Pareto Principle
The Pareto principle, also known as the “80/20 rule”, is a tool used to identify events that are distributed imbalancedly, whereby the majority of a certain result is determined by a relatively small portion of the causes. The principle, named after Vilfredo Pareto, an Italian economist who first observed the phenomenon in 1896, states that roughly 80% of the effects come from only 20% of the causes.
The Pareto Principle is a versatile tool which can be used in a wide range of situations, from ballroom dance to business. In its original economics form, Pareto observed the principle applied to unequal wealth distribution. He noted that 80% of the wealth in its society was held by only 20% of the population. Although this ratio is not exact, the principle has been found to be generally true for many variates, such as land ownership, childrens performance in school, customer complaints, spending habits, and more. The core notion of the Pareto principle provides simple insight- forcing individuals to dedicate resources towards the causes that produce the greatest results, instead of spending effort and resources on the causes that produce minimal results, yet take up more time.
The Pareto Principle can also be applied to business. Businesses are meant to optimize their resources to maximize value, since all businesses work on limited resources and time. By applying the Pareto Principle in business, an organization can focus its resources and efforts towards activities that will produce larger, more meaningful results. Utilizing the Pareto Principle, a business can identify the small number of activities that are creating the majority of its desired outcomes. These activities should receive the majority of attention and resources.
The Pareto Principle is also applicable to personal and professional relationships. This can especially be useful in times of conflict, when a conclusion needs to be reached. By applying the Pareto Principle, one can identify which small portion of the differences are most important and focus resources on resolving them. For example, if a group of individuals are negotiating amongst each other, applying the Pareto Principle can help them identify which issues are worth fighting for and which are not.
The Pareto Principle is a valuable tool for harnessing change and for improving systems and processes. By recognizing the imbalanced distribution of results, the principle encourages individuals and organizations to focus their resources on the activities that are most likely to produce the greater results, rather than on those that will have a smaller impact. Although the Pareto Principle is not perfect, it serves as an important reminder to dedicate resources towards the causes that are most likely to yield the greatest effects.
