italy, 80% of the land was owned by 20% of people. Hence, it is also called the 80/20 rule.

Pareto Analysis was later updated by a quality evangelist Joseph Juran who observed that the logarithmic mathematical model which Pareto had developed is not only applicable to Economics but also in Quality Management and many other fields. Hence, he concluded that the 80/20 rule is universal and named it a Pareto Principle.

Pareto Principle is also called the law of “The Vital Few and Trivial Many ”. It is a prioritization tool that helps to find “VITAL FEW” and “TRIVIAL MANY” causes. Vital Few means many problems come from a relatively small number of causes. Trivial Many refer to a large number of remaining causes result in very few problems.

Pareto Analysis can be applied literally in any scenario we see around in our day-to-day life as well.

Here are some examples:

• 20% of employees do 80% of work.
• 20% of drivers cause 80% of accidents.
• 20% of the time spent in a day leads to 80% of work.
• 20% of clothes in the wardrobe are worn 80% times.
• 20% of things in the warehouse occupy 80% of storage space.
• 20% of employees are responsible for 80% of sick leaves.
• 20% of household items consume 80% of electricity.
• 20% of the book will have 80% of the content you are looking for.
• 20% of all people in the world receive 80% of all income.
• 20% of tools in the toolbox are used for 80% of tasks.
• 80% of crimes are committed by 20% of criminals.
• 80% of revenue is from 20% of company products.
• 80% of the complaints are from 20% of clients.
• 80% of cooking at home is from 20% of total utensils.
• 80% of loan repayment pending are from 20% defaulters.
• 80% of travel is to 20% of the places.
• 80% of customers use only 20% of the software App/website/smartphone features.
• 80% of the contribution comes from 20% of potential contributions available.
• 80% of the restaurant sale is from 20% of its menu.

And such examples are endless. If you observe the nature and things happening around, you can cite many examples like this. It’s applied in almost every field be it business, sales, marketing, quality control, sports, etc.

The benefits are as follows:

• It helps to identify top root causes.
• Helps to prioritize the top issue for a problem and try to eliminate it first.
• Gives an idea of the cumulative impact of issues.
• Corrective and Preventive action can be better planned.
• Gives a focussed, simple, and clear way to find vital few causes.
• Helps to improve problem-solving and decision-making skills.
• Improves the effectiveness of quality management.
• Useful in every form of leadership decision.
• Helps in time management, be at work, or personal.
• Helps in general performance management.
• Helps in planning, analysis, and troubleshooting as well.
• Helps in problem-solving and decision making.
• Helps in change management.
• Helps in time management.

The limitations are as follows:

• Pareto Analysis cannot find root causes by itself. It needs to be used along with other Root Causes Analysis tools to derive the root causes.
• It doesn’t show the severity of the problem.
• It focuses on past data where damage has already happened. Sometimes it might not be relevant for future scenarios.
• It cannot be applied to all cases.

What Is A Pareto Chart?

A Pareto Chart is a statistical chart which orders the causes or problem in the descending order of their frequency and their cumulative impact. Histogram chart is used inside the Pareto chart to rank the causes. This chart is also known as Pareto Diagram.

Below is an example of a Pareto Chart which was published in Disease Management Journal which depicts what’s are the top diagnostic categories for hospital admissions.

Pareto Chart has a bar chart and a line graph co-existing together. In Pareto Chart, there is 1 x-axis and 2 y-axes. The left x-axis is the number of times[frequency] a cause category has occurred. The right y-axis is the cumulative percentage of causes. Cause with the highest frequency is the first bar.

Suggested reading  =>> Bar chart vs Histogram – Main differences

Bar Chart represents causes in descending order. Line Graph presents a cumulative percentage in ascending order.

These are used in cases like,

• When there is a lot of data and needs to be organized.
• When you want to communicate the top issues to stakeholders.
• When there is a need to prioritize tasks.
• When the relative importance of data needs to be analyzed.

Below flowchart summarises the steps to create the Pareto Chart.

#1) Select Data

List down the data that needs to be compared. Data can be a list of issues, items, or cause categories.

To better understand how Pareto Analysis is applied, let’s take an example where a Software Development Manager wants to analyze the top reasons which contribute to defect at the Coding Phase. To get the data, Manager will get the list of coding issues that contributed to defect from the defect management tool.

#2) Measure Data

Data can be measured in terms of:

• Frequency ( for example, no. of times problem has occurred) OR
• Duration (how long it takes) OR
• Cost (how many resources it utilizes)

In our scenario, the defect management tool is listed with a dropdown for the reviewer to select the reason for the defect. So, we will take the no. of times [frequency] a specific coding issue has occurred over a period.

#3) Select timeframe

The next step is to choose the duration during which data has to be analyzed say a month, a quarter, or a year. In our scenario, let’s take a span of defects reported in the last 4 software releases to analyze where the team is going wrong.

#4) Calculate Percentage

Once the data is collected, put it in an Excel Sheet as shown in the below image.

Then, create a Percentage column. Calculate the percentage of each Issue type by dividing frequency with TOTAL.

Change the Percentage columns using the Percent Style button (Home tab -> Number group) to display the resulting decimal fractions as percentages.

Final percentage will be displayed as below:

#5) Sort in ascending order

Sort the percentage from largest to smallest as explained below:

Select the first 2 columns and click on Data->Sort and select Sort by “ Frequency” column and Order by “ Largest to Smallest ”.

Sorted categories are displayed as below:

#6) Calculate the cumulative percentage

The cumulative percentage is calculated by adding the percentage to the previous root cause category percentage. The last cumulative percent will be always 100%.

Start the first column with the value the same as the Percentage column and keep adding the percentage above for the rest of the rows.

After filling the Cumulative percentage, Excel Sheet will look like below:

#7) Draw Bar Graph

Create a Bar graph with x-axis denoting the different causes for coding errors, left y-axis denoting the no. of times coding issues have happened, and percentages on the right y-axis.

Click on the table and Insert -> Charts -> 2D column .

Right-click and select data

Unselect Percentage and TOTAL in Select Data Source .

The chart will look like below:

#8) Draw Line Graph

Draw the line graph by joining the cumulative percentages.

Select cumulative percentage and right-click on the chart and select “Change Series Chart Type”

Modify Cumulative Percentage as a Line graph and select “Secondary Axis”.

Here is the final Pareto Chart:

#9) Analyse the Pareto Diagram

Imagine a line from 80% on the y-axis to the line graph and then drop to the x-axis. This line will separate the “trivial many” from “vital few”. Based on the observations from the Pareto Chart, Pareto Principle or 80/20 rule is applied and improvement actions will be planned.

In our scenario, the first 2 causes contribute to 70% of defects.

We have explained the process of creating a Pareto chart in Microsoft Excel to understand how its plot. But ideally, you don’t need to do all calculations by yourself because Microsoft office provides an inbuilt option to create a Pareto Chart. We just have to source the data to be fed to the Excel Sheet and plot the Pareto Chart. It’s that simple!!

Pareto Chart can be created easily using the Microsoft Word/Excel/PowerPoint .

Let’s take another example of a list of continents ranked by the current population.

Collect all the required data in Excel Sheet as shown in the above image. Now, we will draw the Pareto Chart for population per continent. For that, first select the rows from B1, C1 to B9, C9.

Then click on “ Insert ” and then “ Insert Statistic Chart ”.

Then click on “ Pareto ” under Histogram .

As you can see, the chart is small and the font is not visible. Now, drag the chart below the data table and right-click on the x-axis text area, select font, and update as required.

Update the font as required.

After updating the font, expand the picture to see the fonts clearly.

Pareto Chart is ready!! Now it’s time to analyze.

2 continents Asia and Africa (out of 7 continents) contribute to 83% of the world population and rest 5 continents (Europe, North America, South America, Australia, Antarctica) contribute to 17% of the rest of the world population.

More Pareto templates are available at Microsoft Support Website which you can download and modify as per your requirement. It’s also used in other analytics tools such as SAS , Tableau , etc.

Q #1) Why do you use Pareto Chart?

Answer: Pareto Chart is a decision-making tool used by improvement teams to derive the top causes contributing to a problem. In quality management, it can be defined as root causes contributing to the maximum number of defects.

Q #2) What do Pareto Chart tell you?

Answer: Pareto Chart is a visual graph that has a bar graph and line graph. It will divide the chart into a vital few and trivial many with few causes on the left side and more causes in the right side of the chart.

Q #3) What are the benefits of Pareto Analysis?

Answer: It is useful to segregate defects to major and minor issues. It helps to focus on problems and gives significant improvement.

Q #4) How is Pareto calculated?

Answer: Follow the steps below:

Step 1: Identify the data and its total count. Step 2: Reorder from largest to smallest. Step 3: Determine the cumulative percentage of all. Step 4: Draw horizontal axis with causes, vertical axis on left with occurrences, and the vertical axis on left with cumulative percentage. Step 5: Draw the bar graph and line graph depending on data. Step 6: Analyze the Pareto Chart.

Q #5) What is the 80/20 rule in Pareto Chart?

Answer: It’s based on the famous Pareto Principle which states that 80% of output is from 20% input.

Q #6) Is the Pareto principle true?

Answer: Pareto Principle is based on the universal observation that there is a disproportion between the inputs and outputs. The percentage of input/output ratio is not strictly 80/20 percentage.

Q #7) What is the other name of the Pareto Principle?

Answer: It is also called “80/20 rule” or “law of vital few and trivial many”.

Q #8) What are the common limitations of the Pareto Principle?

Answer: Pareto Principle usually measures the occurrence of defects rather than the severity of defects. If a severe defect falls in the 20% category, then it would be missed.

Effective implementation of Pareto Analysis requires the right source of data. The tutorial covers the concept of Pareto Analysis, its uses, limitations, and when/how this technique needs to be used.

If done appropriately, Pareto Analysis will help to break a big problem into smaller pieces and help to focus on where to put efforts and hence guide in better usage of resources.

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How to Conduct Pareto Analysis Using Pareto Charts

February 22, 2022 - 10 min read

The 80/20 rule, also known as the Pareto Principle, states that 80% of the benefit can be achieved by 20% of the work. The Pareto analysis uses this concept to identify which parts of a project can be done efficiently and which can be avoided. It can be used to decide which problems should be solved first.

In this article, we’ll explain how to perform Pareto chart analysis and how it can be used to improve any project. We’ll also get into some vital tools you can use to help teams work smarter, not harder. 

What is a Pareto chart?

The Pareto chart is a visual representation of the most important factors in a given field or project in order to identify and prioritize issues. 

In general, this tool can be used to identify the most critical factors in a given product or process. For example, in quality assurance , the Pareto chart helps identify the most prevalent sources of defects.

The Pareto chart itself is a bar graph with two axes. The left axis shows the frequency of occurrence, which is the sum of the total number of occurrences and the cost of doing so. The right axis shows the cumulative function of the total number of occurrences.

The values for each category are depicted in descending order. And the final total is represented with a line drawn at 80% on the bar graph. Any bars rising above that line are considered the problems that, if solved, would have the biggest impact on the project. 

The Pareto chart can be generated by various means, such as creating Excel spreadsheets , statistical software, and online quality charts.

What is a Pareto chart used for?   

A Pareto chart helps you identify the causes of the various problems and the issues that need to be solved to get the most significant improvement. Here are some of the many ways it can be used:

• Visually represent project issues to find which have the greatest impact
• Communicate priority levels to stakeholders 
• Isolate individual process hiccups so that they can be better understood 
• Find the most impactful problems and eliminate them before they cause issues 
• Reallocate workloads so that team members companywide are maximizing their impact and productivity 

When to use a Pareto chart in project management

A Pareto chart is a tool that many people use to analyze different types of problems. It can also identify the most significant issues in a process. In project management , this means everything from big-picture project phases to individual task workflows. 

When roadblocks come up, managers can use the Pareto analysis to quickly identify what is causing bottlenecks or delays. From there, they can use their project management tool to delegate troubleshooting, adjust task lists, or shift priorities without interrupting the entire project. 

In addition to making on-the-fly decisions based on real evidence possible, Pareto charts can be used in project management for post-project analysis for both PMOs and stakeholders. Teams can learn from each other and what went wrong in projects with data clearly laid out in this way. In the future, they’ll be able to replicate their successes and mitigate failures. 

Stakeholders can easily pinpoint areas of investment that worked out and learn more about how this project was managed so they can feel good about the outcome. In particularly successful works, they’ll be able to see how little interference the project encountered along the way. Or they can see how well the team managed issues that did arise. 

This persuasive tactic allows them to feel great about providing repeat business or, at the very least, enrich their understanding of key projects related to their goals for future reference. 

How to calculate Pareto analysis

The simplest formula for calculating a Pareto analysis is as follows: 

[Your total unit of measurement per item, e.g., number of occurrences, hours, cost, etc.] / [the grand total of all items] x 100% 

Use this formula for each category. Keep in mind that each result should be a percentage. Afterward, put them in order from highest to lowest before inputting them into your chart-making software. 

How to create a Pareto chart

Step 1: collect your data.

A minimum of 30 data points is best for an accurate picture of the project as a whole. 

Step 2: Create a frequency table

Use the following headers in this order: 

• Number of Occurrences (listed in descending order)

Note: Some programs will automatically generate a Pareto chart for you once you’ve added the number of occurrences or frequency for each issue category. 

The rest of your headers may be calculated for you, again depending on the program you’re using: 

• Cumulative Total 
• Cumulative Percentage 
• 80% Cut Off

Step 3: Label your chart

Keep it simple. You can never go wrong with “Types of Project Errors.” Freel free to add a single sentence description that includes the time period of your measurement and any other details that are important to the people you’ll be sharing it with. 

Step 4: Clearly label the Y-axis

Frequency, total number of occurrences, or even price all work well here. Use whichever value best represents your data set or makes the most sense to you as a manager. 

Step 5: Note the categories on the X-axis

These should match the Issue Types you first listed in your frequency table. 

Step 6: Interpret the chart 

Again, the software you use should fill in the other components of the chart, including the bars, lines, and cut-off. From there, you can get to work analyzing the results. 

The higher the bars are, the more of an impact they are having on your project. 

You’ll see percentages listed on the right-hand side of the chart across from frequency. They should be listed from 100% and counted down in increments of 10 to the bottom. Any bars that cross the 80% line should be considered a top priority for problem-solving. 

Pareto chart example

This Pareto chart example was created by Clinical Excellence Commission and thoughtfully illustrates the key areas of focus project managers should be aware of. 

We can also see that the categories on the bottom are great examples of types of medication errors. But project managers may use groupings such as scope creep , resource management , or communication to define a variety of issues that may come up. 

The most important line on this graph is the green 80% cut-off, which symbolizes the Pareto principle. Any bar that reaches above that line should be considered the most important issue. In the above chart, that would be “dose missed” at 92% and “wrong time” at 83%. Although “wrong drug” clocks in at 76%, it’s not considered nearly as important as the first two. 

For the next steps, the project manager in this particular example would likely solve the issues above the 80% line first before moving on to the next highest scoring category.

Alternatively, they could choose to solve the above-the-line problems, then create a new Pareto chart and see if the values have changed. It’s also possible that solving the highest priority issues may fix less pressing issues on your chart down the road as a byproduct. 

How Pareto chart analysis can improve your project

In general, the Pareto chart helps project managers and team leaders identify the causes of various problems that are having the biggest impact on their work. By figuring out what they are, managers can take the necessary steps to solve them. It’s also easier to determine task and even project or goal prioritization with a chart like this. 

If you’re working with third-party partners or stakeholders, the visual aspects of Pareto charts make them easy to understand and interpret. Not only is this highly effective for communicating with non-experts, but it’s also highly persuasive. 

How to interpret Pareto analysis with Wrike

So you’ve made your Pareto charts and conducted your analysis. Now what? Put your plan into action with Wrike. 

Wrike is a project management solution that makes project plans manageable, efficient, and crystal clear. Now that you know what’s going wrong, you can easily add actionable next steps to your project plans without missing a beat. 

Start by adding a detailed task to your project. Add a description, deadline, and task owner. Wrike also allows you to see the workload of individual team members across all active projects so you can double-check they’re available before assigning it. 

You can also use Wrike’s custom reporting features to identify issue categories for your Pareto chart. Dissect active and past tasks to find the biggest areas in need of improvement during individual project phases or projects as a whole. 

In addition to Pareto charts, Wrike also offers Gantt charts and PERT charts that can improve productivity. 

A Gantt chart is a bar chart that shows the various tasks and deadlines for a project. It's a great tool for managing time and improving efficiency. 

A PERT chart is a network diagram that shows all the project tasks in separate containers. The boxes that make up the PERT chart are organized with arrows to represent the time needed to complete the task.

Combining the results of your Pareto, Gantt, and PERT charts will help you turbocharge your project troubleshooting plans and may even prevent future issues too. 

Ready to get the biggest results from the least amount of effort? Get started with Wrike’s two-week free trial . 

Maria Waida

Maria is a freelance content writer who specializes in blogging and other marketing materials for enterprise software businesses.

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5 Root Cause Analysis Tools for More Effective Problem-Solving

Next to defining a problem accurately, root cause analysis is one of the most important elements of problem-solving in quality management. That’s because if you’re not aiming at the right target, you’ll never be able to eliminate the real problem that’s hurting quality.

So which type of root cause analysis tool is the best one to use? Manufacturers have a range of methods at their fingertips, each of which is appropriate for different situations. Below we discuss five common root cause analysis tools, including:

• Pareto Chart
• Fishbone Diagram
• Scatter Diagram
• Failure Mode and Effects Analysis (FMEA)

Download our free Root Cause Analysis 101 Guidebook Read 14 quality metrics every executive should know

1. Pareto Chart

A Pareto chart is a histogram or bar chart combined with a line graph that groups the frequency or cost of different problems to show their relative significance. The bars show frequency in descending order, while the line shows cumulative percentage or total as you move from left to right.

The Pareto chart example above is a report from layered process audit software that groups together the top seven categories of failed audit questions for a given facility. Layered process audits (LPAs) allow you to check high-risk processes daily to verify conformance to standards. LPAs identify process variations that cause defects, making Pareto charts a powerful reporting tool for analyzing LPA findings.

Pareto charts are one of the seven basic tools of quality described by quality pioneer Joseph Juran. Pareto charts are based on Pareto’s law, also called the 80/20 rule, which says that 20% of inputs drive 80% of results.

Learn how to create Pareto charts in this post or download the Pareto Chart Tip Sheet and Sample Excel File

The 5 Whys is a method that uses a series of questions to drill down into successive layers of a problem. The basic idea is that each time you ask why, the answer becomes the basis of the next why. It’s a simple tool useful for problems where you don’t need advanced statistics, so you don’t necessarily want to use it for complex problems.

One application of this technique is to more deeply analyze the results of a Pareto analysis. Here’s an example of how to use the 5 Whys:

Problem: Final assembly time exceeds the target

• Why is downtime in the final assembly higher than our goal? According to the Pareto chart, the biggest factor is operators needing to constantly adjust Machine A
• Why do operators need to constantly adjust Machine A? Because it keeps having alignment problems
• Why does Machine A keep having alignment problems? Because the seals are worn
• Why are Machine A’s seals worn? Because they aren’t being replaced as part of our preventive maintenance program
• Why aren’t they being replaced as part of our preventive maintenance program? Because seal replacement wasn’t captured in the needs assessment

Of course, it may take asking why more than five times to solve the problem—the point is to peel away surface-level issues to get to the root cause.

Learn more about the 5 Whys method in this blog post or download our free 5 Whys worksheet

3. Fishbone Diagram

A fishbone diagram sorts possible causes into various categories that branch off from the original problem. Also called a cause-and-effect or Ishakawa diagram, a fishbone diagram may have multiple sub-causes branching off of each identified category.

Learn more about how to use a fishbone diagram in this blog post and download our free set of fishbone diagram templates

4. Scatter Plot Diagram

A scatter plot or scatter diagram uses pairs of data points to help uncover relationships between variables. A scatter plot is a quantitative method for determining whether two variables are correlated, such as testing potential causes identified in your fishbone diagram.

Making a scatter diagram is as simple as plotting your independent variable (or suspected cause) on the x-axis, and your dependent variable (the effect) on the y-axis. If the pattern shows a clear line or curve, you know the variables are correlated and you can proceed to regression or correlation analysis.

Download a free tip sheet to start creating your own scatter diagrams today!

5. Failure Mode and Effects Analysis (FMEA)

Failure mode and effects analysis (FMEA) is a method used during product or process design to explore potential defects or failures. An FMEA chart outlines:

• Potential failures, consequences and causes
• Current controls to prevent each type of failure
• Severity (S), occurrence (O) and detection (D) ratings that allow you to calculate a risk priority number (RPN) for determining further action

When applied to process analysis, this method is called process failure mode and effects analysis (PFMEA). Many manufacturers use PFMEA findings to inform questions for process audits , using this problem-solving tool to reduce risk at the source.

No matter which tool you use, root cause analysis is just the beginning of the problem-solving process. Once you know the cause, the next step is implementing a solution and conducting regular checks to ensure you’re holding the gain and achieving sustainable continuous improvement.

Download our free Root Cause Analysis 101 Guidebook

Related articles

Pareto Charts

Pareto charts  are a graphical problem analysis and  process analysis  tool which graphs the cause and effect of a problem, business issue, or problem in terms of the number of incident appearances. Pareto charts are usually graphed with  data  collected from the process or production line and then graphed by specific cause. What this means is that the number of consequences are graphed, ususally in a bar graph.

For example: Production line downtime reasons A, B, C, D, E, F, G, H graphed over last financial year:

After collecting the data and graphing it the  downtime  reasons in this example can be organized by the most occurances to the least. You will most likely observe that around 20% of the downtime reasons account for approximately 80% of overall downtime for the process.

The use of the pareto chart above is to guide the  lean team  or  champion  in where to focus the problem solving efforts of the operations group and the areas where greater  performance results  may be achieved by tackling a smaller group of issues if not just one or two issues. Pareto Charts are based on the  Pareto principle

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What is Pareto Chart ? A Basic Quality Tool of Problem Solving.

Pareto chart helps to Narrow problem area or prioritize the significant problems for corrective measures.

Pareto Chart based on Pareto 80-20 rule . It means that 80 percent of the problems/failures are caused by 20 percent of the few major causes/factors which are often referred as Vital Few .

And the remaining 20 percent of the problems are caused by 80 percent of many minor causes which are referred as Trivial Many . Hence, it gives us information about Vital few from Trivial many.

This tool is one of the important basic 7 QC Tools and is extensively used in Problem Solving Techniques such as 8D , PDCA and Six Sigma .

Table of Contents

Pareto Principle

Principle is based on Pareto 80-20 Rule i.e. 80 % of Quality Issues comes from 20 % of the problems.

Separates “Vital few” from “Trivial many”.

About “ Pareto Chart “

“ Pareto Chart ” also called as “ Pareto Diagram “.

Named after Italian Economist Wilfredo Pareto .

80 % of issues comes from 20% of the problems.

Shows focus area to get most gains.

Bar chart arranged in descending order of height.

Bars on left side relatively important than those in right.

Use of “Pareto chart ”

-Solve work related Problem.

-Grasp the problem.

-Narrow problem area.

-To prioritize high impact issues – where to focus? 

-Break big problems into smaller problems.

-Systematic analysis of causes based on magnitude.

-To confirm the improvement results.

How to make a “Pareto Chart ” ?

Step 1: Record the data – Refer Check Sheet.

Step 2: Order the data.

Step 3: Label the vertical axis.

Step 4: Label the Horizontal axis.

Step 5: Plot the Bars.

Step 6: Add up the counts.

Step 7: Add a cumulative line.

Step 8: Add title and Legends.

Step 9: Analyze the Chart.

Step 10: Interpret the results.

Benefits of Pareto Diagram or Pareto Analysis

Identifies ‘Major Few’ problems for necessary measures.

Improves team performance & effectiveness.

Helps to analyse Weighted cost of problem.

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