Have you ever heard of the Pareto Chart?

This tool can help you overcome problems and increase the quality of your processes. It’s everything that an entrepreneur wants, isn’t it?

Managing a business, regardless of its size or activity, is a considerable challenge. In many cases, managers are aware of the problems, but they can’t identify their cases —, and neither decide which one deserves to be prioritized.

If you are going through the same situation or wish to learn how to solve the bottlenecks that may appear in your daily routine, the time is now!

Keep reading, so that you can learn more about the Pareto Chart, and how to put it into practice in your business!

What is the Pareto Chart? 

The Pareto Chart is a quality management tool that can be applied in your corporate daily routine or in your personal life. The entire system is based on the idea that little things can create big consequences.

Thus, the methodology consists of identifying situations that create more problems and prioritize them during the intervention strategies.

Liberal professionals, for example, face various difficulties in managing their finances and concentrating on correcting what generates the most negative impacts in their professional life.

In other words, instead of trying to multitask, which may further increase the setback; they act strategically and focus on the root of their problems.

How did this methodology come about?

One of the most interesting ways of understanding the role of a management methodology is by knowing its origins. Therefore, we have to take a step back in time in order to understand how Vilfredo Pareto created his method.

It all started in 1897, when the Italian political scientist, sociologist and economist reached the conclusion that 80% of the world’s wealth was concentrated in the hands of only 20% of the people.

This observation was so important that later on, it was later introduced to other areas of science. Thus, it was possible to notice that the world’s greatest demographic concentrations were located in certain countries, for example.

In 1941, Joseph Juran introduced this concept to the corporate universe. He affirmed that 80% of problems existing within an organization are linked to only 20% of the possible causes.

Therefore, if managers focused on these elements, they’d be able to solve most of the limitations preventing the company from growing.

What are the benefits of the Pareto Chart for your business?

There’s no doubt that task management requires time and dedication from managers and entrepreneurs. After all, there’s an infinity of processes to be carried out and decisions to be made every day.

The Pareto Chart is a tool that can turn your daily activities more efficient and less stressful. Check out below the main benefits it provides to the corporate environment!

It helps identify critical points in your business

All companies face difficulties and this is part of their growth. What defines if it’ll achieve success (or not) will depend on how managers act to overcome these problems.

The Pareto Chart will help you identify your business’ critical points, i.e., the situations that create the most negative impact on your results. For example, with it you can find the following:

• The 20% of your products and services that generate the most customer complaints;
• The 20% of your products and services that yield the most profits for your business;
• The 20% of your partners that contribute the most to your sales.

It improves data organization

The Pareto Chart requires concrete data in order to be put into practice. This will contribute to keeping your business more organized, since you’ll have greater control of the processes.

In practice, managers start seeing data as an important asset. All sales, complaints or problems are recorded, which is valuable for the business’ management.

It facilitates decision making

Just think about it: if managers are able to visualize the entire context of their problem and to identify their main bottlenecks, they are able to prioritize the issues that will truly help them solve their demands.

For this reason, we can say that the Pareto Chart facilitates decision-making, simplifying the task of developing suitable strategies.

When you already know the attitudes that lead to an objective, your actions can be focused on what is relevant for the result, right?

It increases the quality of internal processes

A basic consequence of applying the Pareto Chart to the corporate daily activities is the improvement of the quality of internal processes.

With an analysis that is more strategic, focused on operational failures, it’s much easier to correct them and ensure continuous improvement of the activity, which contributes to more sales and profits.

It helps your company grow healthier

Finally, it’s interesting to emphasize that the Pareto Analysis helps your business grow healthier and in a long-lasting manner.

Operating in competitive markets requires a strategic performance that is focused on quality. The more efficient your performance, the easier it will be to make your business stand out and win over your customers. Think about it!

How to build a Pareto Chart?

After all the information is presented, it’s time to learn how to build the Pareto Chart and start to perfect your market performance.

To do so, we’ve selected infallible tips that will help your identify problems and causes, and work in a smart manner to overcome them. In the end, believe me, your business will never be the same! Keep reading!

Start by setting your objective

The first step to apply the Pareto Chart to your business is defining what will be analyzed and of course, the type of problem to be tackled.

Observe that multitasking isn’t a smart strategy. You need to focus on what really matters. Although there are several problems to be solved, it’s important that you focus on one at a time.

Observe the data at your disposal

The gathering of data is the next step of the process. After all, you need safe and updated information about what you’re searching.

In this phase, defining the frequency in which this data will be collected is also key — days, weeks or months, for example. Once this is done, it’s time to gather the information and carefully observe what it reveals.

Would you like an example?

Just imagine that you’re searching for the products that yield the most revenue for the business. In this case, you can analyze the sales records over a period of 30 days.

Separate the problems found by categories

After completing the previous steps, you need to separate your problems by categories. Remembering that the problem being analyzed isn’t necessarily something negative, but a situation that is being analyzed.

This procedure will help you study the situation in depth and visualize what is more important for your business’ results.

Build mental maps and tables with the collected data

The next strategy consists of using mental maps and tables to facilitate your analysis. In short, this representation can help you connect a cause to a problem faster and more safely.

Let’s suppose that you want to find out which promotional strategies provide better return to your cash flow. By means of a table or mental map, it’s possible to record all the channels used and map from where your sales come.

Find the 20% of causes that generate the results

After all this is done, it’s time to find the 20% of causes that generate 80% of the results. To do so, you’ll need to organize the occurrences in descending order.

More intense repetitions have greater relevance for the situation being studied. Thus, if you have identified that a product’s promotion on Instagram was the one that generated more sales, it’s a sign that you’ve found an important cause.

Use the information to improve your processes

As we said earlier, the Pareto Chart’s goal is to improve business performance. For this reason, the gathered information and the conclusions you have reached must be used correctly.

Ideally, you should use these insights to support your decisions. After all, by finding the best digital platform or the product that yields the most revenue for the business, for example, you’re able to invest in segmented and effective actions.

Now do you understand why the Pareto Chart is important for your results?

This post has shown that the Pareto Analysis is an excellent strategy for business owners and liberal professionals who are concerned about the continuous improvement of their work, product or service.

The market’s fierce competitiveness is a reality, so how do we overcome it?

Finding your uniqueness is the key to win over customers and become a reference point in your segment.

For that of course, you need to know your limitations, correct processes that generate problems and invest in those that are beneficial.

The Pareto Chart will help you with this task. It shows the causes that interfere most with your results. With it, making decisions and acting assertively becomes much easier and faster.

Are you having trouble managing your daily activities and organizing your priorities?

Make sure you check out the 7 essential management tools for your professional growth!