The Pareto Principle or 80 20 Rule

An Overview of the Pareto Principle
 
Do you know what contributes to your successes or your results? If you do know, how well therefore do you plan and prioritise those as key actions to be completed or areas to focus on? Understanding the Pareto Principle is a great planning tool to help you focus on the important things. Here, creative sector coach and trainer Alec McPhedran of Skills Channel TV, shares his thoughts on the Pareto Principle.
 
The Pareto Principle, also known as the 80/20 rule or the law of the vital few, states that roughly 80% of the effects or results come from 20% of the causes or inputs. This principle is named after the Italian economist Vilfredo Pareto, who observed in 1895 that approximately 80% of Italy's land was owned by 20% of the population.
 
Since Pareto’s findings, academics have applied Pareto’s 80/20 rule of cause and effect, also known as the Pareto principle, to a variety of situations outside of wealth distribution, including business principles, planning and professional development.
 
It highlights the imbalanced distribution of outcomes, suggesting that a significant majority of the outcomes are driven by a relatively small portion of the inputs.
 
For example, in business, the Pareto Principle implies that roughly 80% of a company's profits come from 20% of its customers, services or products. In project management, it suggests that 80% of the project's results are achieved through 20% of the effort and resources invested. In personal productivity, it implies that 80% of your results come from 20% of activities or tasks.
 
It's important to note that the specific ratio of 80/20 is not always exact and can vary. It serves as a general guideline rather than a rigid rule. The key insight is that a small portion of the causes or inputs have a disproportionately significant impact on the outcomes.
 
Specific highlights are:

• The 80/20 rule is a statistical rule that states that 80% of outcomes result from 20% of causes
• The 80/20 rule can help determine how to best allocate time, money, effort or resources
• When using the 80/20 rule, people try to prioritise the 20% of activity that give the greatest results

 
Examples of the 80/20 Rule

• 20% of criminals commit 80% of crimes
• 20% of drivers cause 80% of all traffic accidents
• 80% of pollution originates from 20% of all factories
• 20% of a companies products represent 80% of sales
• 20% of employees are responsible for 80% of the results
• 20% of students have grades 80% or higher

 
By recognising and applying the Pareto Principle, individuals and organizations can focus their efforts and resources on the critical few aspects that generate the majority of the desired results. This approach allows for more efficient allocation of time, energy, and resources, leading to increased productivity and effectiveness.
 
How do I use the Pareto Principle?
To effectively use the Pareto Principle, also known as the 80/20 rule, in your personal or professional life, you could follow these steps:
 

1. Identify the key factors: Start by identifying the areas or factors where the Pareto Principle is likely to apply. This could be in terms of tasks, customers, products, time, or any other relevant aspect that influences your outcomes
2. Analyse the data: Collect data or information related to these factors. This could involve examining sales figures, customer data, project metrics, or any other relevant data source. Analyse the data to identify patterns or trends
3. Apply the 80/20 analysis: Apply the Pareto Principle by identifying the vital few. Determine the factors or inputs that contribute the most to the desired outcomes. Look for the 20% of causes that drive 80% of the effects. For example, if you're analysing customer data, identify the top 20% of customers who generate 80% of your revenue
4. Focus on the vital few: Once you have identified the critical factors, concentrate your efforts, resources, and attention on them. Allocate your time, energy, and resources in a way that maximizes the impact of the vital few. This could mean prioritizing your high-value customers, focusing on your most profitable products, or streamlining processes that contribute the most to your goals
5. Streamline or eliminate the trivial many: The Pareto Principle also highlights that a large portion of the causes or inputs may have a minimal impact on the outcomes. Identify the trivial many, the 80% of causes that contribute only 20% of the effects, and evaluate whether they are worth the investment. Streamline or eliminate nonessential tasks, customers, products, or processes that don't significantly contribute to your desired results
6. Regularly review and adapt: The Pareto Principle is not a one-time analysis but an ongoing process. Continuously monitor and review your data, outcomes, and resource allocation to ensure you are still focusing on the vital few. Market conditions, priorities, and other factors may change over time, so regularly reassess and adapt your strategies accordingly

 
By applying the Pareto Principle, you can optimize your efforts, resources, and decision-making to achieve more significant results with less wasted time and resources.
 
Alec McPhedran Chtd Fellow CIPD, Chtd Mngr CMI, MAC, MCMI  is the managing director of Skills Channel TV, a training company for talented creative people. He specialises in one to one coaching, facilitated learning, media training and team development. For further information, contact 0121 366 87 99 or visit www.skillschannel.tv.

Copyright © Alec McPhedran 2023