Pareto diagram is a graphic resource used to establish an ordering of the causes of losses that must be remedied.
This scheme was created by an Italian economist and sociologist, Vilfredo Pareto, who was born in Paris and died in 1923 in Geneva.
The Pareto Diagram aims to understand the action-benefit relationship, that is, it prioritizes the action that will bring the best result.
The diagram is made up of a bar chart that sorts the frequency of occurrences in descending order, and allows the location of vital problems and the elimination of future losses.
The diagram is one of the seven basic quality tools and is based on the principle that most losses have few causes, or that few causes are vital, most being trivial.
Often, the Pareto Diagram includes percentage values and the cumulative value of occurrences. From this way, it is possible to evaluate the accumulated effect of the researched items.
The Pareto Diagram is a very important tool because through it it is possible to identify small problems that are critical and cause large losses.
For the Diagram to be applied, it is important to follow six basic steps:
- Determine the purpose of the diagram, that is, what type of loss will be investigated;
- Define the type of loss aspect, that is, how the data will be classified;
- In a table, or check sheet, organize the data with the categories of the defined aspect;
- Perform frequency calculations and group the categories that occur with low frequency under the name “others”;
- Also calculate the total and percentage of each item over the total and accumulated;
- Plot the diagram.
Pareto Diagram - 80/20
The Pareto Diagram is intrinsically related to Pareto's Law, also known as the 80-20 principle, or the 20/80 law.
According to this law, 80% of consequences stem from 20% of causes. This law was proposed by Joseph M. Juran, famous business consultant, named after Italian economist Vilfredo Pareto.
During his research, Pareto found that 80% of the wealth was in the hands of just 20% of the population.
Through this law it is possible to state that:
- 20% of customers account for more than 80% of a given company's profits;
- More than 80% of discoveries in the scientific world come from 20% of scientists.
See also the meaning of Ishikawa diagram and Diagram.