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13/03/2017 Understanding Pareto's Principle ­ The 80­20 Rule

Business Management and Leadership

Understanding Pareto's Principle - The 80-20 Rule


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Ghislain & Marie David de Lossy/GettyImages

By F. John Reh
Updated November 21, 2016

In 1906, Italian economist Vilfredo Pareto created a mathematical formula to describe the unequal distribution of wealth in his
country. Pareto observed that twenty percent of the people owned eighty percent of the wealth. In the late 1940s, quality guru,
Dr. Joseph M. Juran, attributed the 80/20 Rule to Pareto, calling it Pareto's Principle. Pareto's Principle or Pareto's Law is a useful
tool to help you prioritize and manage the work in your life.

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13/03/2017 Understanding Pareto's Principle ­ The 80­20 Rule

This article offers an overview of the rule and examples how it can help you improve your personal and professional productivity
and effectiveness.

What It Means:
The 80/20 Rule means that in any situation, 20 percent of the inputs or activities are responsible for 80 percent of the outcomes
or results. In Pareto's case, it meant 20 percent of the people owned 80 percent of the wealth. In Juran's initial work applying the
80/20 rule to quality studies, he identified 20 percent of the defects causing 80 percent of the problems. Project Managers know
that 20 percent of the work (the first 10 percent and the last 10 percent) consume 80 percent of the time and resources. 

Other examples you may have encountered:

• 80% of our revenues are generated by 20% of our customers.

• 80% of our complaints come from 20% of our customers. 

• 80% of our quality issues occur with 20% of our products. 

Or:

• 20% of our contributors provide 80% of our funding.

• 20% of our employees are responsible for 80% of sick days.

• 20% of my ideas generate 80% of my traffic on my blog.

There are a nearly unlimited number of examples that we tend to apply the 80/20 rule to in our personal and working lives. Most
of the time, we are referencing Pareto's Rule without applying rigorous mathematical analysis to the situation.
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We generalize about this 80/20 metric, but even with this sloppy math, the ratio is uncannily common in our world. 
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7 Areas the 80/20 Rule Can Help Your Productivity: 

1. If you scrutinize the items on your “To Do” list, chances are just a few of the items are tied to important issues. While we may
take satisfaction in crossing a large number of the smaller issues off our task lists, the 80/20 rule suggests we should focus on
the few, larger items that will generate the most significant results. The list might not grow much shorter, but you will be
practicing effective prioritization. 

2. In assessing risks for an upcoming project, not every risk carries equal significance. Select the top risks that pose the highest
potential for damage (given the probability of occurrence) and focus your monitoring and risk planning activities on those
items. Don’t ignore the others, however, distribute your focus proportionately. 

3. As a sales representative, work hard to understand the attributes of the 20 percent of your customers that make up the
majority of your revenues and invest your prospecting time on identifying and qualifying similar customers. 

4. Regularly evaluate the 80 percent of your customers that generate approximately 20 percent of your business and identify
opportunities to shed those customers for those that drive better results. Some managers and firms actively cull their customer
listings every few years, effectively firing the bottom performing customers. 

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13/03/2017 Understanding Pareto's Principle ­ The 80­20 Rule

5. If you work in customer support or a call center, look for the 80/20 distribution where 80 percent of your customer calls or
support issues are attributable to either 20 percent of your offerings or 20 percent of your total number of customers. For the
offerings generating all of the calls, focus on root cause analysis to identify quality or documentation issues, and then take
corrective action. For the high call volume customers strive to understand the reason for their calls and offer alternative
methods of obtaining answers. 

6. Entrepreneurs, soloists, and independent professionals should evaluate their workloads and assess whether the gross majority
of their time is spent chasing small value activities, including administrative work that is easily and inexpensively outsourced.

7. When evaluating your mid-year progress on your goals, focus on the few goals or activities that are most critical to your
development or success. Similar to the task list, not all duties and goals are created equal. 
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Practical Limits to the 80/20 Rule:


As we’ve explored, the 80/20 Rule has many applications in our work and personal lives. However, there are opportunities to
misapply this tool and make critical mistakes. 

• You should not focus on just the 20 percent of top performers on your team at the expense of the other 80 percent. You are
accountable for increasing the number of top performers as well as assessing and potentially eliminating those who are
consistently poor performers. 

• The 80/20 rule might suggest reducing the level of diversification you strive for with investments. Careful attention must be
paid to your overall portfolio mix and adjustments made if only 20 percent of your investments are driving 80 percent of the
results. 
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• While 20 percent of the time invested in a project through planning and execution might generate the majority of the results
or progress, you cannot afford to ignore the details of the initiative. 

The Bottom Line:

Heróis de verdade
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13/03/2017 Understanding Pareto's Principle ­ The 80­20 Rule
Heróis de verdade
num só lugar.
Pareto’s Principle or the 80/20 Rule is a useful construct when analyzing our efforts and outcomes. It is priceless when applied to
task or goal lists, and it provides a useful analytical framework for many problem situations. Use it liberally, but don’t accept it as
an absolute or you are likely to misstep. 
A SSI STA   A G O RA

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Updated by Art Petty

Business Management and Leadership

Time Management Secrets


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RUNSTUDIO/ Iconica/ Getty Images

By F. John Reh
Updated October 13, 2016

There is no one secret to time management. In fact, there are three time management secrets. They are easy to learn and
remember. The hard part is making yourself use them consistently. Do that, however, and you will master the time management
secrets and you will get more done - in your business and in your life.

The Three Secrets of Time Management


There are three key elements of time management. You have to focus first on using your limited amount of time on the most
important things.

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num só lugar.
A SSI STA   A G O RA

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You have to use that time efficiently. And you have to actually do those things instead of just talking or thinking about them.

Do The Right Things First


Perhaps the most important of the time management secrets is to do the right things first. It's easy to lose focus and spend a lot of
time on things that are urgent, but not important. The trick is to stay focused on the important things and not waste your limited
amount of time on anything else.

• The 80/20 Rule, also known as Pareto's Principle, says that 20 percent of something always are responsible for 80 percent of
the results. For example, twenty percent of the products will have eighty percent of the flaws. This article explains the rule in
more detail and tells how you can use it to more effectively manage time and many different aspects of your life.

• You can save time by knowing when to step in and when to hang back if an employee has a problem. Managers need to let
employees make their own mistakes so they can learn from them. We can train them and advise them, but actual experience is
often the best teacher. A good manager, therefore, will hang back and resist the impulse to jump in every time an employee
encounters difficulty.

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• One time you can't hang back is the difficult employee. Many managers struggle with managing difficult employees. You may
be tempted to not deal with them and hope the situation will get better on its own. It won't. These types of tasks will take less
time if you address them immediately instead of waiting and then having to spend more time on them later.

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