Pareto Law: 20/80

The Pareto law (Pareto principle) is one of the most interesting and most often used in practice formulas. It is empirical (freely used in practice). The rule developed by economist and sociologist Wilfred Pareto, also known as the Pareto Law 20/80, is a formula: "20 percent of the effort provides 80 percent of the result, the remaining 20 percent of the result can be obtained by applying 80 percent of the effort." This name was proposed by Joseph Juran. As a universal socio-economic principle, the Pareto Law was first used by the Englishman Richard Koch.

Most often, this law is used to evaluate the effectiveness of someone’s activity and optimize its results. He says that choosing the key levers of influence correctly, you can get most of the result with minimal effort.

The Pareto graph clearly illustrates the causes of problems that arise in the process of any activity and, accordingly, helps to eliminate them.

Practical use

For example, a service company employs ten people. According to the Pareto principle, two out of ten employees provide approximately 80% of the company's profits, and the remaining eight - only 20. If the organization is in conditions requiring staff reductions, the director should analyze the indicators of each. With proper optimization, people from the eight should be reduced, which gives 20 percent of the result.

Pareto law can be applied in various fields: 20% of restaurant visitors bring 80% of the profit to the institution; 20% of company orders provide 80% of the total turnover, 20% of Internet resources are visited by 80% of users and so on. The principle is also effective in political science and IT-technologies (used to increase processor performance).

Conclusions from the Pareto Law

• Only 1/5 of the activity of an individual, group of people or company is truly effective; the remaining 4/5 can be assigned to someone else or even considered unnecessary.
• 80% of our actions will not give the desired results.
• There are hidden factors in any activity / process.
• Large-scale negative consequences are due to a small number of destructive factors.
• Great success is ensured by the high productivity of only a small part of people or areas of activity.
• There are very few really significant factors, but many side ones.

These conclusions can be applied in almost all spheres of human activity. Even in study: in about 20% of the time, 80% of the material will be learned and vice versa.

Relativity of principle

Naturally, the Pareto law is not a panacea, and this proportion is not universal. Very rarely, the 80/20 ratio exactly matches the numerical ratio with reality. There are correlations of 70/30 or 60/40. However, the situation when 50 percent of the factors give 50 percent of the result is extremely rare. The circumstances affecting the result are almost unequal in almost a hundred percent of cases, and their number is much less than adverse ones.