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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