What Are the Benefits of Pareto Analysis?

by Dora Diamond; Updated September 26, 2017
A Pareto analysis uses a histogram to exhibit a ranking system for the resolution of problems.

A Pareto analysis is an observation of causes of problems that occur in either an organization or daily life, which is then displayed in a histogram. A histogram is a chart that prioritizes the causes of problems from the greatest to the least severe. The Pareto analysis is based on the Pareto Principle, also known as the 80/20 rule, which states that 20 percent of effort yields 80 percent of results. For example, if an individual sells items on eBay, he should focus on 20 percent of the items that yield 80 percent of sales. According to Mindtools.com, a Pareto analysis enables individuals to make effective changes.

Organizational Efficiency

A Pareto analysis requires that individuals list changes that are needed or organizational problems. Once the changes or problems are listed, they are ranked in order from the biggest to the least severe. The problems ranked highest in severity should become the main focus for problem resolution or improvement. Focusing on problems, causes and problem resolution contributes to organizational efficiency. Companies operate efficiently when employees identify the root causes of problems and spend time resolving the biggest problems to yield the greatest organizational benefit.

Enhanced Problem-Solving Skills

You can improve your problem-solving skills when you conduct a Pareto analysis, because it enables you to organize work-related problems into cohesive facts. Once you've clearly outlined these facts, you can begin the planning necessary to solve the problems. Members of a group can conduct a Pareto analysis together. Arriving at a group consensus about the issues that require change fosters organizational learning and increases group cohesiveness.

Improved Decision Making

Individuals who conduct a Pareto analysis can measure and compare the impact of changes that take place in an organization. With a focus on resolving problems, the procedures and processes required to make the changes should be documented during a Pareto analysis. This documentation will enable better preparation and improvements in decision making for future changes.

Resources

  • The 80/20 Principle: The Secret of Achieving More With Less "; Richard Koch; 2000

About the Author

Based in Loganville, Ga., Dora Diamond has been writing articles since 1998. They have appeared in "The Gwinnett Post," "The Loganville Post," and "TAS Journal." Diamond holds a Bachelor of Arts in English and a Master of Arts in instructional design and performance improvement.

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