Pareto's law: bet on the right horse

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Pareto illustration
illustration Paret. The Pareto principle is an empirical phenomenon found in some areas: about 80% of the effects are the product of 20% of the causes.

Often I quote the Pareto principle, also known as Pareto's law, the 80-20 principle or law of 80-20, but one has me asked in a commentary to explain. This article is here to bring you more details. The Pareto principle is an empirical phenomenon found in some areas: about 80% of the effects are the product of 20% of the causes. It has been applied in areas very different as quality control. Often considered the phenomena for which this principle is verified following a particular form of Pareto distribution.

For Juran *, this principle of 'universal' value: 'the fact that the managerial problems are generally the same properties, make me consider the Pareto principle as a universal tool of analysis. ». And that guy was right, it presents concrete examples related to all functions of the company: stock management, sales, deliveries, malfunctions of production… and same management strategic management: "in preparing their ambitions, experienced managers know that only a few major elements are decisive. The rest will be processed at the same time as part of these elements. »

Know that it is in 1963 as the U.S. Department of commerce presented the Pareto principle in an article titled: "how manufacturing companies reduce their costs of distribution?

A lot of applications

If I introduce this principle is that he is important indeed 20% of the causes determine 80 results (see curve) and you will find a list application as long as an arm.

Pareto

  • Sales management: 80% of sales are carried out using 20% of the references presented. 20% of sales give 80% of the profits.
  • Customer management: 80% of the turnover is achieved by 20% of the customers. 80% of complaints come from 20% of customers
  • project management: 80% of accomplishment of a development requires 20% of the effort
  • production management: 20% of products represent 80% of the turnover. This allows to choose on what processes or process changes in priority
  • SEO – SEO: 20% of traffic comes from the main keywords of the head of the long tail. 80% of the secondary key words of the tail of the long tail.
  • Economy: 20% of the world population owns 80 percent of the wealth. 20% of the world's population takes advantage of 80% of the overall income of the planet. 20% of readers read 80% of books sold. 20% of the items weigh 80% of the total cost of the purchases.  20% of the taxable citizens generate 80% of the public Treasury.
  • Strategic management: 20% of the types of problems deserve a strategic analysis
  • Design: The most used functionalists (80% of the time) deserve the most attention, even if they are the most banal, while those that are little used (20% of the time) should be satisfied with less effort.
  • Ergonomics: 20% of the opportunities available to the user are used 80% of the time.
  • Risk analysis: focus on the small number of facts which generates as many consequences.
  • Critical analysis of a cost: 80% of the costs are 20% of the positions.
  • Production: with 20% effort the development is carried out at 80%; the finalization or completion of the project requires the maximum energy.
  • Resources management: 20% of the means to achieve the 80 percent of the targets.
  • Inventory management: 80% of its value consists of 20% of the items.
  • Financial management: 20% of the dashboard indicators provide 80% of the information on the financial market of the company.
  • 20% of the family names are carried by 80% of the inhabitants.
  • 20% of the words that you know enough to express yourself in 80% of cases.

History of the principle

It is an old principle that starts with Descartes and is formalized over time

1637 – Descartes (1596-1650) advised to focus initially on the most important things that will explain as much (discourse on the method to drive his reason and seek the truth in science).

1875 – Pareto observed that 20 percent of the population own 80 percent of the wealth in Italy. Publication in the "Giornale degli economisti" (note: the date is TBC 1895?).

 

1954 – Joseph Juran, quality control, adopted this term for the first time under the name of "Principle of Pareto".

1963 – The U.S. Department of Commerce, presents the Pareto principle in an article entitled: "" how manufacturing firms reduce their distribution costs? ".

 

Case of the organisation of the management

In terms of collective organisation of the work, the law of Pareto guest so managers (who spend 20% of their time to manager in general) to sort between what is really worth and the rest. Indeed, what good scatter when you know that only 20% of the causes will create 80% of the results (positive or negative)? As much focus on his core business, on what employees know to adequately, and delegate tasks where the company is not efficient.

At the individual level, the Pareto principle would start each day by the works which have the most positive impact to relegate incidental tasks in the late afternoon when it is less effective. Especially what failure of 80% work is done. Question how to disassociate the 20% and avoid scatter unnecessarily, because unlike logistics where the principle is more visible and quantifiable, managerial field is softer as science.

 

Logistics management

 

As mentioned previously, Pareto's law is a good application in the management of stocks, an example the parts necessary for future manufacturing. The principle is more visible, it is sufficient to identify the 20% of the quantity items that represent 80% of the total value of the stock to work on it.

 

Be aware that in the case of logistics, improvement of the Pareto law exists, the ABC method. Resources representing 70 to 80% of the turnover (CA) gathered in class A, contributing between 5-10% CA resources are in class C and class B gathers intermediate resources. Then just working class A and B to influence all the stock, while class C is almost negligible, but represents a significant share in volume of time. You have the ability to save a large part of the work by not working on the right horse.

 

Pareto as part of the performance

 

Apply the Pareto law and you do your job properly. Focus also on the remaining 20% and you will really succeed. In design (80% of the time) the most used features deserve the most attention, while those that are little used (20% of the time) should be satisfied with a less supported job. Do not rush through the basic function of the software to do advanced functions.

However conversely what is paradoxical it is often on the 20% of finishing that companies really stand.

 

This famous law has yet only indicative

It is clear that the 20 / 80 is only an indication. It can be 10 / 90 or 30 / 70 or all intermediate values. There is even a law similar, but much stronger, the 1% rule which can be seen in the Internet field.

 

 

Reciprocal

80% of accomplishment of a development requires 20% of the effort. The finalization requires 4 times more effort. This is so the details that require time. It is true in areas such as in construction, software etc. As they must necessarily be, finishes are a drain on time, but be aware that your products will stand out often each other due to the finish, even though 80% of their bases is common. It is for example true in the PC, a PC and a mac is the same hardware except one has A finishing and other finishing B and yet the price is very different to him.

Pareto distribution curve

Conclusion:

Never hesitate to use the Act to prioritize your actions, indeed work on the most important 20% will give you a lot of results, but after your efforts will be very important to earn just a bit more, is this worth it? Bet on the right horse that will bring you the big share of results

I would recommend

 

THE 80/20 PRINCIPLE DO MORE WITH LESS

 

* Joseph Moses Juran (24 December 1904, Brăila in Romania – February 28, 2008, United States) is an actor from design and global Portage of the overall quality.

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