Thursday, 29 November 2012

THE 80:20 RULE!

The Pareto Principle is the origin of the 80:20 Rule. 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 attributed the 80/20 Rule to Pareto, calling it Pareto's Principle.

The 80/20 Rule means that in anything 20 percent are essential and 80 percent are irrelevant. 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 errors caused 80 percent of the problems. In project management we know that 20 percent of the work, the first 10 percent and the last 10 percent, consume 80 percent of the time and resources. Interestingly, you can apply the 80/20 Rule to almost anything, from business, finance and management to science and the physical world. More generally, the Pareto Principle is the general observation that most things in life are not distributed evenly. It can mean all of the following things:
  • 20% of the energy creates 80% of the effect
  • 20% of the input creates 80% of the output
  • 20% of the offer creates 80% of the sales
  • 20% of the products creates 80% of the order book
  • 20% of the workers produce 80% of the results
  • 20% of the customers create 80% of the orders
  • 20% of the viruses cause 80% of the crashes
  • 20% of the features cause 80% of the usage
  • And on and on…
I have spent my life persuading colleagues that you can focus your effort on the 20% that makes a difference, instead of wasting your time on the 80% that doesn’t add much. In economics this is 'the law of diminishing returns' where each additional hour of effort, each extra worker is adding less to the final result. By the end of the process, you are spending lots of time on the minor details and the search for the perfect product rather than accepting that what you have is good enough! OK, I recognise that this won't be the best strategy in every case. The point of the 80:20 Rule is to recognise that principle and make decisions on allocating time, resources, energy and effort on that basis.

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