Discovered in 1906, the Pareto Principle continues to fascinate economists and mathematicians with the frequency of the 80/20 ratio in all areas of life.
The 80/20 rule seems to pop up everywhere, but what makes this ratio so special? We see it used in various different contexts, from politics to health and safety, science, software and sports; but most commonly, we see the Pareto Principle appear over and over again in business.
Our team has discussed the significance of the 80/20 ratio on many occasions. The most recent one? A discussion about web design during a webinar with Luke Summerfield from HubSpot at the latest HubSpot User Group: Johannesburg. After the webinar, I decided to take a trip down the rabbit hole and see what else I could find out about this fascinating number.
Curiouser and curiouser!” Cried Alice (she was so much surprised, that for the moment she quite forgot how to speak good English). ― Lewis Carroll, Alice's Adventures in Wonderland
In the late 1800’s, Vilfredo Pareto, an Italian economist, became interested in the distribution of wealth amongst the Italian population. Upon investigation he found that 80% of the country’s land was owned by a mere 20% of the population. He performed further investigation into the wealth distribution in other countries and, to his surprise, Vilfredo found the same 80/20 ratio applied. This phenomenon became known mathematically as Pareto Distribution, but is more simply described as the Pareto Principle.
You’ll come across the Pareto Principle in various forms in business, such as:
At its core, the 80/20 rule explains the phenomenon whereby approximately 80% of effects are derived from 20% of causes.
As a productivity tool, the 80/20 rule suggests that we focus our time and energy on the 20% which will deliver 80% of our results. The following three applications of the Pareto Principle can be used to boost your team’s productivity:
1. The Pareto Principle and your to-do list
If your diary looks anything like mine, and you have deadlines coming out of your ears, you can use the Pareto Principle to simplify your to-do list.
The Awesome Life, a motivational YouTube channel, shared a great video explaining how the 80/20 rule can revolutionise the way you tackle your workload. By identifying the which tasks fall into the most urgent 20%, you can focus 80% of your effort during your day on completing these tasks. This means that even if you don’t get to the other 80% of your list, you’ve ticked off the most important items.
If you’d like to improve your time management skills even further, you can read my previous post on the Pomodoro Technique. By combining the Pomodoro Technique with the Pareto Principle, you’re bound to see an improvement in the number of tasks you’re able to complete in a shorter, more productive period of time. The best part of getting your time management under control is that you’ll quickly see your stress levels decrease, leaving you more time to enjoy the things you love.
2. The Pareto Principle and problem solving
Another way you can apply the Pareto Principle, is to conduct a Pareto Analysis to assist with problem solving. A Pareto analysis is used to identify which issues are causing you the most problems.
There are four steps to a Pareto Analysis:
Analyse cause and effects: During this step you will need to clearly define the problem and brainstorm a list of possible causes. This step is commonly referred to as a root cause analysis.
Assign a score to each possible cause: During this step you need to score each possible cause relative to its impact on the problem at hand. For example, if the problem is that your staff are constantly missing deadlines, you could list each possible cause by the amount of time it wastes. Your list could look something like this:
- No internet: 10 minutes
- Computer crashes: 8 minutes
- Bathroom breaks: 5 minutes
- Phone calls: 120 minutes
- Social media: 12 minutes
- Broken elevator: 6 minutes
- Meetings: 180 minutes
- Coffee breaks: 15 minutes
- Errands: 20 minutes
- Office distractions: 20 minutes
Create a Pareto chart: It’s fairly easy to see that, in the example above, phone calls and meetings are the leading causes of time delays. This means that you should start by focusing on minimising the length and frequency of meetings and phone calls in order to free up time to work on meeting deadlines more efficiently. If you’re working on a more complex problem, you would create a pie chart to help you determine the top 20% of the causes.
Translate the chart into a Pareto Graph: The final step is to turn your chart into a graph which can be presented to the business’ decision makers (this step is optional).
Image source: Envato
3. The Pareto Principle and overall productivity for profitabilityDuring Luke’s webinar, he explained that we should use the Pareto Principle when designing our websites in order to increase our ROI for our client. We can see consistent value throughout the GDD methodology implementation. By identifying which pages on our website are most likely to add value for users (and ultimately drive conversions), we can focus our efforts on perfecting those pages first, before moving on to less important areas on the website.
This principle should be applied across all areas of business. We need to identify which activities fall into the 20% that produce 80% of the value for both client and agency in terms of income and ROI. Once we have pinpointed the critical 20%, we can then focus our time, energy and resources on those activities.
Applying the Pareto Principle to your goals or tasks can provide an excellent framework to work from, but remember that it’s a guideline and not an exact science. The 80/20 rule is a great yardstick for how we should be analysing efforts and outcomes, and should be included as part of a holistic strategy when looking to improve your company’s performance.
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We’d love to know what other examples of the Pareto Principle can you think of, let us know in the comments!