Definition
Pareto analysis is a formal technique useful where many possible courses of action are competing for attention. In essence, the problem-solver estimates the benefit delivered by each action, then selects a number of the most effective actions that deliver a total benefit reasonably close to the maximal possible one.
Pareto Analysis
What is a ‘Pareto Analysis’
A technique used for decision making based on the Pareto Principle, known as the 80/20 rule. It is a decision-making technique that statistically separates a limited number of input factors as having the greatest impact on an outcome, either desirable or undesirable. Pareto analysis is based on the idea that 80% of a project’s benefit can be achieved by doing 20% of the work or conversely 80% of problems are traced to 20% of the causes.
Explaining ‘Pareto Analysis’
In its simplest terms, Pareto analysis will typically show that a disproportionate improvement can be achieved by ranking various causes of a problem and by concentrating on those solutions or items with the largest impact. The basic premise is that not all inputs have the same or even proportional impact on a given output. This type of decision-making can be used in many fields of endeavor, from government policy to individual business decisions.
Further Reading
- Pareto-improving campaign finance policy – www.aeaweb.org [PDF]
- Motivations and limitations in implementing Halal food certification: a Pareto analysis – www.emerald.com [PDF]
- Pareto-improving social security reform when financial markets are incomplete!? – www.aeaweb.org [PDF]
- An analysis of the allocation of pertinent risks in the Zambian building sector using Pareto analysis – www.tandfonline.com [PDF]
- Exponentiated Pareto distributions – www.tandfonline.com [PDF]
- Pareto analysis based on records – www.tandfonline.com [PDF]
- Pareto improving financial innovation in incomplete markets – link.springer.com [PDF]
- Critical factors for effective implementation of the HACCP system: a Pareto analysis – www.emerald.com [PDF]
- An application of Pareto analysis and cause-and-effect diagram (CED) to examine stoppage losses: a textile case from Bangladesh – www.tandfonline.com [PDF]
