PARETO ANALYSIS

Pareto Analysis is the process of ranking opportunities to determine which of many potential opportunities should be pursued first. It is also known as “separating the vital few from the trivial many.

It is used at various stages in a Quality Improvement Program to determine which step to take next. Pareto analysis is used to answer such questions as “What department should have the next SPC team?” or “ What type of defect should we concentrate our efforts on?”

How to perform a Pareto Analysis step-by-step

1. Determine the classifications (Pareto categories) for the graph. If the desired information does not exist, obtain it by designing check sheets and logsheets;

2. Select a time interval for analysis. The interval should be long enough to be representative of typical performance;

3. Determine the total occurrences (i.e., cost, defect counts, etc.) for each category. Also determine the grand total. If there are several categories which account for only a small part of the total, group these into a category called “other”;

4. Compute the percentage for each category by dividing the category total by the grand total and multiplying by 100;

5. Rank-order the categories from the largest total occurrences to the smallest;

6. Compute the “cumulative percentage” by adding the percentage for each category to that of any preceding categories;

7. Construct a chart with the left vertical axis scaled from 0 to at least the grand total. Put an appropriate label on the axis. Scale the right vertical axis from 0 to 100%, with 100% on the right side being the same height as the grand total on the left side;

8. Label the horizontal axis with the category names. The leftmost category should be the largest, second largest next, and so on;

9. Draw in bars representing the amount of each category The height of the bar is determined by the left vertical axis;

10. Draw a line that shows the cumulative percentage column of the Pareto analysis table. The cumulative percentage line is determined by the right vertical axis.

Example of Pareto Analysis

(The data in Table refer to boxes of apple arriving at a supermarket.)

PROBLEM	APPLE LOST
Bruised	100
Undersized	87
Rotten	237
Rotten	9
Wrong variety	7
Wormy	3

(The Pareto table for the data is given in the Table below.)

RANK	PROBLEM	APPLE LOST	PERCENTAGE	CUMULATIVE PERCENTAGE
1	Rotten	235	53.29%	53.29%
2	Bruised	100	22.68%	75.97%
3	Undesired	87	19.73%	95.7%
4	Others	19	4.31%	100.01%

Note that, as often happens, the final percentage is slightly different than 100%. This is due to round-off error and is nothing to worry about. The finished diagram is shown in Figure below