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HomeNovember 2016 Issue 121

VIVA VILFREDO PARETO!

VIVA VILFREDO PARETO!

Why? Well he’s the fella the ‘Pareto principle’ is named after. And what is that? I hear you asking. Well, get ready for some earth-shattering news. Known as the ‘law of the vital few’, the ‘principle of factor sparsity’ or the good old ‘80/20 rule’ is best explained as follows: for most things about 80 per cent of the effects come from 20 per cent of the causes. Now, old matey Pareto (economist in the late 19th Century) first observed this in his garden when 80 per cent of his peas came from 20 per cent of his pods. He then researched that 80 per cent of Italy’s land was owned by 20 per cent of the people. Wikipedia also illuminates that a study released in 1992 into the distribution of global wealth showed the richest 20 per cent of people owned 80 per cent of the worlds wealth. So basically the ‘Pareto principle’ can be applied to most things that you do. In business for example:

  • 80% of problems can be attributed to 20% of causes
  • 80% of a company’s profits come from 20% of its customers
  • 80% of a company’s complaints come from 20% of its customers
  • 80% of a company’s profits come from 20% of the time its staff spent
  • 80% of a company’s revenue comes from 20% of its products
  • 80% of a company’s sales are made by 20% of its sales staff (Living Life the 80/20 Way by Richard Koch).

So, in theory, if you can work out the 20 per cent of input that is giving you the 80 per cent of output you can focus on that and life will be sweet. Ah, if only it was that easy. For example, if you ditch 80 per cent of your clients to focus on the 20 per cent. Then you are putting all your eggs in a few baskets and if you lose a couple to a sneaky fox then that old 80/20 rule is going to bite you in the … Anyway you know what I mean.

Tim Benson, Publisher
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