80/20 Pareto Busines Analysis

The Pareto Principle is also termed as 80/20 rule, principle of factor sparsity, and law of the vital few. In 1906, Vilfredo Pareto, the Italian economist, observed that 80% of the total land in Italy was being owned by a mere 20% of the entire population. Later Joseph Juran, a renowned business management specialist, developed the 80/20 principle through the observation that around 20% of the pea pods in his pea garden contained about 80% of the total peas. He established the common thumb rule that 80% of the sales of an organization came from about 20% of the clients in majority of instances.

In truth, the number, 80%, does not have any magical significance. Hence, the theory was refined later to contain a number k that varies between 50 and 100, when anything was shared among a large number of participants. Thus, the k% was derived by (100-k) % of the total number of participants, whenever a small number of participants accounted for most of the resources. Many Pareto analysis systems started having k as a factor that varied in this region, whenever intermediate imbalances in distribution were calculated. Pareto also developed Pareto efficiency principle, which was only tangentially related to the 80/20 principle.

Review of this method in Business Analysis Toolkit

The detailed review of this business analysis method is a part of Business Analysis Toolkit. In this review you will learn:

  • What problems are solved by this method and how?
  • How to use the method step-by-step
  • Pros and cons for this method
  • Best practices for the method
  • Practices to avoid
  • Summary about the method

Learn more about Business Analysis Toolkit…