Pareto Analysis

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Economies Of Scale

    The cost advantage that arises with increased output of a product. ...
  2. 80-20 Rule

    A rule of thumb that states that 80% of outcomes can be attributed ...
  3. Recursive Competitive Equilibrium ...

    An equilibrium concept associated with dynamic programs. Recursive ...
  4. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies ...
  5. Economies of Scope

    An economic theory stating that the average total cost of production ...
  6. Productivity

    An economic measure of output per unit of input. Inputs include ...
RELATED FAQS
  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 >>
  2. How does the market share of a few companies affect the Herfindahl-Hirschman Index ...

    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?

    Economies of scope and economies of scale are two different economic concepts used to help cut a company's cost. Economies ... Read Full Answer >>
  5. How is productivity calculated?

    Productivity measures the efficiency of a company's production process. It is calculated by dividing the outputs produced ... Read Full Answer >>
  6. What is the role of agency theory in corporate governance?

    Agency theory is used to understand the relationships between agents and principals. The agent represents the principal in ... Read Full Answer >>
Related Articles
  1. Economics

    A Practical Look At Microeconomics

    Learn how individual decision-making turns the gears of our economy.
  2. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  3. Investing

    Doing More With Less: The Sales-Per-Employee Ratio

    If used properly, this ratio can give you insight into a company's productivity and financial health.
  4. Investing

    The Right Mindset for CEO Success

    Owning the role of CEO is no simple task so it is imperative that CEOs have the correct mindset to ensure the success of their organization.
  5. Fundamental Analysis

    Calculating the Herfindahl-Hirschman Index (HHI)

    The Herfindhal-Hirschman Index, (HHI) is a measure of market concentration and competition among market participants.
  6. Economics

    Understanding Horizontal Integration

    Horizontal integration is the acquisition or internal creation of related businesses to a company’s current business focus.
  7. Economics

    The Nash Equilibrium

    Nash Equilibrium is a key concept of game theory, which helps explain how people and groups approach complex decisions. Named after renowned mathematician John Nash, the idea of Nash Equilibrium ...
  8. Investing Basics

    The Basics Of A Financial Analysis Report

    Running financial analysis on a company or industry is a key skill every investor must learn and understand how to undertake without which an ineffective financial report and investment recommendation ...
  9. Economics

    How Education And Training Affect The Economy

    Education and training benefit not only the worker, but also the employer and the country as a whole.
  10. Active Trading

    Viewing The Market As Organized Chaos

    Find out how a cat and a ladybug prove markets are both random and efficient.

You May Also Like

Hot Definitions
  1. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  2. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  3. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  4. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  5. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  6. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!