How to calculate Pareto Optimum


As a follow up to the article on the Pareto optimum, I wanted to share an easy and accurate way to calculate it.

First, determine the parameters you want to measure against. In this case, I took the countries of a sales analysis I recently worked on.  Then you sum up the field you want to measure, in this case these are the sales.  Rank the countries according to their sales, then calculate their relative percentage, as shown in this table.

Chart the cumulative percentage together with the sales. All of a sudden, the Pareto principle becomes clear. The first 3 countries, so 21% of the total, represent 68% of the total sales. Admittedly not exactly 80-20 but you get the groove…


About curiousmanager

In life there are generalists and specialists. Although your job pushes you down towards a certain specialization, I feel it's important to keep your eyes and mind open for new stimuli. And I want to share my journey through arts, literature and sciences with other knowledge workers and managers. You don't have time to read. Let me do that for you and present only the best of the best in my blog!
This entry was posted in Finance for Curious Managers, Thoughts for Curious Managers and tagged , , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s