Quality Management Methods & Tools

Many successful businesses use quality management to streamline their business processes. Quality management is a continuous process designed to eliminate errors and increase profit. There are several basic tools that companies use to identify problems in their business and devise potential solutions. These tools also can be used by individuals as they seek to improve their own personal finances.

Pareto Charts

Pareto charts are used to identify what problems a manager should address first. These charts are based on the Pareto principle, which states that 80 percent of the problems come from 20 percent of the causes. For instance, in an office, 20 percent of the people cause 80 percent of the mistakes and failures in the office. The Pareto chart identifies problems and ranks them. This allows the manager to concentrate efforts on the worst 20 percent of problems. The Pareto principle is also useful in personal finance. The best 20 percent of investments usually far outperform the rest. Individual investors should concentrate on eliminating poor performers and sticking to the 20 percent that perform the best.


Histograms look like common bar charts. A histogram allows a person to more easily see relationships between sets of data. For instance, a manager might have 10 salespeople with different monthly sales figures. Graphing them in a histogram makes it easier to see the salesman who are performing best. The same can hold true in personal finance. An individual can plot the performance of different types of investments. The visual depiction makes it easy to identify the sectors that have best performance.

Control Charts

Control charts show data on a horizontal graph. The graph shows a central point and a predetermined upper and lower control line. When the data approaches either the upper or lower control line, a manager can easily tell it is time to take action. These charts are used in manufacturing to plot tolerances on machines or assembly lines. Charts like these can also be used in personal finance. Individual investors can track investment performance against predetermined buy or sell points that are shown by the upper and lower control line.

Cause-and-Effect Diagrams

Cause-and-effect diagrams are used in quality management to identify as many causes as possible for a given problem. These diagrams are normally used in brainstorming sessions of quality teams. Each main cause of a problem is identified. Identifying the cause to problems is an initial step taken in the plan, do, check, act cycle of quality programs. This type of strategy can also be used in family settings to identify causes of poor family budgeting or investment decisions.