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http://www.tutorialspoint.com/management_concepts/pareto_chart_tool.htm Copyright © tutorialspoint.com PARETO CHART TOOL Introduction Setting priorities is one of the main management functions of an organization. If the managers do not prioritize their tasks and organizational objectives, the organization will head towards the wrong direction and eventually collapse. Therefore, management is required to prioritize their tasks and focus on the priority items that will have a high impact on the organization. Pareto Chart tool is one of the most effective tools that the management can use when it comes to identifying the facts needed for setting priorities. Pareto charts clearly illustrate the information in an organized and relative manner. This way, the management can find out the relative importance of problems or causes of the problems. When it comes to prioritizing the causes of the problem, a Pareto chart can be used together with a causeandeffect diagram. Once the Pareto chart is created, it shows you a vertical bar chart with the highest importance to the lowest. The importance of each parameter is measured by several factors such as frequency, time, cost, etc. The Pareto Principle Pareto charts are created based on the Pareto principle. The principle suggests that when a number of factors affect a situation, fewer factors will be accountable for the most of the affect. This is almost the same as 80/20 theory that you may have heard of. It says that 80% of the impact is made by 20% of causes. The Practical Importance When a team works together in a large and complex project, it can be quite tricky to understand the importance of certain issues. Pareto charts can show the team a few important things that really matter the most. Most teams use Pareto charts over time in order to identify whether the suggested solution really answers the problem. If the solution is effective, the relative importance of the identified factor should take a lesser value over time. Creating a Pareto Chart Step 1 First of all, list down everything you need to compare. This can be a list of issues, items, or a list of problem causes. Step 2 Decide on the standard measures to compare the list items. You need to consider organizational objectives and current trends in order to determine the measures. Some measures are: Frequency How often it occurs Cost How many resources are being utilized or affected Time How long it takes Step 3 Select a timeframe for the data collection process. Step 4 Now, we do some simple math with the data we collected. Take each list item and record it against the measurement selected. Then, determine its percentage in the context and all item occurrences. As an example, if the list of item contains causes behind late comers to office, the tallying table will look like below. Cause For Late Coming Occurrences % Count Road Traffic 32 44 Rain or Snow 3 4 Not Feeling Good 6 8 Late Public Transportation 4 6 Personal Commitments 8 11 Work till Late Night 20 27 Total 73 100

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  • 5/23/2015 ParetoChartTool

    http://www.tutorialspoint.com/cgibin/printpage.cgi 1/2

    http://www.tutorialspoint.com/management_concepts/pareto_chart_tool.htm Copyrighttutorialspoint.com

    PARETOCHARTTOOL

    Introduction

    Settingprioritiesisoneofthemainmanagementfunctionsofanorganization.Ifthemanagersdonotprioritizetheirtasksandorganizationalobjectives,theorganizationwillheadtowardsthewrongdirectionandeventuallycollapse.

    Therefore,managementisrequiredtoprioritizetheirtasksandfocusonthepriorityitemsthatwillhaveahighimpactontheorganization.

    ParetoCharttoolisoneofthemosteffectivetoolsthatthemanagementcanusewhenitcomestoidentifyingthefactsneededforsettingpriorities.Paretochartsclearlyillustratetheinformationinanorganizedandrelativemanner.

    Thisway,themanagementcanfindouttherelativeimportanceofproblemsorcausesoftheproblems.Whenitcomestoprioritizingthecausesoftheproblem,aParetochartcanbeusedtogetherwithacauseandeffectdiagram.

    OncetheParetochartiscreated,itshowsyouaverticalbarchartwiththehighestimportancetothelowest.Theimportanceofeachparameterismeasuredbyseveralfactorssuchasfrequency,time,cost,etc.

    TheParetoPrinciple

    ParetochartsarecreatedbasedontheParetoprinciple.Theprinciplesuggeststhatwhenanumberoffactorsaffectasituation,fewerfactorswillbeaccountableforthemostoftheaffect.

    Thisisalmostthesameas80/20theorythatyoumayhaveheardof.Itsaysthat80%oftheimpactismadeby20%ofcauses.

    ThePracticalImportance

    Whenateamworkstogetherinalargeandcomplexproject,itcanbequitetrickytounderstandtheimportanceofcertainissues.Paretochartscanshowtheteamafewimportantthingsthatreallymatterthemost.

    MostteamsuseParetochartsovertimeinordertoidentifywhetherthesuggestedsolutionreallyanswerstheproblem.Ifthesolutioniseffective,therelativeimportanceoftheidentifiedfactorshouldtakealesservalueovertime.

    CreatingaParetoChart

    Step1

    Firstofall,listdowneverythingyouneedtocompare.Thiscanbealistofissues,items,oralistofproblemcauses.

    Step2

    Decideonthestandardmeasurestocomparethelistitems.Youneedtoconsiderorganizationalobjectivesandcurrenttrendsinordertodeterminethemeasures.Somemeasuresare:

    FrequencyHowoftenitoccurs

    CostHowmanyresourcesarebeingutilizedoraffected

    TimeHowlongittakes

    Step3

    Selectatimeframeforthedatacollectionprocess.

    Step4

    Now,wedosomesimplemathwiththedatawecollected.Takeeachlistitem andrecorditagainstthemeasurementselected.Then,determineitspercentageinthecontextandallitemoccurrences.

    Asanexample,ifthelistofitemcontainscausesbehindlatecomerstooffice,thetallyingtablewilllooklikebelow.

    CauseForLateComing Occurrences %Count

    RoadTraffic 32 44

    RainorSnow 3 4

    NotFeelingGood 6 8

    LatePublicTransportation 4 6

    PersonalCommitments 8 11

    WorktillLateNight 20 27

    Total 73 100

    ..+./ +),(%*0/ +),(%0%+*/!0

    +.1/!

  • 5/23/2015 ParetoChartTool

    http://www.tutorialspoint.com/cgibin/printpage.cgi 2/2

    Step5

    Now,rearrangethelistandlisttheitemindecreasingorder.Inourexample,listitfromthehighestnumberofoccurrencestotheleastnumberofoccurrences.Then,recordthecumulativepercentagewhenyoutravelfromthetopitemtothebottomitem.

    Referthefollowingexample:

    CauseForLateComing Occurrences %Count Cumulative%

    RoadTraffic 32 44 44

    WorktillLateNight 20 27 71

    PersonalCommitments 8 11 82

    NotFeelingGood 6 8 90

    LatePublicTransportation 4 6 96

    RainorSnow 73 100 100

    Step6

    Createabarchart.Thelistitemsshouldbedisplayedalongthe'Y'axisfromhighesttothelowest.Leftverticalaxisshouldbethemeasurethatyouselected.

    Inourexample,itshouldbethenumberofoccurrences.Selecttherightverticalaxisasthecumulativepercentage.Eachitemshouldhaveabar.

    Step7

    Now,drawalinegraphforcumulativepercentages.Thefirstpointofthelineshouldbeonthetopofthefirstbar.YoucanusespreadsheetsoftwaresuchasMicrosoftExcelforthisstep.

    Itoffersmanytoolsforcreatingandanalyzinggraphs.Now,youshouldhavesomethinglikethis.

    Step8

    Analyzeyourchart.Younowneedtoidentifytheitemsthatappeartohavethemostimpact.Identifythebreakpoint inthegraph.

    Ifthereisnobreakpoint,accountthecauses/itemsthathave50%ormoreimpact.Inourexample,thereisavisiblebreakpoint.

    Therearetwocausesbeforethebreakpoint,RoadtrafficandWorktillLateNight.Therefore,thetwocausesthathavethemostaffecttoourproblemareRoadTrafficandWorktillLateNight.

    Conclusion

    Paretochartscanbereallyusefulwhenusedinthepropercontext.Thishelpsthemanagementtoprioritizetasks,risks,activitiesandcauses.

    Therefore,Paretochartsshouldbeusedasmuchaspossiblewhenitcomestodaytodayprioritization.

    .,% $*#!

    .!"!.0$!.! %.(!


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