Pareto analysis basically describes the fact that 20 % of the causes of something account for 80% of the problems, so by addressing those select 20%, most of the problems can be fixed. Pareto analysis helps determine which select portion of the causes should be addressed and where energy and resources should be focused and allocated. Vilfredo Pareto was the man credited with the 80/20 rule. Vilfredo Pareto created this rule to help explain the fact that in Italy, 20% of the population owned 80% of the land, which created a major wealth disparity at the time. This rule is not a definitive law, however it does accurately address a general trend in society.
To apply this principle to a business or certain operations for a business owner, first the business owner must first identify all of the problems facing the company. Then, the cause of each problem should be evaluated to determine how to address each problem and find the corresponding solution. Each problem should then be further evaluated in terms of how pressing importance. The more important the problem or issue for the daily operations of the company, the higher it should be ranked and prioritized. Then all of the problems should be put into groups according to the root cause of each problem in order to fairly evaluate which groups of problems need to be addressed first. After grouping and rating the issues of the company, the efforts and resources of the company should be allocated to fixing the problems that correspond to the group with the highest overall score in terms of importance to address. Thus fixing and addressing the 20% of the causes of the problems will address and fix 80% of the companies problems. Paretto’s law can be very effective for a company looking to improve its overall efficiency and correct deficiencies or pressing issues, with the knowing of where to allocate it energy and resources.
Little’s law similarly applies to systems and processes by examining the relationship between the work in progress, the throughput rate and the flow time. This relationship and formula applies to almost all processes. Little’s law also can help determine which part of a certain process is a bottle neck in the process and help determine areas of inefficiency and necessary areas of focus.