How to Draw and Interpret a Pareto Chart in Maths
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: Meaning, Steps & Real-Life Uses
1. What is a Pareto chart and what is its main purpose?
A Pareto chart is a special type of chart that contains both bars and a line graph. The primary purpose of a Pareto chart is to identify and prioritise problem areas or causes. It operates on the Pareto Principle, also known as the 80/20 rule, to highlight the 'vital few' causes that are responsible for the majority of the 'trivial many' problems.
2. What is the difference between a Pareto chart and a regular bar chart?
While both use bars to represent data, there are two key differences:
Ordering: In a Pareto chart, the bars are always arranged in descending order of frequency, from tallest to shortest. In a standard bar chart, the bars can be in any order.
Cumulative Line: A Pareto chart includes a line graph that shows the cumulative percentage of the total. A regular bar chart does not have this feature.
3. How does the 80/20 rule, or Pareto Principle, relate to a Pareto chart?
The 80/20 rule suggests that roughly 80% of effects come from 20% of the causes. A Pareto chart is the visual representation of this principle. It helps you identify the 20% of categories (the tallest bars on the left) that are causing 80% of the issues (where the cumulative percentage line crosses the 80% mark). This allows you to focus efforts on the most significant factors for the greatest impact.
4. What are the key steps to create a Pareto chart?
Creating a Pareto chart involves a few clear steps:
Step 1: Identify and list the problems or causes you want to analyse (e.g., types of customer complaints).
Step 2: Choose a standard metric and collect data on the frequency of each cause (e.g., number of complaints for each type over a month).
Step 3: Arrange the causes in descending order based on their frequency.
Step 4: Calculate the cumulative percentage for each cause.
Step 5: Draw the chart by plotting the causes as bars (representing frequency) and the cumulative percentage as a line graph.
5. What does the curved line on a Pareto chart represent?
The curved line on a Pareto chart is the cumulative percentage line. It represents the running total of the frequencies of all categories from left to right. For any given point on the line, it shows the percentage of the total defects or problems that are accounted for by the categories up to that point. It is crucial for quickly seeing where the 80% threshold is met.
6. Can you give a real-life example of how a Pareto chart is used?
Imagine a restaurant wants to improve customer satisfaction. They track complaints for a month and categorise them: 'Slow Service', 'Incorrect Orders', 'Food Cold', 'High Prices', and 'Unclean Tables'. A Pareto chart might reveal that 'Slow Service' and 'Incorrect Orders' together account for 78% of all complaints. Instead of trying to fix everything, the management can focus its training and resources on improving service speed and order accuracy for the biggest and fastest improvement in customer experience.
7. How do businesses use Pareto charts for quality control and problem-solving?
In quality control, Pareto charts are a fundamental tool for prioritisation. Businesses use them to analyse data on product defects, machine downtimes, or service failures. By identifying the 'vital few' causes contributing to the majority of problems, they can:
Allocate resources more effectively.
Focus on root causes rather than symptoms.
Track the effectiveness of implemented solutions by comparing 'before' and 'after' Pareto charts.
Make data-driven decisions on where to invest in process improvements.
8. What are some common mistakes to avoid when interpreting a Pareto chart?
Common mistakes include:
Poor Categorisation: Using a large, undefined 'Other' or 'Miscellaneous' category can hide important, specific causes. It's better to investigate and define categories clearly.
Using Unreliable Data: Basing the chart on a very short time frame or inaccurate data can lead to incorrect conclusions.
Ignoring the Cost/Severity: A frequent problem might be inexpensive to fix, while a less frequent one could be catastrophic. Sometimes, factors other than frequency need to be considered for prioritisation.
