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Pareto Analysis and its usefulness

Pareto Analysis is a rule that recommends focus on the most important aspects of the decision making in order to simplify the process of decision making. It is based on the 80 : 20 rule that was a phenomenon first observed by Vilfredo Pareto, a nineteenth century Italian economist. 

He noticed that 80% of the wealth of Milan was owned by 20% of its citizens. This phenomenon, or some kind of approximation of it say, (70 : 30 etc.) can be observed in many different business situations. The management can use it in a number of different circumstances to direct management attention to the key control mechanism or planning aspects. It helps to clearly establish top priorities and to identify both profitable and unprofitable targets.

 Usefulness of Pareto Analysis :

 It provides the mechanism to control and direct effort by fact, not by emotions. It helps to clearly establish top priorities and to identify both profitable and unprofitable targets.

Pareto analysis is useful to:

• Prioritize problems, goals, and objectives Identify root causes .
• Select and define key quality improvement programs Select key customer relations and service programs
() Select key employee relations improvement programs.
• Select and define key performance improvement programs Maximize research and product development time.
• Verify operating procedures and manufacturing processes.
• Product or services sales and distribution.
• Allocate physical, financial and human resources.
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