What is the Pareto Principle?
The misnamed Pareto
principle (also known as the 20-80 rule, the law of the
vital few and the principle of factor sparsity) states
that for many phenomena 80% of consequences stem from 20%
of the causes. The idea has rule-of-thumb application in
many places, but it's also commonly and unthinkingly misused.
The pareto principle
was suggested by management thinker Joseph M. Juran. It
was named after the Italian economist Vilfredo Pareto,
who observed that 80% of property in Italy was owned by
20% of the Italian population. Since J. M. Juran adopted
the idea, it might better be called "Juran's assumption".
That assumption is that most of the results in any situation
are determined by a small number of causes. That idea is
often applied to data such as sales figures: "20% of clients
are responsible for 80% of sales volume." This is testable,
it's likely to be roughly right, and it is helpful in your
future decision making.
It is important
to note that many people misconstrue the pareto principle
(because of the coincidence that 20+80=100): it could just
as well read that 80% of the consequences stem from 10%
of the causes. Many people would reject such an "80-10" rule,
but it is mathematically meaningful nevertheless.
The 80-20 Principle can and should be used
by every intelligent person in their daily life. It can multiply
the profitability of corporations and the effectiveness of
any organization or individual.
The value of the Pareto Principle for a
manager is that it reminds you to focus on the 20 percent
that matters. Of the things you do during your day, only
20 percent really matter. Those 20 percent produce 80 percent
of your results. Identify and focus on those things. When
the fire drills of the day begin to sap your time, remind
yourself of the 20 percent you need to focus on. If something
in the schedule has to slip, if something isn't going to
get done, make sure it's not part of that 20 percent.
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