Pareto analysis or diagram

Called: Pareto diagram or Pareto analysis

A Pareto diagram is a simple bar chart that ranks related measures in decreasing order of occurrence. The principle was developed by Vilfredo Pareto, an Italian economist and sociologist who conducted a study in Europe in the early 1900s on wealth and poverty. 

He found that wealth was concentrated in the hands of the few and poverty in the hands of the many. The principle is based on the unequal distribution of things in the universe. It is the law of the "significant few versus the trivial many." The significant few things will generally make up 80% of the whole, while the trivial many will make up about 20%.

The purpose of a Pareto diagram is to separate the significant aspects of a problem from the trivial ones. By graphically separating the aspects of a problem, a team will know where to direct its improvement efforts. Reducing the largest bars identified in the diagram will do more for overall improvement than reducing the smaller ones.

 A Pareto chart is a bar graph. The lengths of the bars represent frequency or cost (time or money), and are arranged with longest bars on the left and the shortest to the right. In this way the chart visually depicts which situations are more significant.

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 specific components.
• When communicating with others about your data.
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  Pareto Chart Examples

  Example #1 shows how many customer complaints were received in each of five categories.
  Example #2 takes the largest category, “documents,” from Example #1, breaks it down into six categories of document-related complaints, and shows cumulative values.
  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.
  
  
  Example #1
   
  Example #2
  

  
  
  Example #3
  It is a special vertical chart that is divided into categories which show all possible probabilities or events that can occur. Categories are ordered by the frequency of each category from high frequency on the left side of the vertical axis to low frequency on the right side of it. Pareto depends on the rule of 80/20, which proves that 80/100 of problems comes from 20/100 of causes. So when we know that 20/100 of causes and give more attention and resources to avoid them, we will solve 80/100 of errors and problems. So Pareto Diagram is very useful when we use it with cause and effect diagram (also called Ishikawa or fishbone). The below example shows Pareto Diagram for the reasons that lead to delay in a software project.