The pareto principle (Pareto’s law)

The Pareto 80/20 Rule is commonly used (and ignored at considerable cost) in many aspects of organizational and business management. It is helpful in specialised quality management such as six sigma, planning, decision-making, and general performance management.

The principle is extremely helpful in bringing swift and easy clarity to complex situations and problems, especially when deciding where to focus effort and resources.

The Pareto Principle (at a simple level) suggests that where two related data sets or groups exist (typically cause and effect, or input and output):

“80 percent of output is produced by 20 percent of input.”

or alternatively

“80 percent of outcomes are from 20 percent of causes”

or alternatively

“80 percent of contribution comes from 20 percent of the potential contribution available”

There is no definitive Pareto ‘quote’ as such - the above are my own simplified interpretations of Pareto’s 80-20 Rule. The Pareto Principle is a model or theory, and an extremely useful model at that. It has endless applications - in management, social study and demographics, all types of distribution analysis, and business and financial planning and evaluation.

In actual fact the Pareto Principle does not say that the 80:20 ratio applies to every situation, and neither is the model based on a ratio in which the two figures must add to make 100.

And even where a situation does contain a 80:20 correlation other ratios might be more significant, for example:

99:22 (illustrating that even greater concentration than 80:20 and therefore significance at the ‘top-end’) or
5:50 (ie, just 5% results or benefit coming from 50% of the input or causes or contributors, obviously indicating an enormous amount of ineffectual activity or content).
The reasons why 80:20 has become the ’standard’ are:

the 80-20 correlation was the first to be discovered
80-20 remains the most striking and commonly occurring ratio
and since its discovery, the 80:20 ratio has always been used as the name and basic illustration of the Pareto theory.
Here are some examples of Pareto’s Law as it applies to various situations. According to the Pareto Principle, it will generally the case (broadly - remember it’s a guide not a scientific certainty), that within any given scenario or system or organisation:

80 percent of results come from 20 percent of efforts
80 percent of activity will require 20 percent of resources
80 percent of usage is by 20 percent of users
80 percent of the difficulty in achieving something lies in 20 percent of the challenge
80 percent of revenue comes from 20 percent of customers
80 percent of problems come from 20 percent of causes
80 percent of profit comes from 20 percent of the product range
80 percent of complaints come from 20 percent of customers
80 percent of sales will come from 20 percent of sales people
80 percent of corporate pollution comes from 20 percent of corporations
80 percent of work absence is due to 20 percent of staff
80 percent of road traffic accidents are cause by 20 percent of drivers
80 percent of a restaurant’s turnover comes from 20 percent of its menu
80 percent of your time spent on this website will be spent on 20 percent of this website
and so on..