The Pareto Principle states that for most outcomes, approximately 80% of the effects come from 20% of the causes. In other words, a small percentage of causes have a large effect.Where does the Pareto principle come from?
In the early 1900s, Vilfredo Pareto recognized this phenomenon when he studied the distribution of wealth in Italy. Pareto observed that 80% of the land in Italy was owned by only 20% of the population. He noticed the same 80/20 situation in other things, such as the productivity of the pea plants in his garden.
How can you use the 80/20 rule?
While the 80/20 rule applies to almost every industry, the Pareto principle is commonly used in business and economics. This is because the 80/20 rule helps determine where you can focus your efforts to maximize your output.
Productivity
You can use the 80/20 rule to prioritize the things you need to do during the day.
The idea is that out of your entire to-do list, completing 20% of those tasks will result in 80% of the impact you can generate for that day. So for maximum impact, figure out which tasks impact your team the most and focus on those for the day.
Decision making. The Pareto principle can help you make the best decisions in the problem-solving process. When there are many different causes of a single problem, the Pareto Principle can help you prioritize solutions.
So why is this useful?
The Pareto Principle helps you understand that most outcomes come from a minority of inputs. Knowing this, if…
20% of employees contribute to 80% of results. Focus on rewarding these employees.
20% of bugs contribute to 80% of crashes. Focus on fixing these errors first.
20% of customers contribute to 80% of revenue. Focus on satisfying these customers.
The examples go on. The point is to realize that you can often focus your efforts on the 20% that makes a difference instead of the 80% that doesn’t add much.
