Pareto Diagram and the 80/20 Rule

What is a Pareto Diagram (or Pareto Chart)?

A Pareto Diagram (or Pareto chart) is one of the Seven Basic Quality Tools. It is a modified form of a vertical bar chart, ordered by frequency of occurence.

The main intention of the Pareto diagram is to identify and arrange the data points in the ascending or descending order of their frequency.

PMBOK says that a Pareto Diagram is a special form of vertical bar chart, and is used to identify the vital few sources that are responsible for causing most of a problem’s effects.

In simple words, we can understand the Pareto diagram as a modified vertical bar chart, in which the data is arranged from most frequent to least frequent, to help identity which root causes are resulting in most problems. 

Pareto Diagram helps in identifying the most frequent problems, as addressing the most frequent problems makes the greatest impact on quality.

Pareto Diagram is based on the Pareto Principle.

What is Pareto Principle? 

Pareto’s Principle or Pareto’s Law states that a relatively small number of causes will typically produce a majority of the problems or defects. It is also known as the “80/20 principle” or the “80/20 rule”

According to the 80/20 Principle (or Rule), 80% of the problems (or defects) are caused by only 20% of the causes. 

Pareto Principle is named after Vilfredo Pareto, an Italian economist who observed that only 20% of the peapods in his garden produced 80% of the peas. In 1896, he published a research paper, which showed that approximately 80% of the land in Italy was owned by 20% of the population.

Benefits of a Pareto Diagram

  • Helps focuses attention on the most critical issues
  • Prioritizes potential “causes” of the problems.
  • Separates the critical few from the uncritical many.
  • Easy to understand and use.
  • It is a great communication tool, to quickly draw attention to the most important issues.

 

Check the Seven Basic Quality Tools.

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