Do you Use the Pareto Principle Effectively?

 

ParetoThis week we are examining the Pareto Principle or the 80/20 rule. The principle was named after Italian economist Vilfredo Pareto, who in 1906 noticed that 80% of the land in Italy was owned by 20% of the people. In the 1940s Joseph Juran recognized a similar trend in production which he called ‘the vital few and the trivial many’ whereby 80% of the imperfections in products were a direct result of a much smaller 20% of defects. This idea of ‘the vital few and trivial many’ or the 80/20 rule, became known as the Pareto Principle. Juran later became a management consultant and applied the principle to the workforce noting that 20% of the staff was responsible for 80% of the work.

Today, the principle is applied in many areas and almost always proves itself to be true. If we apply it to specific regions of business we find examples like:

  • 80% of the space in our warehouse is taken up by products from only 20% of our distributors
  • 20% of our shareholders hold 80% of our shares
  • 80% of the problems we encounter in the work place originate from 20% of our staff
  • 20% of our board of directors are responsible for 80% of our policies
  • 80% of our sales are generated by 20% of our sales force
  • 20% of our customers are responsible for 80% of our customer complaints.

When applied to daily life we note observations such as:

  • 80% of the meals we make come from 20% of our recipes
  • We wear 20% of the clothes in our closets 80% of the time
  • We use 20% of our possessions 80% of the time

So, how do we apply this rule to our own work to achieve maximum productivity? If 20% of our efforts are responsible for 80% of our returns then it stands to reason that we would benefit from focusing more on that 20%. The idea seems simple in theory but it can be daunting to know how and where to apply it in our daily lives. An easy way to narrow it down is to make lists because they help put things into perspective. For example, make a list of the tasks or projects you need to complete and decide which are the most important. If there are ten things on your list, prioritize it so that the top two most important items are numbers 1 and 2. This is not to say that the other 8 items aren’t important but it does suggest that they aren’t as important as the top two and that they may be contributing to the 80% of your time that is less productive. Making a list also helps to narrow down what tasks make up the ‘vital few’ and what tasks make up the ‘trivial many’. It is helpful to make lists in other areas of your business such as clients, customers, staff, distributors, advertising, etc.

Another example of how to apply the Pareto Principle is when 80% of our business comes from 20% of our clients. When we notice a pattern like this we should implement ways to focus more heavily on those clients that fall within the 20% and reduce the amount of time and energy invest in those which fall into the 80%. These clients in the 80% category are still valued but because they don’t bring in as much business they shouldn’t take up as much time. Try delegating the handling of their business to someone else in your organization to free yourself up for your larger clients.

In the case where 80% of your complaints are coming from 20% of your clients, it would be beneficial to cross-reference your list of complainants with your list of clients who bring in the most business. By doing this you prioritize the complaints based on the importance of the clients.

The Pareto Principle is a valuable tool that can help you identify where to focus your energies and prioritize your time more effectively. It should also help you to better delegate tasks to your subordinates. Remember, 80% of the work is being done by 20% of the staff.

Let us know what you think!

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