Pareto Analysis


DEFINITION of '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.

BREAKING DOWN '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.

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  1. What are some real-life examples of the 80-20 rule (Pareto Principle) in practice?

    There are a number of practical applications for the 80-20 rule in diverse areas such as the distribution of wealth in economics, ... Read Full Answer >>
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    In economics and commercial law, the Herfindahl-Hirschman Index (HHI) is a widely used measure that indicates the amount ... Read Full Answer >>
  3. How does automated work affect structural unemployment rates?

    One of the main causes of structural unemployment is the automation of work. If jobs become increasingly automated, more ... Read Full Answer >>
  4. What is the difference between economies of scope and economies of scale?

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