Posted by isoeasy on May 9, 2006
A Pareto Chart depicts the frequency with which certain events occur. It is a bar graph where each frequency (or frequency range) is shown in a descending order of importance of data, from left to right.
Typically the left vertical axis is frequency of occurrence, but it can alternatively represent cost or other important unit of measure. The right vertical axis is the cumulative percentage of the total number of occurrences, total cost, or total of the particular unit of measure. The purpose is to highlight the most important among a (typically large) set of factors. In quality control, the Pareto chart often represents the most common sources of defects, the highest occurring type of defect, or the most frequent reasons for customer complaints, etc.
This is based on the Pareto Principle, also called 80-20 rule or rule of vital few. Formulated by the father of quality – Dr. Juran and named after the famous Italian economist Vilfredo Pareto, this principle helps separate the "vital few" from the "useful many" in any business scenario. It helps us identify and focus on "vital few" to maximize our returns on investments on resources