The first question that comes to your mind is what is a Pareto chart. It is even known as a Pareto analysis or Pareto diagram. There are different variations of the chart, like comparative Pareto charts and weighted Pareto charts. It’s a kind of bar graph wherein the length of the bars denotes cost, quantity, time, and frequency. The bars are arranged in such a way that the longest ones remain on the left while the shortest is on the right. The chart depicts more significant situations visually and is used as cause analysis equipment. It’s a graph indicating the occurrence of defects along with their collective impact. These charts are handy in finding flaws for prioritizing in perfect order to detect the greatest complete improvement.
Pareto Chart Analysis
Pareto chart analysis involves learning the right way of using the chart for varied applications. The process goes like this:
First of all, you will have to determine the different classifications that you will use for arranging the items in this chart.
Next, you need to choose the right measurement like time, cost, frequency, and quantity.
The next step is deciding on the period for the Pareto chart for which the bar graph will be made, such as for a year, a month, or a week.
Gather new data along with already existing data according to time and category.
Take different measurements for specific categories.
Select the right scale for measurements assembled. The maximum value will be the total made in the step above.
For specific categories, bars need to be constructed and even labelled. Longest bars will be at the left while the shortest ones at the right.
These are the steps included in the Pareto chart analysis. Now coming to Pareto chart analysis example, you will find it below:
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Pareto Chart Analysis Example
You need to come up with a chart portraying defects in a manufactured shirt. The defects need to be presented in a checklist of five points. Here, the five points are:
Collar defect
Sleeve defect
Button defect
Pocket defect
Cuff defect
This will be the data table for the Pareto chart, which will help you in understanding the cumulative percentage:
Solved Example
Considering the data in this table or the Pareto chart analysis example, the bar graph for the same shall be created.
Interpreting a Pareto Diagram
So, you have now got a Pareto chart example with all its different elements. Here another trickier problem is interpreting the results of the chart. Considering the various discussions on Pareto chart analysis, the table above clearly shows all the shirt defects or problem areas that the manufacturing company needs to focus on.
The Pareto chart example clearly shows that the manufacturing company should take care of pocket defects and sleeve defects in the shirts it is producing.
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Use of Pareto Chart
There are many differences in the use of Pareto charts and when to use Pareto charts. Pareto charts are best used for carrying out an analysis of bulk data. Let us have a look at the use of Pareto charts in different business industries.
For analysing growth revenue of organisations in relation to the time
For choosing specific data from different data sets and working on the same
For explaining data sets to other individuals
For analysing growth in population in a city or country or throughout the world
For checking universal issues and focusing on resolving the most important ones
For checking major complaints from the public and resolving the same according to priority
Pareto diagrams, more commonly known as 80/20 Pareto rule, are quite useful for different management officials. A Pareto diagram helps managers in determining issues in the workflow procedure. It helps them in understanding which 20% of problems in the company’s procedures are causing 80% of the issues. They can take care of these issues and ensure that the business procedures run smoothly overall.
FAQs on Pareto Chart
1. What are the Mistakes to Avoid when Trying to Understand how to Draw the Pareto Chart?
When you’re trying to understand how to draw Pareto chart, it is quite likely for you to make some mistakes which are as follows:
The very first mistake is summarising data. Many Pareto chart makers face problems in summarising data in a way, so it quickly turns out into a good Pareto chart. The best thing to do is using a Pivot Table for synthesising data or using QI Macros chart tools before drawing the Pareto chart.
The second problem is the category called “Other” in the Pareto chart. Many individuals categorise defect types as “Other” instead of carrying out sufficient investigation for providing the right description. The best thing to do is avoiding the “Other “category altogether.
Parflato charts or charts with no important bars are the third mistakes made by people. These charts are not useful when it comes to solving problems. So, it’s better to avoid them.
2. How to Make a Pareto Chart?
If you are thinking to make a Pareto chart in Excel, there’s an eight-step procedure you need to follow.
First of all, come up with a list of items, issues and causes that need to be compared.
Developing standard measures for item comparison. Working on determining the frequency of the problems; period and resources used, for example, cost.
Then you should select a time frame for data collection
Finding the percentage of all the items by considering how often the problems occurred or the total time or cost it took. Taking the sum of the product and dividing the same with total and then multiplying the result by 100.
Checklist of items for comparison along with measurement
Checklist of products on the horizontal axis of the bar graph starting from high to low.
Drawing a line graph with a cumulative percentage
Last but not least, analyse the chart by determining the items appearing. This further helps in deciding problems areas.