by James Canada
Most of us are aware of the 80/20 rule, but did you know that it can be a valuable tool for analyzing data to solve problems?
Over a century ago, Italian economist and sociologist Vilfredo Pareto developed the principle that states that only 20% of occurrences are responsible for 80% of activity. Today, the Pareto chart, a vertical bar graph with a cumulative percentage line overlaid, is an underutilized visual tool that can help us analyze data quickly and easily. With the Pareto, we can prioritize and select problems, issues and causes. It highlights the vital few rather than the trivial many, offers a powerful communication method and illustrates the impact of process changes.
To create the chart, first determine the major categories of reasons for your problem or issue. If they are quick and easy to fix or cost-effective, ignore them. Make sure enough data are available to represent typical performance. Total the number of occurrences for each. If there are few occurrences, combine them into an “other” category. Arrange the data from the largest to the smallest. The “other” category should always be the smallest.
Scale the vertical axis in incremental points from 0 to the total number of units being charted. Beginning with the largest data value, plot equal-width bars across the horizontal axis. Begin a line at the origin and take it to the upper right corner of the first bar. The highest bar is usually the item that deserves first attention. To create a Pareto chart in Excel, click the Statistical chart icon, and in the Histogram section, click Pareto. Using this tool will help you prioritize, focus and create a high return on your investment of time and money.
James H. Canada is managing partner/CEO for Alliance Technologies LLC, ITEN mentor and author of “Corporate to Entrepreneur: Strategies for Success.” Contact Jim at james.canada@alliancetechnologiesllc.com, 636-734-2337 or www.alliancetechnologiesllc.com.
Submitted 5 years 363 days ago