pareto principle

A guide to the Pareto principle

Reading time: about 5 min

Topics:

  • Organization and evaluation
  • Strategic planning

Most business leaders understand that one of the keys to success is being open to continuous improvement. The problem is that people are generally resistant to change. In fact, a study found that monkeys are more likely to adopt process changes than humans.

We tend to get caught in our comfort zones. Doing things the same way we always have makes us feel safe and in control of our environment. But if a business leader gets stuck in their comfort zone, it can lead to complacency, missed opportunities, repeated mistakes, and customer dissatisfaction.

That’s where the Pareto principle comes in. 

What is the Pareto principle?

In the late 19th century, an Italian political scientist named Vilfredo Pareto researched wealth distribution among the Italians. He observed that about 80% of the country’s land was owned by 20% of the population. 

This led to the development of the Pareto principle, also known as the 80/20 rule. The Pareto principle states that the most significant portion of results comes from a relatively small number of inputs.

In the 1940s, Joseph M. Juran applied the principle to quality control management in business operations. He similarly theorized that approximately 80% of problems come from about 20% of possible causes. In this way, you can focus on and prioritize only a small percentage of inputs and accomplish more by doing less.

How do you implement the Pareto principle?

Successful implementation of the Pareto principle can help you improve efficiency, increase productivity, and make better decisions overall. Here are some suggested steps that can help you to apply the 80/20 rule to almost any situation.

  1. Identify key factors: These could be processes, products, customers, projects, tasks, or issues that factor into the outcome or results you’re looking for. 
  2. Analyze the impact or contribution of each factor: Determine how these factors impact the overall results. For example, how much will the effort cost? How time-consuming is it? How many resources will be used?
  3. Focus on the vital few: Because the 80/20 rule does not always equal precisely 20% of inputs to 80% of outputs, Joseph Juran preferred to use the terms “vital few” and “trivial many” (or “useful many”). You must identify the vital few inputs or causes that are responsible for the majority of your results. 
  4. Prioritize your tasks and projects: Plan your projects and this distribution of tasks so those that fall within your vital few have priority. You’ll get better results when you focus on the most impactful tasks.
  5. Eliminate or delegate the trivial many: Identify the factors that have less impact on your outcomes. If you can, delegate these factors to people with the time to work on them or automate them to free up your resources to work on the vital few.
  6. Review and refine as necessary: The distribution of your inputs and outputs can change over time. The factors that have the highest impact can also change. You’ll need to review the data regularly to determine if you’re focusing on the right factors and make changes when needed. This will help you continuously improve efficiency and performance.

Where can you use the 80/20 rule?

The 80/20 rule applies to almost any situation. Here are a few examples:

Project management

Approximately 80% of the value in a project is created by the initial 20% of effort put in by the development team. Understanding this frees up time for more testing and quality assurance. Plus, it allows you to get to other factors critical to the project that could otherwise be ignored.

Resource management

A small percentage of your team completes the majority of the work. This principle can help you identify performance gaps and determine where to allocate resources based on skill sets. It can also help you understand where more training is needed or help you make personnel decisions.

Software development

You might observe that approximately 80% of your customers use 20% of your software’s features. They don’t want to take the time to learn “power features” or complex interfaces. Your team should focus on improving value in the most essential features to your customers.

Sales and marketing

Most of your company’s sales come from a small percentage of your products. Consider discontinuing certain products to free up resources, so you can work on the products that your customers really want.

Advantages and disadvantages of the 80/20 rule

The Pareto principle has advantages and disadvantages when applied to various situations. 

Advantages

  • It helps you identify and focus on the vital few factors that impact your desired outcomes most. Focusing on the vital few helps you to do more with less.
  • It helps you to approach resource allocation more efficiently. You are less likely to waste time or resources on low-impact tasks that don’t significantly impact your overall outcomes.
  • Applying the 80/20 rule is a problem-solving process. It helps you find the areas that need your most attention so you can come up with efficient solutions.

Disadvantages

  • Focusing on the vital few can lead to neglecting the useful many that still impact your overall outcome.
  • 20% of the effort doesn’t always equate to 80% of the results.
  • If you rely too heavily on the Pareto principle, it could lead to avoiding risks, challenges, and opportunities.

To effectively apply the Pareto principle, consider it a guideline rather than an absolute 80/20 split. Not all of your high-impact factors will add up to 20%. But the principle will help you find the factors that need the most attention from your team.

When you apply the 80/20 rule, consider the specific context as well. Always gather and analyze data to ensure the Pareto principle is right for your current use case.

pareto principle

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