Pareto Analysis

Many of us have heard about the term Pareto Analysis or Pareto Chart or 80-20 rule. But, what is the meaning of it? And how to use it in our day to day life?

This article explains about the Benefits of Pareto analysis, How to use it with Demonstration and how we can utilise it in our daily activities.

First of all we will see the history of Pareto chart:

History of Pareto chart

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Origin: The principle of Pareto goes way back to 1897, when Vilfredo Pareto used the 80-20 rule to represent the distribution of wealth in Italy. He observed that 20% of Italian population possesses 80% of the Land and wealth of the country.

Later on, Joseph M. Juran named the principle “PARETO” after the Italian economist Vilfredo Pareto in 1941.

Pareto Chart is one of the 7 tools of the Quality Management.

Different names of Pareto analysis

Pareto Principle
80-20 rule
Law of the vital few
Principle of factory sparsity

Principle of Pareto Analysis

It states that the 80% of problems/effect are caused by 20% of the causes. In short, the purpose of the chart is to find the most important/critical factor from the set of many other factors.

Examples:

80% of manufacturing defect comes by 20% of human error
80% of road accidents occurs by 20% of drivers
80% wealth belongs to 20% of population
20% employee contributes to 80% of revenue
20% of time spent on work gives 80% results

Benefits of Pareto Analysis

Separate the problem and causes
Helps to focus on the right problems
Enhance the decision making skills
Improves problem solving skills
Increases the efficiency of work
Saves time

Now that we know the principle and benefits of it, let us see how to prepare the Pareto chart and what the data that needs to be collected are.

How to make Pareto chart

Pareto chart is prepared majorly in Microsoft Excel and Minitab.

We will illustrate the chart in Microsoft excel.

Let us take an example of a printing press. So, there is a printing press and during the process of printing, there are various defects that occurs on the paper.

Step 1

The first step will be to collect the data of all the defects and the number of time it occurs on paper in one set of operation. Example is shown in table below.

Problem category	Number of occurrence
Cross Printing	13
Dusty spot on paper roller	23
Folded edges	180
Incorrect shade	79
Ink Adjustment	12
Multiple units colour adjustment	7
Torn piece of paper on roll	41
Wrinkles	14
Total	369

Defect and No of occurrence for pareto chart

As shown in the above table, there are various defects that occurred during the printing of paper and in the other column there are Number of Occurrence i.e. the total number of time it occurred on the paper.

Note: Number of occurrence can also be named as frequency

Step 2

The next step will be to arrange the Occurrence in descending order and make other two column of Cumulative and Cumulative percentage

To calculate cumulative numbers, we have to add each occurrence from occurrence table to the sum of its predecessors.

Example: The first number i.e. 180 (in cumulative column) will remain same, while the second number 259 = 180 (in cumulative column) + 79 (Incorrect shades) and again 300 = 259 (cumulative number) + 41 (Torn piece of paper) and so on.

Note: The last number in cumulative column will always be same as the total number of occurrence. In this case 369 is the number which will be same in final cumulative column as well as total occurrences.

Similarly, also calculate the % cumulative.

To calculate cumulative percentage: Cumulative number/Total number of occurrence

For example: for, 49% = 180/369 and so on.

Step 3

The next step will be to prepare Pareto chart. Go to Insert – select column chart. After clicking on the column chart, white chart space will open. Right click on it and ‘Select data’. After clicking on select data, the below screen will occur.

*Pareto chart preparation in excel* – Inserting chart

Select the column of ‘Problem category’ and ‘Occurrence’ together. Insert comma (,) in Chart data range and select ‘Cumulative percentage’ column.

*Pareto chart preparation in excel* – Selecting data

Your Pareto chart will be displayed like the above image.

Step 4

Now that the main Pareto chart is prepared, it is time to edit and make it more visible and easy to understand.

Right click on the red %cumulative and click on “Change series chart type”. After clicking on it, a new dialog box will open. In the drop down in front of %cumulative choose “line with marker” and then click OK

Step 5

After the above step, right click on the red line in the chart and click on “Format data labels” and select secondary axis.

The above image shows the almost completed Pareto chart. You can right click on the blue columns and add labels and also edit the position of it. Also you can do same for %cumulative axis by right clicking and add labels. One can easily change colour, font size and position of the numbers

Step 6

The next step will be to display the defects which contributes to the 80% of the problems, for that go to Insert- shape and select any suitable shape and highlight the chart up till 80%.

One can easily see in the above chart that 80% problems are highlighted as “Vital few”, meaning three main defects are contributing to the 80% of the problems in the printing press.

The next step will be to do brainstorming, analyse the problem and get suitable solution using Root cause analysis.

Pareto charts in Excel

You can download the pareto chart excel template here.

Pareto chart excel template Download

Thank you

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About the Author

Jay Desai has over 4 years of experience in Lean Six Sigma, Operations Management and Production Engineering. A post graduate in Computer Integrated Manufacturing from Nirma University. He has successfully delivered Lean deployment, training and project coaching at many levels within customers organization as well as delivered educational programmes.

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