How to Create a Pareto Chart in Excel? (Step by Step)
- Step #1 – Collect the Raw Data including the Category (cause of a problem) and their Count
- Step #2 – Calculate the percentage of each category and further compute the cumulative percent
Percent will be calculated using the formula =(C3/$C$13) *100, applying throughout the other cells.
Cumulative Percentage
It is the method of calculating the frequency distribution and will be calculated successively by adding the percent with other frequencies. So, the formula will be =D6+C7
After sorting the values from largest to smallest we calculate the cumulative percentage for each of the categories.
- Step #3 – Select category, count and cumulative percent Range together as shown below
Go to Insert tab in Excel and select 2-D column bar graph
Now the Pareto chart created is shown below:
- Step #4 – Select the cumulative percent bars and change the series chart type to Line
The red bars are the cumulative percentage bars, select any one of the bars and change the series, select Line from the change chart type.
Now the Pareto chart will look like shown below:
- Step #5 – Right-click on the cumulative total line (in red) and choose format data series.
Select Secondary axis and close the Format Data Series window
Now the Pareto chart will look like as shown below
- Step #6 – Click on the right-hand axis and select format axis,
then under the axis option tab select maximum to set it to be fixed, and set the value to 100
In Axis Option, select the Maximum from Auto to fixed and enter a value 100 manually and close the format axis window
Finally, the Pareto chart will look like
The chart above shows that 80% of the effects come from 20% of the causes.
Advantages
- Pareto chart highlights the major cause of the problem that hampers a process
- It helps to rectify the major problems and thus increases organizational efficiency. Once the big hitters in a process are discovered using this technique one can move ahead for the resolutions thus increasing the efficiency of the organization
- It also enhances problem-solving skills as it enables you to sort out business-related issues into strong facts. Once you’ve vividly laid out these facts, you can start the planning important to take care of the issues.
- It improves decision making in a process
- It helps the organizational team to focus on the input that will have a greater impact in accordance with the 80/20 rule.
Disadvantages
- The Pareto chart doesn’t provide any insight into the root cause of the problem.
- A single cause or a reason category may further have other factors involved so to find the major impact at each level of the problem we have to create many Pareto charts. So, lower levels of Pareto chart are often required.
- Pareto chart is based on the frequency distribution hence it cannot be used to calculate the mean, standard deviation, and other statistical values may often require.
- Pareto chart can’t be utilized to compute how awful the issue is or how far changes would bring a procedure back into specification.
Things to Remember
- Before creating a Pareto chart it is necessary to categorize the issues and it is considered to be a good practice to keep the categories less than 10 in numbers.
- It is based on the past data so for continuous improvement of a process, it is necessary to revamp the data on a periodic basis because the Pareto analysis is based on the historical data and doesn’t provide the forecast analysis.
- Always create the secondary y-axis with percentage descending in increments from 10 to 100.
- It helps in providing an easier way to make a distinction before and after Pareto analysis to verify the process changes had the desired outcome
- We can create multilevel Pareto charts for each issue and can further perform another Pareto analysis on the sub-level issues and so on.
Pareto Chart in Excel Video
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This has been a guide to Pareto Chart in Excel. Here we discuss its uses and how to make Pareto Chart in Excel along with excel example and downloadable excel templates. You may also look at these useful functions in excel –
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