The Pareto Chart is a common sight in business
reports. An example of one is shown above. A Pareto
chart is a bar chart showing the frequency of events
sorted by the most frequent. My first reaction to this
was probably similar to yours. Why don't we just call
this a sorted bar chart?
The use of this chart is simple enough. In the
example
above it shows that the most common problem and
the one that should be focused on is "no signature".
But the origin of the name and use of this type of chart
is a little more complex.
This type of analysis was first used by Vilfredo Pareto
who was born in Paris, France in 1848. He was
studying the distribution of wealth in several countries
and he noticed a trend in his data. In all of the
countries about 80% of the wealth was held by 20% of
the people.
The rule of thumb known as the 80/20 rule is also
attributed to Pareto. This rule says that for many
systems 80% of the effects come from 20% of the
causes.
- 80% of downtime is from 20% of the reasons
- 80% of sales is from 20% of our customers
This ratio is not always correct but for many situations
the ratio is close. Anyway it is not the rule but the
concept that is important. If we wish to get the best
results for our efforts we should focus on the 20% on
the left of the chart. It seems like a simple thing but it
can yield powerful results.
This example of two connected business terms with
obscure origins is not alone. A few others
include:
- What really is a Poke-Yoke and how do you
pronounce it?
- Where did "Thinking Outside the Box" come from?
- Why does even my employer refer to my salary
as "gross"?
- Did anyone ever actually count beans?
I will leave those to your imagination...
