80:20
The Pareto
Principle
SSingh
Shishirr Singh
What is the Pareto Principle?
Understanding Pareto Principle
The Pareto Principle was given by Mr. Vilfredo Pareto,
who was an Italian Economist. While studying the
economy of Italy, he discovered that 80% of the land
in Italy was owned by 20% of the population.
He later gave the theory that 80% of the Output is
driven by 20% of the Inputs. Also known as “Vital Few Trivial Many”. The Pareto Principle if graphically
represented using the Pareto Chart which graphically
represents the 20% of the Causes contributing to 80%
of the problems
Example:
20% of the Customers contributing to 80% of the sales
20% of the items in a store contribute to 80% of the
items sold
20% of the projects causing 80% customer complaints
Shishirr Singh
The Pareto Chart
Understanding the Pareto Chart
The Pareto Chart is a very common tool used by Six Sigma
and Quality professionals across industries, it helps in
identifying 20% of the causes that are contributing to 80%
of the defects.
The Pareto Chart is a modified Histogram with the
frequencies arranged in descending order, and has a line
on the Secondary Axis that represents the Cumulative
Percentage.
The example graph below represents the # of defects for a Casting
unit across various defect categories
In the graph below, the line with % is represents the Cumulative %
of Quantity
The x-axis represents the Categories of Defect and Y-axis is
representing the number/frequency of defects
Shishirr Singh
Steps: Data Prep for the Pareto Chart on Excel
1. Data Preparation:
Organize your data in Excel, with the items you want to analyze listed in
one column (e.g., types of defects, product categories).
In another column, record the frequency or count of each item (e.g., the
number of occurrences of each defect type).
2. Data Sorting (Descending Order):
Select both columns of data.
Go to the "Data" tab on the Excel ribbon.
Click on "Sort Z to A" to arrange the items in descending order based on
frequency.
3. Calculations (Cumulative Percentage):
Create a new column to calculate the cumulative percentage.
In the cell next to the first item, type the formula
=SUM($B$2:B2)/SUM($B$2:$B$X), where "B2" is the frequency of the first
item, and "X" is the last row of data.
Drag the fill handle (a small square at the bottom-right of the cell) down
to apply the formula to all items.
Example: The below chart represents the issues for which IT Tickets were
raised over a time period (Pareto on next page)
Categories
Count
Cumulative %
Outlook
82
23%
Keyboard Not Working
75
45%
Internet
57
61%
Password
47
74%
Citrix Access
35
84%
Excel
23
91%
other
14
95%
LAN
12
98%
laptop
6
100%
Shishirr Singh
Steps for creating the Pareto Chart on Excel
1. Creating the Pareto Chart:
a. Select the item names and frequency/count columns.
2. Inserting the Combo Chart (Pareto Chart):
a. Go to the "Insert" tab on the Excel ribbon.
b. In the "Charts" group, select "Combo."
c. Choose the "Clustered Column - Line on Secondary Axis" chart type.
3. Adjusting Chart Elements:
a. Customize the chart title, axis labels, and other formatting elements as
needed for clarity and visual appeal.
4. Analysis:
a. Analyze the Pareto Chart to identify the most significant items. Typically,
the items on the left contribute the most to the total.
Shishirr Singh