Many people do not know that the Pareto Principle itself is not part of science. Pareto. He was the first to discover this pattern, calculating that 80% of all wealth in Italy belongs to 20% of the people. There is also a story in which Pareto, working in a garden, noticed that 80% of peas are contained in 20% of pea pods before making the global calculation. It is difficult to say whether this is true or not, but, anyway, the truth interested him, and in the process of further development and comparison of data, the economist came to the conclusion that a similar trend of wealth distribution persisted in different historical eras, regardless of the state system. Having gathered evidence, the scientist never provided a theoretical justification for his discovery, and it was temporarily forgotten.
In 1941, J. J. Juran, an American business management consultant, came across a rule of distribution in Pareto’s work that intrigued him. After comparing the data with his applications, he became convinced of the principle’s effectiveness and named it after the Italian scientist. The name “20/80” became popular thanks to Koch’s book “The 20/80 Principle: Secrets of Achieving Better Results with Less Effort,” first published in 1997 and then translated into 34 languages.
Let’s get to the theoretical essence of the Pareto Principle: a small percentage of causes, resources expended, or effort expended leads to a larger percentage of results, outcomes, or rewards received. The more familiar understanding, according to Wikipedia authors, is that “20% of effort produces 80% of the result, while the other 80% of effort produces only 20% of the result.”
This follows from the definition:
- Significant factors are few and trivial factors are many – only single actions produce important results;
- Most efforts do not produce the desired results;
- What we see is not always true – there are always hidden factors;
- What we expect to get as a result is usually different from what we get (latent forces are always at work);
- It is usually too difficult and tedious to figure out what is happening, and often it is not necessary – you just need to know if your idea is working or not, change it to make it work, and then maintain the situation until the idea stops working;
- Most successful events are due to the action of a small number of highly productive forces; most troubles are due to the action of a small number of destructive forces;
Most actions, group or individual, are a waste of time. They do not produce anything real to achieve the desired result.
The Pareto Principle is a rule of thumb. In other words, its truth can be proven in practice.
It finds its application in many fields. But bearing in mind that by correctly selecting 20% of necessary actions, you can achieve 80% of the desired result, it is worth bearing in mind that subsequent efforts may not bring results at all. This idea is illustrated by the Pareto curve (taken from Esquire).
It should be remembered that the distribution and numbers 80 and 20 cannot be considered unconditionally accurate because they represent a mnemonic rule, rather than a specific truth. It is used in economics, management, political science, time management, and for self-development.
Modern economic science also gives an important place to the definition of the Pareto optimum, with which the first and second welfare theorems are inextricably linked. At the optimum, the welfare of society reaches the maximum, and the distribution of resources becomes optimal if any change in this distribution worsens the welfare of at least one subject of the economic system. Read more on Wikipedia.
It should be noted that the 80/20 rule, also called Zipf’s law or the power law, does not always work. Armed with school knowledge of calculating percentages and Forbes magazine, we can see that the first three of the 100 richest people on the planet (B. Gates, C. Slim, and A. Ortega) together have as much money as the next seven people in the top ten. Even correcting for the fact that the Pareto principle does not always perfectly fit the 80/20 framework, but strives for it, there is a mismatch. If you take the first ten, their income is also equal to the income of the next 40 people. The numerical equivalent is as follows: 20% = 50%, 80% = 50%. Again a violation of the Pareto principle. The actual distribution of the contribution of more and fewer factors in real life can be anything, it is not necessarily equal to 80/20.
The 80/20 Law: Applications and Examples
Why is the Pareto Principle so important? We used to think that in any business it is not a single factor that matters, but the complex. That in business you have to take care of every customer. That every call is equally important. There can be many explanations for this – from instilled at school knowledge of arithmetic mean and Newton’s third law to acquired in the course of life logical attitudes. This does not make them unnecessary; the scope of the Pareto principle is specific. It points us to the fact that when we analyze two sets of cause-and-effect data, we will not necessarily get a balance at the end. Nor will we necessarily get an 80/20 distribution, as was shown above. This is very valuable knowledge, but we need to understand when and where to apply it.
As with the peas on the bed of W. Pareto, the pattern he discovered shows up in a variety of areas, from science to everyday life. Perhaps one of the most famous examples used to illustrate the Pareto principle is the 1960 presidential campaign in the United States. R. Nixon spent the last months of the election race in constant travel because he made a rash promise to visit all the states, even such sparsely populated ones as Haiti. His rival, J. Kennedy, on the contrary, concentrated on appearances in the few most populous states. He later won.
The 80/20 law was successfully applied by IBM. In the early 1960s, its engineers identified the 20 percent of tasks that were used in 80 percent of computer use. The algorithm was changed, and the most popular calculations became much easier, more convenient, and most importantly – faster. This had the result that IBM leaving its competitors far behind.
But let’s leave the practice of large companies, based on the application of the 80/20 law, aside and consider how it can be of use to a particular person. Without exaggeration, the Pareto principle comes in handy in life to anyone who practices time management and is concerned with increasing efficiency, both personal and business. Speaking of making a to-do list, we wrote that it is best to allocate no more than 10 tasks per day, of which 2 are global ones that require the main attention. When recalculated as a percentage, it is clear that this condition is a variation of the 80/20 theory.
If you have multiple jobs and types of income other than passive income, focus on no more than two of them. These should be the ones that bring you the most profit. Try to increase your productivity in them by getting rid of other, inefficient activities. Such an attitude should be followed in your own business, paying attention to the main aspects, and delegating secondary tasks.
The development of stress resistance will help to increase work capacity and, in general, have a positive impact on life. Psychologists found out that 20% of stressful situations cause 80% of all worries and concerns. Learn to avoid them or at least minimize the negative impact.
Unfortunately, the Pareto principle does not give a clue as to which 20% of things we should focus on to achieve 80% of the results. It only indicates that they are, but everyone should determine them himself, based on many factors: the specifics of his profession, employment, and interests. We wish you success in defining them!