• Cisco had more variability , or spread about the mean, than GM. Note that GM’s peak bar contains 59 months, whereas Cisco’s peak bar contains only 41 months. This shows that for Cisco, more of the returns are outside the bin that represents the most likely Cisco return. Cisco returns are more spread out than GM returns. In Chapter 42, we’ll use descriptive statistics and Boxplots to look at more details about the differences between the monthly returns on Cisco and GM. How do I create a Pareto chart? A Pareto chart is a type of chart that contains bars and line graphs. Individual values are portrayed in descending order by bars, and the cumulative total is represented by the line. Pareto charts are often used to illustrate the famous 80-20 rule that was first discovered by the great Italian economist Vilfredo Pareto (1848 – 1923). The Pareto rule emphasizes the importance of few items in explaining a total. For example: • 20 percent of products generate 80 percent of profits. • 20 percent of people have 80 percent of the income. • 80 percent of all technical support calls result from 20 percent of all possible problems. • 20 percent of all websites get 80 percent of the hits. To illustrate the creation of a Pareto chart with Excel 2016, open up the file Paretotemp.xlsx (from this chapter’s Templates folder), which gives the revenue from each of a company’s 100 products.
© 2016 Microsoft Corporation. All Rights Reserved. Page 12 2/24/2017 (See Figure 41-17.) F41xx17 FIGURE 41-17 Data for a Pareto chart. F41xx17: The data in this figure will be used to create a Pareto chart. After selecting the data (cell range E3:F103), I chose the Insert Statistic Chart icon from the Insert tab (in the Charts group) and then chose Pareto, the second Histogram option. (See Figure 41-8, earlier) We obtain the Pareto chart shown in Figure 41-18. The products are now listed in order of descending sales. The line represents the cumulative percentage of sales generated by the products. We observe that our 10 best-selling products generate about 80 percent of the sales. Of course, if we made the source data a table, then new data would automatically be incorporated in the chart. F41xx18 FIGURE 41-18 A Pareto chart. F41xx18: This figure shows a Pareto chart.