Purpose of a Pareto Chart

A Pareto chart is used to graphically summarize and display the relative importance of
the differences between groups of data.

Sample Pareto Chart Depiction

How to Construct a Pareto Chart

A Pareto chart can be constructed by segmenting the range of the data into groups (also
called segments, bins or categories). For example, if your business was investigating the
delay associated with processing credit card applications, you could group the data into
the following categories:

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The left-side vertical axis of the Pareto chart is labeled Frequency (the number of counts
for each category), the right-side vertical axis of the pareto chart is the cumulative
percentage, and the horizontal axis of the pareto chart is labeled with the group names
of your response variables.

You then determine the number of data points that reside within each group and
construct the Pareto chart, but unlike the bar chart, the Pareto chart is ordered in
descending frequency magnitude. The groups are defined by the user.
What Questions the Pareto Chart Answers

What are the largest issues facing our team or business?

What 20% of sources are causing 80% of the problems (80/20 Rule)?
Where should we focus our efforts to achieve the greatest improvements?
What is 80/20 rule.

Vilfredo Pareto was an economist who is credited with establishing what is now widely
known as the Pareto Principle or 80/20 rule. When he discovered the principle, it
established that 80% of the land in Italy was owned by 20% of the population. Later, he
discovered that the Pareto principle was valid in other parts of his life, such as
gardening: 80% of his garden peas were produced by 20% of the peapods.

Some Sample 80/20 Rule Applications

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.
(The above examples are rough estimates.)