Understanding the Pareto Principle (The 80/20 Rule)
Pareto Rule or Pareto principle, also known as Pareto’s law, the law of the vital few or as the 80-20 rule states that, for many events, roughly 80% of the effects come from 20% of the causes. This principle is named after Italian economist Vilfredo Pareto (1848-1923) who observed that 80% of the land in Italy was owned by 20% of the population, 20% of the pea pods in his garden contained 80% of the peas, etc. Thus the original observation was in connection with population and wealth. Pareto then carried out surveys on a variety of other countries and found to his surprise that a similar distribution applied in every area.
You can apply the 80/20 Rule to almost anything, from the science of management to the physical world. Indeed, Pareto’s Principle or Pareto’s Law is very effective tool to help managers, as this rule is a common rule of thumb in business, as 80% of your sales come from 20% of your clients. This principle applies to any domain, f.i. the United Nations Development Program Reports show the distribution of global income to be very uneven, with the richest 20% of the world’s population controlling about 80% of the world’s income.
Vilfredo Pareto created a mathematical formula to describe the unequal distribution of wealth in Italy. Quality Management pioneer, Dr. Joseph Juran, working in the US in the 1930s and 40s called the “universal law of vital few and trivial many”.
Project Managers know that 20 percent of the work – the first 10 percent and the last 10 percent consume 80 percent of your time and resources. Managers also know that 20 percent of the stock takes up 80 percent of the warehouse space and that 80 percent of the stock comes from 20 percent of the suppliers.
In the case of Apple inc., eighty percent of the sales come from 20 percent of the sales staff. And 20 percent of the staff causes 80 percent of the problems. Still, it works both ways and another 20 percent of your staff will provide 80 percent of the production. The value of the Pareto Principle for a manager is that it reminds him to focus on the 20 percent that matters.
Besides, thinking about all the things you do during your day, only 20 percent really matter and produce 80 percent of your results. In conclusion, you should identify and focus on those things. 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.
In your life and your work, apply the Pareto Principle to all you do, but use it wisely. Pareto’s Principle, the 80/20 Rule, should serve as a reminder to focus 80 percent of your time and energy on the 20 percent of you work that is really important.
The one million dollars question is if your efforts and time you spent on reading this text stuck in the 80% or in the 20% of your value.
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