Pareto Analysis

Overview
Most people will have heard of the 80:20 rule: “that 80% of the effects
comes from 20% of the causes”. This rule is also known as the Pareto
Principle. The Pareto Chart is intended to represent the Pareto Principle
in graphical form. A Pareto chart is a Bar Chart in which the bars are
sorted into size order, with the highest bar on the left. This shows
graphically which bars are the “most important”.

When to use it?

 To help prioritise tasks and identify where to focus effort.
 As an aid to decision making.

How to use it - (example)

A legal team assembles data on the number of claims it processes in a
given period.

Average cost Number of Claim value

Type of claim
(£K) claims (£K)
A 9.5 5 £47.5
B 14.9 8 £119.2
C 18.0 5 £90.0
D 33.5 28 £938.0
E 38.0 4 £152.0
F 47.1 14 £658.7
G 55.3 3 £165.9
H 59.8 8 £478.4
I 69.9 1 £69.9
J 89.5 4 £358.0

A simple way to present part of this data is to show it by way of a

basic Bar Chart. 30
25
No of claims

20
15
10
5
0
A B C D E F G H I J
Type of claim
 A more powerful way of presenting the data would be to show it in the
form of a Pareto Chart using the claim value as the main ‘y’ axis, but
also indicating the cumulative value in percentage terms as a
secondary ‘y axis.

£1,000 100%
£900 90%
Claim value (£K) £800 80%
£700 70%

% of claim
£600 60%
£500 50%
£400 40%
£300 30%
£200 20%
£100 10%
£0 0%
D F H J G E B C I A
Type of claim

It is evident at a glance that claim types D, F, H and J account for 80%

of the total value of all claims. The Pareto Chart shows the team that,
in order to reduce the value of claims, most of their attention should
be focused on these claim types.
Sometimes staff will have good intuition about which problems need to
be addressed, or problems are self-evident by the simplicity of the
data.
The Pareto Chart brings a robustness to any decision making about
where to focus the improvement activity.

Tips:
 A different result may have been produced if it had been more
appropriate to consider the number of claims rather than the claim
values