Data visualization is key to success in this era of digital transformation. Charts and graphs are the easiest way to convey insights without having to list out every last bit of information. This includes Pareto diagrams. These are diagrams based on the Pareto principle, which is that 80 percent of outcomes arise from 20 percent of causes. The chart helps to display this principle graphically. Here are just some of the kinds of data that can be transformed into a Pareto chart or diagram to deliver the greatest impact visually.
1. Retail Data
One of the common uses for a Pareto diagram is within the sales realm, predominantly by retailers to get the best look at individual values. The 80/20 rule can be used to identify the success of sales campaigns. A small business may be able to use the Pareto principle to identify sales trends, finding that 20 percent of their sales force is driving 80% of the transactions coming in. This can also be used to correlate a marketing campaign in connection to revenue. Twenty percent of advertising can actually bring in 80 percent of the results.
The frequency of occurrence is a driver in sales to pinpoint successes and where there may be customer complaints. If a retailer analyzed the age of customers who spent the most money, there would be a bar for each age on a Pareto chart. These diagrams must always start with the biggest item on the left of an axis for clear identification of what the largest driver is in a data set. The height of the bar should descend left to right. The line graph within a Pareto diagram will start on the bottom left and cumulatively get bigger until it reaches 100% on the top-right side of the chart.
2. Manufacturing Data
A Pareto diagram can help a manufacturer to plot the frequency of their defect types. The 80/20 principle dictates that 80% of defects are caused by 20% of business processes. With a clear data pane, manufacturers will have an understanding of the hurdle in the supply chain that needs to be overcome for the greatest overall improvement. Pareto charts make clear that resolving production errors for one or two products will resolve several problems throughout the organization’s protocols.
If you have 100 products on an assembly line and a range of faults, flaws, and problems, Pareto chart analysis is the best way to deal with that tremendous amount of volume within datasets. A Pareto chart immediately shows the biggest problem, and therefore the process or product that needs to be resolved first. If one faulty part is causing most of the problem, it prioritizes procedures. A Pareto graph can also point out a bottleneck that has not been seen before, taking into mind the important unit of measure for any business venture: profit.
3. Public Health Data
When it comes to matters of public health, government officials recognize that time is of the essence. The origins of Vilfredo Pareto’s principle dictated observation amongst communities, originally based on wealth with 80% of ownership of land belonging to 20% of people. This principle has been utilized by international officials to assess environmental conditions on a percentage scale and an understanding of availability.
A Pareto chart needs to have a time period for which data occurred. The frequency of the data is represented on the left-hand axis, and the problem or other measurable is on the horizontal axis. This principle has helped to locate problem areas for public health officials. For example, low vaccination rates for COVID-19 compared to case numbers or hospital bed availability.
It’s through the Pareto principle and Pareto diagrams that authorities can get the best visual of an overall issue within an industry.