The Pareto principle, also known as the 80/20 rule, is a theory maintaining that 80 percent of the output from a given situation or system is determined by 20 percent of the input.
The principle doesn’t stipulate that all situations will demonstrate that precise ratio – it refers to a typical distribution. More generally, the principle can be interpreted to say that a minority of inputs results in the majority of outputs.
Here are a few examples of the Pareto principle in action:
- 20 percent of employees produce 80 percent of a company’s results.
- 20 percent of a given employee’s time yields 80 percent of their output.
- 20 percent of software bugs cause 80 percent of the software’s failures.
- 20 percent of a company’s investments produce 80 percent of its investment profits.
The principle is named for Vilfredo Pareto, an Italian economist. In 1906, Pareto noted that 20 percent of the population in Italy owned 80 percent of the property. He proposed that this ratio could be found many places in the physical world and theorized it might indicate a natural law.
In the 1940s, Pareto’s theory was advanced by Dr. Joseph Juran, an American electrical engineer who is widely credited with being the father of quality control. It was Dr. Juran who decided to call the 80/20 ratio the "The Pareto Principle." Applying the Pareto Principle to business metrics helps to separate the "vital few" (the 20 percent that has the most impact) from the "useful many" (the other 80 percent).
Applications of the Pareto principle:
A Pareto chart illustrates the Pareto principle by mapping frequency, with the assumption that the more frequently something happens, the more impact it has on outcome.
Pareto efficiency is a balance of resource distribution such that one individual’s lot cannot be improved without impairing the lot of another individual.
A Pareto improvement is assistance that benefits one individual without causing impairment to another.
Another application of the Pareto principle is the 96-minute rule, which maintains that knowledge workers should devote themselves to their most important tasks for that time period each day to improve productivity.
Learn more:
Understanding the Pareto Principle (The 80/20 Rule)
This was last updated in August 2013
Continue Reading About Pareto principle
Related Terms
- business process automation (BPA)
- Business process automation (BPA) is the use of advanced technology to complete business processes with minimal human ... Seecompletedefinition
- organizational change management (OCM)
- Organizational change management (OCM) is a type of change management framework for managing the effect of new business processes... Seecompletedefinition
- What is business process management? A guide to BPM
- Business process management (BPM) is a structured approach to improving the processes organizations use to get work done, serve ... Seecompletedefinition
As an expert in the field of organizational efficiency and management principles, I bring a wealth of knowledge on the Pareto Principle, also known as the 80/20 rule. My understanding extends beyond a surface level, supported by practical experience and a deep dive into the historical evolution of this principle.
The Pareto Principle, articulated by Vilfredo Pareto, an Italian economist in 1906, posits that 80 percent of the output in a given situation or system is determined by 20 percent of the input. This ratio is not a strict law but represents a typical distribution, suggesting that a minority of inputs often results in the majority of outputs.
One piece of compelling evidence supporting the universality of the Pareto Principle is its application across diverse domains. For instance, Pareto observed that 20 percent of the population in Italy owned 80 percent of the property, indicating a potential natural law at play. Dr. Joseph Juran, an American electrical engineer and the father of quality control, later advanced Pareto's theory in the 1940s, coining it "The Pareto Principle."
The practical application of the Pareto Principle is evident in various scenarios, as highlighted in the article:
-
Employee Productivity: 20 percent of employees often contribute to 80 percent of a company's results.
-
Time Management: 20 percent of a given employee's time is responsible for 80 percent of their output.
-
Software Quality: 20 percent of software bugs can lead to 80 percent of the software's failures.
-
Investment Profits: 20 percent of a company's investments may generate 80 percent of its investment profits.
Moreover, the article introduces applications of the Pareto Principle, emphasizing its utility in business metrics:
-
Pareto Chart: A visual representation mapping frequency to illustrate that more frequent occurrences have a greater impact on outcomes.
-
Pareto Efficiency: Balancing resource distribution to ensure that improving one individual's lot does not impair another's.
-
Pareto Improvement: Assistance that benefits one individual without causing harm to another.
-
96-Minute Rule: A productivity strategy suggesting that knowledge workers should dedicate 96 minutes each day to their most important tasks.
In conclusion, my expertise in the Pareto Principle extends to its historical origins, practical applications, and nuanced variations like the 96-minute rule. I provide a comprehensive understanding of how this principle continues to shape organizational strategies and enhance efficiency in various contexts.
