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The Powerful Pareto Analysis Approach and 20/80 Rule: FAQ

Apr 11, 2021 | Pareto Rule - 80/20 Rule - Pareto Law - Pareto Principle, Pareto Rule and Business

Pareto Analysis and 80/20 Rule - Overview

 80/20 Rule Illustration

Pareto Analysis: what is it?

A Pareto Analysis uses the Pareto Principle that assumes that the large majority of outcomes or effects (Typically 80%) are driven by a few important causes (Typically 20%). The Pareto Principle is also known as the Pareto Law or Law of Vital Few.

Pareto Principle or 80/20 Rule - Illustration

80-20 Principle - Pareto Principle - Pareto Law

A Pareto Analysis can be applied to various matters such as profit optimization, quality management, decision-making process, and other complex issues. It can be used as a stand-alone method or within another process such as the Eisenhower Matrix to quantify the most important projects.

A few of the 80/20 rule examples from daily practice that are often observed are:

  • 80% of the customer complaints ensue from 20% of the products or services delivered.
  • 80% of the malfunctioning issues reported are caused by 20% of the known system bugs.
  • 20% of the people responsible for sales generate 80% of all the sales.
  • 20% of the products or services yield 80% of the profits.
Manual Excel Pareto Analysis
Pareto Analysis in Excel

The example above illustrates a perfect 80/20 Pareto distribution.  In this Pareto Analysis example, the results show that only a few important products (20% here 200 products out of 1000 products)  generate most of the sales (80% here around $ 1.6 million out of $ 2 million). The illustration above comes from the following Excel Pareto Analysis tutorial

>> How to do a Pareto Analysis in Excel step by step <<

Automated Excel Pareto Analysis

To automate an Excel Pareto Analysis in just one click like shown in the DEMO section of this website,  you can use an Excel Pareto Analysis Add-In. An Excel Add-in is particularly useful for Excel users who have to do Pareto Analysis in Excel on a frequent basis. The Excel Pareto Analysis Add-In also helps to save time when the data-set to analyze is defined with active filters in Excel. These filters can stay in place when using the Add-in hence avoiding additional time-consuming steps of data preparation.

>> Automate any Excel Pareto Analysis  in just 1 click <<

Excel Pareto Chart or Pareto DIAGRAM
What is a Pareto chart or Pareto Diagram used for?

A Pareto Chart or Pareto Diagram is a visual tool that helps you identify the most frequent defects, complaints, or any other factor or business driver you can count and categorize.

Pareto chart or Pareto Diagram Example

Excel Pareto Chart

The example above illustrates a perfect 80/20 Pareto distribution.  In this Pareto Chart,  the results show that only 2 products (20%)  generate most of the complaints (80%).

The illustration above comes from the following Excel Pareto Chart tutorial:

>> How to make a Pareto Chart in EXCEL in 2 Simple Steps <<

The same dataset is also used in our Google Sheets Pareto Chart tutorial:

>> How to make a Pareto Chart in  GOOGLE SHEETS in 2 Macro Steps <<

Pareto Principle: is it always 80% caused by 20% ?

Although the 80/20 Rule is observed in many situations, the typical "Pareto Distribution" doesn't exist everywhere. The 80/20 Rule is a precept, not a rigorous mathematical law. It can be 70/30 or 90/30 for example as the numbers do not necessarily have to add up to 100.  A 90/30 distribution would mean that  90% of an outcome is driven by 30% of the inputs.

Pareto Distribution: do the numbers need to add up to 100?

The two numbers don't need to add up to 100. For instance, you may have 20% of your products that generate 90% of your sales.

Focusing on the causes that drive most of an outcome to save time and energy is the key concept underlying any Pareto Analysis.

What is an 80/20 Mindset or Pareto Mindset?

The 80/20 Mindset is all about working smarter, not harder. It consists of getting things done by relentlessly leveraging the small efforts and activities that lead to the most considerable positive or negative outcomes.

The Pareto principle and the 20/80 rule: what is the difference?

It is exactly the same!

The Pareto principle, also known as the 80/20 rule, the law of the vital few, or the principle of factor sparsity states that, for many events, roughly 80% of the effects come from 20% of the causes.

Source: Wikipedia

Pareto Analysis: where does it come from?

Management consultant Joseph Juran suggested the principle and named it after Italian economist Vilfredo Pareto. 

Vilfredo Pareto actually noted the 80/20 connection while at the University of Lausanne in 1896, as published in his first work, Cours d'économie politique. In it, Vilfredo Pareto showed that approximately 80% of the land in Italy was owned by 20% of the population.

What is a Pareto Analysis in a problem solving context?

A Pareto Analysis is a formal technique that helps to identify the top portion of causes that need to be addressed to resolve the majority of problems.

Once the predominant causes are identified, then tools like the Ishikawa diagram or Fish-bone Analysis can be used to identify the root causes of the problems. While it is common to refer to Pareto as the "80/20" rule, under the assumption that, in all situations, 20% of causes determine 80% of problems, this ratio is merely a convenient rule of thumb and is not nor should it be considered an immutable law of nature.

The application of the Pareto analysis in risk management allows management to focus on those risks that have the most impact on the project.

Source: Wikipedia

How to apply the Pareto Principle in Project Management?

There are several ways to use the Pareto Principle in Project Management and Time Management: 

  • putting a deadline on the project's most valuable tasks as a way to get the most important things done within a given timeframe (in tandem with Parkinson's Law)
  •  working first on the project's most valuables tasks to prevent procrastination with easy but low-value-added tasks (to counteract Laborit's Law)
  • establishing robust operating procedure and contingency plans on a short-list made of the project's adverse events having the most significant negative impacts (to counteract Murphy's Law)

In particular, a Pareto Analysis can provide a robust and rational approach each time a short-list of the most or least valuable tasks needs to be established to act upon it.

What is a Pareto Efficiency or Pareto Optimality?

Pareto Efficiency or Pareto Optimality pertains to the highest efficiency level resulting from an optimal allocation where any change to this allocation would make someone or something worse off. A situation is Pareto Efficient when there is no better alternative allocation: no individual or preference criterion can be better off without making at least one individual or preference criterion worse off or without any loss thereof. Find more about Pareto Efficiency here.

Pareto Analysis Excel Add-In Related Questions

Why doing a Pareto Analysis?

A Pareto Analysis is a simple yet powerful process derived from the 20/80 rule that allows you to focus on what really matters, usually time or money.

A Pareto Analysis can be applied to various matters such as profit optimization, quality management (six sigma), decision-making process and other complex issues. You can also apply the Pareto Principle to your life!  Get happier and more fulfilled by prioritizing your highest-valued activities, tasks, and projects with a Pareto Analysis of your activities.

Want to know more? Check the FAQ here

Why an Excel Pareto Analysis Add-In?

Doing a Pareto Analysis in an Excel spreadsheet is a simple yet powerful process.

However, this process can be lengthy and take several minutes. It is especially true when your Excel spreadsheet suffers from information overload. As an example, you may need to apply filters to define the dataset you want to draw a conclusion from, fix values such as #N/A or #DIV/0 generated by missing or erroneous data, etc...

This Pareto Add-In brings the benefits from automation in one-click:

  • Convenience
  • Time Savings
  • Reliability

Not convinced? Check the DEMO here!

How Easy is the Excel Add-In to install?

Installing the Pareto Analysis Add-In is a straight forward process and is no different than any other standard Excel Add-In. Check the video below for more details.

Why should I use a Pareto Analysis Add-in to prioritize my tasks or projects?

Knowing the most important projects on your to-do-list is a key aspect of any prioritization method such as Eisenhower's Urgent-Important Matrix Prioritization tool. If you are in a profession with a lot of micro-projects to handle and prioritize, establishing a short-list of the most important projects within a particular segment of your business every week can be a daunting task. Assuming that the value of your projects is quantified by a numerical value in an Excel file such as NPV, total savings,  number of hours saved, etc; this Pareto Analysis add-in does the job for you in one-click to save you time.

Pareto Analysis in Excel – Download section

Excel Pareto Analysis Template

Check if the 80/20 Rule works with your data with this free and ready-to-use Pareto Analysis Template for Microsoft Excel:

 >> Download the Free Excel Template <<

Excel Pareto Analysis Add-In

Get your Pareto Analysis done in just one click: applying the 80/20 Rule (or any other split)  to your Excel dataset has never been so easy!

  >> Download the Excel Add-In <<

Pareto Chart in Excel & Google Sheets – Download section

Excel Pareto Chart Template

Check if a Pareto distribution exists in your data with this free and ready-to-use Pareto Chart Template for Microsoft Excel:

>> Download the Free Excel Pareto Chart Template <<

Google Sheets Pareto Chart Template

Check if a Pareto distribution exists in your data with this free and ready-to-use Pareto Chart Template for Google Sheets:

>> Access and Make a Copy of the Google Sheets Pareto Chart Template <<

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How to make a copy of a Google Sheets document?

In the top left corner: click on ‘File’ then ‘Make a copy’

See the picture below:

How to make a copy of a Google Sheets document - 2-steps Tutorial - ParetoAnalysis.tools

Applying the Pareto Principle in Life

Optimize Easily Your Well-Being With The 80/20 Rule Approach

Take control of your well-being by applying the simple yet powerful 20/80 Rule to your life. This article shows how to optimise your well-being easily in 3 simple steps with the Pareto Principle – also called the 80/20 rule. Everyone deserves to have a happy and fulfilled life. Read and hack your happiness now!

>> Optimise your Well-Being with the 80/20 Rule Approach <<

Use The 80/20 Principle To Make Things Happen, Not The Latest Fancy Time Management App

A time management tool is a prerequisite to any successful project, but that’s not enough. The key factor to success is being surrounded by the right people. On a given project, a minority of people (20%) are likely to contribute to most (80% ) of the project’s value. This article is a good reminder that your best time management tool is probably useless if you don’t focus on value: the value of the project’s outcome and qualitative people.

>> Why Your Best Time Management Tool Is Probably Useless If You Don’t Focus On Value <<

Don’t forget rule number one: apply a Pareto Analysis on everything you can control to focus on value.

The 80/20 Principle Book for Success

“80/20 Principle: The Secret to Success by Achieving More with Less” is a great book if you want to effectively apply the 80/20 principle in your life.

You’re closer to success and productivity than you think, and this is a well-informed read regarding this principle. You can become so much more productive and efficient after finishing this book as the author, Richard Koch displays a clear knowledge of what the 80/20 principle is all about and why it’s so significant. By giving this book a read, you’ll realize why your strategy isn’t working in your career, and why you need to integrate the 80/20 rule instead.

>> “The 80/20 Principle Book for Success” on Amazon <<

 

The review of the book in our blog provides you with straight answers for:

  • The 80/20 Principle and Priorities
  • The 80/20 Principle and Relationships
  • The 80/20 Principle and Wealth
  • The 80/20 Principle and Effort
  • The 80/20 Principle and Wealth
  • The 80/20 Principle and Happiness

>> “The 80/20 Principle Book for Success” review <<

The Pareto Principle or 80/20 Rule – Video

Getting things done with the Pareto Mindset - "Ideas are cheap, execution is everything" - Chris Sacca

The Pareto Principle or 80/20 Rule – Blog Content

  • How To Create a Pareto Chart in Google Sheets in 2 Macro-Steps
  • How To Create A Pareto Chart In Excel In 2 Simple Steps
  • How To Do A Pareto Analysis In Excel In 5 Simple Steps
  • How To Automate a Pareto Analysis In Excel In 1 Click
  • Optimize Easily Your Well-Being With The 80/20 Rule Approach
  • The Powerful 80/20 Principle: The Secret Of Achieving More With Less
  • 1 Easy And Smart Way Of Getting Things Done
  • The Powerful 80/20 Rule | Pareto Law | Pareto Rule By Ray Dalio

Pareto Analysis: Table Of Contents

Time Management: 1 Simple Eisenhower Matrix to Get it Right

The Eisenhower Matrix or Urgent-Important Matrix is a highly effective time management tool that uses 4 quadrants to prioritize tasks and increase productivity

How to build a Pareto Chart in Google Sheets in 2 Easy Steps

This easy step-by-step tutorial shows how to build a Pareto Chart in Google Sheets. Download now the Free Google Sheets Pareto Chart template for immediate use.

The Powerful Pareto Analysis Approach and 20/80 Rule: FAQ

All about the Pareto Principle, Pareto Analysis, 80/20 Rule, Pareto Law, and the Law of the Vital Few. Free Microsoft Excel & Google Sheets Tutorials & Templates

Work Smarter – Get Help Right Now From an Excel VBA Expert

No time to learn VBA for your Excel project? Get it done: Ask a Microsoft Excel VBA Expert. Live Excel Help, Online Excel Assistance, Overnight Project Delivery

Pareto Efficiency / Pareto Optimality: 1 Perfect Allocation

Pareto Efficiency / Pareto Optimality is the highest efficiency level resulting from an optimal allocation where any change to it would make something worse off

Murphy’s Law: 1 Gloomy View On How Things Usually Turn Out

Murphy’s Law is the adage that “Anything that can go wrong will go wrong.” People give Murphy’s Law relevance when things go awry as a reason to why it happened

Laborit’s Law / Law of the Least Effort: 1 clear explanation

Laborit’s Law or the Law of Least Effort suggests that humans prefer to carry out simple tasks that give immediate satisfaction to avoid stress or inconvenience

Illich’s Law or Law of Diminishing Returns: 1 simple concept

Illich’s Law or Law of Diminishing Returns suggests that optimal productivity is reached with an appropriate balance between working time and resting time.

Parkinson’s Law: Why We Work Better With 1 Tight Deadline

Parkinson’s Law states that “Work expands to fill the time available for its completion”: the more time is allowed to complete a task, the longer the task takes

Carlson’s Law: 1 Simple yet Powerful Productivity Concept

Carlson’s Law or Law of homogeneous sequences states that interrupted work will be less effective and will take more time overall than if completed in one batch

Hofstadter’s Law and the Planning Fallacy: 1 Planning Lesson

Hofstadter’s Law falls into the Planning Fallacy category by stating “It always takes longer than you expect, even when you take into account Hofstadter’s Law”.

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