Pareto Principle

Pareto Principle

80% of the outcomes come from 20% of the action.

Everyone has that favorite shirt in their closest which they wear 80% of the time. This is the essence of Pareto Principle. The smart thing to identify is what 20% of things in life drive 80% of the results.

Definition

For many events, it can be shown that 80% of the effects come from 20% of the causes. Inputs are not directly relative to outputs. In business, 80% of revenue generally comes from 20% of the clients. This principle can help to show where to focus time and energy.

Deep Analysis

The Pareto Principle also known as the 80/20 is an incredible helpful mental model to add it to your toolbox. In a world where you are constantly bombarded with information, the Pareto Principle can help you make the right choices by shifting your focus and energy on tasks that would produce the most results.

Itʼs important to remember that there are only so many minutes in an hour, hours in a day, and days in a week. Pareto can help you see that this is a good thing; otherwise, you’d have a never-ending list of things to do. So, you must always ask — what 20% of your work can drive 80 % of the outcomes?

Vilfredo Damaso Pareto

The Pareto Principle was founded by Vilfredo Damaso Pareto, an Italian economist in 1896. Pareto, an amateur gardener, noticed one day that 20% of the pea plants generated 80% of the healthy pea pods. This observation led him to think about uneven distribution. He observed this same principle elsewhere. For example, he also realized in Italy where he lived, 80% of the land was owned by 20% of the people. He further investigated different industries and found that 80% of production typically came from 20% of the companies. This generalization became the Pareto Principle.

Not A Law

Let’s also clarify the limitations of the Pareto Principle. Limitations of Pareto Principle — while the 80/20 split is true for Pareto’s observation, that doesn’t necessarily mean that it always has to equal 100. For instance, 30 percent of employees (30 out of 100) can complete 60 percent of the total tasks. The remaining employees may not be as productive or may be slacking off on the job. This further reiterates that the Pareto Principle is merely an observation and not necessarily a law.

With any mental model, it is important not to over apply it. The biggest takeaway the Pareto principle provides is the idea that most things in life are not distributed evenly. While you should be seeking to invest your time in the highest output activities, the fact remains that for many things, you canʼt just do 20% of the work for 80% of the result. Sometimes you need to grind out the last 20% — even if you are suffering diminishing returns — to get the job done. Building 80% of a car isnʼt the best strategy, nor is completing 80% of your research paper.

Paretoʼs principle is a useful construct when analyzing efforts and outcomes. It can provide a useful framework for addressing many problems. It should be used liberally, but you should not forget that 20 percent is a general observation.

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