The Pareto Analysis is a statistical technique employed in decision-making to identify a limited set of tasks to produce the most significant effect.ApplyingtheParetoPrincipleinFinancialAnalysisPublishedbyDobromirDikovon26/11/201926/11/2019IntroductionTheParetoAnalysisisastatisticaltechniqueemployedindecision-makingtoidentifyalimitedsetoftaskstoproducethemostsignificanteffect.WebaseitontheParetoPrinciple,whichstipulatesthat20%oftheworkonaprojectgenerates80%oftheoutputs.Thetechniqueisalsoknownasthe80/20rule,theprincipleoffactorsparsity,andtheruleofthevitalfewandthetrivialmany.ParetoPrincipleInthe1940sArmenian-AmericanmanagementconsultantJosephJurandevelopedtheParetoprinciple.JurannamedtheprincipleafterItalianeconomistVilfredoPareto,who,in1906,documentedthat80%ofincomegoesto20%ofthepopulation.Atfirst,henoticeditinItalybutlaterconductedsurveysinothercountriesandobservedthesamedistribution.Wecanapplythe80/20ruleinalmostanysituation:20%ofsystemdefectscause80%ofproblemswithusage;20%ofthesalesforceprovides80%oftherevenue;20%ofproductsgenerate80%ofcomplaints;20%oftheproductportfoliomakes80%oftheprofit.AfterlookingintotheworkofParetoandJuran,theBritishNHSInstituteforInnovationandImprovementobservedtheParetodistributioninthefollowingscenarios:20%ofemployeescomeupwith80%ofinnovations;20ofeffortsgives80%ofpersonalsuccess;20%ofprovidedservicesaccountfor80%ofcustomercomplaints;20%ofthetimeinmeetingsgenerates80%ofthetakendecisions.TheParetoprincipleiswidelyappliedinqualitycontrol,asitisthebaseoftheParetodiagram,whichisacriticaltoolinqualitycontrolandSixSigma.ThevalueprovidedbytheParetoprincipleisthatitremindsprojectmanagerstofocusonthe20%ofthingsthatmatter,the20%thatarecrucial.Onlyafterthat,theyshouldfocusontheother80%.Weneedtorememberthatthe80/20ruleismostlyaruleofthumb,andweshouldnotconsideritassomethingprecise.Itisroughlypresentedbythepower-lawdistribution(Paretodistribution)forasetofparameters.Inreality,manyphenomenaexhibitsuchdistribution.ParetoAnalysisTheParetoAnalysisisusef