How to Create and Interpret Pareto Chart Diagram

Pareto diagrams are not very difficult to create; with just an Excel installed, you can easily generate a Pareto diagram. Also called as Pareto chart, it helps in measuring the frequency or the cost and are arranged to the shortest and the longest bar. The chart represents the situations that are more prominent and significant.

Furthermore, a Pareto chart describes the facts required to set priorities making it easy to focus on the important problems or their causes. Mastering them can help you increase the efficiency of your business and make things manageable for you. Here are the eight steps that show how to create a Pareto chart:

Step 1: Create a list of issues or problems that needs to be compared

Step 2: Develop a standard measure that you can use for comparing various items. It includes the frequency, time, and cost.

Step3: Pick a timeframe that will help you gather data.

Step4: Cross-verify every item to know how often it occurs. Then add these values to identify the total of all the items. Also, find the percentage of every batch by measuring the cumulative value and multiplying by 100.

Step 5: List all items in the decreasing order of measurement and compare every item. Keep them in the most frequent to the least frequent one. The cumulative percent for every item is every item’s total and the other items that come before them in order.

Step 6: list all items on the horizontal axis in the highest to lowest form. Name the left axis with the numbers and the right one with the cumulative percentage. Draw in the bars for every item.

Step7: For cumulative frequency, draw the line graph; make sure the first point on the line graph should line up with the top of the bar. Microsoft excel offers simple charting tools, which you can use to create graphs.

Step8:

• Analyze the graph by identifying the items that were difficult to understand otherwise. You can do this by looking at the breakpoint of the graph.
• If your graph doesn’t have any breakpoint, find items that have 50% or more of the effect.
• If your graph doesn’t show any outcome, think of other factors like the shift of work, age group, location, and more. You can then subdivide the data and create a separate Pareto chart for every subgroup to see if there’s a change in pattern.

When to Use a Pareto Chart:

You can use the Pareto chart when you need to:

• Analyze the data about the frequency of problems or want to know the cause in the process
• Focus on the main issues and don’t want to deal with the plethora of issues
• Analyze the broader cause by just looking at few components
• Communicate with others about your data

Components of Pareto Chart:

To construct the Pareto chart, you need to know its components and the relationship between them. Ideally, Pareto is a bar graph, and being a bar graph, it is made with two components- x-axis and y-axis. The x-axis is used for constructing various categories in which the data is broken.

However, on the y-axis, you will see the number of occurrences or the count for every individual category. The bars are placed from the highest frequency to the lowest one, starting from the left to right.

After putting them in descending order, a line graph is used to identify the total occurrences’ cumulative percentage. The line graph will identify whether or not the certain set of data follow the 80/20 rule. Here are Pareto chart components:

• x-axis: This includes the categories of data
• y-axis: The average number of occurrences.

Ranked bars in descending order: This will define the order in which the bars are placed and align with the event’s frequency.

Cumulative percentage curve: This shows the cumulative percentage while changing the category from left to right.

Procedure for Pareto Chart:

• First, you need to decide the categories you want to use in the group items
• Now and decide upon the time that the Pareto chart will cover. Either Will it be one cycle? Full day? Or a week?
• Collect the data, record every category or assemble the data that already exists.
• Calculate the measurements for each category.
• Determine the approximate scale for all the measurements that you have collected.
• Construct and label the bars for every category. Keep the tallest one to the left and the next tallest to its right. You can also group all the minimum categories as ‘others.’
• Now calculate the percentage of every category; the subtotal of that category is divided by the total of other categories. Draw a vertical axis and label it with percentages.
• Calculate and draw the cumulative sum; add total from first and second subcategory and place the dot over the second bar. In that sum, add the third category’s total and place the dot over the third bar to calculate the new sum. Continue these steps for every bar, connect the dots and start from the first bar. Make sure that the last dot reaches 100% on the right scale.

 Pareto Chart in Quality Control:

Another use of the Pareto chart is the total quality control. It is used as a tool in the six-sigma framework, which helps track the company’s performances. The Pareto chart analysis displays the data to make it easy to judge whether you can apply the 80/20 principle.

Conclusion:

Pareto diagrams are very useful for managers and identify the underlying problems that occur in the workflow process. Using this, you can clearly identify the 20% of the process and the other 80% that are causing issues in the company. By taking care of these issues, you can ensure that your business is running smoothly, and you can take the most potential out of it. Also, the Pareto chart is sometimes called the Pareto Analysis or Pareto diagram, so if you hear those words, just know that these terms are interchangeable.