How to apply The Pareto Principle or 80/20 Rule?

The Pareto Principle, named after Italian economist Vilfredo Pareto and promoted by Joseph M. Duran – a pioneer in quality management, is also known as the 80/20 Rule, the law of the vital few, and the principle of factor sparsity. The Pareto states that ~80% of the effects come from ~20% of the causes. It follows that one also has 80% of that top 80% of effects coming from 20% of that top 20% of causes, and so on. Yes, it’s iterative! The Pareto Principle is related to the Pareto distribution (the power law distribution).

Pareto observed that 80% of Italy’s land was owned by 20% of the population, and it seems also that 80% of wealth is owned by 20% of people. According to United Nations Development Program (1992), 1992 Human Development Report, New York: Oxford University Press, the richest 20% of the world’s population controlled 82.7% of the world’s income.

80% of a company’s profits come from 20% of its customers.
80% of a company’s complaints come from 20% of its customers.
80% of a company’s profits come from 20% of the time its staff spend.
80% of a company’s sales come from 20% of its products.
80% of a company’s sales are made by 20% of its sales staff.
20% of product defects causing 80% of product problems.
20% of work (usually the first 10% and the last 10%) consume 80 percent of the time and resources.
"20 percent of the code has 80 percent of the errors. Find them, fix them!" ~ Lowell Arthur

To apply the Pareto, we must

1. Embrace simplicity. Simplify our life. Live simply. 生活簡單明瞭，享受人生守住30％便好。
2. identify which 20% of your time produces 80% of your business’ or performance results, spend more time on those activities and less time on others.
3. identify the characteristics of the top 20% of your customers (who represent 80% of your sales), find more customers like them to dramatically grow your sales and profits
4. focus on the most effective areas and eliminate, ignore, automate, delegate or retrain the rest.
5. remind ourselves regularly of the critical 20% that we need to focus on, especially when resources (time, energy, \$, talent) are scarce. Work on the right things.
6. be aware of the iterative and exponential nature of the Pareto, e.g. identify top 4% of your customers who account for 64% of your sales.
7. use the Pareto Law for scouting and hiring talents.
8. remember to use it wisely, not in every situation. For example, by helping our "good" salespeople become better, we are more likely to reap greater results than by dedicating the same management effort to helping the fewer "great" salespeople (superstars) become terrific.

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20160105 via the maternal grandfather of Little Prince: 活得更久，遠比高、富、帥重要﹗請大家千萬要加強鍛鍊，注意身體健康。
20160125 ref2016/*baron* ~ a highly intellectual and organized Italian who has worked in 4 countries across multiple industries.