Pareto law or principle 20/80 - what is it?

Observant people bring immense benefit to the world when they share their conclusions based on their observations. Universal laws that can be applied in all spheres of life help a person achieve better results in personal and public activities. One such law is the Pareto law.

The Pareto principle, or principle 20/80

The Pareto rule is named after the Italian sociologist-economist Wilhelm Pareto. The scientist was engaged in studies of the flows of financial distribution in the society and the activities of production. As a result, he derived general patterns, reflected in the Pareto law, which was formulated after the death of the scientist by the American quality specialist Joseph Jurano in 1941.

The law of Wilhelm Pareto is an effective formula of 20/80, where 20% is spent effort in the chosen activity, yielding 80% of the result. While 80% of the effort is only 20%. The Pareto equilibrium was formed on the basis of his work on the "Theory of Elites" and was expressed in the principles he set out:

  1. Distribution of financial resources in the society: 80% of the total capital is concentrated in the ruling elite (elite), the remaining 20% ​​are distributed in the society.
  2. Only 20% of enterprises that receive 80% of their profits are successful and productive.

Pareto principle - time management

The success of a person depends on many factors, but the wise use of time is one of the key and important moments. Pareto's law in time planning helps with less effort to achieve impressive results and take control of significant areas of life. The Pareto optimality in time management will look like this:

  1. Only 20% of all completed tasks will give 80% of the result;
  2. In order to select these most important tasks that will bring an 80% "exhaust", it is necessary to make a list of cases and rank them in order of importance on a 10-point scale, where 10 will show the priority of the task, and 0-1 is of low importance.
  3. Equivalent tasks begin to perform with the one that requires less expenditure.

The Pareto law in life

In daily activities, a lot of routine activities and only 20% of them really enrich the sphere of human senses, give practical experience and bring effectiveness. A conscious view of one's life: connections with people, the space that surrounds, things and phenomena - will help to reconsider and isolate the unnecessary or to minimize everything that takes away energy and time. The Pareto principle in life:

  1. Self - development - most of the time to devote to the development of those skills that bring 80% benefit.
  2. Revenues - 20% of customers bring a high stable income, so it is advisable to give them attention and meet their needs.
  3. The space of the house - the Pareto effect is that a person uses only 20% of the things in the house, the rest are dusting in the closet or every time many unnecessary things are being bought that are cluttering up space. Planning a purchase, people spend less time on servicing these things.
  4. Finance - control helps to calculate what 20% of things, products spend 80% of the funds and determine where you can save.
  5. Relations - among relatives, acquaintances, colleagues, there are those 20% of people with whom there is more intensive communication .

The Pareto Principle in Economics

Efficiency or Pareto Optimum in the economic system is one of the most important concepts of the modern economy and contains the conclusion formulated by Pareto that the welfare of society is maximized in an economy where no one can improve their situation without worsening the welfare of others. Pareto - the optimal balance is achieved only if the necessary conditions are met:

  1. The benefits between consumers are distributed according to the maximum satisfaction of their needs (within the framework of citizens' ability to pay).
  2. Resources are placed between the production of goods in a ratio in which they are used as efficiently as possible.
  3. The products produced by enterprises should make full use of the resources provided.

The Pareto Principle in Management

The law of distribution of Pareto also acts in the administrative sphere. In large companies with numerous employees, it is easier to create an activity visibility than in small teams, where everyone is in sight. Those 20% of employees who value their jobs, strive to make a career - bring 80% of their income to production. Personnel specialists have long adopted the Pareto principle and reduce unnecessary employees, saving the company's expenses, but often this compulsory measure applies to valuable employees when the company experiences a production crisis.

The Pareto Principle in Sales

The Pareto rule in sales is one of the fundamental. Any businessman, top sales manager is trying to identify effective components of 20% of actions, conditions, partners, goods, which will make transactions, sales at the maximum level. Successful entrepreneurs have revealed the following Pareto patterns:

The Pareto principle in logistics

The Pareto method in logistics has proved its effectiveness in different areas, but in general it can be postulated as: attention focused on 10% - 20% of significant assortment positions, suppliers and customers in gives 80% of success with minimal costs. Aspects of logistics in which the Pareto principle is applied:

What helps determine the Pareto chart?

Pareto's theory can be expressed in two kinds of diagrams, which, as an instrument, are applicable in economics, business, and technologies in production:

  1. Pareto's performance graph - helps identify key problems and undesirable results
  2. The Pareto chart for reasons is the isolation of the main causes for which problems arose in the course of activities.

How to build a Pareto chart?

The Pareto chart is easy to use, but it allows you to get an appraisal of activities and make decisions to eliminate ineffective actions. Building a chart is based on the rules:

  1. The choice of the problem, which must be thoroughly investigated.
  2. Prepare a form for data logging
  3. In order of decreasing importance, rank the received data on the problem being checked.
  4. Preparing the axis for the chart. On the left axis of ordinates, the number of factors studied (for example from 1-10), where the upper limit of the scale corresponds to the number of problems, is postponed. The right axis of the ordinate is a scale from 10 - 100% - an indicator of the percentage measure of problems or unfavorable signs. The abscissa axis is divided into intervals corresponding to the number of factors studied.
  5. Drawing a diagram. The height of the columns on the left-hand scale is equal to the frequency of the manifestation of the control problems, and the columns are constructed in order of decreasing significance of the factors.
  6. The Pareto curve is constructed on the basis of a diagram - this broken line connects the total points that are placed above the corresponding column, oriented to its right side.
  7. The notation is entered on the diagram.
  8. Analysis of the Pareto diagram.

An example of a diagram showing Pareto unevenness and showing which goods are more profitable: