Pareto Principle

The Pareto Principle, also known as the 80/20 rule, is a concept that suggests that in many situations, roughly 80% of outcomes come from 20% of causes. Named after Italian economist Vilfredo Pareto, who observed that 80% of Italy’s land was owned by 20% of the population, the principle has since been applied widely in business, economics, quality control, and time management.

 

Uses of the Pareto Principle

The Pareto Principle is a useful tool in project management, business strategy, and productivity.

• Prioritization: Helps identify the most important tasks or issues to focus on that will yield the greatest results.
• Problem Solving: Used in quality management to pinpoint the few causes responsible for the majority of defects or problems.
• Resource Allocation: Assists in allocating time, money, or effort where it matters most.
• Decision Making: Supports better and more focused decision-making by highlighting high-impact areas.

Simple Example

Imagine you run a small online store and you notice that 80% of your sales come from just 20% of your products. By identifying and focusing on these top-performing products, you can optimize inventory, marketing, and customer service to boost profits more effectively.