Where it Came From
In 1906, an Italian economist, Vilfredo Pareto, created a mathematical formula describing the unequal distribution of wealth. (See footnote). Pareto observed that roughly twenty percent of the people controlled or owned eighty percent of the wealth.
After Pareto made his observation and created his formula, 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". 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 Principle stuck, probably because it sounded better than Juran's Principle.
Regardless of the naming origins, Dr. Juran's “vital few and trivial many” observation (the principle that 20 percent of a set is generally responsible for 80 percent of a related result) became known as Pareto's Principle or the 80/20 Rule.
What it Means
The 80/20 Rule means that in anything, a few (20 percent) are vital and many (80 percent) are trivial.
You can apply the 80/20 rule to almost anything, from manufacturing, management and human resources to the physical world.
In Pareto's case it meant 20 percent of the people owned 80 percent of the wealth.
In Juran's initial work he identified that 20 percent of the defects caused 80 percent of the problems.
In business:
- 80 percent of a company's profits come from 20 percent of its customers
- 80 percent of a company's complaints come from 20 percent of its customers
- 80 percent of a company's profits come from 20 percent of the time its staff spend working
- 80 percent of a company's sales come from 20 percent of its products
- 80 percent of a company's sales are made by 20 percent of its sales staff
- 80 percent of work absence is due to 20 percent of staff
- 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.
- 20 percent of your staff will cause 80 percent of your problems, but another 20 percent of your staff will provide 80 percent of your production. It works both ways.
In Project Management
20 percent of the work (the first 10 percent and the last 10 percent) consume 80 percent of your time and resources.
In Computer Science
- In software engineering, Lowell Arthur expressed a corollary principle: "20 percent of the code has 80 percent of the errors. Find them; fix them!"
- Microsoft noted that by fixing the top 20 percent of the most-reported bugs, 80 percent of the related errors and crashes in a given system would be eliminated
- In load testing, it is common practice to estimate that 80 percent of the traffic occurs during 20 percent of the time.
In Health and Safety
- 20 percent of the hazards will account for 80 percent of the injuries
- 20 percent of patients use 80 percent of health care resources.
In Criminology
Several criminology studies have found 80 percent of crimes are committed by 20 percent of criminals.
Other Examples
- 20 percent of clothes in a wardrobe are worn 80 percent of the time
- 20 percent of the tools in a toolbox are used in 80 percent of tasks
- 20 percent of the energy use in a household will offer 80 percent of the potential energy savings
- 80 percent of road traffic accidents are cause by 20 percent of drivers
- 80 percent of a restaurant's turnover comes from 20 percent of its menu
- 80 percent of your time spent on a website will be spent on 20 percent of the website
Getting to Grips With Pareto’s Principle (The 80/20 Rule)
Although Pareto’s Principle is simple enough to understand, there are two common misconceptions…
First, there is the misconception that the numbers 20 and 80 must add to 100 — they don’t! 20 percent of the workers could create 10 percent of the result, or 50 percent, or 80 percent, or 99 percent, or even 100 percent. For example, in a group of 100 workers, 20 could do all the work while the other 80 do nothing. In that case, 20 percent of the workers did 100 percent of the work. Remember that the 80/20 rule is a rough guide about typical distributions.
Second, there is the misconception that the numbers have to be “20%” and “80%” exactly – they don’t!
This ratio can change. It could be 80/20, 90/10, or 90/20 (remember, the numbers don’t have to add to 100!).
The key point is that the Pareto Principle is the observation (not law) that most things in life (effort, reward, output) are not distributed evenly – some contribute more than others.
Take a look at the graph below:
The red line represents what many people would consider the ‘perfect world’ where every effort/thing contributes equally. That is, every employee would contribute the same amount, every project would be equally important and every mobile phone feature would be equally loved by users. But that isn’t always the case.
The green line represents Pareto’s Principle (The 80/20 Rule) which observes that most things have an unequal distribution. Out of 5 things, perhaps 1 will be ‘cool’. That cool thing/idea/person will result in the greater part of the impact of the group.
The main point to understand is that most things are not 1/1, where each unit of input (effort, time, labour) contributes exactly the same amount of output.
Why Is Pareto’s Principle (The 80/20 Rule) Useful?
The Pareto Principle helps you realize that the majority of results come from a minority of inputs. Knowing this can make you far more effective, because if…
- 20 percent of employees contribute 80 percent of results, then you can focus on rewarding these employees.
- 20 percent of computer bugs contribute 80 percent of crashes, then you can focus on fixing these bugs first.
- 20 percent of customers contribute 80 percent of revenue, then you can focus on satisfying these customers.
- 80 percent of crimes are committed by 20 percent of criminals, then focusing on catching those criminals committing minor crimes will likely catch many criminals wanted for (or who would normally commit) larger ones.
The examples go on. The point is to realize that you can often focus your effort on the 20 percent that makes a difference, instead of the 80 percent that doesn’t add much.
In economic terms, there is diminishing marginal benefit. This is related to the law of diminishing returns: with each additional hour of effort, each extra worker is adding less ‘oomph’ to the final result. By the end, you are spending lots of time on the minor details.
How Pareto’s Principle Can Help YOU!
The value of the Pareto Principle lies in reminding you to focus 80 percent of your time and energy on the 20 percent that really matters.
If we apply Pareto’s Principle to all of the tasks we perform throughout a day, we will realise that only 20 percent really matter. Those tasks in the 20 percent will most likely produce 80 percent of our results, so it is critical that we identify and focus on those things. Don't just ‘work smart’ – work smart on the right things. As you rush about your day trying to crisis manage and complete all the tasks set, remind yourself of the critical 20 percent you need to focus on and if anything in the list of activities and action items has to fall by the wayside and left undone, be sure it isn’t one of the critical 20 percent.
Put in only the amount of effort needed to get impact from your exertion – it’s usually the first 20 percent (or 10 percent, or 30 percent — the exact amount can vary). For example:
- Instead of spending 1 hour drafting an outline of a paper or blog-post which you may or may not end up using, spend 10 minutes drafting 6 outlines and pick the best one to continue with.
- Rather than spending three hours reading three articles in detail (which may prove not to be relevant to you), spend 5 minutes glancing through 12 articles (1 hour) and then spend an hour each on the two most relevant ones.
- Instead of agonizing for three hours on a single design, make 6 layouts (30 minutes each) and pick your favourite.
- Household energy savings can be dramatic and easy if you identify the 20 percent of energy use which offers 80 percent of the potential savings available.
- DIY can be made more efficient if the 20 percent of tools that are used for 80 percent of tasks are organized to be the most accessible in the toolbox.
- Something as simple as choosing what to wear can be more efficient if the 20 percent of clothes worn 80 percent of the time are organized to be most accessible in the wardrobe.
- If sportsmen and women focus 80 percent of their time and energy on the practice and training that really makes a difference, they will have more time to spend with family and friends.
- Diets can be made far more accessible when you focus on eating correctly for 80 percent of the time. Then the 20 percent when you ‘slip-up’ won’t have much of an impact.
But, don’t think the Pareto Principle means only do 80 percent of the work needed. It may be true that 80 percent of a bridge is built in the first 20 percent of the time, but you still need the rest of the bridge in order for it to work. It may be true that 80 percent of the Mona Lisa was painted in the first 20 percent of the time, but it wouldn’t be the masterpiece it is without all the details. The Pareto Principle is an observation, not a law of nature.
When you are seeking top quality, you need all 100 percent. When you are trying to optimize the result for your effort, focusing on the critical 20 percent is a time-saver. See what activities generate the most results and give them your appropriate attention.
A Word of Warning
A more recent application or implementation of management theory that’s been making the rounds for a few years (both in books and lectures/seminars) suggests that we interpret Pareto's Principle in an approach sometimes referred to as ‘Superstar Management’. Its supporters claim that since 20 percent of your employees likely produce 80 percent of your results you should focus your limited time in management of only that 20 percent – the so-called superstars. The problem with this is that it overlooks the fact that 80 percent of your time should be spent doing the things that are really important, or most likely to deliver the greatest return. By helping your ‘good’ salespeople become better, you are more likely to reap greater results than by dedicating the same management effort to helping the fewer ‘superstars’ become terrific.
It is wise to evaluate the various situations carefully and apply the Pareto Principle appropriately – and wisely.
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Footnote:
You might see statements that Pareto's original wealth distribution study analysed data for Italian society. But it wasn't Italy; it was England. This misunderstanding persists perhaps because of faulty inferences/assumptions based on Pareto's Italian parentage and early life in Italy.