What Is a Pareto Chart?
A Pareto chart is a bar chart named after Italian economist Vilfredo Pareto. It’s used for analyzing problems or causes by time, cost, or frequency of occurrence. It also helps determine the most significant or pressing issues.
The Pareto principle, or the 80-20 rule, “is a phenomenon that states that roughly 80% of outcomes come from 20% of causes,” according to Asana. A Pareto chart depicts a relationship between two numbers, where a relative change in one quantity results in a proportional relative change in the other quantity. These quantities, their changes, and their relationship to other quantities are shown in a Pareto diagram like the one below.
For example, when assessing a product’s quality, the Pareto chart above depicts
- The number of occurrences for a particular failure type
- The percentage that each failure type has among all failure occurrences
With this information, production and quality managers can determine which failure(s) to address first — namely, those that are occurring the most frequently.
How to Read a Pareto Chart
The length of the bars are shown in units at the left vertical axis, and they typically represent frequency of occurrence, but can also be another unit of measure.
Notice how the bars are arranged. The longest bar appears on the left along the horizontal axis, and each bar gets progressively shorter. When arranged this way, the raw data and its meaning become more apparent. Here, we can see what the most common cause of tardiness is all the way down to the least common cause.
The right vertical axis can represent the cumulative percentage of the grand total number of occurrences, or other total with a maximum of 100%. The line graph shows the running total as it adds the value of each bar and compares it to the cumulative percentage at the right vertical axis.
The Pareto principle (or 80-20 rule) is a generalization and does not distribute at an exact 80:20 ratio. However, it provides an accurate direction or trend that can be quickly shown in a Pareto chart.
Pareto Chart Use Cases
Pareto charts and the principle behind them are useful for a variety of applications:
- Quality control: Show that most product quality issues stem from a smaller percentage of defects
- Sales: Maximize total sales by better leveraging bigger customer accounts
- Customer support: Convey that most complaints come from a smaller number of customers
- Finance: Trace how the most funding comes from a small percentage of investors
- Marketing: Visualize how a greater percentage of traffic is generated by a smaller number of posted articles
- Project management: See how more effort is spent on a few key tasks to maximize productivity
Pareto charts are particularly useful in project management for prioritizing the most impactful or pressing tasks. For example, a project manager may use a Pareto chart to:
- Determine the 20% of tasks that will bring the most impactful results, and prioritize those accordingly
- Allocate more time to the 20% of tasks that take the longest time to complete
- Prepare for the 20% of risks with the highest negative impact
The chart can be helpful when you want to assess a problem with a broad range of causes, so you can identify specific factors. As visual tools, Pareto charts are a great way to effectively communicate data and ideas to stakeholders.
How to Build a Pareto Chart
- Group the causes or factors into specific categories.
- Choose the appropriate measurement, i.e., frequency, quantity, or cost.
- Define the time period for the chart, such as hour, day, or week.
- Use the data collected and compute the subtotals for each category.
- Adjust the scale of your left vertical axis to accommodate the largest subtotal from the different categories.
- Construct your bars progressively from tallest at the left to shortest on the right.
- Compute the percentage of each subtotal category, dividing them by the total of all categories that represent 100% (as indicated by the right vertical axis).
- Compute the cumulative sums from left to right, and draw the line chart representing the sums against the percentage of the right vertical axis.
A Pareto chart is a useful tool for identifying the most significant challenges or causes an organization faces. As a visual tool, it helps effectively and convincingly communicate data to others.
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