Pareto Principle - 80/20 Rule

How the 80/20 rule can help you be more effective.


LegacyUSA designs integrated business software solutions to help get the most productivity from any given staff. If you are looking to increasing work flow management, email the people at LegacyUSA on improving or business work flow and profits. You can also visit our web site.

In 1906, Italian economist Vilfredo Pareto created a mathematical formula to describe the unequal distribution of wealth in his country, observing that twenty percent of the people owned eighty percent of the wealth. In the late 1940s, Dr. Joseph M. Juran inaccurately attributed the 80/20 Rule to Pareto, calling it the Pareto Principle. While it may be misnamed, Pareto Principle or Pareto Law as it is sometimes called, can be a very effective tool to help you manage effectively.

Where It Came From
After Pareto made his observation and created his rule formula or principle, many others observed similar phenomena in their own areas of expertise. Quality Management pioneer, Dr. Joseph Juran, working in the US in the 1930s and 40s recognized a universal principle he called the "vital few and trivial many" and reduced it to writing. In an early work, a lack of precision on Juran's part made it appear that he was applying Pareto's observations about economics to a broader body of work. The name Pareto's Principal stuck, probably because it sounded better than Juran's Principle.

As a result, Dr. Juran's observation of the "vital few and trivial many", the principle that 20 percent of something always are responsible for 80 percent of the results, became known as Pareto's Principle or the 80/20 Rule. You can read his own description of the events in the sidebar link titled Juran's Non-Pareto Principle.

What It Means
The 80/20 Rule means that in anything a few (20 percent) are vital and many(80 percent) are trivial. In Pareto's case it meant 20 percent of the people owned 80 percent of the wealth. In Juran's initial work he identified 20 percent of the defects causing 80 percent of the problems. 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. You can apply the 80/20 Rule to almost anything, from the science of management to the physical world.

• 20 percent of your stock takes up 80 percent of your warehouse space
• 80 percent of your stock comes from 20 percent of your suppliers
• 80 percent of your sales will come from 20 percent of your sales staff
• 20 percent of your staff will cause 80 percent of your problems
• 20 percent of your staff will provide 80 percent of your production
• 80 percent of your clerical time is wasted on activities that produce 20% on your income
• 80 percent of your marginal managers spend 80% of their time avoiding decisions.
• 80 percent offf your phone bill is wasted.

How It Can Help You
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.

There is a management theory floating around at the moment that proposes to interpret Pareto's Principle in such a way as to produce what is called Superstar Management. The theory's supporters claim that since 20 percent of your people produce 80 percent of your results you should focus your limited time on managing only that 20 percent, the superstars. The theory is flawed, as we are discussing here because it overlooks the fact that 80 percent of your time should be spent doing what is really important. Helping the good become better is a better use of your time than helping the great become terrific. Apply the Pareto Principle to all you do, but use it wisely.

Manage This Issue
The Pareto Principle, or 80/20 Rule, should serve as a daily reminder to focus 80 percent of your time and energy on the 20 percent of you work that is realy important. Don't just "work smart", work smart on the right things.

Edited from:
John Reh
Management Guide

LegacyUSA, LLC designs integrated business software solutions to help get the most productivity from any given staff. If you are looking to increasing work flow management email the people at LegacyUSA on improving or business work flow and profits. You can also visit our Bakery Software web site.