Pareto Analysis

Vilfredo Pareto first developed the rule, or “Pareto’s Principle,” in 1895 when he discovered that 80% of the land was owned by 20% of the population. Since then, businesses along with other industries, corporations and individuals have applied this rule in various shapes and forms.

The Pareto Chart or Pareto Diagram, named after the famous economist Vilfredo Pareto (1848-1923), is a common tool for quality control and is used as part of a Pareto Analysis to visually identify the most important factors, most occurring defects, or the most common problems, or in other words “the vital few”.

Pareto Analysis is a statistical technique in decision making that is used for the selection of a limited number of tasks that produce significant overall effect. It uses the Pareto Principle (also know as the 80/20 rule) the idea that by doing 20% of the work you can generate 80% of the benefit of doing the whole job. Or in terms of quality improvement, a large majority of problems (80%) are produced by a few key causes (20%). This is also known as the vital few and the trivial many. The 80/20 Rule may be applied to almost anything, from the science of management to the physical world.

“The important thing is to begin to notice in your business which 20% of activities / people / products are responsible for 80% of your success. Spending more time on the things that have the best chance of milking the biggest difference can go a long way to making you more successful, with less effort.”

The Pareto Principle, or 80-20 Rule, is a general rule-of-thumb or guideline that says that 80% of the effects stem from 20% of the causes. Dr. Joseph M. Juran, a 20th century evangelist for quality management, applied this principal to quality control and preferred the use of the phrase “the vital few and the useful many” to describe the 80-20 rule. Although the actual numbers may be different from case-to-case, the Pareto Principle is a guiding principle used in organisations .

Source: whatishumanresource

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