Key Points

• Pareto charts are a simple and effective way of determining the root cause of whatever problems you’re facing.
• They adhere to Pareto’s principle where 80% of the reasons production stop can be attributed to 20% of the current causes.
• You can generate a Pareto chart without the need for software, but packages like Excel can do so easily.

Solving a problem in a business context can be extremely daunting at first glance. As a general example, it isn’t quite like looking for where a recipe went wrong. Even the simplest of business processes are complex when taken as a whole. As such, you need the right tools for the job. With that in mind, one special tool is a great choice for rooting out your root causes.

A Pareto chart is a simple tool, at least when compared to the rest of your toolbox for Lean Six Sigma. However, as we’ll discover today, it might be your first line of response to finding out where errors are arising in your business processes.

What Is a Pareto Chart?

Simply speaking, a Pareto chart is just a bar graph. It makes this one of the most flexible tools when it comes to problem-solving and root cause analysis that you can turn to. Unlike other QC tools like the Ishikawa Diagram, this gives clear and actionable information for you to make any sort of judgments with your data.

In fact, the Pareto chart might just be the only tool you need to employ to get things rolling. It follows Italian economist Vilfredo Pareto’s famous principle that sees applications beyond just root cause analysis. However, it is important to understand you’ve got a fair bit of legwork to make the most of it.

A Pareto chart typically has categories and data points defined by the creator, so it helps to know what you’re analyzing before embarking on its use. Properly defined Pareto charts that are within the scope of a given problem can readily define any issues that arise.

The 80/20 Principle

I’ve mentioned Pareto’s famous principle, but let’s define it a little more in-depth. Pareto noted that 80% of the wealth possessed in Italy at the time was owned by 20% of the population. While this makes for a rather biting remark when analyzing rampant corruption in enterprise for historical context, it has applications elsewhere.

For instance, let’s look at something like the machines used for the assembly of automobiles. We could realistically say that 80% of the issues found in production are the result of 20% of the machines in current operation. 80% of the raw materials with faults for production needs come from 20% of your suppliers.

This can be applied down the line, even with your employees. It works as constant relationship, while not necessarily being a universal truth. As such, you can understand why this principle or relationship is naturally applicable to determining the root cause of a potential issue your project might have.

Using a Pareto Chart for Root Cause Discovery

Now that we’ve defined what a Pareto chart is and how the principle driving it works, it’s time to create your own. Don’t worry, this is far from complex when you get down to it. In all honesty, this is something even people with a basic and tenuous grasp of statistical analysis can perform on their own.

However, one thing to keep in mind is to grab pertinent information. If you’re pulling from sources that don’t relate to current issues in your project, it can skew the results. As such, it helps to pay attention to your sources before going about the first step.

Collect Your Data

You need data to create a graph, that’s just a simple fact of life. As such, you’ll want to gather up the causes for your current project failings. This can be things like missing parts, flaws in production, or anything else that is gumming up the works.

Data is crucial for this step, so define your categories as needed. Keep in mind a Pareto chart is only intended for use in a single aspect of your production, so don’t make your categories too broad. The key to this step is to determine which areas of concern need highlighting.

Gathering this data can be a time-consuming process, especially if decent records aren’t kept of faults arising in production. It can help to be present and taking notes on where faults and issues arise, it might take days to do so. However, you want as near a complete picture as you can gather from things.

Determine Error Occurrences

With your categories defined, it’s time to count the occurrences of these issues. Tallying up is honestly the simplest part of this entire graph creation process. You don’t need any complicated equations, formulas, or tools. You can transport yourself right back to grade school, using tally marks if you so choose.

The only thing to keep in mind is you need an accurate count. This helps for later in the process after you’ve presented your Pareto chart. Having a complete picture of where there are problems is crucial for later in the process when you go about remediation and propose and implement proper solutions.

As such, make sure your count is accurate. Take your time with this step, as the rest are rather swift compared to the first two. The first two steps are quite simple taken by themselves, but accuracy and veracity of your data is paramount here.

Order the Data

Now that you’ve got your categories defined, and the occurrence of each category tallied, it’s time to order your data. This is following Pareto’s famous principle, so you’ll want to make a note of which category as the most occurrences as a whole.

This will help for the next step, and also give a hint of sorts on where you should focus your efforts going forward. When ordering your data, you’ll want to go from highest to lowest, as this gives the most accurate reading and fits within the scope of a Pareto chart.

Create a Bar Graph

You’ve got your data ordered, tabulated, and categorized, what’s next? Well, it’s time to create your bar graph. As with ordering, you’ll want to go in descending order, as this the entire point of a Pareto chart. Typically, you’ll see a heavy skew with the first bar quite a bit taller than the other data points.

Don’t worry, this is all part of the process. You’re looking for the most likely issue that is gumming up production more often than not. That isn’t to say you’re going to forego analyzing the other points of concern, but those aren’t as pressing.

Analyze the Data

With the bar graph created, it’s time to do a little analysis. You’ll want to take a closer look at the data points, and develop percentages of the issues present in your data. For some users, this might include the use of a cumulative line mapped to a secondary Y-axis in your graph. For others, just doing the count and determining the percentage of your data points is all that is needed.

Essentially, you’re looking for the major issue that accounts for around 80% of the issues. If you’ve got multiple errors that are totaling up to 80%, that presents a whole other kettle of fish when doing any sort of problem analysis. A Pareto chart might not be the best tool in this instance.

However, if your data points are conforming to these parameters, then your Pareto chart is a success. That leads us to our final step, and puts you on the path toward solving problems.

Determine Your Root Cause

The final step is simply to determine the issue that is causing responsible for 80% of stoppages in your production. With the issue highlighted, you can present the Pareto chart to those who put solutions in place. It could be part of a larger presentation given to senior leadership, but the intent remains the same.

You should have your root cause fully in hand at this point, ready to tackle any sort of remediation that needs to be enacted.

What Makes Pareto Charts So Effective?

You’ve made your own Pareto chart, but what makes this tool such an effective one? When you look at the many QC tools given to us through Lean Six Sigma, they have their own time and place when it comes to looking for the root causes of any issues. However, some aren’t readily understood by the end user.

When I presented reports to higher ups during my time in the tech industry, it always a matter of distilling the pertinent information into easily digestible points for quick interpretation of the facts. A Pareto chart conforms to this notion, they’re simple to read, easy to grasp, and don’t require a firm grasp of jargon or nomenclature to get ready.

As such, you can’t see why these are such a powerful, albeit simple tool to use in your root cause analysis process. You might have to employ other tools to get a complete picture, but a Pareto chart is one of the best tools at your disposal when presenting findings to people outside of your department.

Other Tools and Concepts

We’ve highlighted the Pareto chart and how to use it in-depth today, but what about other tools of the trade? Why not take a look at how automation is being utilized in today’s workforce? Automation is a hot topic currently, especially with the rash of artificial intelligence tools being developed to make processes even more robust. Our guide on the subject highlights how these tools work and how they’re improving overall efficiency.

Additionally, you might want to take a closer look at the differences between hybrid and remote work. While not applicable to all industries, this is a particularly popular topic for those outside of manufacturing. Understanding how these types of work function and their benefits can be a net boon for your organization.

Finally, you might want to take a closer look at implementing design thinking in your products. This is a customer-first approach, not dissimilar to the principles we analyze in Lean Six Sigma. However, design thinking has been making waves with companies like Netflix and Uber Eats showing how its truly done to its utmost best.

Conclusion

Hopefully, you’ve come away from today’s guide with a keener understanding of how Pareto charts work and how to best utilize them in your production workflow. It isn’t an understatement to say they are one of the most powerful tools at your disposal when it comes to discovering root causes.