Use to identify where you need to concentrate your efforts to maximise results.
The Pareto Principle is possibly the single most useful theory that a manager can know about. Why? Because it can be used to reduce significantly a manager’s workload and is applicable in a huge range of circumstances.
The principle was devised by the Italian economist Vilfredo Pareto. He first used it to demonstrate that 80% of the wealth in Italy was owned by 20% of the population. Joseph Juran, the quality guru (see Theory 78), stumbled across his work and helped to popularise its use.
It was quickly found that the 80/20 split could be applied to a vast array of social and business situations. For example, 80% of an organisation’s sales are made to 20% of its customers and 80% of the labour problems in an organisation are caused by 20% of the workers.
This theory of ‘the vital few and the trivial many’ does not pretend to be a precise measure of any phenomenon. The split may be 70/30 or 90/10. It’s a rule of thumb that can be applied to a wide range of questions relating to staff, products, resources, customers and suppliers, but the precise split will differ from instance to instance.
The following are just a few examples of how you might use the Pareto Principle.