Pareto chart | Business & Finance homework help

Have you heard of the 80/20 Rule? This Rule is based upon the Pareto Principle. Watch this 2-minute video Links to an external see how the Pareto Principle applies not only to business but also to your personal life.


The Pareto Principle is used for quality assurance and focuses on the 80/20 Rule. A Pareto Chart Analysis visually identifies the most important contributing factors, the most occurring defects, or the most common problems. We call these “the vital few.”

This Pareto Principle, or 80-20 Rule, says 80% of the effects stem from 20% of the causes. Although the actual numbers may be different from case-to-case, the Pareto Principle is a guiding principle used in business for the following:

  • Customer Complaints (e.g., 80% of the complaints come from 20% of the customers)
  • Management (e.g., 80% of the results come from 20% of the group)
  • Sales (e.g., 80% of the profits come from 20% of the products)
  • Quality Management for identifying the most important causes for defects (e.g., 80% of the problems come from 20% of the causes)

Refer to the chart pictured below. (WILL PLACE CHART IN ATTACHMENTS)

  • A Pareto Chart is a bar chart with contributing factors ordered from most frequent to least frequent with a superimposed line graph showing the cumulative percentage contribution to the total number of instances.
  • The line graph uses the secondary axis (the axis on the right side) with values between 0% and 100%.
  • In a Pareto Analysis, you simply look at where the line graph crosses 80%.
  • The contributing factors to the left of that point are your “vital few” or most significant factors.

Pareto Chart Analysis


Pareto Chart template WILL BE IN ATTACHMENTS

Assume you are working on an improvement project for a multi-faceted problem at your organization, and you want to develop a Pareto Chart to identify the most significant contributing factors for that problem. Follow the instructions in the template provided.

Your Pareto Chart document must include:

  • Contributing Factors (minimum 10)
  • Number of Instances for Each Contributing Factor
  • Vital Few Contributing Factors