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13 Examples Of The Pareto Principle

        posted by , May 30, 2013

In 1906, Italian economist Vilfredo Pareto noted that 80% of Italy's land was owned by 20% of the people.

He became somewhat obsessed with this ratio, seeing it in everything. For example, he observed that 80% of the peas in his garden came from 20% of his pea plants.

The 80:20 ratio of cause-to-effect became known as the Pareto Principle.

Definition: Pareto Principle

Pareto principle is a prediction that 80% of effects come from 20% of causes.


The pareto principle has become a popular business maxim. It has been used to describe everything from economics to projects.

Common business examples of the pareto principle include:


Projects

  1. 80% of value is achieved with the first 20% of effort
    Project teams commonly report that a task is almost completed after a short time. A long time may pass after that before they report any further progress.

  2. 80% of project politics come from 20% of your stakeholders
    Political struggles often originate with a few of your stakeholders.


Program Management

  1. 80% of problems originate with 20% of projects
    Some projects are far more problematic than others.


Management

  1. 80% of work is completed by 20% of your team
    The observation that there is often a wide performance gap between your top performers and the rest of your team.


Technology

  1. 80% of software problems are caused by 20% of bugs
    The observation that most problems are caused by a handful of serious bugs.

  2. 80% of customers only use 20% of software features
    Most users don't use power features. In many cases, they find power features to be annoying (e.g. complex interfaces).


Sales & Marketing

  1. 80% of sales come from 20% of your clients
    Many businesses are dependent on their largest accounts.

  2. 80% of sales come from 20% of your products
    Product diversification may have limited impact on your business.

  3. 80% of sales come from 20% of your salespeople
    Killer salespeople aren't easy to find.

  4. 80% of your complaints come from 20% of your customers
    This is a commonly cited customer service rule of thumb.


Wealth Management

  1. 80% of wealth is owned by 20% of people
    Pareto's 1906 observation that 80% of Italy's wealth (land) was controlled by 20% of people has held up extremely well. Today, 20% of the world's population controls 82.7% of wealth.


General

  1. 80 percent of success is showing up
    ~ Woody Allen
    The idea that much of success is jumping through the hoops. It has a grain of truth to it. If you consider that "showing up" is 20% of effort — it's an example of the pareto principle.



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