Pareto Principle

The Pareto Principle describes that 80% of problems can be closed with 20% of the causes. This principle is named after Vilfredo Pareto who found out that 80% of Italy’s wealth belonged to 20% of the population.

With this in mind it is worth to have a look at it.

Let us start with an assumption, according to the Pareto Principle it allows us to assume that

• 20% of input creates 80% of the output

• 20% of customers create 80% of your revenue

• 20% of causes create 80% of failures

• 20% of your employees create 80% of sales

• and so on…

But before you run away now and think you have the answer hold a second. With the 80/20 rule you might tend to say that it always have to be 100 - it’s not. Make a deep analysis before making such statements! 20% of your employees can also make only 20% of sales or 60%. So before you fire 80% of your employees keep in mind that the Pareto Principle only gives you an idea on the distribution.

The whole idea behind it is that most things in life are not distributed evenly!

When we talk about value adding activities and the final product is 100% What is with all the necessary tasks, that are not adding any value to the final product but have to be done to run the company.

Or think about failures and finding the root cause, where to start to take actions? This is great when you think about a Failure Pareto and you want to satisfy your customer as quick as possible. Of course you are focusing first on the most failures and most of the time - not always - the other failures will disappear as well.

But most important of all, your customer gains trust in you that you have the competencies to do the job.

The key point is that most things are not in a 1/1 actio = reactio relationship.

So what can we use it for this 80/20 rule?
The Pareto Principle in first place supports you on realizing that most of the outcome are based on a minority of inputs. This means:

• 20% of input creates 80% of the output > try to reduce those non value adding activities

• 20% of customers create 80% of your revenue > install a key account manager that the customers knows he/she is important to your company > your customers success is your companies success

• 20% of causes create 80% of failures > Focus on fixing those failures first

• 20% of your employees create 80% of sales > get those employees a reward

We could continue on and on. To bring it to the point > focus on the 20% and not on everything at the same time.

Some examples that might help you for a better understanding:

• Instead of spending a whole night to prepare a presentation and thinking about where to start > focus on one topic and do it. You will get a feedback anyway during the pitch. This feedback gives you the chance to take it and improve it.

• Instead of focusing on one solution that might be the best and go through all the details. Make a list of three and go through the pros and cons with your colleagues that probably know the topic better anyway and based on their opinion make a decision with what to go on.

Maybe this examples are nuts for you but we want to emphasize that you should focus only on the important 20% and forget - for the moment - the other 80.

Last but not least - the Pareto Principle is not a law of nature it is a guideline to steer your focus and to save time on problem solving or simply getting your job done faster.