First name / Friend, Today we want to discuss one of the most important tools for maximizing efficiency. The greatness of this tool is that any individual or organization can benefit from applying it. We are talking about The Pareto Principle. The Pareto Principle is also generally recognized as the “80/20 Rule”. According to Richard Koch, author of The 80/20 Principle, The Pareto Principle states that a minority of causes, or inputs, account for a majority of the output, effects, or rewards. In a nutshell, The 80/20 rule states that about 20% of causes produce about 80% of outcomes. This theory was developed in the late 1890s, by an Italian economist named Vilfredo Pareto. He observed a relationship between wealth and population in Italy. His calculations showed that 80% of the land in Italy was owned by just 20% of the population. He did similar surveys in other countries and found the same ratio. It was not till World War 2 when Japan began its economic and social reconstruction that the principle was heavily studied and copied by the Japanese. They applied to everything, and even used it in the inverse effect. Sometimes you can look at the most effective 20% and notice that it is responsible for 80% of the rewards. Sometimes, 20% of the inefficiency in a production line is responsible for 80% of the cost. Understanding this can lead to a shifting of focus onto the smallest percentage of people, products, or systems that produce the highest amount of rewards. This can also be used in your daily life. In implementing the rule in your life, keep these two overarching principles in mind:
- If 20% of causes/inputs/efforts create 80% of the good things in your life, increasing the amount of time/energy/attention you give to that 20% will have a disproportionately large effect on increasing the positive quotient in your life.
- If 20% of causes/inputs/efforts create 80% of the bad things in your life, minimizing the time/energy/attention you give to that 20% will have a disproportionately large effect on minimizing the negative quotient in your life.
So the next time you feel stuck or are finding difficulty in improving your efficiency, remember The Pareto Principle, or 80/20 Rule, in order to shift your focus towards the small, impactful production that is responsible for the majority of your rewards or cost.