Pareto Analysis 80-20 rule

What is Pareto? Have you ever wondered why 80% of the defects in your software are due to 20% of the causes? Or, why is 80% of a country’s wealth in the hands of the 20% population? This can be explained easily by the Pareto rule, which summarizes that 80% of results are
due to 20% causes. Pareto principle is named after Italian sociologist and economist
Vilfredo Pareto.

Due to the ratio of 80:20, it is commonly known as Pareto 80-20 rule. A
Pareto chart is a quality tool that helps identify the most prevalent defects, complaints,
results and map them against the causes. Pareto Chart or Pareto rule is widely used in
business, process management, quality control, medicine, and several other domains.

What is a Pareto Chart?

A Pareto chart is a mixture of both a bar graph and a line graph. The descending order
of the bars indicates the individual values. Whereas the line indicates the cumulative
total. The length of the bars represents the individual values, and the line displays the
cumulative total.

The Pareto graph is a visual representation of the Pareto principle.
According to which 80% of results come from 20% of conditions for most of the events.
This assumption is used in different domains. The Pareto chart highlights the more
extensive set of features. In quality control, the Pareto chart represents the most
common causes of defects, the highest frequency of defect, or the most commonly
reported reasons for customer complaints.

What is the 80/20 rule of Pareto charts?

The 80/20 rule of the Pareto chart states that for many outcomes, 80% of
consequences come from 20% of the causes. It is also known as the Pareto 80-20 rule.
This effectively means identifying the 20% defect types that are the reason for 80% of
the defects. The Pareto principle applies to an extensive range of fields from natural
science to sports. However, it is particularly suited to solving business problems. When
you are doing a Pareto analysis, you can recognize the vital few from the trivial many
and prioritize actions.

What is the Pareto chart used for?

  • A Pareto chart is helpful to map all the defects against their causes so that the defects can be prioritized and resolved accordingly. 
  • It is easy to draw the Pareto chart. 
  • Pareto Chart helps in segregating the problems and their causes. 
  • It helps in focusing on solving the few issues generating the most problems. 
  • Pareto Chart shows the problems which need focus for getting the most significant improvement.
  • By doing a Pareto Analysis, you can assess and prioritize different problems or tasks by comparing the benefits that you will get by solving each one.

Please do read other problem solving tools: Fishbone Diagram, 5-Why Analysis

How to interpret Pareto Chart?

Pareto Chart based on the Pareto principle is a combination of a bar graph and a line graph. 

  1. The vertical bar indicates a unit of measure. Examples are types of defects, problem types. 
  2. The vertical bar represents the frequency of occurrence. 
  3. In the Pareto diagram, each bar is arranged in decreasing order i.e. highest frequency bar is arranged first and the lower frequency bar arranged in the last.

How can you improve quality by using a Pareto chart?

Pareto charts can be used in various ways, including:

  • Pareto analysis helps to analyze broad causes by examining their components.
  • To analyze the problem frequency or defects in a process.
  • Pareto improvement helps in focusing the efforts on the most significant problems or causes when there are many.
  • It assists in communicating the significance of causes and the associated issues to others.

Thus, we see that whatever be the domain, the Pareto principle has an immense significance. You can easily plot a Pareto Chart with the relevant parameters of the domain and work towards a solution to your problem. Come and read more about Pareto Principle and its applications here. You can claim your complimentary 2-year subscription today.

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