Pareto analysis − aka the 80-20 rule − lets you leverage data to focus on the “vital few” and ignore the “trivial many”
Operational efficiency is about more than making your business more productive. It’s also about better decision-making. How do you decide if action A or B is going to have more impact on your business?
This is where Pareto analysis comes in. Known as the 80-20 rule or the Law of the Vital Few, this simple tool is based on a basic notion: 80 per cent of effects are due to 20 per cent of causes.
In other words, a small number of factors is typically responsible for most issues or challenges. “Pareto analysis allows us to use data to find ‘quick wins’ faster − and with less cost to the organization − while identifying areas to improve that have a disproportionately positive impact,” says Manuel Gogolin, a business advisor with BDC’s Advisory Services, who specializes in coaching entrepreneurs on operational efficiency.