What is The Pareto Principle
Pareto Principle, named after the Italian economist Wilfred Pareto is also called famously as 80-20 rule. As far back in 1906 Pareto observed that 80% of the land in Italy is actually owned by just 20% of the people. Much later, Joseph M. Juran popularized this observation in his book titled “The Quality Control Handbook”, and called this as the law of Vital Few. He observed that you could massively improve the quality by resolving the tiny fraction of the problems.
This is also called as 80-20 Rule, Pareto Rule and similar words based on the culture. What ever it is called its a great business improvement tool.
This law can be applied beyond the resolving the quality problems. In fact it can be applied across all spheres of human life. It is a powerful and fundamental principle which can be used to improve even personal productivity.
While Juran observed that 80% of the quality problems are caused by 20% of the problems.
Some of the examples of this application in various businesses are below.
- 80% of the profits actually come from 20% of the customers or 20% products
- 80% of the time spent by the customer services is on 20% of customer complaints
- 80% of customer complaints originate from 20% of the causes.
- 80% of your business productivity loss results from 20% of the causes
- 20% of your staff is responsible for 80% of the business outputs and results
- 80% of the value in the business is generated by 20% of the processes
In the personal life also this can really be applied. In-fact i have tried this myself over a long weekend and noted the time spent by few friends on a weekends. We decided to list the weekend activities which are pending for some time. We have listed the time taken for closing these actions. In fact it was only 16% of the time spent on these long pending activities.
I would stress the fact of time spent on vital few activities are only 20% or less. We need to unlearn the 50-50 rule and start scanning the environment. You tend to find the non-essentials and focus on the essentials.
Adoption of this rule really changes the way we think, work and do business as well. Imagine a situation where you spend 20% of time in office and produce 80% results, or focus your effort on 20% of business and scale it up by 80%.
Some of the great examples of successful application can be seen from Warren Buffet. Early in his career he decided it would be impossible for him to focus on hundreds of investments and decided the focus on Vital Few businesses he knew of. In fact at some point, Buffet owned 90% of his health from very few investments. It’s not only about working smarter, what is really important is working smartly on the right things.
The Pareto Principle gets the focus and attention to where it is important and gives a satisfaction and boost to take up the next level improvements.
You can use this rule to revolutionize your business and the limit is SKY.
The only point is simple focus on the vital few.