Basic Tools for Process Im provem ent

Module 8

PARETO CHART

PARETO CHART 1
 Basic Tools for Process Im provem ent

What is a Pareto Chart?

A Pareto Chart is “a series of bars whose heights reflect the frequency or impact of
problems. The bars are arranged in descending order of height from left to right.
This means the categories represented by the tall bars on the left are relatively more
significant than those on the right” [Ref. 5]. The chart gets its name from the Pareto
Principle, which postulates that 80 percent of the trouble comes from 20 percent of
the problems. Viewgraph 1 highlights the elements of this definition.

Why should teams use Pareto Charts?

You can think of the benefits of using Pareto Charts in economic terms (Viewgraph
2). “A Pareto Chart breaks a big problem into smaller pieces (and) identifies the
biggest contributors. . . (It can) help us get the most improvement with the resources
available by showing where to focus efforts in order to maximize achievements. The
Pareto Principle states that a small number of causes accounts for most of the
problems. Focusing efforts on the ‘vital few’ causes is usually a better use of
valuable resources” [Ref. 1a].

When should we use a Pareto Chart?

A Pareto Chart is a good tool to use when the process you are investigating
produces data that are broken down into categories and you can count the number of
times each category occurs.

No matter where you are in your process improvement efforts, Pareto Charts can be
helpful, “. . . early on to identify which problem should be studied, later to narrow
down which causes of the problem to address first. Since they draw everyone's
attention to the ‘vital few’ important factors where the payback is likely to be greatest,
(they) can be used to build consensus. In general, teams should focus their attention
first on the biggest problems—those with the highest bars” [Ref. 5].

Making problem-solving decisions isn’t the only use of the Pareto Principle. Since
Pareto Charts convey information in a way that enables you to see clearly the
choices that should be made, they can be used to set priorities for many practical
applications in your command. Some examples are:

! Process improvement efforts for increased unit readiness

! Skills you want your division to have
! Customer needs
! Suppliers
! Investment opportunities

2 PARETO CHART
 Basic Tools for Process Im provem ent

What Is a Pareto Chart?

• Bar chart arranged in descending
order of height from left to right

• Bars on left relatively more important

than those on right

• Separates the "vital few" from the

"trivial many" (Pareto Principle)

PARETO CHART VIEWGRAPH 1

Why Use a Pareto Chart?

• Breaks big problem into smaller pieces

• Identifies most significant factors

• Shows where to focus efforts

• Allows better use of limited resources

PARETO CHART VIEWGRAPH 2

PARETO CHART 3
 Basic Tools for Process Im provem ent

How is a Pareto Chart constructed?

To construct a Pareto Chart, you need to start with meaningful data which you have
collected and categorized. You may want to turn to the Data Collection module at
this point to review the process of collecting and categorizing data that you can chart.
Now you’re ready to follow the steps for constructing a Pareto Chart (Viewgraphs 3
and 4). The steps below have been adapted from Joiner [Ref. 1b].

Step 1 - Record the raw data. List each category and its associated data count.

Step 2 - Order the data. Prepare an analysis sheet, putting the categories in order
and placing the one with the largest count first.

Step 3 - Label the left-hand vertical axis. Make sure the labels are spaced in
equal intervals from 0 to a round number equal to or just larger than the total of all
counts. Provide a caption to describe the unit of measurement being used.

Step 4 - Label the horizontal axis. Make the widths of all of the bars the same
and label the categories from largest to smallest. An "other" category can be
used last to capture several smaller sets of data. Provide a caption to describe
them. If the contributor names are long, label the axis A, B, C, etc. and provide a
key.

Step 5 - Plot a bar for each category. The height of each bar should equal the
count for that category. The widths of the bars should be identical.

Step 6 - Find the cum ulative counts. Each category's cumulative count is the
count for that category added to the counts for all larger categories.

Step 7 - Add a cum ulative line. This is optional. Label the right axis from 0 to
100%, and line up the 100% with the grand total on the left axis. For each
category, put a dot as high as the cumulative total and in line with the right
edge of that category's bar. Connect all the dots with straight lines.

4 PARETO CHART
 Basic Tools for Process Im provem ent

Constructing a Pareto Chart

Step 1 - Record the data

Step 2 - Order the data

Step 3 - Label the vertical axis

Step 4 - Label the horizontal axis

Step 5 - Plot the bars

PARETO CHART VIEWGRAPH 3

Constructing a Pareto Chart

Step 6 - Add up the counts

Step 7 - Add a cumulative line

Step 8 - Add title, legend, and date

Step 9 - Analyze the diagram

PARETO CHART VIEWGRAPH 4

PARETO CHART 5
 Basic Tools for Process Im provem ent

Step 8 - Add title, legend, and date.

Step 9 - Analyze the diagram . Look for the break point on the cumulative
percent graph. It can be identified by a marked change in the slope of the graph
(see Viewgraph 11). This separates the significant few from the trivial many.

NOTE: The significant few-trivial many principle does not always hold. No matter
how many data are categorized, they can be ranked and made into a Pareto
diagram. But sometimes no single bar is dramatically different from the others, and
the Pareto Chart looks flat or gently sloping. To attack the tall bar in that situation is
no help. You need to look for another way to categorize the data.

Now let's look at an exam ple to illustrate the Pareto Chart construction process:

You recently inherited $10,000 and would like to apply it to some of your
outstanding bills. Here is what you owe:

Home improvement loan balance $1,956

Visa $2,007
Mastercard $1,983
Church building fund pledge (monthly
installments of $83.33 for two years) $2,000
Balance of car loan $1,971
School tuition (monthly installments of
$169.17 for one year) $2,030

Viewgraphs 5 and 6 show how this would look when recorded on an analysis sheet
and plotted on a Pareto Chart.

6 PARETO CHART
 Basic Tools for Process Im provem ent

Analysis Sheet Example

Outstanding Debts

Category Amount ($)

School tuition (monthly installments) 2,030
Visa 2,007
Church pledge (monthly installments) 2,000
Mastercard 1,983
Balance of car loan 1,971
Home improvement loan balance 1,956
Total 11,947

PARETO CHART VIEWGRAPH 5

Pareto Chart Example

Outstanding Debts
$ 12,000
10,800
Am ount Owed

9,600
8,400
7,200
6,000
4,800
3,600
2,400
1,200
0
Tuition Visa Church MC Car Home
Type of Debt
LEGEND: AMOUNT OWED ON OUTSTANDING DEBTS AS OF 12 FEB 95.

PARETO CHART VIEWGRAPH 6

PARETO CHART 7
 Basic Tools for Process Im provem ent

You probably noticed that no single bar is dramatically different from the others.
Looking at your outstanding debts in this way isn't much help. Is there a different way
the data could be categorized to make it more meaningful? What if you were to
consider the interest rates on your outstanding debts?

Viewgraphs 7 and 8 show what that would look like. A much clearer picture of your
outstanding debts now emerges, and you are able to make a better decision on how to
manage your money.

NOTE: In this example, we opted not to show a cum ulative line (Step 7) on the right
side of the Pareto Chart because it might be confusing to create a percentage of
percentages.

How do we interpret a Pareto Chart?

When you look at a Pareto Chart, you can see break points in the heights of the bars
which indicate the most important categories. This information is useful when you are
establishing priorities.

As you can see in the example we've just looked at, you can detect two big breaks in
the heights of the bars when you categorize the data in a different way:

! The first break point is between the second and third bars. The difference
between these two bars is much more noticeable than the other differences.
This shows the relative importance of the first two bars in relation to the
others.

! The other break point occurs after the fourth bar. Addressing the third and
fourth bars will give a higher payoff than addressing the last two bars.

You will have an opportunity to develop your interpretation skills when you do the
practice exercises that follow.

8 PARETO CHART
 Basic Tools for Process Im provem ent

Analysis Sheet Example

Interest Rates on Outstanding Debts

Category Int. Rate (%)

Visa 21
Mastercard 18
Balance of car loan 9
Home improvement loan balance 6
School tuition (monthly installments) 2
Church pledge (monthly installments) 1

PARETO CHART VIEWGRAPH 7

Pareto Chart Example

Interest Rates on Outstanding Debts
57.0
51.3
45.6
Interest Rates

39.9
34.2
28.5
22.8
17.1
11.4
5.7
0.0
Visa MC Car Home Tuition Church
Type of Debt
LEGEND: INTEREST RATES CHARGED ON OUTSTANDING DEBTS AS OF 12 FEB 95.

PARETO CHART VIEWGRAPH 8

PARETO CHART 9
 Basic Tools for Process Im provem ent

How can we practice what we’ve learned?

Now let's practice constructing and interpreting Pareto Charts using the data provided
for the scenario in each exercise. Analysis sheets and Pareto Charts are provided as
answer keys.

EXERCISE 1: You are part of a team responsible for the quality of the BEQ/BOQ.
You want to improve the service you provide but are not sure where to begin or where
to concentrate your efforts. You decide to keep track of the complaints received over
a three-month period. Viewgraph 9 records this data.

Rank order your data in an analysis sheet and draw a Pareto Chart.

Now answer the following questions:

1. Does the Pareto Principle apply?

2. Where should you concentrate your efforts?

3. Do your proposed efforts pass a sanity check? In other words, do the

top problem s really stand out as m ost im portant to you and your
custom ers?

10 PARETO CHART
 Basic Tools for Process Im provem ent

Data on BEQ / BOQ Complaints

Complaint Feb Mar Apr Total
Loud stereo noise after 2300 30 50 17 97
Insufficient hot water 23 20 11 54
Towels too small and/or thin 12 8 12 32
Inadequate lighting 175 100 75 350
Poor quality TV reception 10 13 60 83
Worn-out furniture 1 4 10 15
Insufficient storage space 25 52 50 127
Cockroaches 324 265 373 962
Rooms too warm or too cold 300 110 95 505

PARETO CHART VIEWGRAPH 9

PARETO CHART 11
 Basic Tools for Process Im provem ent

Now let’s compare the analysis sheet and Pareto Chart you prepared for this exercise
with Viewgraphs 10 and 11.

Did you come up with the following points in discussing the questions?

1. In this problem, the Pareto Principle is very much in evidence. Notice the sharp
change of slope after the first three items. Most Pareto Charts will have such a
break point.

2. Attacking the problems to the left of the break point will have the greatest
payoff. In fact, if you solve these problems, you will have dealt with 81.7
percent of the deficiencies uncovered in your customer survey. Therefore, this
is where you should concentrate your initial efforts.

Later, you can do another Pareto analysis which will probably show some of the
lesser problems becoming more dominant.

3. How about your sanity check? Well, not only is the cockroach problem number
one in your survey, but from a health standpoint, it merits immediate action.

12 PARETO CHART
 Basic Tools for Process Im provem ent

EXERCISE 1 ANALYSIS SHEET ANSWER KEY

BEQ / BOQ Complaints
Category Amount Percent Cum. % *
Cockroaches 962 43.2 43.2
Rooms too warm or cold 505 22.7 65.9
Inadequate lighting 350 15.7 81.6
Insufficient storage space 127 5.7 87.3
Loud stereo noise after 2300 97 4.4 91.7
Poor quality TV reception 83 3.7 95.4
Insufficient hot water 54 2.4 97.8
Towels too small and/or thin 32 1.4 99.2
Worn-out furniture 15 0.7 99.9
Total 2225
* Cumulative percent column does not equal 100% because of rounding.

PARETO CHART VIEWGRAPH 10

EXERCISE 1 PARETO CHART ANSWER KEY

BEQ / BOQ Complaints

Num ber of Com plaints

Break point
2225 100 %
2007 90
1784 80
1561 70
1338 60
1115 50
892 40
669 30
446 20
223 10
0 0
Temp Storage TV Towels
Roaches Lighting Stereo Water Furn
Type of Complaint
LEGEND: COMPLAINTS RECORDED IN BEQ / BOQ, 1 FEB - 30 APR 95.

PARETO CHART VIEWGRAPH 11

PARETO CHART 13
 Basic Tools for Process Im provem ent

EXERCISE 2 - PART A: You are trying to improve safety in your unit. Lately, there
seems to be a rash of injuries in the Maintenance Department. You decide to check
out this perception by recording data by departm ent for three months. Examining the
matrix in Viewgraph 12, it appears that your perception is correct.

Order your data in an analysis sheet and draw a Pareto Chart for total unit
injuries by departm ent.

Now answer the following questions:

1. Does the Pareto Principle apply?

2. Where should you concentrate your efforts?

3. Do your proposed solutions pass a sanity check?

You can compare your analysis sheet and Pareto Chart with Viewgraphs 14 and 15.

Looking at your Pareto Chart, it appears that your suspicions are confirmed.
Maintenance has the most injuries. You're ready to focus on the safety problems in
that department. But wait a minute! What about that all-important sanity check?

EXERCISE 2 - PART B: What if you looked at the number of personnel assigned to

each department? Here are those numbers:

Maintenance 200
Operations 10
Administration 10
Safety 5
Training 5

Dividing injuries by personnel assigned, your matrix now looks like Viewgraph 13.

Prepare a new analysis sheet and draw a Pareto Chart using this new
inform ation.

When you've completed it, see how it compares with Viewgraphs 16 and 17.

When the number of personnel in the various departments is considered, we can now
see that Maintenance has the lowest injury rates. Perhaps we should look at our data
from a different perspective. Any ideas?

14 PARETO CHART
 Basic Tools for Process Im provem ent

Data on Injuries by Department

EYE CUT / MOTOR
FALL INJURY ABRASION SPORT VEHICLE

ADMIN 0 0 2 3 0

OPS 1 0 1 2 1

MAINT 7 3 5 16 9

SAFETY 0 0 1 1 1

TRAIN 0 1 0 1 2

PARETO CHART VIEWGRAPH 12

Data on Injuries by
Personnel Assigned
EYE CUT / MOTOR
FALL INJURY ABRASION SPORT VEHICLE

ADMIN 0.0 0.0 0.2 0.3 0.0

OPS 0.1 0.0 0.1 0.2 0.1

MAINT 0.035 0.015 0.025 0.08 0.045

SAFETY 0.0 0.0 0.2 0.2 0.2

TRAIN 0.0 0.2 0.0 0.2 0.4

PARETO CHART VIEWGRAPH 13

PARETO CHART 15
 Basic Tools for Process Im provem ent

EXERCISE 2A ANALYSIS SHEET ANSWER KEY

Injuries by Department
Category No. Injuries Percent Cum. % *
Maintenance 40 70.2 70.2
Operations 5 8.8 79.0
Admin 5 8.8 87.8
Training 4 7.0 94.8
Safety 3 5.3 100.1
Total 57
* Cumulative percent column does not equal 100% because of rounding.

PARETO CHART VIEWGRAPH 14

EXERCISE 2A PARETO CHART ANSWER KEY

Injuries by Department
57.0 Break point 100 %
51.3 90
45.6 80
39.9 70
Injuries

34.2 60
28.5 50
22.8 40
17.1 30
11.4 20
5.7 10
0.0 0
Maint Ops Admin Trng Safety
Department
LEGEND: INJURIES TO SQUADRON PERSONNEL 1 FEB - 30 APR 95.

PARETO CHART VIEWGRAPH 15

16 PARETO CHART
 Basic Tools for Process Im provem ent

EXERCISE 2B ANALYSIS SHEET ANSWER KEY

Injuries by Personnel Assigned

Category Injury Rate Percent Cum. % *
Safety 0.80 28.6 28.6
Training 0.80 28.6 57.2
Admin 0.50 17.9 75.1
Operations 0.50 17.9 93.0
Maintenance 0.20 7.1 100.1
Total 2.80

* Cumulative percent column does not equal 100% because of rounding.

PARETO CHART VIEWGRAPH 16

EXERCISE 2B PARETO CHART ANSWER KEY

Injuries by Personnel Assigned

2.8 100 %
Break point
2.5 90
2.2 80
2.0 70
Injuries / 1.7 60
Personnel 1.4 50
Assigned 1.1 40
0.8 30
0.6 20
0.3 10
0.0 0
Safety Trng Admin Ops Maint
Department

LEGEND: INJURIES TO SQUADRON PERSONNEL 1 FEB - 30 APR 95.

BASED ON NUMBER OF PERSONNEL ASSIGNED.

PARETO CHART VIEWGRAPH 17

PARETO CHART 17
 Basic Tools for Process Im provem ent

EXERCISE 2 - PART C: One possibility is to explore the types of injuries.

Let's look at our first matrix again (Viewgraph 18).

Would the Pareto Principle apply if we analyzed our data based on the
vertical colum ns?

Prepare an analysis sheet and draw a Pareto Chart.

Does this chart tell you anything?

18 PARETO CHART
 Basic Tools for Process Im provem ent

Data on Injuries by Department

EYE CUT / MOTOR
FALL INJURY ABRASION SPORT VEHICLE

ADMIN 0 0 2 3 0

OPS 1 0 1 2 1

MAINT 7 3 5 16 9

SAFETY 0 0 1 1 1

TRAIN 0 1 0 1 2

PARETO CHART VIEWGRAPH 18

PARETO CHART 19
 Basic Tools for Process Im provem ent

Compare your analysis sheet and Pareto Chart with Viewgraphs 19 and 20.

What you've probably noticed from the analysis is the impact of sports injuries on the
unit. This would be a good place to focus your efforts to improve safety.

The Pareto Principle allows you to pursue your search for the best application of your
time, energy, and dollars even further. For example, sports could be broken down
into:

> Types of sports

> Types of injuries (back, ankle, head; fracture, sprain, bruise)
> Age of persons injured
> Use of protective equipment
> Level of preparation (stretching)
> Level of training for the sport

With the knowledge you gain from a more detailed analysis, you now have even more
insight into how to solve a particular problem and what your focus should be.

20 PARETO CHART
 Basic Tools for Process Im provem ent

EXERCISE 2C ANALYSIS SHEET ANSWER KEY

Injuries by Type

Category No. Injuries Percent Cum. %

Sports 23 40.4 40.4
Motor vehicle 13 22.8 63.2
Cuts/abrasions 9 15.8 79.0
Falls 8 14.0 93.0
Eye injuries 4 7.0 100.0
Total 57

PARETO CHART VIEWGRAPH 19

EXERCISE 2C PARETO CHART ANSWER KEY

Injuries by Type
58.0 Break point 100 %
52.2 90
Num ber of Injuries

46.4 80
40.6 70
34.8 60
29.0 50
23.2 40
17.4 30
11.6 20
5.8 10
0.0 0
Sports Vehicle Cuts Falls Eye

Type of Injury
LEGEND: INJURIES TO SQUADRON PERSONNEL 1 FEB - 30 APR 95. BASED ON TYPE OF INJURY.

PARETO CHART VIEWGRAPH 20

PARETO CHART 21
 Basic Tools for Process Im provem ent

EXERCISE 3: During your off-duty hours, you coach a little league team composed of
eleven- and twelve-year-olds. The team has lost a couple of close ball games
recently. You decide to look at the statistics from the games you have already played
and see whether you notice any areas that require attention in your next few practices.
Viewgraph 21 shows this data.

Order your data in an analysis sheet and create a Pareto Chart.

Now answer the following questions:

1. Does the Pareto Principle apply?

2. Where should you concentrate your efforts?

3. Do your proposed solutions pass a sanity check?

22 PARETO CHART
 Basic Tools for Process Im provem ent

Little League Yankees Stats

Type of Error Number
Wild pitch 5
Missed fly ball to the outfield 29
Missed grounder 7
Missed pop fly to the infield 4
Missed coaching signal 5
Taken third strike 42
Throw to wrong cutoff player 25
Failure to back up the play 6
Passed ball 3

PARETO CHART VIEWGRAPH 21

PARETO CHART 23
 Basic Tools for Process Im provem ent

Now let’s compare the analysis sheet and Pareto Chart you prepared with Viewgraphs
22 and 23.

Did analyzing your Pareto Chart show you some practical applications for the
information you gathered and ranked?

1. When you analyzed your Pareto Chart, you could easily see the break point
after the three items on the left, indicating that the Pareto Principle applies.

2. As a Little League coach, you can see the practical applications of this
information. You and your assistant coaches need to spend more time during
batting practice working on aggressively protecting the plate when there are two
strikes; hitting fly balls to the outfielders and coaching them on fielding
techniques; and teaching the outfielders to throw to the proper cutoff player.

3. Your Pareto Chart has given you reasonable answers. Based on the data,
emphasis on these three areas would be time well spent and could make the
difference in any future close ball games.

24 PARETO CHART
 Basic Tools for Process Im provem ent

EXERCISE 3 ANALYSIS SHEET ANSWER KEY

Stats for Little League Yankees
Type of Error Number Percent Cum. % *
Taken third strikes 42 33.3 33.3
Missed fly balls 29 23.0 56.3
Throws to wrong cutoff player 25 19.8 76.1
Missed grounders 7 5.6 81.7
Failure to back up play 6 4.8 86.5
Wild pitches 5 4.0 90.5
Missed coaching signals 5 4.0 94.5
Missed pop flies 4 3.2 97.7
Passed balls 3 2.4 100.1
Total 126

* Cumulative percent column does not equal 100% because of rounding .

PARETO CHART VIEWGRAPH 22

EXERCISE 3 PARETO CHART ANSWER KEY

Stats for Little League Yankees
126 100 %
Num ber of Errors

112 90
98 80
84 70
Break point
60
70
50
56
40
42 30
28 20
14 10
0 0
FB GB WP Pop fly
Strike Throw Backup Signal PB
Type of Error

LEGEND: ERRORS COMMITTED DURING FIRST FIVE GAMES OF SPRING SEASON 1995.

PARETO CHART VIEWGRAPH 23

PARETO CHART 25
 Basic Tools for Process Im provem ent

REFERENCES:
1. Basic Improvement Tools. Madison, WI: Joiner Associates.
a. Instructor Guide, p. 13.
b. Workbook, p. 60.

2. Department of the Navy (November 1992). Fundamentals of Total Quality

Leadership (Instructor Guide), pp. 6-35 - 6-42. San Diego, CA: Navy Personnel
Research and Development Center.

3. Department of the Navy (November 1992). Introduction to Total Quality

Leadership, pp. 6-18 - 6-19. Pensacola, FL: NET Program Management Support
Activity.

4. Department of the Navy (September 1993). Systems Approach to Process

Improvement (instructor Guide), pp. 4-26 - 4-39. San Diego, CA: OUSN Total
Quality Leadership Office and Navy Personnel Research and Development Center.

5. Scholtes, P.R. et al (1988). The Team Handbook, p. 2-25. Madison, WI: Joiner
Associates.

26 PARETO CHART