The Pareto principle or the 80/20 rule
The Pareto principle also known as 80/20 rule, is a theory that asserts that a critical situation can be solved by 80 percent, if used for 20% of the input. The principle does not require that all situations will have the exact ratio. In General, it is implied that a smaller number of input data solves the major part of the output results.
The principle is named after Italian economist Vilfredo Pareto (Vilfredo Pareto). In 1906 Signor Pareto noted that 20 percent of the population of Italy owned 80 percent of the country’s wealth. He suggested that this ratio might work for most spheres of human activity and thus to be a natural law.
In 40-ies of the last century the theory of the Pareto principle was developed by Dr. Joseph Juran (Dr. Joseph Juran), American electrical engineer, who is considered the founder of modern quality control systems. Dr. Juran suggested to call the 80/20 ratio the «the Pareto Principle». The application of this rule to business processes and quality systems helps to separate the «vital few» (20 percent) processes from the «useful many» (the other 80 percent).
Some examples of Pareto principle:
- 20 percent of employees produce 80 percent of results.
- 20 percent of the time the employee gives 80 percent of its effective operation.
- 20 percent of software errors cause 80% of failures in these programs.
- 20 percent of the company’s investments brings 80 percent of the investment income of the company.
The most frequently used application of the Pareto principle today is the Pareto chart. They illustrates the Pareto principle by mapping frequency of recurrence of events or processes with the assumption that 20 percent of the most common events have an 80% impact on the final results.