The Pareto managerial principle: when does it apply?

The well-known 80/20 Pareto principle and its refinement into "A", "B", and "C" categories give rise to a managerial methodology consisting of three steps: classification; differentiation; and resource allocation. This is an easy-to-implement and extremely effective met...

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Bibliographic Details
Published in:International journal of production research 2007-05, Vol.45 (10), p.2317-2325
Main Authors: Grosfeld-Nir, Abraham, Ronen, Boaz, Kozlovsky, Nir
Format: Article
Language:English
Subjects:
Applied sciences
Diagrams
Entropy
Exact sciences and technology
Inventory control, production control. Distribution
Managers
Operational research and scientific management
Operational research. Management science
Pareto optimum
Pareto principle
Studies
Theory of constraints
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Summary:The well-known 80/20 Pareto principle and its refinement into "A", "B", and "C" categories give rise to a managerial methodology consisting of three steps: classification; differentiation; and resource allocation. This is an easy-to-implement and extremely effective methodology. It starts with the creation of "Pareto diagrams", i.e. bar charts of attributes and their relative frequency, presented in descending order. Typically, Pareto diagrams are useful in that they provide managers with a summary of practical information, revealing critical attributes. However, sometimes a Pareto diagram is less informative than it might be, because the relative frequency is almost uniform. The objective of this article is to provide an analytical tool (an index) that employs the above-mentioned methodology to measure the closeness of empirical Pareto diagrams to an "ideal" Pareto diagram. The index developed is based upon entropy.
ISSN:0020-7543
1366-588X
DOI:10.1080/00207540600818203