Pareto Chart in Six Sigma - Explained

Vilfredo Pareto revolutionised the way we approach opportunities and resolve issues. Italian economist Pareto researched land ownership more than a century ago. He discovered that 80% of the land was held by 20% of the population. It was later also known as the 80-20 rule.

In addition to economics, sales, technology, and project management followed the same distribution model. For example: 

1) 20% of customers generate 80% of sales

2) 80% of users only utilise 20% of an application's capabilities

3) 20% of the projects result in 80% of the challenges

The graph that results from this application in Lean Six Sigma is known as a Pareto Chart. The Pareto Chart is a straightforward approach to show where most of the process's problems are caused. It can be used early in the improvement process to develop a successful project complexity reduction plan.

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Table of Contents

1) What is a Pareto Chart?

2) Pareto Chart in Six Sigma Explained

3) What is Pareto Chart in Six Sigma?

4) How to construct a Pareto Chart?

5) Pareto Analysis Principle

6) How Pareto chart principles apply to Six Sigma?

7) Application of Pareto Chart – Key Takeaways

8) Conclusion  

What is a Pareto Chart?

The Pareto chart, one of the seven quality tools, is a particular bar chart or histogram. It is a tool for analysis that visually illustrates the 80/20 rule or Pareto principle. It allows you to view a problem's causes from largest to smallest in terms of impact or intensity. 

The bars are organised with the most extended left and the shortest on the right. The lengths of the bars signify frequency or cost (time or money), respectively. The chart effectively illustrates which circumstances are more important in this way.
 

Pareto Chart in Six Sigma Explained

The Pareto graph features a line graph representing the cumulative total categories and vertical bars in descending order. These charts are simple to construct in Microsoft Excel. 

There is a typical pattern among many process flaws, with a small number of issues accounting for the majority of spots. In order of faults, the Pareto Analysis presents the relative frequency of problems, presenting a list of absolute priority problems. The best results can be obtained when issues are addressed and improved based on those priorities. Pareto charts are usually essential in total quality management, but the question of when to use them arises.

In the following scenarios, it is advised to create a Pareto chart:

1) Examining the frequency of defects in a process

2) Identification of the process causes

3) Identifying the primary issues with a process

4) Effective data communication with others

What is Pareto Chart in Six Sigma?

Six Sigma is a collection of tools and process management strategies. Six Sigma has expanded among companies all over the globe. Six sigma approaches are used by businesses and people to increase overall operating efficiencies. It aids in the restoration of corporate processes, stresses complete productivity in every aspect of service, and places a greater emphasis on minimising process errors. The Pareto Chart is used in the Six Sigma process to identify and eliminate faults. 

A Pareto chart can be used to identify the most frequent causes of error situations. The Pareto Chart can also assist in defining the critical drivers for the approach being used and, consequently, prioritise the behaviour while conducting a graphical analysis of the data.

Pareto Chart is a quality control method used in Six Sigma that is derived from historical data to identify the most effective and appropriate responses to the most prevalent and detrimental failures. Pareto allows for the effective distribution of limited resources. According to the 80/20 rule, just 20% of causes account for 80% of losses. It's vital to remember that this tool only recommends actions based on available data. It does not consider the potential growth or decline and anticipated movements of anyone contributing element.

How to construct a Pareto Chart?

The Pareto chart's main objective is to highlight the most prevalent flaws, or errors that can be catalogued and counted. The steps for making a Pareto chart using the Pareto Analysis are listed below-

1) Choose the categories you want to track or that have an impact on your business.

2) Establish a system for measuring success, and it's crucial to apply the same standard to all contributors

3) Establish the time period that the data for the Pareto for each category spans

4) Collect information for each category in two columns, with the category (for instance, the type of faults) in the first column and the frequency (total number of each fault category) in the second

5) Make a bar graph containing categories (such as the types of flaws) on the x-axis and frequency on the y-axis.

6) Sort the categories again in decreasing order (from largest to smallest categories)

7) Next, calculate each category's total percentage by decreasing value. i.e., Total number of defects*100

8) On the right side of the graph, add a second vertical axis with values ranging from 0% to 100%

9) Place the x-axis on which the total percentage of each category is plotted

10) When you combine all the points, a curve will form

11) Review the graph. On the Y-axis, note the top 80%. The vital few defects (left side) and numerous inconsequential problems (right side) are separated by this point on the x-axis

Pareto Analysis Principle

The Pareto Principle, commonly known as the 80-20 rule, is a widely accepted "rule of thumb" that states that 20% of the causes of an event account for 80% of its consequences.

When Six Sigma project teams apply the Pareto Principle, they learn that a small number of triggers can cause the most significant number of issues. Teams can more clearly understand the suffering a considerable problem can cause to a fundamental process by graphically exhibiting a Pareto Chart. 

The Pareto Principle informs six Sigma project teams that most issues in a process will have a smaller number of root causes. There are many benefits to visualising this data with a Pareto chart, including:

1) Concentrating the team's efforts on the issues that will have the biggest effects if they are resolved

2) Clearly demonstrating the significance of issues

3) Providing motivation to pursue further improvement

Pareto Analysis Principle Example:

Profits: Many top organisations discovered that 20% of their items account for about 80% of their profits by employing the Pareto chart histogram. As a result, it is advised that the business concentrate on the 20% of the remaining clients who will give them the best chance to increase profits.

Errors: It is widely known in business that one aspect of a method accounts for 80% of all errors. Therefore, the company can usually achieve disproportionately large outcomes when fixing one operation.

How Pareto chart principles apply to Six Sigma?

Teams working on Six Sigma projects that adhere to the Pareto Principle know that there are typically just a few root causes for most issues. By displaying a Pareto Chart graphically, teams may more clearly see the impact that a small number of problems can have on a process. Teams benefit from creating a graphic for this data since it:

1) View the issues with a procedure at a glance.

2) Recognize all the obstacles to the process promptly.

3) Focus on the problems that cause the most disturbance.
 

Application of Pareto Chart – Key Takeaways

1) Decide the categories you will use to organize the items in the bar graph initially 

2) Select a suitable unit of measurements, such as frequency, amount, cost, or time

3) Choose the Pareto chart period that the bar graph will represent, such as a week, a month, or a year

4) Compile the old and new data according to the category and time frame

5) Calculate the sum of the measurements for each category

6) Select the appropriate scale based on the measurements you have gathered. The highest value will be the sum you calculated in the previous step

7) Create the bars and label them for each section now. Arrange the longest bar to the left and the shortest bar to the right.

Conclusion  

So that's everything there is to know about the Pareto Chart in Six Sigma. You can register for our Six Sigma training course to learn more about the concepts in-depth and acquire new abilities. The knowledge academy offers Six Sigma training at all levels. We also provide instruction for other well-known Quality Management courses, including:

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