Pareto Analysis is a statistical technique that applies the Pareto Principle to data. This is more commonly known as the 80:20 Rule. The Pareto Principle is based on the presumption that a relatively small number of inputs (20%) have most impact on the results/output (80%). The 80:20 rule can be applied to a wide variety of data in most businesses.
– Which 20% of products make up 80% of sales
– Which 20% of customers make up 80% of profit.
Pareto analysis is a rule-of-thumb technique but it does provide reasonably useful results much of the time.