What Is a Pareto Chart?

What Is a Pareto Chart?

A Pareto chart is a graphical tool used to display the relative proportions of occurrence of different values. It is named after Vilfredo Pareto, an Italian economist who observed that 80% of the land in Italy was owned by 20% of the population. The Pareto principle, or the 80-20 rule, is the observation that, for many events, approximately 80% of the effects come from 20% of the causes.

If the question “What is a Pareto chart?” has been playing in your mind, it’s basically used to find and visualize the relative proportions of occurrences at different values. The chart is composed of a column chart and a line chart. The column chart displays the percentage of occurrence for each value, and the line chart displays the cumulative percentage of the occurrence. The Pareto chart is a bar chart, with the bars representing different values and the height of the bar proportional to the frequency of occurrence of the value.

The horizontal axis of the chart is usually time or quantity, while the vertical axis is usually percentage or frequency. These bars are connected by a line that represents the proportion of each occurrence. Essentially, the Pareto chart is a combination of a bar graph and a line graph, and it’s perfect for solving common problems that can be tracked in terms of cost, frequency, and duration.

Types of Data to Be Charted

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There are three main data types that are great to represent in this type of chart. Here is a breakdown of each type and how it might be used to improve business processes once the data is tracked.

Discrete Data: Discrete data is data that is separated into individual pieces. This type of data can be easily counted or measured. As an example, the number of customers a business has would be considered discrete data. If you’re trying to improve operations, you may use discrete data samples like the number of customer complaints your business has received to come up with ways to improve your customer relationship management (CRM) practices.

Continuous Data: Continuous data is data that is collected and analyzed at fixed time intervals. This type of data is often used to track trends or changes over time. One of the best ways to collect continuous data is with a master data management (MDM) system powered by AI operations.

Count Data: Count data is a type of data that is used to track how often something occurs. It can be used to track how often a particular event happens, or how often a particular value is returned from a function.

How to Create a Pareto Chart

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To create a Pareto chart, list the different values you are interested in on the horizontal axis and the relative proportions of occurrence on the vertical axis. The resulting graph will be a series of bars, with the tallest bar representing the most common value. Here’s how you can make a Pareto chart easily in any software or even by hand.

1. Collect data and organize it in a table.

2. Sort the data from highest to lowest.

3. Draw a bar graph with the percentage of occurrence on the y-axis and the value on the x-axis.

4. Connect the bars with a line.

Interpreting a Pareto Chart

The Pareto chart is composed of a vertical bar chart and a line graph. The vertical bar chart displays the relative proportions of occurrence of different values, while the line graph displays the cumulative proportion of occurrence of different values. The Pareto chart is typically used to display the relative proportions of occurrence of different values in a process. The values can be either defects or non-defects.

Ultimately, a Pareto chart can be a great option for problem-solving by helping you find the most common causes of issues within your organization. Just keep in mind that it only shows past data, and it also doesn’t show quantitative data, meaning that it only displays the frequency of problems rather than their severity.

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