Pareto Analysis is a technique for prioritizing possible changes by identifying the problems that can be resolved by making these changes. By using Pareto Analysis, we can prioritize the individual changes that will most improve the situation. Pareto analysis is a technique useful where many possible courses of action are competing for attention. The person tasked for solving the problem estimates the benefit delivered by each action and then selects the most effective actions that will deliver the maximal possible benefit. Pareto Analysis uses the Pareto Principle, known as the "80/20 Rule", the idea that 20% of causes generate 80% of results. With the Pareto Principle, we try to find the 20% of work that will generate 80% of the results that doing 100% work would deliver.
Pareto analysis is also a statistical technique in decision making for selection of a limited number of tasks that produce significant overall effect. Pareto analysis is also a risk management technique which allows management to focus on those risks that may have the most impact on the project.
Pareto analysis is a creative way of looking at causes of problems helping in stimulating thinking and organizing thoughts. It should be combined with other analytical tools such as failure mode and effects analysis and fault tree analysis for example.
Fault Tree Analysis is extremely useful in analysing redundancy arrangements. Pareto analysis is a formal technique useful where many possible courses of action are competing for attention. With the Pareto Principle, in terms of quality improvement, a large majority of problems (80%) are produced by a few key causes (20%). Pareto analysis can be used along with other tools such as fault tree analysis. Though Pareto analysis is commonly referred to as 20/80, this ratio is only a rule of thumb.