ABC Analysis/Pareto Analysis Pareto analysis (sometimes referred to as the 80/20 rule and as ABC analysis) is a method of classifying items, events, or activities according to their relative importance. It is frequently used in inventory management where it is used to classify stock items into groups based on the total annual expenditure for, or total stockholding cost of, each item. Organisations can concentrate more detailed attention on the high value/important items. Pareto analysis is used to arrive at this prioritisation. Taking inventory as an example, the first step in the analysis is to identify those criteria which make a significant level of control important for any item. Two possible factors are the usage rate for an item and its unit value. Close control is more important for fast moving items with a high unit value. Conversely, for slow moving, low unit value items the cost of the stock control system may exceed the benefits to be gained and simple methods of con