Pareto Analysis is a statistical technique for decision making that is used for selecting a number of tasks that produce significant overall effect.1 It is based on the Pareto Principle (the 80/20 rule) which states that by doing 20% of the work you can generate 80% of the benefit of doing the whole job. The Pareto Analysis is named after Vilfredo Pareto, an Italian economist who lived in the late 19th and early 20th centuries. In 1897, he presented a formula that showed that income was distributed unevenly, with about 80% of the wealth in the hands of about 20% of the people.2
The figures 80 and 20 are illustrative; the Pareto Principle illustrates the lack of symmetry that often appears between work put in and results achieved. For example, 13% of work could generate 87% of returns. Or 70% of problems could be resolved by dealing with 30% of the causes. The sum of the two numbers does not need to add up to 100 all the time.
The following conclusions are illustrative of potential Pareto outcomes2:
- 80% of customer complaints arise from 20% of your products or services.
- 80% of delays in schedule arise from 20% of the possible causes of the delays.
- 20% of your products or services account for 80% of your profit.
- 20% of your sales-force produces 80% of your company revenues.
- 20% of a system’s defects cause 80% of its problems.