Ver. 1.0DIYLean.com Understanding Pareto ChartsDIYLean.com Pareto was born July 15, 1848, and lived until 1923.He was an Italian sociologist, economist, and philosopher. Pareto is chiefly known for important contributions in the study of income distribution in the 19thcentury. Paretos law (now commonly known as the 80/20 rule) originated as a means to express the distribution of income in.society.DIYLean.com The Pareto chart, or diagram, is a special type of histogram.In business, it is used to illustrate the causes of a problem by making visual the causes of a problem, in order of severity, from largest to smallest.As such, it is a basic statistical tool, and is one of the foundation tools of continuous improvement, lean, etc.DIYLean.com There are six basic elements involved in putting together a Pareto chart:1. Gather the data to be analyzed2. Sort the data from largest/highest to smallest/lowest3. Perform analysis steps4. Produce 2-axis graph from the resulting analysis5. Recolor and emphasize appropriate portions of the graph depending on audience6. Publish completed Pareto chartDIYLean.com Here is the story behind the example to follow.At Costco store #156 we are looking at the frequency of identified problems that result in customers being stopped, and delayed at the exit, due to discrepancies between their receipt and what the checker verifies as being in the basket. Six basic error categories have been ..identified at this particular store by theteam responsible for working this.DIYLean.com The following data has been collected during the month of January, 2010:Mistake Type Number of OccurrencesDouble Charge 157Bottom of Basket 210Item Not Charged 330Wrong Item Charged 102Coupon Error 56Item Hidden 95DIYLean.com For the purposes of this example we will use Microsoft Excel to produce the Pareto chart:For this presentation I am using Excel 2007.You should be able to use any spreadsheet program to do this, including earlier versions of Excel, OpenOffice, Lotus, etc.DIYLean.com Again, the first step is to gather the data:DIYLean.com Step two is to sort the data from high to low:DIYLean.com Next, total or sum the number of occurrences:DIYLean.com Next, total or sum the number of occurrences:DIYLean.com Step three involves several analysis steps:DIYLean.com Step three involves several analysis steps:DIYLean.com Step three involves several analysis steps:DIYLean.com Step three involves several analysis steps:DIYLean.com Step three involves several analysis steps:DIYLean.com Step three involves several analysis steps:DIYLean.com Step four is producing a 2-axis graph:DIYLean.com Step four is producing a 2-axis graph:DIYLean.com Step four is producing a 2-axis graph:DIYLean.com Step four is producing a 2-axis graph:DIYLean.com Step four is producing a 2-axis graph:DIYLean.com The final Pareto chart should look something like:DIYLean.com You should now have a basic understanding of how to put together a Pareto chart to document real-world problems like: defects, mistakes, scrap, missed shipments, etc. The Pareto chart is one of the most useful tools in the lean, and continuous improvement, toolkit.Use it often!Ver. 1.0DIYLean.com Understanding Pareto Charts