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.

In business, startups, and enterprises,
80% of your sales come from 20% of your clients.
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

學歷 (education),權力 (power), 職位 (position), 業績 (performance results), 薪金 (salary/earning) are important and appear to follow the Pareto, hope you do well on each of them; but they are not everything.

一部高檔手機 (smart phone),70%的功能是沒用的;
一款高檔轎車 (high-end car),70%的速度是多餘的;
一幢豪華別墅 (luxury villa),70%的面積是空閒的;
一堆公務人員,70%是混飯吃的;
一所大學 (university)裡,70%的教授是扯淡的;
一大堆社會活動 (social activities),70%是無聊空虛的;
一屋子衣物用品,70%是閑置沒用的;
一輩子掙錢再多 (a lifetime of earning),70%是留給別人花的。

沒病也要體檢 (must do regular health check),
不渴也要喝水 (must drink water),
再煩也要想通 (must be able to see the big pictures),
有理也要讓人 (must give ways),
有權也要低調 (must be humble),
不疲勞也要休息 (must rest/sleep),
不富也要知足 (must be contented),
再忙也要鍛鍊 (must exercise)。

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.

See also:
the end of this email post
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.

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2 comments

  1. […] whom we saw on a bus ride after a #happyShopping. I think the key is to be selective and practice Pareto’s Law. I must acknowledge that I had garnered some inspirations via instagram, facebook, linkedin, […]

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  2. […] apply 80/20 rule to prioritize ruthlessly with #pandaTFBH […]

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