80/20 Rule and Origins
What is 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 20 percent of the people owned 80 percent of the wealth. In the late 1940s, Dr. Joseph M. Juran inaccurately attributed the 80-20 Rule to Pareto, calling it Pareto’s Principle. While it may be misnamed, Pareto’s Principle or Pareto’s Law as it is sometimes called, can be a very effective tool to help you manage effectively. Pareto’s Principle is – The 80-20 Rule.
Were did the 80/20 Rule/Pareto Principle come from?
After Pareto made his observation and created his formula, many others observed similar phenomena in their own areas of expertise. Quality Management pioneer, Dr. Joseph Juran, working in the US in the 1930s and 40s recognized a universal principle he called the “Vital few and Trivial many” and reduced it to writing. In an early work, a lack of precision on Juran’s part made it appear that he was applying Pareto’s observations about economics to a broader body of work. The name Pareto’s Principle stuck, probably because it sounded better than Juran’s Principle. The result, Dr. Juran’s observation of the “vital few and trivial many”, the principle that 20 percent of something always are responsible for 80 percent of the results, became known as Pareto’s Principle or the 80-20 Rule.
What does the 80/20 Rule mean?
The 8020365 Rule means that in anything a few (20 percent) are Vital and many(80 percent) are Trivial. 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 defects causing 80 percent of the problems. Project Managers know that 20 percent of the work (the first 10 percent and the last 10 percent) consume 80 percent of your time and resources. You can apply the 80-20 Rule to almost anything, from the science of management to the physical world.
Example:1 Let’s compare your time to your money and show you the power of the Vital few and the results form the Trivial many. Benjamin Franklin did this on more than one occasion. To make this easy to understand the power of this principal, suppose you were to invest $1,000. You buy two investments and you put 8200 into investment A. and $200 into investment B. After a year or so you check up and find that your 800 in investment A. has earned you a profit of $200. Investment B. has only earned you a $800 return. What we are directing your attention to here is that each dollar invested in B. earned 400% ROI or 16 times more money than a similar dollar invested in A. One was a low payoff investment, the other by comparison a high payoff investment. Where do you wish you could have invested your $100,000 or even a million dollars.
Example:2 As a manager you become aware that 20 percent of your stock takes up 80 percent of your warehouse space and that 80 percent of your stock comes from 20 percent of your suppliers. You also notice that 80 percent of your sales will come from 20 percent of sales staff. Upon further review you find 20 percent of the staff have reported 80 percent of the production problems, but the top 20 percent of your staff will provide 80 percent of your production and satisfaction. You report your findings in a regular scheduled management meeting and soon afterwards you asked to the Presidents office for a private meeting to discuss your findings. Three months later you are given a new position and a raise. It works both ways.
How can the 80/20 Rule help you everyday?
The value of applying and understanding the Pareto Principle for a manager is that it reminds you to focus on the 20 percent that matters. Of the things you do during your day, only 20 percent really matter or are the vital few high payoff items. Those 20 percent produce 80 percent of your results. By identifying and focusing on those 20 percent, one can become a high payoff time manager. The 8020365 system does this automatically for you while learning to live life with balance in all areas of your life and reporting to you what requires attention and what requires less attention.
When the race of your life begins like it does for everyone everyday, remind yourself of the 20 percent you need to focus on and not the 80 percent. There will be times in your daily schedule where new 20 percent tasks and activities have to be added replacing previous older 20 percent tasks and items. Thus a pr- scheduled 20 percent has to be moved as a new task or appointment has been made. Naturally the prescheduled 20 percent has to slip to a less important 20 percent task, the objective here is to make sure you are focusing on all high payoff tasks and activities.
Apply the Pareto Principle to all you do, but use it wisely. Sign up for a 30-day free account today and begin to apply this principle. It’s a 20 percent high payoff item and its risk free.