» The Pareto Principle - The 80/20 rule

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In 1906, Italian economist and sociologist, Vilfredo Pareto (sometimes misspelled Wilfredo, Alfredo, or Vilfred) created a mathematical formula to describe the uneven income distribution in Switzerland at that time, observing that eighty percent of the wealth was held by a mere twenty percent of the families.

80/20 Rule Universality

Further empirical studies for other time periods, for other countries, produced the stunning result that they all followed the same pattern. Later analysis of distributions in industry and nature has demonstrated that 80/20 Pareto distributions were very common in various fields and not exclusive to income distribution.

In the late 1940s, in his work, The Quality Control Handbook, Dr. Joseph M. Juran inaccurately attributed the discovery of this uneven weatlh distribution to Vilfredo Pareto (somtimes spelled Wilfredo, Vilfred, Wilfrido, or Alfredo Pareto). It was actually Joseph Juran's work which first recognized the applicability of the Pareto Principle within the context of inventory management. Recognizing and documenting this universal principle he called the "vital few and trivial many", Joseph Juran credited these findings to Pareto's work and thus it became known as 'The Pareto Principle'.

Because Pareto's initial discovery involved a distribution of 80% of wealth to 20% of families and it's inverse, the Pareto Principle is often called "The 80/20 rule". The 80/20 Rule means that in nearly all cases, a few (20 percent) are vital and many (80 percent) are trivial.

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Application

While misnamed, and however paraphrased, the Pareto Principle, Pareto's Law, the 80/20 rule, or the 80/20 principle, is a simple and effective management tool with wide business application. Applying this phenomenon when analyzing raw data by creating a Pareto Chart, or Pareto Diagram, generates valuable information that can easily guide management decisions. Ultimately, this allows us to focus on the vital few, rather than the trivial many, and focus effort where it will have the most impact or value.

You can apply the 80/20 rule to almost anything, from the science of management to marketing to the physical world.

Project Managers know that 20 percent of the work (the first 10 percent and the last 10 percent) consumes 80 percent of the time and resources.
80% of customer complaints are caused by 20% of our products or services.
20% of your marketing efforts generate 80% of your marketing results.
Only 20% of a meeting's duration results in 80% of its value.
80% of managerial pain and headaches are caused by 20% of the causes (cf: Root Cause).
20% of your products or projects or customers will generate 80% of your profitability.

Pareto's Principle, or the 80/20 Rule, should serve as a continual reminder to focus eighty percent of your effort on the twenty percent of your tasks that matter the most. Those 20 percent produce 80 percent of your results. Identify and focus on those vital few tasks to maximize your return on investment.

Spelling and Pronunciation

Vilfredo Pareto's family name "Pareto" is pronounced puh-RAY-toe, or pah-RAY-toe. And while his given name may be occasionally misspelled or misquoted as Wilfredo Pareto, Vilfredo Pereto, Vilfred Paretto, and even Alfredo Paredo, it is actually spelled Vilfredo Pareto.

The Pareto Principle - 80/20 rule

The Inception of the Pareto Principle

80/20 Rule Universality

Additional Resources

Application

Spelling and Pronunciation