what is pareto analysis 
pareto analysis is a decision making tool premised on the idea that 80 of a project s benefit can be achieved by doing 20 of the work or conversely 80 of problems can be traced to 20 of the causes in other words it posits that not all inputs have the same or even proportional impact on a given output 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 it is a technique for getting the necessary facts to set priorities pareto analysis is mainly used for business decision making but also has applications in several different fields from welfare economics to quality control a common part of pareto analysis is to graphically depict the occurrence of each variable being tracked this depiction is called a pareto chart understanding pareto analysisin 1906 italian economist vilfredo pareto discovered that 80 of the land in italy was owned by just 20 of the people in the country he extended his research and determined that this disproportionate wealth distribution was the same across europe the 80 20 rule was formally defined as follows the top 20 of a country s population accounts for an estimated 80 of the country s wealth or total income joseph juran a romanian american business theorist discovered pareto s research in 1937 approximately 40 years after it was published juran proceeded to rename the 80 20 rule as pareto s principle of unequal distribution juran extended pareto s principle to the business world in order to understand whether the rule could be applied to problems faced by businesses he observed that in quality control departments most production defects resulted from a small percentage of the causes of all defects so by extension 80 of the problems are caused by 20 of the defects juran s work implies that if you focus on fixing that 20 you could have a big impact with minimal effort pareto analysis saves the most scarce resource which is time in the area of solving problems modern day applications of pareto analysis are used to determine which issues cause the most problems within different departments organizations or sectors of a business typically pareto analysis is employed by business managers whose approach usually involves conducting a statistical analysis such as a cause and effect analysis to produce a list of potential problems and the outcomes of these problems following the information provided by the cause and effect analysis the 80 20 rule can be applied here are some scenarios relevant to businesses where pareto analysis might be applicable joseph juran a romanian american engineer and management consultant coined the terms vital few useful many and trivial many to refer to the few contributions that account for the bulk of the effect and to the many other contributions that account for a smaller proportion of the effect steps of pareto analysisby applying the 80 20 rule problems can be sorted based on whether they affect profits customer complaints technical issues product defects or delays and backlogs from missed deadlines each of these issues is given a rating based on the amount of revenue or sales and time lost or the number of complaints received here is a basic breakdown of the steps of pareto analysis not all problems will have a high score and some smaller problems may not be worth pursuing initially by allocating resources to high impact issues or higher scores companies can solve problems more efficiently by targeting the issues that have a major impact on profits sales or customers 