Part 2/2: The Pareto Chart — A Powerful Partner in Data Management

February 28, 2023 | by Todd Hanlin

Note: This is the second of a two-part Competitive Business Solutions blog to successfully help you manage data.  

When it comes to business processes, the Pareto Principle tells it like it is: roughly 80% of outcomes are the product of 20% of causes. In the second half of our two-part series, “The Pareto Chart — A Powerful Partner in Data Management,” the CBS team looks at how the daily observation of causes and outcomes can lead to more effective analysis and problem-solving.

The first half of this two-part blog — Five Action Tips to Slay the Data Monster in 2023 — presented helpful information about how to take action to successfully master mountains of data. From years of experience, our Competitive Business Solutions consultants know this is one of the first problem-solving steps we take with clients. 

Now, in Part 2, we are going to discuss another basic but powerful partner in data management — The Pareto chart. 

The Pareto Chart

The Pareto chart is one of the simplest tools you can use to determine from data what problems to tackle first. It is recognized by the American Society for Quality as one of the seven basic quality tools for process improvement.  

So, what is a Pareto chart? Asana, a mobile and web management platform, explains that in the late 1800s, Italian economist Vilfredo Pareto developed the Pareto chart after noticing in his garden that about 80% of his pea harvest was being produced by 20% of the pea plants.   

At its core, it is a simple bar graph helping track and present data in a visual form. The methodology behind the chart is the Pareto principle, or the 80/20 rule as it is more commonly known, and basically means that roughly 80% of outcomes come from 20% of causes.   

The Pareto chart focuses on the frequency of occurrences, the total cost or similar measure — and the good news is the chart can be created through daily management to recognize issues BEFORE they have a SIGNIFICANT IMPACT … much like when the bad guys are cut off at the pass in western movies.  

Creating Your Pareto Chart

Most data analysis software packages will create a Pareto chart. However, you can create your own, which can offer quicker response time. Shown below, the example indicates how a chart —updated daily — can track what went well and what did not. The key here is to be proactive and not reactive. 

With daily review of the data, you or your team can:

• Set a target date or discuss when it is time to act on an issue.
• Decide which direction to drive your decision.
• Determine what resources to apply.
• Estimate the impact by conducting analysis and problem-solving efforts.

Now, let’s stop and briefly revisit why it is imperative to daily prioritize reviewing the data on your Pareto chart.

The reason?

No company or organization has limitless resources. Regularly staying on top of disruptions is key to keeping the train on the tracks and operating efficiently.

Sub-level Pareto Charts

Additionally, breaking down issues into a sub-level Pareto chart helps with root cause analysis, just as slicing the data by different variables offers added insight. This level of analysis is useful across many business arenas such as:

• Manufacturing — diving down by part, process, operation, problem code and even operator to understand if there are common denominators that lead to a specific outcome.
• Service organizations — categorical analysis can be by customer, type of complaint or survey feedback.
• Health care — may review reasons for no-shows, types of claims, or wait time data to determine what areas need focus for improvement.

A Few Caveats of Caution

When developing your Pareto chart, keep these details in mind.

• Perfection is overrated. Don’t be concerned about creating perfect categories. You can always modify by adding and deleting items as your database grows.
• Less Can Be Better. Don’t invest excessive time upfront developing too many detailed categories. You can find yourself with 100 groups that only have two items each.
• Keep the Positive in View. Don’t focus solely on what aligns to produce an undesirable result. Also, ask which combination of factors generate repeatable positive results.

Regardless of the organization type, data can be used efficiently and effectively to drive action. With this simple tool to implement strategy, nonvalue-added activity is reduced, and teams move quickly to action. Conversations at daily reviews are directed and purposeful. Wandering, generalized discussions are avoided. As a result, the team focuses on the items that will have the most impact, driving higher morale, reducing daily frustration and enhancing the sense of accomplishment that accompanies sustained problem-solving efforts.

What is your action?

Ready for Some Organizational Action?

Are you ready to take action to successfully manage your mountain of data? We are! Let’s talk about our unique approach to business improvement and how our industry-specific expertise achieves meaningful and lasting results. Our hallmark is to work with you and not for you. CBS is ready to help you use these tools and more. To start the process, click on this link, (https://cbsteam.com/about) and select the red ‘Get Started’ button.

SOURCES:

ASQ/7 Basic Quality Tools: Quality Management Tools | https://asq.org/quality-resources/seven-basic-quality-tools

ASANA https://asana.com/resources/pareto-princliple-80-20-rule