How to Create and Read a Pareto Chart ?

How to Create a Pareto Chart ?

A Pareto chart is one of the 7 basic tools of quality control. It is for this reason that every student of quality management needs to know how to prepare and how to read a quality chart. The procedure for the same has been listed below:

Step 1: Find the Causes

The process starts with finding the underlying causes. The “could be” causes to positive effects like revenues or profits of a company and will therefore need to be maximized. Alternatively these could be the causes of negative effects like losses or defects and will then need to be minimized.

Step 2: Prepare a Frequency Table

Once the underlying causes have been listed down, they need to be checked for their importance. This can be done by running simulations of the process several times and recording the outcomes. A frequency table is one of the best ways to do so. Most managers prefer to have a cumulative frequency column.

Step 3: Convert it into Percentages

Once there is sufficient data to understand the importance of the underlying causes on the process and a frequency table has been created, it’s time to convert the numbers into percentages. This is because percentages are intuitively easier to understand than regular numbers.

Step 4: Arrange in Descending Order

Last but not the least it’s time to arrange the causes. The most important ones must be at the top while the least important ones must be at the bottom of the table. Thus the arrangement must be in descending order. Also once must ensure that the percentages are also cumulatively taken track of. The causes that come before cumulative percentage 80% in reached are usually considered the vital few factors. This arrangement makes it easy for the naked eye to understand the important factors and make necessary changes to achieve desired results.

How to Read a Pareto Chart ?

The above example gives you the results of Pareto Principle in a tabular form. In case you need the same in graphical form, you will need to understand how to create and read a Pareto chart. A Pareto chart may be confusing because it shows both the individual as well as the cumulative data. Here is how to read or prepare a Pareto chart:

Read The Bar Charts For Individual Values

The Bar charts that are connected to the X axis are prepared in descending order. These bars represent the most important factors and gives the user an chance to understand their individual values.

Read The Line For Cumulative Value

The line at the top of the bars shows cumulative values. This gives the user a chance to understand the cumulative values.

Thus the user can simultaneously look at individual values and cumulative values. This helps them easily separate the “vital few” from the “trivial many”.

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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to and the content page url.