Browse Definitions :
Definition

ABC analysis (Pareto analysis)

Contributor(s): Matthew Haughn

ABC analysis, also known as Pareto analysis, is a method used to categorize something according to its importance or value in a given context. The practice is commonly used in IT (information technology) and business to improve the efficient use of resources in areas including procurement, staff evaluation, marketing, inventory management, customer relationship management (CRM) and supplier relationship management (SRM).

Determining the importance of items or entities helps guide further decisions, such as the level of resources that should be devoted to their oversight. In procurement, for example, ABC analysis can be used to help evaluate items according to the amount of money spent on them. To perform this type of ABC analysis, a list of items is generated in top-down order based on cost per item over a defined time period. Category A might include the top 20 percent of items, which account for 80 percent of the money spent on the entire list. (This 80/20 rule is known as the Pareto principle, which is why this method is sometimes called Pareto analysis.) Category B might be made up of the next 30 percent of items, which represent approximately 15 percent of the total money spent; category C might comprise the bottom 50 percent of the items, which account for just five percent of the total.

This categorization provides a clear basis for determining how stringent the controls and documentation should be for managing these three categories of items. Category A should have the tightest controls and all processes involving them should be scrupulously documented. Category B items require less careful oversight and Category C items should involve the least administrative resources possible for responsible management.

See a video introduction to ABC analysis in procurement:

This was last updated in May 2016

Continue Reading About ABC analysis (Pareto analysis)

Start the conversation

Send me notifications when other members comment.

Please create a username to comment.

-ADS BY GOOGLE

File Extensions and File Formats

Powered by:

SearchCompliance

  • PCI DSS (Payment Card Industry Data Security Standard)

    The Payment Card Industry Data Security Standard (PCI DSS) is a widely accepted set of policies and procedures intended to ...

  • risk management

    Risk management is the process of identifying, assessing and controlling threats to an organization's capital and earnings.

  • compliance framework

    A compliance framework is a structured set of guidelines that details an organization's processes for maintaining accordance with...

SearchSecurity

  • Trojan horse (computing)

    In computing, a Trojan horse is a program downloaded and installed on a computer that appears harmless, but is, in fact, ...

  • identity theft

    Identity theft, also known as identity fraud, is a crime in which an imposter obtains key pieces of personally identifiable ...

  • DNS over HTTPS (DoH)

    DNS over HTTPS (DoH) is a relatively new protocol that encrypts domain name system traffic by passing DNS queries through a ...

SearchHealthIT

  • telemedicine (telehealth)

    Telemedicine is the remote delivery of healthcare services, such as health assessments or consultations, over the ...

  • Project Nightingale

    Project Nightingale is a controversial partnership between Google and Ascension, the second largest health system in the United ...

  • medical practice management (MPM) software

    Medical practice management (MPM) software is a collection of computerized services used by healthcare professionals and ...

SearchDisasterRecovery

SearchStorage

  • M.2 SSD

    An M.2 SSD is a solid-state drive (SSD) that conforms to a computer industry specification and is used in internally mounted ...

  • kilobyte (KB or Kbyte)

    A kilobyte (KB or Kbyte) is a unit of measurement for computer memory or data storage used by mathematics and computer science ...

  • virtual memory

    Virtual memory is a memory management capability of an operating system (OS) that uses hardware and software to allow a computer ...

Close