The Pareto Principle

The pareto principle, also known as the law of the vital few or the 80/20 principle, states that 20% of something will cause 80% of the results. This implies that 20% of your effort, would complete 80% of a project. The rule is also applicable to allmost all areas of life: economy, sport, earnings, clients, problems, health, software... You can go on and on. The real question is, how do you use it to your advantage?


Who Invented The Pareto Principle?

It wasn't Vilfredo Pareto. Although, in 1906, he did observe that in Italy 20% of the population owned 80% of the property. He introduced the term Pareto efficiency and help developping microeconomics with indifference curves.

In 1940, Dr. Joseph M. Juran suggested the 80-20 principle and named it after the economist Vilfredo Pareto. Since Juran Adopted the principle, you migh also call it Juran's Assumption.


The Pareto Principle Explained

In it's original form it states that 20% of something is responsible for 80% of something else. While this is the most common occurrence, you can also do 30-70 or 10-90 or 1-99. Do keep in mind that a 50-50 relation is an extreme rarity and seldom observed.

A common mistake is that most believe that 20-80 adds up to 100%. This is not true as a 20-90 or a 1-80 relationship is just as much a possibility as a 20-80 relationship. The number on the left is completely independent to the number on the right.

It also states that the pareto principle is recurrent. If you take the top 20 of a 20-80 relation and then apply the rule again, you get a 4-64 relation, then a 0.8-51.8 relation, and so on.


How Can It Help You?

You should use this rule in your daily life to your advantage. It will easily multiply your productivity and efficiency by a factor of 5.

Look for the 80-20 rule in everything you do. Look at what gets you the most results, and do more of it. What benefits you the most? Do more of it. It helps you to focus on the 20% that matters most. Where do you waste time, how do you lose efficiency? Do less of it.

Each night, review your actions, take notes on what you did and what the results where. Look at how you can improve your productivity and try to implement it the next day. Review and improve again. Until you're satisfied with the amount of results you get.


The Pareto Principle Examples:

In economics
20% of the population ownes 80% of the property.
Distribution of world GDP, 1989

Quintile of population -> Income
Richest 20% -> 82.70%
Second 20% -> 11.75%
Third 20% -> 2.30%
Fourth 20% -> 1.85%
Poorest 20% -> 1.40%

In business
80% of your sales are made by 20% of your sales staff.
80% of your profits come from 20% of your customers.
80% of your sales come from 20% of your products.
80% of your profits come from 20% of the time you spend.
80% of your complaints come from 20% of your customers.

In Software
Microsoft noted that by fixing the top 20% of the most reported bugs, 80% of the errors and crashes would be eliminated. Link to article.

In Health
20% of the hazards will account for 80% of the injuries.
Therefore, prevention needs to target those 20%.


Variations To The 80/20 Rule

20-20-60 rule
If you have to convince a group of people of your point of view, then you have 20% that believes you and 20% who doesn't. No matter what you do or say, they cannot be convinced. Your job is to convince the 60% that can be convinced.

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