What is a Pareto Chart? Analysis & Diagram 

A Pareto chart is a graphical representation of data that helps to identify the most significant factors contributing to a particular problem or situation. It is also known as a Pareto diagram or Pareto analysis.

The Pareto chart 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. By using the Pareto chart, you can identify the vital few factors that contribute to the majority of the problems or opportunities.

Pareto charts can be used in a variety of fields, including quality control, project management, and business improvement. They can help to prioritize the most significant issues, identify areas for improvement, and measure progress over time.

What is 80/20 Rule (Pareto principle):

The 80/20 rule is a fundamental concept of the Pareto chart. It states that roughly 80% of the effects come from 20% of the causes. In a Pareto chart, this means that the tallest bars on the chart represent the 20% of categories or factors that contribute to 80% of the problem or opportunity being analyzed.

For example, let's say a company is experiencing quality issues with its products. After collecting data on the defects, they create a Pareto chart to identify the most significant contributing factors. The chart might show that 80% of the defects are caused by just 20% of the possible causes, such as faulty raw materials, poor training, or inadequate equipment maintenance.

How to use a Pareto Chart (Analysis):

The Pareto chart is a useful tool for identifying and prioritizing the most significant contributing factors to a particular problem or opportunity. Here are the general steps to using a Pareto chart:

1. Define the problem or opportunity: Clearly define the issue you want to address and the data you will collect to analyze it.

2. Collect the data: Collect data on the different categories or factors that could contribute to the problem or opportunity. Ensure that the data is accurate and complete.

3. Calculate the frequencies: Count the number of occurrences for each category or factor and calculate their respective frequencies.

4. Determine the cumulative percentage: Calculate the cumulative percentage of the total for each category or factor, starting with the highest frequency.

5. Create the chart: Plot the categories or factors on the x-axis of a bar graph in descending order of their frequencies. Then plot the cumulative percentage on the y-axis with a line graph.

6. Analyze the chart: Identify the tallest bars on the chart, which represent the vital few categories or factors that contribute to the majority of the problem or opportunity.

7. Take action: Prioritize efforts and resources to address the vital few categories or factors identified in the chart, which will likely lead to more significant improvements than addressing all categories or factors equally.

Example of Pareto chart:

A Pareto chart is a graphical representation of the Pareto principle, which states that 80% of the effects come from 20% of the causes. In other words, a Pareto chart displays the relative importance of different factors or causes in a system.

Here's an example of a Pareto chart that shows the most common causes of customer complaints in a retail store:

In this chart, the bars represent the frequency of each cause of complaints, and the line represents the cumulative percentage of total complaints. The causes are ordered from most to least frequent, with the most frequent cause on the left side of the chart. The chart shows that the top four causes (long waiting times, rude staff, out of stock items, and incorrect pricing) account for more than 80% of all complaints. By focusing on addressing these top causes, the store can significantly reduce the number of complaints it receives.