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.

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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  3. How is the 80-20 rule (Pareto Principle) used in portfolios?

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

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