What is the Pareto chart and how to make a Pareto chart in excel?

Pareto chart:

A Pareto chart is a ranked comparison of factors related to a quality problem. It helps to identify and focus on vital few factors of any problem.

Vilfredo Pareto (1848-1923) Italian economist developed this principle. He studied the distribution of income in Italy. He observed that about 20% of the population owns 80% of the wealth.

Juran used the term “vital few, trivial many”. He noted that 20% of the quality problems caused 80% of the money loss. It means if we solve those 20% problems, we can save 80% money loss in a company. It is also called the 80:20 Rule.

Pareto chart

We observe the Pareto principle in daily life as below:

  • 80 % business comes from 20 % of the customers.
  • 20% problems causes 80% cost of poor quality in a company.
  • 20% of the parts accounts for 80% of the inventory.
  • Managers spend only 20% time to complete 80% of their work.

Purpose of Pareto Chart:

The purpose of a Pareto diagram is to separate the significant few problems from the trivial many.

Use of Pareto chart:

  • Pareto charts help teams to focus on the  small number of really important  problems or their causes.
  • They are useful for establishing  priorities by showing which are the  most critical problems to be tackled or causes to be addressed.
  • Pareto chart helps teams to focus their efforts where they can have the  greatest potential impact.
  • When communicating with others  about your data.

How to make Pareto Chart in excel ?

  1. Develop a list of problems, items or causes to be compared.
  2. Collect the data as per defined time frequency
  3. Tally for each item, how often it  occurred. Determine the grand total  for all items.
  4. Find the percentage of each item.
  5. List the items being compared in decreasing order of measure of  comparison: e.g., the most frequent to  the least frequent. The cumulative %  for an item is the sum of that item’s  percent of the total and that of all the other items that come before it in the ordering by rank.
  6. List the items on the horizontal axis of a  graph from highest to lowest. Label the left  vertical axis with the numbers, then label  the right vertical axis with the cumulative%  (the cumulative total should equal 100%).  Draw in the bars for each item.
  7. Draw a line graph of the cumulative %.  The first point on the line graph should line  up with the top of the first bar.
  8. Analyze the diagram by identifying most  critical items.
S.NoDefectRej. QtyCumm QtyCumm %
(Cumm Qty/Total Rej Qty*100)
1Bending out777737
2Punching out5613364
3Blank Short3817182
4Porosity918086
5Dent718789
6Scratch619392
7Face unclean619995
8Noise 520498
9Burn out320799
10Rust2209100
Total209

Note: Hide Cumm Qty column in Excel while selecting for the Pareto chart as below.

Pareto chart
Pareto chart

Benefits of Pareto chart:

  1. Pareto analysis helps graphically display results so the significant few problems visible from list of problems.
  2. It tells you on what problem need to work on first

How to interpret Pareto Chart:

Separating the vital few and the useful many

The objective of the Pareto chart is to find out the maximum potential of quality improvement with the minimum amount of effort. The goal of the Pareto chart is to separate the list of problems or causes of the problems into two categories:

One is the Vital Few and the second is useful many.

The easiest way to find out this is to look for a breakpoint in the slop of the cumulative percentage of the total line graph on the Pareto chart.

Conclusion:

The output of the Pareto chart is the separation of the vital few from the trivial many. The interpretation of the Pareto analysis can then be stated as below:

For example, there are 10 parts contributing to quality problems in a company. But there are only 3 parts (defects) that account for 82% of the total problems. So we should solve these 3 parts defects to get the maximum benefits.

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