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

SearchCompliance

  • compliance audit

    A compliance audit is a comprehensive review of an organization's adherence to regulatory guidelines.

  • regulatory compliance

    Regulatory compliance is an organization's adherence to laws, regulations, guidelines and specifications relevant to its business...

  • Whistleblower Protection Act

    The Whistleblower Protection Act of 1989 is a law that protects federal government employees in the United States from ...

SearchSecurity

  • Transport Layer Security (TLS)

    Transport Layer Security (TLS) is a protocol that provides authentication, privacy, and data integrity between two communicating ...

  • van Eck phreaking

    Van Eck phreaking is a form of electronic eavesdropping that reverse engineers the electromagnetic fields (EM fields) produced by...

  • zero-trust model (zero trust network)

    The zero trust model is a security model used by IT professionals that requires strict identity and device verification ...

SearchHealthIT

SearchDisasterRecovery

  • cloud insurance

    Cloud insurance is any type of financial or data protection obtained by a cloud service provider. 

  • business continuity software

    Business continuity software is an application or suite designed to make business continuity planning/business continuity ...

  • business continuity policy

    Business continuity policy is the set of standards and guidelines an organization enforces to ensure resilience and proper risk ...

SearchStorage

  • solid-state storage

    Solid-state storage (SSS) is a type of computer storage media made from silicon microchips. SSS stores data electronically ...

  • persistent storage

    Persistent storage is any data storage device that retains data after power to that device is shut off. It is also sometimes ...

  • computational storage

    Computational storage is an information technology (IT) architecture in which data is processed at the storage device level to ...

Close