Pareto’s Principle
What is it:
Pareto's Principle, also known as the 80/20 rule, is a concept that approximately 80% of the effects or outcomes result from 20% of the causes or inputs.
In other words, a small portion of the factors or efforts often contributes to the majority of the results.
In the early 1900s, Italian economist Vilfredo Pareto noticed that every year, 20% of the pea plants in his garden produced approximately 80% of the peas. He later expanded this principle to macroeconomics by showing that 80% of the wealth in Italy was owned by 20% of the population.
In the 1940s, Management consultant Joseph M. Juran further applied the 80-20 rule to quality control for business production. He demonstrated that 80% of product defects were caused by 20% of the problems in production methods. By focusing on and reducing the 20% of production problems, a business could increase the overall quality of its products. Juran referred to this phenomenon as "the vital few and the trivial many."
At its core, Pareto’s principle is about identifying how to best use resources and assets efficiently to create maximum value.
In a business context, this means 80% of your company’s profits come from 20% of your sales. So, it would help if you focus your energy on those clients who make up the 20% of your highest sales.
For a student, this could mean trying to identify which parts of a textbook will create the most benefit for an upcoming exam and focus on those first.
For a working professional, it would mean identifying how to get 80% of the day’s work done in 20% of the time.
The Pareto Principle helps you realize that the majority of results come from a minority of inputs and helps you focus on allocating time and resources where they can have maximum inpact.
20% of workers contribute 80% of results
-> Focus on rewarding these employees.
20% of bugs contribute 80% of crashes
-> Focus on fixing these bugs first.
20% of your marketing messages account for 80% of your campaign results.
-> Focus on optimising those messages to drive conversions.
On the flip side, it also highlights the cost of perfection - You would need 80% effort to close the 20% gap to get something perfect.
In economics terms, there is diminishing marginal benefit; Each additional hour of effort spent on something is adding less to the final result. By the end, you are spending lots of time on the minor details.
Prompts for application:
Think about the changes in your personal and work life you can do today based on the 80/20 rule.
What are the 20% of my tasks that are driving 80% of my results?
What’s the highest-leverage activity I can focus on right now to achieve the most significant impact?
