3 June 2014

My Answer to ‘Please Explain the 80/20 Rule’

From Damien a couple of weeks ago, in response to one of my recent blog posts:

“I’m just wondering what’s meant by the 80/20 rule. It sounds quite interesting and good to keep in mind.”

I should know better than to assume the term is universally known – we all have a first time for new knowledge.  Thanks for asking, Damien.

In 1906 Vilfredo Pareto, an Italian economist, observed that 20% of the population in Italy owned 80% of the property. His discovery was later popularised by Joseph Juran, one of the pioneers of modern quality management. Basically, Juran and Pareto realised that:

20% of our activities will generate 80% of our results, while the remaining 80%

of our activities will only generate 20% of our results.

Juran, looking at the idea from his quality improvement focus, also noted that 80% of a problem is caused by 20% of the possible causes. Over time the concept became known as the 80/20 rule.

A Few Examples:

  1. For many businesses, typically 20% of their clients will be the source of 80% of their income. Conversely, 20% of their income will be generated by 80% of their clients.Don't be late
  2. Another angle – the clients who take 80% of ourtime will usually only generate no more than 20% of our profit.
  3. Consider your wardrobe. You probably wear 20% of your clothes 80% of the time. (Unless you’ve just had a clean out!)

Of course there are variations, and of course it doesn’t hold true all the time. In some cases the ratios are more like 90/10 or 70/30.

However, from the perspective of how we make time choices, it’s a really useful filter.

So How Does It Help Me Plan My Time?

Imagine if you will, what the impact would be if you spent 20% of your week (including those precious off-work hours) engaged in proactive actions – activities that would make a long-term difference to your life.

Just think – over a year, what difference would that make to your results?

You may be reading this and thinking, ‘That’s all very well for the business owners and managers, but my work is to support others. I’ve got very little control over what comes at me during a day, nor discretion about when it’s done.’

What about putting some of your personal time and money into learning new skills? If your present employer doesn’t recognise them, another will. Chances are very good that you’ll end up with higher pay. At the very least it makes you more marketable or better qualified to start your own business.

Many activities in our life can be impacted for the better by applying the Pareto Principle, more commonly known as the 80/20 rule.

What are your favourite applications of this concept?


4 thoughts on “My Answer to ‘Please Explain the 80/20 Rule’”

  1. Stafford Flood says:

    In any organisation 80% of the work is done by 20% of the staff.

  2. Naseem says:

    In my industry (the construction industry), 80% of disputes arise out of 20% of the clauses in a construction contract.

  3. Tony says:

    The math doesn’t exactly work out to a classic 4:1 ratio (80/20), however a common sales adage is that its 5 times as hard to win a new customer than to keep an existing customer. It is still an economic proposition, like Pareto offered. For the sake of another look at the 80/20 variant, I can go with a “4 times as hard to win a new customer than an existing one”. The point is the same: Hang on to those customers!

  4. Damien G says:

    Excellent Robyn. Thanks for the great post explaining what the 80/20 rule was all about.
    And yes, I can see it is very useful!

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