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80/20 Rule

Partners' Network Blog

The Pareto Principle known as the 80/20 rule was developed by Vilfredo Pareto (1848 – 1923) an Italian economist. It is a simple rule that says that 80% of the benefits, value or outputs are created by 20% of the contributors, efforts or inputs.

I suppose some compulsive mathematicians will try to prove that 80% is not an exact number as I am sure it isn’t, but the idea is that a small number of contributors create major numbers of the wealth.

The Pareto Principle is well proven and has stood the test of time both before Vilfredo and certainly afterward.  Understanding this principle can be an enormous benefit when planning activities and how you will spend your time.  Too many of us do too many of what we can easily and handily complete and dispose of to cross off our to-do list, but many times the benefits do not match our efforts.  And, many times we can re-channel our efforts understanding that small shifts in our focus can result in greater successes in our workday.

The theory that the top 20% of the people have 80% of the wealth; 20% of the customers result in 80% of the sales or profits; 20% of salespeople bring in 80% of the new business; 20% of employees account for 80% of the absenteeism, expenses or supervisors’ time; 20% of meeting attendees will create 80% of the questions, comments, digressions or meeting hijacking; or 20% of voters can determine the electoral college voting results.  Whatever the illustration, we need to concentrate our inputs with the awareness that it is likely 80% of what we do will not compensate us properly for what we are putting in.

An example is when tackling a long to-do list, it is probable that 20% of the items will result in 80% of benefits, or contrarily 80% of the items will only result in 20% of the benefits.  Smart managers will discern the 20% that will create the 80% and pass over 80% on the list, no matter how easy and comfortable they are to get done.  If we look at the big picture, not performing any of the 80% will usually not unduly cause harm while concentrating on the 20% will result in inordinate benefits compared to 80%.

The Pareto Principle, Parkinson’s Law, MBWA, and myriad other theories are techniques, tools and buzz words that prod or lead us toward accomplishing our big-picture goals.  Being aware of them is useless unless they are utilized.

Do not hesitate to contact me with any business or financial questions at emendlowitz@withum.com or fill out the form below.

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