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Pareto Principle

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by

Jerri Hargrove

on 1 June 2015

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Transcript of Pareto Principle

History
Pareto Principle
Group 1 | Project 2
Morgan Jensen
Jerri Hargrove
Esteban Segura-Ramirez

A.K.A.
80/20 Rule
Law of the Vital Few
Principle of Factor Sparsity
80% of the consequences arise from 20% of the causes.
The Pareto Distribution
Quite Simply...
20% of the input creates 80% of the result
Mathematical Formula
initially derived from Economics
Juan Juran applied Pareto's ideas to other fields and called the idea, the Pareto Principle.
Where It Came From?
Joseph Juran identified it in the 1940s and erroneously attributed it to Pareto after applying Pareto's ideas to other disciplines.
How It Can Help You?
Juran noted that 20% of the unit was important and 80% were virtually irrelevant.
Manage This Issue
Juan Juarn identified that project managers and employees should focus 20% of their work will occupy them 80% of the time. The other 20% of the time they will be consumed with more minor tasks.
What Does It Mean?
Pareto's meaning:
Very few people in Italy held most of the country's wealth.
General meaning:
Juan Juran found that this can be applied to other areas. He identified the more concrete equation of 80/20 and attributed it to Pareto.
20% of causes
80% of effects
80%
20%
20% of the features cause 80% of the usage
20% of the bugs cause 80% of the crashes
20% of the customers create 80% of the revenue
20% of the workers produce 80% of the result
Do Not confuse with: 80+20=100
The Pareto Principle is meant to acknowledge that most things in life are not distributed evenly.
http://betterexplained.com/articles/understanding-the-pareto-principle-the-8020-rule/

Reh, F. J. (n.d.)
Pareto's principle-The 80/20 rule.
About Money. Retrieved from: http://management.about.com/cs/generalmanagement/a/Pareto081202.htm

Var, Charles. "Top 5 Ways the Pareto Principle Can Improve Your
Business- Trackvia Blog." Rise of the Citizen Developer.
N.p., Oct 2012. Web. 30 May 2015.
References:
Vilferdo Pareto discovered a mathematical relationship regarding unequal wealth
Explanation
Using The Pareto Principle in Business:
Increased Productivity
Increased Profitability
Website Optimization
Identify & Fix Problems
Improve Customer Service
Increased Profitability
Can be utilized to determine whether you need to focus your effort on 20% of staff that produce most of sales or 80% of employees that struggle to bring in sales
80% of traffic lands on 20% of your website pages
Identify & Fix Problems
A Pareto chart is useful for prioritizing problems to determine which issues have greatest effect on an outcome
Increased Productivity
Improve Customer
Service
Managers can untilize this rule to establish 20% of causes that result in 80% of unproductivity to resolve issues causing unproductivity
Teaches employees to not waste time on the 'trival many,' but to focus resources on the 'vital few'
Website Optimization
Indicates small % of total amount of customers that produce majority of revenue
Allows you to optimize how traffic flows through your website to ensure that it is straight forward for viewers to access critical pages
Marketing efforts on website can show 20% of marketing strategies bring in 80% of results
Pinpoints issues affecting sales, productivity and overall success of the business
Easy to focus attention on areas to improve the business
Utilizing this rule will identify which customer service staff is associated to the majority of customer complaints
Focus on altering the way this group is interacting with customers
Proper analysis of which products/services are causing problems for the business can sort out customer service issues
Full transcript