Tools and Techniques

A Pareto Chart is generally a vertical bar graph showing problems in a prioritized order, so it can be determined which problems should be tackled first. A Pareto Chart is a special form of a histogram where the categories have been sorted from most frequent to least frequent. One would not want to sort the categories from most frequent to least frequent if there is a natural order to the categories, such as a distribution by age or cycle time.

It is often useful to make Pareto Charts of data collected using the Check Sheet method, and in fact, the Check Sheet option includes a built-in Pareto Charting feature. There actually was a person named "Pareto" who developed this chart as part of an analysis of economics data more than 100 years ago. He determined that a small portion of the people within the economy controlled a large portion of the economy. Likewise, one doing analysis of accidents or events may find that a large portion of the accidents are cause by a small population of causes. The "Pareto Principle" states that 80% of the problems come from 20% of the causes. The Pareto Chart analysis should be performed over a fixed time interval of performance indicator results. The Pareto Chart analysis should only be performed after the control chart analysis is complete. The time interval should be chosen depending on the existence or non-existence of statistically significant trends. This consideration of significant trends is important, as the frequency distribution in each category may be different due to the process changes that occurred to cause the significant trend. Thus the arbitrary choice of “Fiscal Year to Date” or “Calendar Year to Date” or “The past two years” may not be appropriate.

Interpreting a Pareto Chart

The left vertical axis of the Pareto has “counts” or “cost” depending on the data used. Each vertical bar represents the contribution to the total from a given “problem” area. The bars are placed on the graph in rank order that is the bar at the left has the highest contribution to counts or cost. The right vertical axis has percent demarcations. A cumulative line is used to add the percentages from each bar, starting at the left (highest cost or count) bar. Thus, we can see which bars contribute the most problems, and with the cumulative line, determine how much of the total problem will be fixed by addressing the highest few.

When to Use a Pareto Chart

Pareto charts are typically used to prioritize competing or conflicting problems, so that resources are allocated to the most significant areas. In general, though, they can be used to determine which of several classifications have the most count or cost associated with them. For instance, the number of people using the various ATM's vs. each of the indoor teller locations, or the profit generated from each of twenty product lines. The important limitations are that the data must be in terms of either counts or costs. The data cannot be in terms that can't be added, such as percent yields or error rates.

In order to perform a Pareto Chart, one must have a consistent manner of classifying the data into categories. Your data system may already have defined categories. The Department of Energy Occurrence Reporting and Processing System has fields such as Nature of Occurrence, Root Cause, and Direct Cause, which make good bases for Pareto Charts. Occupational Illness, and Injury data has defined OSHA categories for “Body Part”, “Injury”, and “Cause”.

If your data does not have pre-defined classifications, you will need to set up your own system. You will need to define the overall type of categorization (such as subject,