The Pareto Principle, also known as the 80/20 rule, states that for many events or situations approximately 80% of the effects come from 20% of the causes. The principle was first postulated by Vilfredo Pareto in 1906 when he noticed that a small number of the population owned a large percentage of the wealth.
The 80/20 Rule can be applied to almost anything, from science and management to the physical world around us. For example, 80% of your sales may come from 20% of your customers or 20% of your employees may take up 80% of your time.
By adopting the Pareto rule the important few tasks can be separated from the trivial many to focus attention on the key value ating activities. 80% of your time and energy should be focussed on the 20% of your work that is really important.
To begin using the Pareto principle the following suggestions will help:
Identify your key metrics for your products, processes and customers
Convert the measures into Pareto charts
A Pareto chart consists of individual values in descending order in the form of a bar chart
Determine what percentage of the products, processes and customers are contributing to the value of the organisation
Reduce, remove or isolate the low value elements of your products, processes and customers
The Pareto Principle is an easy tool to apply in your organisation, however, it involves some arbitrary decision-making to determine the 20% cut-off, which is more of an art than a science. The Pareto Principle has the potential to identify the more important activities within the organisation thereby providing clarity and focus.
Are you currently focusing on the high value-added activities in your organisation or are you getting overwhelmed with large numbers of trivial activities?
Dr John Kapeleris