ABC analysis is an investigation and ordering method for classifying large amounts of data. The basic principle of the method is to divide objects or processes into classes A, B and C according to defined focal points in order to determine the relationship between effort and success and to be able to set priorities.
This procedure can be optimally used to have larger sets of ideas evaluated.
ABC analysis was developed in the 1950s by General Electric manager H. Ford Dickie for materials management and was used primarily to optimize planning processes, reduce inventory and administrative costs, and increase profits. The starting point of the method was the Pareto principle, the so-called 80-20 rule of the Italian economist Vilfredo Pareto, and the Lorenz curve of the US economist Max Otto Lorenz.
Application finds the ABC analysis in the meantime both within and outside of the business management. In addition to materials management, their areas of application also include personnel and project management, organizational analysis and task prioritization, and also innovation management.
In the area of task prioritization, ABC analysis is used as a tool for effective time management. The tasks here are divided into classes A,B and C according to urgency and importance: The main focus is on class A tasks. They have the highest priority and are to be completed first. This is followed by the class B tasks. They have a medium priority and can be delegated, optimized or scheduled if necessary. Class C tasks have the lowest priority and should be completed without a large investment of time and energy, unless they are to be delegated, curtailed, or neglected altogether.
Advantages:
The ABC analysis is a simple procedure that can be used for various business areas and issues. By focusing on a few objects of investigation, it is easy to understand and can be well visualized and presented in the results.
Disadvantages:
The analysis only considers quantitative influencing variables. Qualitative aspects or complex backgrounds remain unnoticed.
Simply expressed the ABC analysis is a business analysis tool, which was described in the year 1951 by H. Ford Dickie for the first time. However, it is not quite as simple as it seems at first glance . Then as now, tries to process a multitude of values/data by classifying data into 3 categories (A, B, and C) as well as by structuring them to consider the essentials in a concentrated way in order to generate recommendations for action by weighting them.
Depending on their objectives, these can be applied in a wide variety of business areas and contexts, and already goes beyond business management use . One advantage of the method is that the essential can be easily separated from the non-essential and this method is extendable – i.e. it is not necessary to form A, B and C clusters – the number can be extended as desired.
Through the digital transformation, companies are able to benefit much more from the use of ABC analysis through data-driven work and complex data analyses. Through the increasing technological data competence, important framework conditions for a professional and value-enhancing handling of data are given.
Big Data is not only about a large amount of data, but also about speed, availability and the variety of data.
– Data-driven decisions and decision quality
– Formulate appropriate problem sets to data sets steps in data analysis such as filtering data.
– Best practices in data processing
Companies permanently receive different types of data from various sources . If this data is processed in the context of ABC analysis, valuable insights can result.