Pareto's Law: 20/80

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:43

Pareto law (Pareto principle) is one of the most interesting and most frequently used formulas in practice. It is empirical (freely used in practice). The rule developed by the economist and sociologist Wilfred Pareto, also known as the 20/80 Pareto Law, is a formula: “20 percent of the effort provides 80 percent of the result, the remaining 20 percent of the result can be obtained by applying 80 percent of the effort.” The name was suggested by Joseph Juran. As a universal socio-economic principle, the Pareto Law was first used by the Englishman Richard Koch.

Most often this law is used to evaluate the effectiveness of someone's activities and optimize their results. It says that by choosing the right key levers, you can get the most of the result with minimal effort.

The Pareto chart clearly depicts the causes of problems that arise in the course of any activity and, accordingly, helps to eliminate them.

Practical application

For example, a service firm employs ten people. According to the Pareto principle, two out of tenemployees provide approximately 80% of the profits of the enterprise, and the remaining eight - only 20. If the organization is in a situation that requires staff reduction, the director should analyze the performance of each. With proper optimization, people from the eight, giving 20 percent of the result, should be reduced.

Pareto's law can be applied in various areas: 20% of restaurant visitors bring 80% of the restaurant's profit; 20% of the company's orders provide 80% of the total turnover, 20% of Internet resources are visited by 80% of users, and so on. The principle is also effective in political science and IT technologies (used to increase processor performance).

Conclusions following from the Pareto law

• Only 1/5 of the activity of an individual, a group of people or a firm is truly effective; the remaining 4/5 may be assigned to someone else or generally recognized as unnecessary.
• 80% of our actions will not give the desired results.
• There are hidden factors in any activity/process.
• Large-scale negative consequences are due to a small number of destructive factors.
• Great success comes from the high performance of only a small proportion of people or activities.
• There are very few really significant factors, and many side ones.

These conclusions can be applied in almost all spheres of human activity. Even in studies: in about 20% of the time, 80% of the material will be learned and vice versa.

Relativity of the principle

Naturally, the Pareto law is not a panacea, and this proportion is not universal. It is very rare for an 80/20 ratio to exactly match numerically with reality. There are 70/30 or 60/40 correlations. However, the state of affairs when 50 percent of the factors give 50 percent of the result is extremely rare. Circumstances affecting the result are unequal in almost one hundred percent of cases, and their number is much less than side effects.