Paretos theory practical application
The Pareto chart is a graphical tool where the data is ordered from highest to lowest, which
makes it clearer which aspects need to be solved first. It is based on the Pareto principle,
which says that 80% of the consequences are the result of 20% of the causes.
It is also known as closed curve or A-B-C distribution and is named in honor of the economist
Vilfredo Pareto who made several contributions to statistics, probability and distribution, such
as Pareto efficiency and the Pareto principle (from which the Pareto diagram is derived).
The Pareto principle can also be applied to different aspects, positive and negative, for
example that 80% of sales are made by 20% of customers, or that 80% of complaints come
from 20% of the most common errors. In this way, it is easier to identify the details that will
have better results and avoid the less relevant aspects that will not help you achieve your
goals.
If you haven't made a Pareto chart before, here are some tips for you to adopt it as soon as
possible and become one of your favorite process improvement tools.
1. Identify the problem you want to analyze
First you must determine what is the problem that is present in your department, your
company or at the stage of a strategy. For this it is important that you are in communication
with your collaborators from all areas. If you're in direct contact with specific processes, it's
easier for your colleagues to point out exactly what isn't working as it should.
2. Gather data that will help you assess the problem
Once you know what you need to solve (for example, low sales of a product from your new
line of office furniture), it's time to look for your departments' data to identify what needs to
be fixed.
Are there complaints about product quality? Has it been delivered on time and in good
condition to each buyer? Is there proper follow-up by sellers? Have there been problems in
use? Of course, the questions depend on what you want to solve, so it's important that you
pay attention to everything that's going on around you.
3. Empty the data into a table
It is time to make a table in which you can organize the data collected; That is, everything that
contributes to the problem you want to solve: the complaints of your customers (what they
express, which are repeated frequently), or the reasons why your sales team does not reach
the monthly goals.
Count the frequency of each of the items, because this will be key for the Pareto chart to offer
you an enlightening graph.
4. Sort the data from highest to lowest and calculate its percentages and accumulated
Because the intention is to represent the most frequent to solve it first, your table should be
ordered from highest to lowest. You'll also need to include a column for their percentages and
their accumulated. It's simple, below we will show you a couple of examples so you can see
how it is implemented.
5. Make a bar graph with this data
Any spreadsheet program can help you make the graph, so choose the alternative you prefer
between Numbers, Microsoft Excel or Google Sheets, to name a few.
When making your chart, choose a combo chart that shows you the bars in descending order
(which will show you what should be solved first), and what percentage of your problems they
represent. In this way, you will be very clear about what you should focus on and, if you do it
well, what is at the other end will disappear as a result of the improvements you apply.
6. Analyze what are the causes or situations that appear at the beginning of the graph
Of course, it is important that you analyze with a cool head what causes the most pressing
problems. Pay attention to what you can really modify or add, because it will surely be worth
investing resources or the talent of your teams. It will be easier to reach the goal if you build a
strategy with the help of everyone involved.