What is a Pareto chart and how is it used in Six Sigma?

A Pareto chart is a type of bar chart where the values being plotted are arranged in descending order. It is one of the key tools used in total quality control and Six Sigma. The purpose of a Pareto chart is to graphically summarize and display the importance of the differences between different groups of data.
The Pareto chart was named after Vilfredo Pareto and is based on the Pareto principle. Pareto was an Italian economist who is credited for discovering what we know as the Pareto principle or 80/20 rule. It also is known as the law of the vital few and the principle of factor sparsity. What he observed was that 80% of the land in Italy was owned by only 20% of the population. He soon discovered that this phenomenon was evident in other aspects of his life as well. For example, 80% of the peas in his garden were produced by 20% of the peapods. This expanded to become the 80/20 rule: that 80% of the consequences stem from 20% of the causes. The assumption is that most of the results in any situation are determined by a small number of causes. Some examples of 80/20 rule applications are:

• 80% of process defects arise from 20% of the process issues.
• 20% of your sales force produces 80% of your company revenues.
• 80% of delays in schedule arise from 20% of the possible causes of the delays.
• 80% of customer complaints arise from 20% of your products or services.
Although such statements are rough estimates, they are testable and are likely to be approximately correct. This concept may be very helpful in decision making.
The Pareto principle was popularized by Joseph M. Juran and Kaoru Ishikawa in its use in quality assurance. It has many applications in quality control and is the basis for the Pareto chart. The Pareto chart is only one of the seven basic tools of quality control. These seven tools include the histogram, the Pareto chart, the check sheet, the control chart, the cause-and-effect diagram, the flowchart, and the scatter diagram.
The Pareto chart’s purpose is to answer the following questions:
• What are the largest issues facing our team or business?
• What 20% of sources are causing 80% of the problems (the 80/20 rule)?
• Where should we focus our efforts to achieve the greatest improvements?

The purpose of the Pareto chart is to highlight the most important among a typically large set of factors. In quality control, the Pareto chart often represents the most common sources of defects, the highest occurring type of defect, or the most frequent reasons for customer complaints, etc.
A Pareto chart is constructed by splitting your data into groups. These groups are also known as segments, bins or categories. The left-side vertical axis of the Pareto chart is then labeled Frequency, Cost or some other unit of measure depending on your data. For our purposes we will assume frequency is our measurable data. This side shows the number of counts for each category, numbers ascending from bottom to top. The right-side vertical axis of the Pareto chart is the cumulative percentage of the total number of occurrences, total cost, or total of whatever your particular unit of measure is and the percentage numbers also ascend from bottom to top. The horizontal axis of the Pareto chart is labeled with the group names of your response variables. These group names are defined by you.
You then determine the number of data points that reside within each group and construct the Pareto chart. However, unlike the bar chart, the Pareto chart is ordered in descending frequency magnitude. In other words, the groups that have the most frequent occurrences are displayed from left to right in descending order.

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Categories: Facilities Management, Lean Manufacturing, Project Management, Quality, Supply Chain Management, Total Quality Management,

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Tags: Pareto_chart Pareto_principle 80/20_rule Six_Sigma quality_control Vilfredo_Pareto