The Pareto Rule
The Pareto Rule or Pareto Principle is also known as the 80-20 rule, which has been used liberally over time to explain the disparity of allocation, distribution, utilization, investment, effort, effects, outcomes and impact. It began as an economic principle as espoused by the Italian economist Vilfredo Pareto (1848-1923), who observed that 80% of the resources in Italy was controlled by about 20% of the population. He bolstered his research findings when he similarly found out that such a disparity was actually a global trend. The few 20% of the world's rich held 80% of its resources. Conversely, 80% of the worlds population had access to only about 20% of the world's resources (in general, this global trend is still true until now).
The 80-20 rule has been very useful in social and class analysis in political science discourses. In management, it is also very useful in terms of understanding work allocation and distribution. It was the business management theorist and evangelist by the name of Joseph Juran (1904-2008), considered to be one of the founders of quality management practices, who made use of the 80-20 rule as a management principle and named it after Pareto. Thus, the Pareto Rule or the Pareto Principle was born.
The basic premise of this principle is that in many cases and for many aspects, 20% of the causes accounts for 80% of the consequences. This implies that 80% of the causes only accounts for 20% of the consequences. But the 80-20 or 20-80 rule can be liberally played around alternatively for useful application. Some liberal application of the Pareto Rule are the following:
- In economics, the rich becomes richer and the poor poorer because the few 20% of the population holds 80% of the wealth.
- In politics, vast powers are controlled by a few elite. 80% of powers and privileges are held by the powerful 20%.
- In finance, 20% investments result in 80% productivity (this is efficiency). Or 80% of the total purchases are actually 20% necessary (this is inefficiency).
- In business, 80% of sales come from the 20% of the clients (careful segmentation). Or 80% of the resources are invested only to about 20% of the market.
- In military, there are 80 enemies captured by every 20 personnel (victory). Or 80 allied injury as against 20 enemy assault (loss).
- In law enforcement, 80% crime reduction for every 20% police visibility. So increase visibility to double the reduction.
- In communication, of the 80% conversation only 20% is based on facts (the rest are hearsays).
- In planning, 80% of the outputs can be attained by 20% of the inputs.
- In management, 80% of the time used yields to only 20% of the accomplishments. Or 20% efforts should result in 80% impact. Or 20% work expands to 80% work (Parkinson's Law).
- 80% of your knowledge for an exam is likely to be gained from 20% of your total time spent on revision.
- 80% of your improvement in a sport will likely be achieved from 20% of your time practicing/training.
- 80% of your weight loss/muscle gain will be achieved by 20% of the time of you spend in the gym.
- 20% of your clients may give you 80% of your revenue.
- 20% of product defects/computer bugs cause 80% of the problems.
- 20% of your employees are likely to be the cause of 80% of the company’s total results/profitability.
INSIGHTS: It was the Lady Stella Reading who said that "the whole point of getting things done is knowing what to leave undone!" It is therefore important to know what constitutes the 80% and the 20%, and hopefully the choice leans upon what is right and proper!
Uris, Auren. 1986. 101 of the Greatest Ideas in Management. USA: John Wiley & Sons, Inc.
Vilfredo Pareto at http://en.wikipedia.org/wiki/Vilfredo_Pareto.
Pareto Principle at http://en.wikipedia.org/wiki/Pareto_principle.
Joseph Juran at http://en.wikipedia.org/wiki/Joseph_M._Juran.
Mush's Blog at http://mushpanjwani.com/2009/04/15/best-kept-secret-to-time-management-the-pareto-principle/