Pareto Chart Final(1)

8/3/2019 Pareto Chart Final(1)

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Project Report on

Pareto chart principles and

Histograms

INSTITUTE OF MANAGEMENT STUDIES

LAL QUAN, GHAZIABAD 201 009

POST GRADUATION DIPLOMA IN

MANAGEMENT

SUBMITTED TO: -SUBMITTED BY:

Prof Sunil Bakshi


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Pareto Chart

Pareto's rule is also known as the 80/20 rule. It was named after

Vilfredo Pareto who, in the late 18th century, studied the

distribution of wealth in Europe and found that 80% was held

by 20% of the population.

A Pareto chart is a bar graph. The lengths of the bars represent

frequency or cost (time or money), and are arranged withlongest bars on the left and the shortest to the right. In this way

the chart visually depicts which situations are more significant.

A Pareto Chart is a vertical bar graph showing problems in a

prioritized order, so it can be determined which problems

should be tackled first. It is often useful to make Pareto Charts

of data collected using the Check Sheet method, and in fact, the

Check Sheet option includes a built-in Pareto Charting feature.

Choose the categories (or "problem areas") to collect data for by

brainstorming, or use existing data to look for these problem

areas. The data you analyze must be "counts" or costs, and must

be additive. Data should as yields or percentages cannot be

added, so are inappropriate for Pareto analysis. You should also

decide the time period over which the data should be collected.

When to Use a Pareto Chart

When analyzing data about the frequency of problems or

causes in a process.

When there are many problems or causes and you want to

focus on the most significant.

When analyzing broad causes by looking at their specificcomponents.


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When communicating with others about your data.

Pareto Chart Procedure When to Use a Pareto Chart

1. Decide what categories you will use to group items.

2. Decide what measurement is appropriate. Common

measurements are frequency, quantity, cost and time.

3. Decide what period of time the Pareto chart will cover:

One work cycle? One full day? A week?4. Collect the data, recording the category each time. (Or

assemble data that already exist.)

5. Subtotal the measurements for each category.

6. Determine the appropriate scale for the measurements you

have collected. The maximum value will be the largest

subtotal from step (If you will do optional steps 8 and 9

below, the maximum value will be the sum of all subtotalsfrom step 5.) Mark the scale on the left side of the chart.

7. Construct and label bars for each category. Place the

tallest at the far left, then the next tallest to its right and so

on. If there are many categories with small measurements,

they can be grouped as other.

8. Steps 8 and 9 are optional but are useful for analysis and

communication.

9. Calculate the percentage for each category: the subtotal

for that category divided by the total for all categories.

Draw a right vertical axis and label it with percentages. Be

sure the two scales match: For example, the left

measurement that corresponds to one-half should be

exactly opposite 50% on the right scale.

10. Calculate and draw cumulative sums: Add the

subtotals for the first and second categories, and place adot above the second bar indicating that sum. To that sum


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add the subtotal for the third category, and place a dot

above the third bar for that new sum. Continue the process

for all the bars. Connect the dots, starting at the top of the

first bar. The last dot should reach 100 percent on the

right scale

Histograms

Chart 1 shows how many customer complaints were received ineach of five categories.That are:

Documents

Product quality

Packaging

Delivery

Other

Types of Customer Complaints

Second Quarter 2005


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Chart 2 takes the largest category, documents, from Chart 1,

breaks it down into six categories ofdocument-related

complaints, and shows cumulative values.

Quality Certificate Error

Quality Certificate Missing

Invoice Error

Packing List Error

Wrong Quantity

Other


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If all complaints cause equal distress to the customer, working on

eliminating document-related complaints would have the most

impact, and of those, working on quality certificates should be most

fruitful.

Interpretation

If the cumulative line is straight, it is telling us that the

contribution from each successive bar (after the first) is about

even. These bars, then, should be about the same height. This

says that no problems stand out as being more bothersome than

the rest, which doesn't help much for problem solving.

We can get "flat" Pareto Diagrams just by the way we gather

our data. If we separate major problem areas into many small

problem areas, than each bar won't have much in it, hence a flat

shape. We might consider regrouping the problems into

meaningful, larger problem areas.

This rule says - "eighty percent of your troubles will come from

20 per cent of your problems". In other words, problems will

rarely have equal impact, so it is best to first concentrate on the

most important.

The value of this rule is not that it provides a scientifically

accurate estimation of the weightings which attach to a range of

alternatives (which it does not), but simply that it is a reminder

to always look for 'the vital few' issues, and to separate them

from 'the trivial many', before attempting to solve problems.The next step is to identify which particular problems are the

most important. This is done by collecting appropriate data and

displaying it in the form of a histogram with each measured

characteristic shown in descending order of magnitude. Such a

histogram is known as a Pareto chart.

Pareto Chart Final(1)

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